ROHIT A JANI, MUMBAI V. ITO 21(1)(4), MUMBAI

ITA 4466/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7417 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2004-2005
• Appeal Filed On: 27-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Assessee Lawyers: REEPAL TRASHAWALA
• Keywords: Unexplained cash credit
• Section: 68; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B: MUMBAI BEFORE SHRI J. SUDHAKAR REDDY (AM) AND SHRI R.S. PADVEKAR (JM) ITA NO. 4466/MUM/2009 (ASSTT. YEAR : 2004-05) SHRI ROHIT A JANI APPELLANT 34 OM SHIVAM PRESIDENCY SOCIETY, JVPD SCHEME, VILE PARLE (W) MUMBAI 400 056 PAN : AAGPJ5367B V/S. INCOME TAX OFFICER 21(1)(4), MUMBAI RESPONDEN T APPELLANT BY : SHRI REEPAL TRASHAWALA RESPONDENT BY : SHRI T.T. JACOB : O R D E R : PER R.S. PADVEKAR, J.M IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE IM PUGNED ORDER OF THE LD CIT(A)- XXI, MUMBAI DATED 22.01.2007 FOR THE A .Y. 2004-05. 2. GROUND NO. 1 READS AS UNDER : 1. IN LAW AND AS PER THE FACTS AND CIRCUMSTANCES O F THE APPELLANTS CASE, THE HONBLE CIT(A) HAS ERRED IN DISALLOWANCE OF 10% OF THE EXPENSES INCURRED IN THE BUSINESS, ESPECIALLY WHEN IN HIS CONSIDERED OPINION THE APPELLANT HAS BEEN PREVENTED BY REASONA BLE CAUSE, FROM SUBMITTING THE EVIDENCES AS THE SAME WERE DESTROYED IN A NATURAL CALAMITY. FURTHER, SUBSEQUENT IN REMAND PROCEEDING S THE APPELLANT HAD PRODUCED THE BANK STATEMENT AS WELL AS RELEVANT LED GER ACCOUNTS FOR VERIFICATION. THUS, THERE CAN BE NO AD-HOC DISALLOW ANCE OF ANY EXPENSES INCURRED FOR THE BUSINESS. ITA NO. 4466/MUM/2009 2 3. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 2004-05 IN WHICH THE ASSESSEE HAD DECLARED THE LOSS OF RS. 4,30,64 2/-. ALONG WITH THE RETURN, THE ASSESSEE FILED ONLY COMBINED PROFIT & LOSS ACCO UNT IN RESPECT OF TWO PROPRIETARY CONCERNS NAMELY M/S. FIDILITY INVESTMEN T & FINANCE CORPORATION AND M/S. ALLIED CORPORATION. THE A.O ASKED THE ASS ESSEES REPRESENTATIVE TO FURNISH COMPLETE DETAILS REGARDING SHARE TRANSACTI ONS LIKE OPENING STOCK, PURCHASES, SALES, CLOSING STOCK OF SHARES ETC., TH E A.O ALSO ASKED THE ASSESSEE TO SUBMIT THE DETAILS OF THE EXPENSES DEBI TED TO PROFIT & LOSS ACCOUNT IN RESPECT OF BOTH THE PROPRIETARY CONCERNS. THE A SSESSEE DID NOT GIVE ANY DETAILS BEFORE THE A.O EXCEPT STATING THE NATURE OF HIS BUSINESS ACTIVITY. THE A.O MADE THE ENTIRE DISALLOWANCE OF THE BUSINESS LO SS CLAIMED BY THE ASSESSEE OF RS.4,30,642/-. THE ASSESSEE CHALLENGED THE ACTI ON OF THE A.O FOR DISALLOWING THE BUSINESS LOSS BEFORE THE CIT(A). B EFORE THE LD CIT(A), THE ASSESSEE SUBMITTED THE COPY OF THE BANK STATEMENT O F HSBC BANK FOR ALLIED CORPORATION AND M/S. FIDILITY INVESTMENT & FINANCE CORPORATION ALONG WITH THE BANK BOOK AND RELEVANT LEDGER COPIES OF INCOME. TH E LD CIT(A) FORWARDED THE SAME TO THE A.O FOR VERIFICATION AND ASKED FOR THE A.OS REPORT. IT APPEARS THAT THE A.O MADE VERIFICATION AND FURNISHED THE RE PORT TO THE LD CIT(A), PART OF WHICH IS PRODUCED AS PAGE NO.3 OF THE LD CIT(A) S ORDER. THE A.O STATED THAT THE ASSESSEES CASE HAS NOT BEEN SCRUTINIZED B EFORE THE A.Y. 2004-05, AS PER THE RECORD OF THE OFFICE. IT IS FURTHER REPORT ED BY THE A.O THAT THE ASSESSEE HAS NOT PRODUCED ANY SUPPORTING BILLS FOR EXPENSES/ PURCHASES BUT ONLY THE BANK STATEMENTS WERE PRODUCED. AFTER CONSIDERING T HE TOTALITY OF THE FACTS, THE LD CIT(A) CAME TO THE CONCLUSION THAT THERE IS NO MATERIAL/EVIDENCE TO REACH THE FINDING THAT THE LOSS SHOWN HAS BEEN INCU RRED BY THE ASSESSEE IN BOTH HIS PROPRIETARY CONCERNS IS NOT GENUINE. HE F URTHER HELD THAT SINCE THE ASSESSEE COULD NOT PRODUCE ANY SUPPORTING BILLS/VOU CHERS BEFORE THE A.O DESPITE GIVING THE REASONABLE TIME, THE ADDITION T O THE EXTENT OF 10% OF THE TOTAL LOSS CLAIMED BY THE ASSESSEE IS SUSTAINED ON ACCOUNT OF LACK OF VERIFICATION. 4. WE HAVE HEARD THE LD COUNSEL AS WELL AS THE LD D .R. THE LD COUNSEL REITERATED HIS ARGUMENT WHICH WAS MADE BEFORE THE LD CIT(A). THE ONLY CONTENTION OF THE LD COUNSEL IS THAT DUE TO FLOODS, THE ASSESSEE COULD NOT ITA NO. 4466/MUM/2009 3 PRODUCE ANY EVIDENCE. IN OUR OPINION, THE APPROAC H OF THE LD CIT(A) IS VERY MUCH REASONABLE AS THE BURDEN IS ON THE ASSESSEE T O PROVE THAT HE, IN FACT, INCURRED THE EXPENSES TO SUCH EXTENT DUE TO WHICH, HE HAS TO SUSTAIN A LOSS. IN OUR OPINION, NO INTERFERENCE IS CALLED FOR IN TH E ORDER OF THE LD CIT(A) ON THIS ISSUE. WE ACCORDINGLY CONFIRM THE SAME AND DI SMISS THE GROUND NO.1. 5. THE GROUND NO. 2 IS IN RESPECT OF THE ADDITION M ADE U/S. 41(1) ON THE REASON OF CESSATION OF THE LIABILITY IN RESPECT OF M/S. BEE VIJAY & CO., M/S. BIPICHAND & CO. AND M/S. MEENAXI MEDICO. AS OBSERV ED BY THE A.O IN THE ASSESSMENT ORDER, THE ASSESSEE HAD SHOWN THE SUNDRY CREDITORS IN RESPECT OF THE EIGHT PARTIES WHICH DETAILS ARE GIVEN BY THE A .O ON PAGE NO. 4 OF HIS ORDER AND TOTAL AMOUNT OF THE OUTSTANDING LIABILITY WAS S HOWN AT RS. 18,62,446/-. THE A.O MADE THE ADDITION OF THE ENTIRE AMOUNT OF R S. 18,62,446/- BY COMING TO THE CONCLUSION THAT THERE WAS A CESSATION OF THE LIABILITY AND HENCE, THE ENTIRE SUNDRY CREDITORS SHOWN IN THE BALANCE-SHEET ARE TO BE TREATED AS UNEXPLAINED CASH CREDIT U/S. 69 OF THE ACT. IN RES PECT OF THREE SUNDRY CREDITORS, NAMELY M/S. MEENAXI MEDICO, BEE VIJAY & CO. AND M/S. BIPICHAND & CO., THE LD CIT(A) WAS OF THE OPINION THAT THE OU T STANDING BALANCES IN RESPECT OF THE ABOVE THREE PARTIES ARE TO BE TREATE D AS AN INCOME U/S. 41(1) OF THE ACT. THE ARGUMENT OF THE LD COUNSEL IS THAT TH E ASSESSEE HAS NOT WRITTEN OF THE SAID OUTSTANDING LIABILITY IN THE BOOKS OF A CCOUNT. IT IS ARGUED THAT UNLESS AND UNTIL THE ASSESSEE EITHER UNILATERALLY OR BILATERALLY WRITE BACK THE LIABILITY IN THE BOOKS OF ACCOUNT, NO ADDITION IS S USTAINABLE U/S. 41(1) OF THE ACT. THE LD COUNSEL RELIED ON THE FOLLOWING PRECED ENTS : I) DSA ENGINEERS (BOMBAY) V/S. ITO, 30 SOT 31 (MU M) II) SHRI VARDHAMAN OVERSEAS LTD. V/S. ACIT, 24 SOT 393 (DEL) 6. PER CONTRA, THE LD D.R. SUPPORTED THE ORDER OF T HE LD CIT(A). THE CONTROVERSY IS IN RESPECT OF THE THREE SUNDRY CRED ITORS WHICH WERE SHOWN IN THE BALANCE SHEET AS AN OUTSTANDING LIABILITY. INI TIALLY, THE A.O MADE THE ADDITION U/S. 68 OF THE ACT, BUT BEFORE THE LD CIT( A), HE WAS OF THE OPINION ITA NO. 4466/MUM/2009 4 THAT THE ADDITION U/S. 68 CANNOT BE MADE BUT IN RES PECT OF THE ABOVE THREE PARTIES, THE ADDITIONS SHOULD BE MADE U/S. 41(1) OF THE ACT. 7. IN THE CASE OF DSA ENGINEERS (BOM) (SUPRA), THE TRIBUNAL WHILE EXPLAINING THE SCOPE OF SECTION 41(1) HELD AS UNDER : 9. FROM THE RIVAL POSITIONS OF BOTH THE PARTIES AS WELL AS THE PROVISIONS OF SECTION 41(1) AND THE LEGAL PROPOSITI ONS OF VARIOUS JUDICIAL FORA, THE FOLLOWING ISSUES HAVE EMERGED. THEY ARE : (A) THE ISSUE OF LIMITATION OF PERIOD OF THREE YEARS; (B) THE ISSUE OF DISCHARGE OF ONUS, WHEN THE ASSESSEE HAS NOT UNILATERALLY WRITTEN THEM OFF; (C) THE ISSUE OF UNILATERAL WRITE OFF FOR THE ASSESSMENTS OF THE POS T AMENDMENT PERIOD, I.E., 1-4-1997. WE SHALL PROCEED TO ANALYSE ONE BY ONE IN THE SUCCEEDING PARAGRAPHS. (A) REGARDING THE ISSUE LIMITATION OF THREE YEARS, IT IS NOTICED THAT THERE IS NO SUCH LIMITATION PROVIDED IN SECTIO N 41(1) OR ITS EXPLANATION 1. MOST PROBABLY, THE REVENUE HAS CONS IDERED THE PERIOD OF THREE YEARS AS REASONABLE DURATION FOR DE CIDING THE CESSATION OF LIABILITIES ON AD HOC BASIS. OTHERWI SE THE REVENUE ORDERS DO NOT CONTAIN ANY RATIONALE IN SUPPORT OF S UCH PERIOD. DELHI BENCH DECISION IN THE CASE OF DY. CIT V. HIMA LAYA REFRIGERATION & AIR CONDITIONING CO. (P) LTD. [2003 ] 91 TTJ (DELHI) 296 IS FOUND RELEVANT IN THIS REGARD AND THE SAID ORDER CONCLUDED BY STATING THAT IN THE ABSENCE OF ANY EVIDENCE OF C ESSATION OF LIABILITIES, MERE FACT THAT THE LIABILITIES WERE O UTSTANDING FOR MORE THAN THREE YEARS AND WERE TIME BARRED, WAS NOT SUFF ICIENT GROUND FOR ADDITION UNDER SECTION 41(1) OF THE ACT. FURTH ER, THE AHMEDABAD BENCH OF THE TRIBUNAL HELD IN THE CASE OF NEW COMMERCIAL MILLS CO. LTD. V. DY.CIT[2001] 73 TTJ (A HD.) 893 THAT IN THE ABSENCE OF COGENT REASON AND MATERIAL TO COM E TO CONCLUSION THAT THE LIABILITIES OUTSTANDING FOR TEN TO FIFTEEN YEARS HAVE CEASED IN THE YEAR UNDER CONSIDERATION AND THE SAME CANNOT BE CHARGED TO TAX UNDER SECTION 41(1). FURTHER, TH E MUMBAI BENCH HELD IN THE CASE OF THOMAS COOK (INDIA) LTD. V. DY./JT. CIT [2006] 103 ITD 119 THAT THE AMOUNTS IN THE UNCLAIME D BALANCES ACCOUNTS AND SUSPENSE ACCOUNTS, WHICH HAD BECOME TI ME BARRED AND UNILATERALLY WRITTEN BACK BY THE ASSESSEE ARE N OT CHARGEABLE TO TAX AS THERE WAS NO CESSATION OF LIABILITIES. T HUS, IN THE LIGHT OF THE ABOVE, IF THE REVENUES PROPOSAL IS FAVOURED BY US, IT WILL EFFECTIVELY AMOUNTS TO SUPPORTING A PROPOSITION THA T ALL THE UNCLAIMED LIABILITIES, WHICH ARE REFLECTED IN THE B OOKS FOR THE PERIOD LONGER THAN THREE YEARS CASE, SHALL BE THE D EEMED PROFITS OF THE ASSESSEE UNDER SECTION 41(1) OF THE ACT AND THIS VIEW DOES NOT HAVE THE SUPPORT OF THE INCOME-TAX ACT. AS SUC H THE LIMITATION OF TIME IS NOT A DETERMINING FACTOR IN THE MATTERS RELATING TO REMISSION OR CESSATION OF LIABILITIES, THE VIEW SUPPORTED BY THE APEX COURTS JUDGMENT IN THE CASE OF KESARIA TEA CO. LTD. (SUPRA). THIS JUDGMENT IN THE CASE OF KESARIA TEA ITA NO. 4466/MUM/2009 5 CO. LTD.(SUPRA) WAS DELIVERED AFTER THE FOLLOWING T HE APEX COURT JUDGMENT IN THE CASE OF CIT V. SUGAULI SUGAR WORKS (P.) LTD. [1999] 236 ITR 518 AND AFTER DISTINGUISHING THE JUD GMENT IN THE CASE OF CIT V. T.V. SUNDARAM IYANGAR & SONS LTD. [1 996] 222 ITR 344(SC). (B) REGARDING THE ISSUE OF DISCHARGING OF THE ONUS, IT IS NOTICED THAT THE PROVISIONS OF SECTION 41(1) PROVIDES FOR C HARGING OF CERTAIN BENEFITS, WHICH ARE OBTAINED BY THE ASSESSE E IN AN YEAR AS DEEMED PROFITS. UNDER THE CIRCUMSTANCES, WHERE THE ASSESSEE DISPUTES THE OBTAINING OF THE BENEFITS, THE ASSESSI NG OFFICER IS UNDER STATUTORY OBLIGATION TO ESTABLISH THE SAME B Y GATHERING EVIDENCES IN FAVOUR OF SUCH ACCRUAL OF BENEFITS. FURTHER, WHEN THE ASSESSEE CONTINUES TO REFLECT OR RECORD THE LI ABILITIES AS STILL PAYABLE TO THE CREDITORS AND ASSESSEE DECIDED TO N OT TO WRITE THEM UNILATERALLY, THE ASSESSING OFFICER HAS HIGHER LEVELS OF RESPONSIBILITY AND HENCE, HE HAS TO ESTABLISH WITH EVIDENCE THAT THE SAID BOOK ENTRIES ARE WRONG OR NOT BONA FIDE AN D THUS, THE ASSESSING OFFICER IS UNDER THE OBLIGATION TO DISCHA RGE THE ONUS IN THIS REGARD. THIS VIEW IS SUPPORTED BY THE DECISIO NS OF THE TRIBUNAL IN THE CASES OF SHRI VARDHMAN OVERSEAS LTD . V. ASSTT. CIT[2008] 24 SOT 393 (DELHI) AND UTTAM AIR PRODUCT S (P.) LTD. V. DY. CIT[2006] 99 TTJ (DELHI) 718 RELIED ON BY TH E ASSESSEE AND SAID DECISIONS CONTAIN ARE RELEVANT FOR THE PRO POSITION THAT THE ONUS IS ON THE REVENUE TO PROVE THAT THE LIABIL ITIES HAVE CEASED FINALLY AND THERE IS NO POSSIBILITY OF THEIR REVIVAL. (C) REGARDING THE ISSUE OF UNILATERAL WRITE OFF FO R THE ASSESSMENTS OF THE POST AMENDMENT PERIOD, I.E., 1-4 -1997, IT IS NOTICED THAT THE EXPLANATION 1 WAS BROUGHT INTO STA TUTE BY THE FINANCE (NO 2) ACT, 196 WITH EFFECT FROM 1-4-1997. THE JUDGMENTS OF APEX COURTS JUDGMENT IN THE CASE OF K ESARIA TEA CO. LTD. (SUPRA) AND SUGAULI SUGAR WORKS (P.) LTD. (SUPRA) OR JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF CIT V. CHOUGULE & CO. (P) LTD. [1991] 189 ITR 473 (BOM.) A ND OTHER CASES CITED BY THE ASSESSEE, WERE DELIVERED INVOLVI NG THE ASSESSMENT YEARS PRIOR TO PRE-AMENDMENT PERIOD. AL L THE JUDGMENTS UNIFORMLY CONCLUDE THAT THE MERE UNILATER AL TRANSFER ENTRY IN THE ACCOUNTS DOES NOT CONFER ANY BENEFIT T O THE ASSESSEE AND THEREFORE, REVENUE CANNOT INVOKE SECTION 41(1) OF THE ACT. FURTHER, THE INSTANT YEAR, BEING THE ASSESSMENT YEA R 2003-04, RELATES TO THE POST AMENDMENT PERIOD AND THE SAID E XPLANATION PROVIDES FOR INCLUDING THE CASE OF OBTAINING OF THE BENEFIT BY WAY OF REMISSION OR CESSATION OF ANY LIABILITY BY A UNI LATERAL ACT BY WAY OF WRITING OFF SUCH LIABILITY IN THE ACCOUNTS OF TH E ASSESSEE, AS THE CASE OF THE DEEMED PROFITS. IN OTHER WORDS, THE AS SESSEES CASE, BEING THE ONE WHERE THE ALLEGED LIABILITIES ARE NOT UNILATERALLY WRITING OFF, THE REQUIREMENTS OF THE EXPLANATION IS NOT MET AND THEREFORE, IT CANNOT BE CONSIDERED AS THE CASE OF O BTAINING OF THE BENEFIT DURING THE YEAR UNDER CONSIDERATION. ALTHO UGH THE FOLLOWING IS INAPPLICABLE TO ASSESSEES CASE, THE A CT OF UNILATERAL ITA NO. 4466/MUM/2009 6 WRITE OFF OF THE LIABILITIES ASSUMES GREAT SIGNIFIC ANCE FOR THE POST AMENDMENT ASSESSMENTS FOR DECIDING THE FINALITY OF OBTAINING OF THE BENEFIT SPECIFIED IN THE SECTION 41(1) OF THE A CT. IT IS EVEN MORE SIGNIFICANT WHEN THE ASSESSING OFFICER HAS N OT ESTABLISHED THAT THE LIABILITIES HAVE CEASED AND FINALLY CEASED AND CEASED WITH NO CHANCE OF REVIVAL OF THE CLAIM BY THE CREDITORS IN FUTURE. IN OUR OPINION, NOWHERE IT IS MENTIONED ON THE RECO RD THAT, IN FACT, THESE LIABILITIES DO NOT EXIST. MOREOVER, NOTHING IS BR OUGHT ON RECORD THAT THE ASSESSEE HAS WRITTEN OFF THE LIABILITY. IN OUR OPI NION, THE PRINCIPLES LAID DOWN BY THE ITAT, MUMBAI IN THE CASE OF DSA ENGINEERS, B OMBAY (SUPRA) ARE SQUARELY APPLICABLE TO THE ASSESSEES CASE. WE, TH EREFORE, HOLD THAT THE LD CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITIO N IN RESPECT OF THE THREE PARTIES TREATING THE SAME AS A CESSATION OF THE LIA BILITY U/S. 41(1). WE, ACCORDINGLY, DELETE THE SAME, AND GROUND NO. 2 IS A LLOWED. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST DAY OF MARCH, 2010. SD/- SD/- (J. SUDHAKAR REDDY) (R.S. PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, ON THIS 31ST DAY OF MARCH, 2010. :US COPY TO: 1. APPELLANT 2. RESPONDENT , 3.THE CIT(A)- XXI, MUMBAI 4.THE CIT, CITY-21, MUMBAI 5.THE DR, D BENCH, MUMBAI 6.GUARD FILE ITA NO. 4466/MUM/2009 7 BY ORDER TRUE COPY ASSTT..REGISTRAR, ITAT, MUMBAI. ITA NO. 4466/MUM/2009 8 US DATE INITIALS 1. DRAFT DICTATED ON 27/3/10 --------------- SR.P.S . 2. DRAFT PLACED BEFORE AUTHORITY 30/3/10 -------- ------ SR.P.S. 3. DRAFT PROPOSED & PLACED ----------- ---------- --- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED ----------- ----------- -- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO ----------- ------------ - SR.P.S. THE SR. P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON --------- ----------- -- SR.P.S. 7. FILE SENT TO THE BENCH CLERK --------- --------- ---- SR.P.S. 8. DATE ON WHICH FILE GOES TO THE ------- --------- ---- 9. DATE OF DISPATCH OF ORDER --------- --------- ----