Smt. Indumati Sanghvi, Indore V. The Assistant Commissioner of Income Tax 4(1), Indore

ITA 431/IND/2010

• Counselvise Citation: 43122714 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 24-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.431/IND/2010 A.YS.2007-08 SMT. INDUMATI SANGHVI L/H OF LATE JAYANTILAL SANGHVI INDORE PAN ALMPS-5315H ... APPELLANT VS ASSTT. COMMISSIONER OF INCOME TAX 1(1), INDORE ... RESPONDENT APPELLANT BY : SHRI PRAKASH JAIN DEPARTMENT BY : SHRI ARUN DEWAN DATE OF HEARING : 19.9.2011 DATE OF PRONOUNCEMENT : 17.10.2011 O R D E R PER JOGINDER SINGH 2 THIS APPEAL IS BY THE ASSESSEE AGAINST THE O RDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DATED 25.3.2010 ON THE GROUND THAT THE IMPUGNED ORDER IS BASED ON INCORRECT INTERPRETATION OF LAW AND THE FACTS HAVE ALSO BEEN INCORRECTLY CONSTRUED. CONSEQUENTLY, THE LEARNED CO MMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADD ITION OF RS. 5,84,900/- MADE ON ACCOUNT OF CESSATION OF TRADING LIABILITY U/S 41(1) OF THE ACT. 2. DURING HEARING OF THIS APPEAL, WE HAVE HEARD SH RI PRAKASH JAIN, LD. COUNSEL FOR ASSESSEE AND SHRI AR UN DEWAN, LEARNED SERNIOR DR. MR. JAIN ADVANCED HIS ARGUMENTS WHICH ARE IDENTICAL TO THE GROUND RAISED BY FURTHER SUBMI TTING THAT THE AMOUNT WAS BORROWED FOR BUSINESS NEEDS WHICH WAS NO T CONTROVERTED EITHER BY THE ASSESSING OFFICER OR THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). OUR ATTENTION WAS INVITED TO PARA 3.8 PAGE 3 OF THE ORDER. IT WAS PL EADED THAT THE ASSESSING OFFICER DID NOT CONTROVERT THE FACT THAT THE ASSESSEE DID NOT DEBIT THE IMPUGNED AMOUNT IN THE PROFIT AND LOSS ACCOUNT. RELIANCE WAS PLACED ON THE DECISIONS IN T HE CASE OF 3 MAHINDRA & MAHINDRA LIMITED V. CIT; 261 ITR 501 (BO M), CIT VS. NATHUBHAI DESABHAI; 123 ITR 238 AND STEEL & GEN ERAL MILLS LIMITED; 96 ITR 438. ON THE OTHER HAND, THE LEARNED SENIOR DR DEFENDED THE IMPUGNED ORDER. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON FILE. BRIEF FACT S OF THE CASE ARE THAT SHRI JAYANTILAL SANGHVI WAS PROPRIETOR OF M/S KUMAR ENGINEERS OFFSET DIVISION AND ALSO A PARTNER IN M/S JAYANTILAL SANGHVI & SONS. THE AMOUNT OF RS.5,84,000/- WAS AD DED BY THE ASSESSING OFFICER, WHICH WAS SHOWN AS DUE TO M/ S SALACCIA IMPACTS PVT.LTD. ON ACCOUNT OF CESSATION OF TRADING LIABILITY. THE ADDITION WAS MADE ON THE GROUND THAT THE ASSESSEE C OULD NOT PRODUCE ANY CONFIRMATION LETTER. CONSEQUENTLY, THE PROVISIONS OF SECTION 41(1) WERE INVOKED. ON APPEAL, THE IMPU GNED ADDITION WAS UPHELD WHICH IS UNDER CHALLENGE BEFORE THE TRIBUNAL. NOW THE QUESTION ARISES WHETHER SECTION 41(1) OF THE ACT WAS CORRECT INVOKED. WE ARE OF THE VIEW THAT B EFORE SECTION 41(1) IS INVOKED, CERTAIN CONDITIONS HAVE TO BE SAT ISFIED LIKE 4 (I) IN RESPECT OF ASSESSMENT OF AN ASSESSEE, AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT O F ANY LOSS, EXPENDITURE OR TRADING LIABILITY INCURR ED BY HIM. (II) SUBSEQUENTLY A BENEFIT IS OBTAINED IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATIO N THEREOF DURING THE YEAR IN WHICH SUCH EVENT OCCUR RED. (III) IN THAT SITUATION,THE VALUE OF THE BENEFIT A CCURING TO THE ASSESSEE IS DEEMED TO BE PROFITS AND GAINS OF THE ASSESSEE WHICH OTHERWISE WOULD NOT BE HIS INCOME. (IV) SUCH VALUE OF THE BENEFIT IS MADE CHARGEABLE TO INCOME TAX AS THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH BENEFIT WAS OBTAINED, MEANING THEREBY IT MUST BE PROVED THAT ALLOWANCE OR DEDUCTION IS GIV EN IN EARLIER YEAR. 4. SECTION 41(1) INTRODUCES A FICTION WHICH IS IND IVISIBLE ONE. UNLESS IT IS PROVED THAT AN ALLOWANCE OF DEDU CTION HAS BEEN MADE IN ANY PREVIOUS YEAR, IT IS NOT OPEN TO T HE 5 DEPARTMENT TO REFER TO SECTION 41(1) FOR CHARGING T AX ON RECEIPT BY THE ASSESSEE BY REFUND OR OTHERWISE OF SUCH EXPE NDITURE IN A SUBSEQUENT YEAR. THE ASSESSEE IS FORTIFIED BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT V. NATHOBHAI DESABHAI (SUPRA) AND THE DECISION OF HON' BLE BOMBAY HIGH COURT IN MAHINDRA & MAHINDRA VS. CIT; 2 61 ITR 501 (BOM) AND THE DECISION OF THE TRIBUNAL IN THE C ASE OF BUSYMAN OFFSET PRINTERS PRIVATE LIMITED V. ACIT; IT A NO. 31/IND/2008. THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY EVIDENCE THAT THE IMPUGNED AMOUNT WAS NOT DEBIT ED TO PROFIT AND LOSS ACCOUNT. THEREFORE, THIS APPEAL OF THE ASSESSEE HAS TO BE ALLOWED. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. (R.C.SHARMA) (JOGINDER SI NGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 17.10.2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE DN/-