Shri Narendra D.Modh, Surat V. The ACIT.,Circle-2, Surat

ITA 453/AHD/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5949 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 03-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 11-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: RAJESH KUMAR SHAH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.453/AHD/2009 [ASSTT.YEAR:2005-2006] SHRI NARENDRA D. MODH 209, VAKHARIA TEXTILE MARKET, RING ROAD, SURAT-2. VS. THE ACIT, CIRCLE-2, AAYKAR BHAVAN , MAJURA GATE, SURAT. ASSESSEE BY : SHRI RAJESH KUMAR SHAH A.R. REVENUE BY : SHRI C.K.MISHRA SR.D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, SUR AT, DATED 21.11.2008. THE RELEVANT ASSESSMENT YEAR IS 2005-2 006. THE APPEAL ARISES OUT OF ASSESSMENT COMPLETED UNDER SECTION 14 3(3) OF THE INCOME TAX ACT, 1961. 2. AS PER THE LEARNED ASSESSING OFFICER, THE ASSESS EE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF EXPORT OF TEX TILES AND SYNTHETICS AND DIAMOND & GOLD JEWELLARY. IN THE CO URSE OF ASSESSMENT PROCEEDINGS, THE AO SOUGHT TO VERIFY THE EXPORT INVOICES ISSUED BY THE ASSESSEE AND THE BANK REALIZATION CER TIFICATES OBTAINED PAGE - 2 BY HIM TO SEE THE CORRECTNESS OF THE EXPORT SALES A CCOUNT FILED BY THE ASSESSEE. ON VERIFICATION OF THE INVOICES AND BANK CERTIFICATES, THE AO FOUND THAT THE ASSESSEE HAS PAID COMMISSION TO T HE IMPORTERS IN THE RESPECTIVE INVOICE ITSELF AND SUCH COMMISSION C OMES TO RS.58,08,755/- IN TOTAL. AS THE ISSUE NEEDS MORE E LABORATION, VIDE PROCEEDINGS OF ORDER SHEET DATED 22.11.2007 DETAILS WERE CALLED FOR. TO THE QUERIES RAISED BY THE AO, THE REPLY OF THE A SSESSEE WAS THAT THE COMMISSION WAS PAID TO THE BUYERS/IMPORTERS HIM SELF, AS DEDUCTION DIRECTLY FROM THE EXPORT SALES INVOICE. THE ASSESSEE SUBMITTED THAT IT IS CUSTOMARY IN THIS LINE OF EXPO RT TRADE TO ALLOW COMMISSION TO THE BUYER/IMPORTER HIMSELF DIRECTLY F ROM THE SALE INVOICE. HE STATED THAT THE RATE OF DEDUCTION ON A CCOUNT OF COMMISSION USED TO BE DECIDED AT THE TIME OF ENTERI NG INTO SALES CONTRACT ITSELF. THE LETTERS OF CREDIT ISSUED BY T HE BANK WERE OBTAINED FOR THE SALE PROCEEDS NET OF COMMISSION AS COMMISSI ON TO THE BUYER/IMPORTER IS DEDUCTED DIRECTLY FROM THE INVOIC E PRICE. THE ASSESSEE EXPLAINED THAT THIS ADJUSTMENT WAS NEVER T REATED AS PAYMENT OF COMMISSION IN THE ACCOUNT OF THE ASSESSEE AS DED UCTION AS ALLOWED TO THE BUYER HIMSELF AND NOT TO A THIRD PERSON. TH E FOREIGN BUYER MAKES THE PAYMENT OF THE NET AMOUNT ONLY AND THE SA LES ARE RECORDED IN THE ACCOUNTS OF THE ASSESSEE FOR THE NET AMOUNT. 3. THE AO DID NOT ACCEPT THE VARIOUS ARGUMENTS AND EXPLANATIONS OFFERED BY THE ASSESSEE AND HELD THAT THE COMMISSIO N PAID BY THE ASSESSEE TO THE BUYERS/IMPORTERS FORMED PART OF HIS SALES AND THEREFORE LIABLE TO BE TREATED AS INCOME OF THE ASS ESSEE. ACCORDINGLY, THE AO MADE AN ADDITION OF RS.58,08,755/- TO THE RE TURNED INCOME OF PAGE - 3 THE ASSESSEE ON THE ABOVE GROUND. IN ORDER TO RE- STRENGTHEN THE ABOVE ADDITION, THE AO HAS RELIED ON LAW STATED IN SECTION 93 OF THE INCOME TAX ACT, 1961 AS A DETERRENT FOR AVOIDANCE O F INCOME TAX BY TRANSACTION RESULTING IN TRANSFER OF INCOME TO NON- RESIDENT. 4. IN THE FIRST APPEAL, THE CIT(A) CONSIDERED THE I SSUE EXTENSIVELY. HE FOUND THAT THE BANKS HAVE INFORME D THE AO THAT THE ASSESSEE HAD NOT REMITTED ANY AMOUNT OF COMMISSION FROM INDIA DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL AND THE COMMISSION HAD BEEN DIRECTLY DEDUCTE D FROM THE EXPORT INVOICES. THE BANKS HAVE FURTHER RECONCILED AND CERTIFIED THAT THE COMMISSIONS PAID BY THE ASSESSEE THROUGH THE EX PORT INVOICES WERE ON THE BASIS OF GUARANTEED RECEIPT (GR) AND SD F FORMS SCRUTINIZED BY THE RESERVE BANK OF INDIA. THE CIT( A) AGREED WITH THE AO THAT THE PAYMENTS OF COMMISSION TO BUYERS IN UAE ARE BOUND BY THEIR REGULATIONS AND ACCORDINGLY DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE REGARDING THE PAYMENT O F COMMISSION TO FOREIGN BUYERS. THE ASSESSEE HAD ALSO ARGUED BEFOR E THE AUTHORITIES THAT EVEN THOUGH THE NOMENCLATURE GIVEN TO THE PAYM ENTS WAS COMMISSION, IT WAS ACTUALLY IN THE NATURE OF DISC OUNT GIVEN THROUGH THE EXPORT INVOICES ITSELF. IN ADDITION TO HOLDING OF UAE REGULATIONS AGAINST THE ASSESSEE, THE CIT(A) HAS AL SO AGREED WITH THE AO THAT SECTION 93 APPLIES TO THE CASE AS THE A SSESSEE HAD ACCRUED INCOME OUT OF THE TRANSACTIONS ENTERED INTO WITH NON-RESIDENT BUYERS. VARIOUS CASE LAWS WERE CONSIDERED BY THE C IT(A) INCLUDING THAT OF AHMEDABAD STAMP VENDORS ASSOCIATION VS. UNI ON OF INDIA, 257 ITR 202, KERALA STATE STAMP VENDORS ASSOCIATION VS. OFFICE OF PAGE - 4 THE ACCOUNTANT GENERAL AND ORS., 282 ITR 7, CIT VS. SHIV PRAKASH JANAKRAJ & CO. P. LTD., 222 ITR 583, STATE BANK OF TRAVANCORE VS. CIT, 158 ITR 102, CIT VS. MADRAS RACE CLUB, 255 ITR 98, CIT VS. SITALDAS TIRATHDAS, 41 ITR 367, CIT VS. TOLLYGUNGE CLUB LTD., 107 ITR 776 AND CIT VS. BIJLEE COTTON MILLS P. LTD., 11 6 ITR 60. 5. WHILE CONSIDERING THE ABOVE JUDICIAL PRONOUNCEME NTS, THE CIT(A) HAS FURTHER AGREED WITH THE AO IN ROPING DOW N THE PROVISIONS OF LAW CONTAINED IN SECTION 194H TO AMPL IFY THE CONCEPT OF SERVICES RENDERED AGAINST THE PAYMENT OF COMMISS ION. THE CIT(A) ALSO AGREED WITH THE AO IN RELYING ON THE LA W CONTAINED IN SECTION 5 OF THE INCOME TAX ACT TO HOLD THAT THE CO MMISSIONS PAID BY THE ASSESSEE THROUGH THE EXPORT INVOICE ARE IN T HE NATURE OF INCOME ACCRUES OR ARISING TO THE ASSESSEE OUTSIDE I NDIA. ULTIMATELY, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSES SING AUTHORITY. THE ABOVE ISSUE IS THE FIRST GROUND RAISED IN THE P RESENT APPEAL FILED BY THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE MAIN PLANK OF THE ARGUMENT ADVANCED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESS EE IS THAT THE COMMISSION PAID BY THE ASSESSEE WAS IN THE NATURE O F TRADITIONAL DISCOUNT EXTENDED TO FOREIGN BUYERS AND THE ASSESSE E HAD RECEIVED ONLY THE NET PROCEEDS AND THEREFORE THERE COULD NOT BE ANY CONCEPT OF INCOME AGAINST THE AMOUNT WHICH WAS NEVER RECEIVED BY THE ASSESSEE OR ACCRUED TO THE ASSESSEE. IN SUPPORT OF HIS CONTE NTION, HE RELIED UPON THE DECISION OF HON'BLE KERALA HIGH COURT IN T HE CASE OF PAGE - 5 DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX & SA LES TAX (LAW) VS. TRAVANCORE RAYONS LTD. (1977) 1977 CTR (K ER) 264, WHEREIN IT WAS HELD AS UNDER:- THE COMPANY WAS ALLOWING A UNIFORM PERCENTAGE OF DE DUCTION TO THE BUYERS BY WAY OF COMMISSION AND THE INVO ICES SHOW THAT AFTER MENTIONED THE GROSS PRICE OF THE GOODS C ALCULATED AT THE RATES SPECIFIED THEREIN THE AMOUNT OF COMMISSIO N IS DEDUCTED AND THE RESULTANT BALANCE IS SHOWN AS THE NOT PRICE ACTUALLY PAYABLE BY THE BUYERS. IN THE CIRCUMSTANCE S SUCH A DEDUCTION ALLOWED TO THE BUYERS BY A MANUFACTURER O R A WHOLESALES, BY WHATEVER NAME IT MAY BE DESCRIBED, I S CLEARLY IN THE NATURE OF A TRADE DISCOUNT. WHERE A TRADE DISCOUNT HAS BEEN BONA FIDE GRANTED T HE CONSIDERATION FOR THE SALE IS ONLY THE AMOUNT WHICH IS ACTUALLY PAD OR PAYABLE AFTER THE DISCOUNT IS DEDUCTED AND T HAT, HENCE, AMOUNTS, ALLOWED BY THE ASSESSEE TO THE BUYERS BY W AY OF TRADE COMMISSION OR DISCOUNT WERE NOT A LIABLE TO BE ADDE D TO OR INCLUDED. IN THE TURN-OVER FOR THE PURPOSES OF ASSE SSMENT TO CST. ACCORDINGLY IT IS HELD THAT THE TRIBUNAL WAS RIGHT IN DIRECTING THAT THE AMOUNT OF RS. 2,60,327.72 REPRESENTING COM MISSIONS DEDUCTED BY THE ASSESSEE N THE VARIOUS INVOICES OF SALES SHOULD BE EXCLUDED FROM THE TAXABLE TURNOVER OF THE ASSESS EE- COMPANY FOR THE YEAR 1961-62. 7. HE ALSO RELIED ON THE DECISION OF COLOUR CHEM LT D. VS. CIT (1997) 225 ITR 164 (BOM) WHEREIN IT WAS HELD THAT R ELATIONSHIP BETWEEN THE ASSESSEE AND THE FOREIGN BUYER WAS CLEA RLY THAT OF VENDOR AND BUYER AND THE PAYMENT OF COMMISSION HAD THE EFFECT OF REDUCING THE SALE PRICE OF GOODS SUPPLIED TO THE BU YER BY THE ASSESSEE. PAGE - 6 8. HE FURTHER RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF J.B.BODA & CO. PVT. LTD. VS. CBDT (1 997 ) 223 ITR 271 (SC) WHEREIN IT WAS HELD THAT ASSESSEE ACTING A S AGENT OF FOREIGN REINSURER, COLLECTING PREMIA FROM THE CEDIN G INSURANCE COMPANY IN INDIA AND REMITTING THE SAME TO THE FORE IGN INSURER IN FOREIGN EXCHANGE, WITH THE PERMISSION OF THE RBI, A FTER RETAINING ITS BROKERAGE IN FOREIGN EXCHANGE; THE BROKERAGE INCOME RETAINED BY ASSESSEE IS RECEIPT OF INCOME IN CONVERTIBLE FOREIG N EXCHANGE QUALIFYING FOR DEDUCTION UNDER S. 80-O. 9. ON THE OTHER HAND, THE MAIN THRUST MADE BY THE L EARNED COMMISSIONER IS THAT EVEN THOUGH THE ASSESSEE HAS R ECORDED THE ONLY NET RECEIPTS AS ITS EXPORT SALES, THE ASSESSEE HAS CLAIMED THE BENEFITS OF IMPORT ENTITLEMENT LIKE DEPB ON THE AMOUNT OF GR OSS VALUE OF INVOICE WHICH SHOWS THAT AS FAR AS THE ASSESSEE IS CONCERNED, THE EXPORT SALE PROCEEDS IS REPRESENTED BY THE GROSS IN VOICE VALUE AND NOT BY THE NET VALUE AS CLAIMED BY THE ASSESSEE. 10. AT THIS JUNCTURE, IT IS NECESSARY FOR US TO STA TE THAT THE ASSESSEE HAS ACCOUNTED THE EXPORT SALES TURNOVER AT THE NET FIGURE AND CLAIMED DEPB BENEFITS ON THE GROSS AMOUNTS IN ACCORDANCE WI TH THE GUIDELINES ISSUED BY THE RBI IN THE LIGHT OF THE EX PORT IMPORT POLICY OF THE GOVERNMENT OF INDIA. THE ASSESSEE HAS GIVEN THE DEDUCTION OF DISCOUNT TO THE FOREIGN BUYER BY WAY OF COMMISSION BEING REDUCED DIRECTLY IN THE SALES INVOICE IN THE LIGHT OF THE R EGULATIONS AND GUIDELINES OF THE RBI. THIS METHOD OF INVOICE AND GIVING DISCOUNT/COMMISSION AND RECEIVING THE FOREIGN EXCHA NGE NET OF PAGE - 7 INVOICE ARE PERMISSIBLE UNDER THE LAW RELATING TO T HE EXPORT AND FOREIGN EXCHANGE MATTERS. THE EXPORT IMPORT POLICY AND THE RBI REGULATIONS APPROVED THIS METHOD. THE EXPORT IMPOR T POLICY AND THE RBI REGULATIONS FURTHER ALLOW AN ASSESSEE TO CLAIM BENEFITS OF IMPORT ENTITLEMENT LIKE DEPB ON THE GROSS AMOUNT OF INVOICE VALUE INSTEAD OF THE NET AMOUNT OF INVOICE VALUE. THEREF ORE, THE BENEFIT ACCRUES TO THE ASSESSEE IN RESPECT OF DEPB ON THE D IFFERENTIAL INVOICE AMOUNT WHICH WAS NEVER RECEIVED BY THE ASSESSEE IN INDIA IN CONVERTIBLE FOREIGN EXCHANGE AS AN EXPORT PRIVILEGE ENJOYED BY THE ASSESSEE UNDER THE RELEVANT RULES AND REGULATIONS. THEREFORE, THIS DIFFERENCE REFLECTED IN THE NET INVOICE VALUE AND T HE GROSS INVOICE VALUE FOR THE PURPOSE OF ACCOUNTING OF EXPORT SALE TURNOVER AND CLAIMING DEPB BENEFITS CANNOT BE TAKEN AS A GROUND TO REJECT THE CONTENTIONS OF THE ASSESSEE. THEREFORE, THE ISSUE HAS TO BE EXAMINED DEVOID OF THE ABOVE TECHNICALITY POINTED OUT BY THE LEARNED COMMISSIONER OF INCOME-TAX. 11. THERE IS NO DISPUTE REGARDING THE FACT THAT THE ASSESSEE HAS GIVEN COMMISSION/DISCOUNT IN THE EXPORT INVOICES IT SELF IN FAVOUR OF THE FOREIGN BUYER. THE FOREIGN BUYER HAS STATED TH AT THIS DISCOUNT/COMMISSION WOULD BE DISTRIBUTED BY HIM TO THE INTENDING AGENTS ABROAD. THEY HAVE STATED THAT THE COMMISSIO NS ARE TO BE PAID BY THEM DIRECTLY TO THE AGENTS IN THE COUNTRIES OF IMPORT. IT IS ALSO A FACT ON RECORD THAT THE ASSESSEE HAS RECEIVED THE N ET AMOUNT ONLY AS EXPORT PROCEEDS BY WAY OF CONVERTIBLE FOREIGN EXCHA NGE. ALL THESE MATTERS HAVE BEEN CERTIFIED BY THE BANKERS OF THE A SSESSEE. ALL THE MATTERS ARE WELL WITHIN THE LAW REGULATED BY THE RB I FOR THE PURPOSE PAGE - 8 OF EXPORT OF GOODS OUTSIDE INDIA. IN SUCH CIRCUMST ANCES, THE SIMPLE FACT THAT EMERGES OUT OF THE MAZE OF ARGUMENTS IS T HAT AS FAR AS THE ASSESSEE IS CONCERNED, HIS EXPORT SALES TURNOVER IS THE NET AMOUNT OF THE EXPORT INVOICE ISSUED BY HIM. IT IS NOT PROPER TO TREAT THE GROSS INVOICE AMOUNT AS THE EXPORT SALES TURNOVER OF THE ASSESSEE. 12. IN FACT, IN THE SITUATION OF THE CASE, AS STATE D IN THE ABOVE PARAGRAPH, IT IS TO BE SEEN THAT THE EXPORT SALE PR OCEEDS RECEIVED BY THE ASSESSEE WAS NET AMOUNT ALONE AND NOT THE GROSS AMOUNT. IT IS ALSO TO BE SEEN THAT THE FOREIGN BUYER IS NOT BOUND TO PAY TO THE ASSESSEE THE AMOUNT COVERED BY THE COMMISSION OR DI SCOUNT AT ANY FUTURE DATE. THEREFORE, THE RIGHT/CLAIM OF THE ASS ESSEE IN RESPECT OF THE EXPORT SALES WAS TO RECEIVE ONLY THE NET INVOIC E AMOUNT AND NOTHING MORE. THEREFORE, THERE IS NOTHING LEFT OVE R BY WAY OF BALANCE TO BE TREATED AS INCOME ACCRUING OR ARISING TO THE ASSESSEE OUTSIDE INDIA BY VIRTUE OF THE IMPUGNED EXPORT SALE S. THE ENTIRE INCOME ATTRIBUTABLE TO THE EXPORT SALES WERE ALREAD Y RECEIVED BY THE ASSESSEE IN INDIA IN THE FORM OF CONVERTIBLE FOREIG N EXCHANGE. THIS POSITION IS PROVED BY THE CERTIFICATES ISSUED BY TH E BANKERS AS WELL AS LETTERS OF CREDIT OPENED BY THE FOREIGN BUYERS. W HEN THE ASSESSEE HAS RECEIVED ONLY THE NET PROCEEDS AS PER THE INVOI CE, THERE IS NOTHING FURTHER LEFT OVER TO BE TREATED AS INCOME R ECEIVED OR TO BE RECEIVED OR ACCRUED OR DEEMED TO BE ACCRUED OR ARIS ING IN INDIA OR OUTSIDE INDIA. THEREFORE, THE RELIANCE PLACED BY T HE LOWER AUTHORITIES ON THE SECTION 5 OF THE INCOME TAX ACT IS RATHER MI SLEADING. PAGE - 9 13. AS THE ASSESSEE HAS NOT PAID TO THE FOREIGN BUY ERS ANY AMOUNT BY WAY OF COMMISSION, BUT IT WAS ONLY ADJUSTMENT TH ROUGH THE EXPORT INVOICES BY WAY OF COMMISSION/DISCOUNT, SECT ION 94H ALSO HAD NO ROLE TO PLAY. THEREFORE, WE FIND THAT ALL T HE DISCUSSIONS MADE BY THE LOWER AUTHORITIES TO MAKE ADDITIONS OF THE C OMMISSION AMOUNT WERE BASED ON HYPOTHESIS AND NOT ON ANY FACT S PROVED. WHEN THE ASSESSEE HAD NO ADDITIONAL AMOUNT TO BE RE CEIVED FROM THE FOREIGN BUYERS, NO QUESTION OF ADDITIONAL INCOME AR ISES. THE INCOME OF THE ASSESSEE IS FULLY EMBEDDED IN THE NET SALE P ROCEEDS RECEIVED AND ACCOUNTED BY HIM. WHEN THE INCOME ITSELF IS NO T GENERATED, THERE IS NO QUESTION OF SUCH INCOME BECOMING ACCRUE D OR DUE. WHEN THERE IS NOTHING LEFT OVER TO BE FURTHER RECEIVED B Y THE ASSESSEE, THERE IS NO QUESTION OF ANY INCOME ARISING IN THE HANDS O F THE ASSESSEE, ATTRIBUTABLE TO THE QUANTUM OF COMMISSION RECORDED IN THE INVOICE. THEREFORE, WE FIND THAT THE ENTIRE DISCUSSIONS, BUT WELL MADE BY THE LOWER AUTHORITIES, HAVE BEEN MADE UNFORTUNATELY IN A WRONG DIRECTION. 14. WHEN THE FACTUM OF ACTUAL RECEIPT OF SALE PROCEEDS TO THE EXTENT OF NET INVOICE AMOUNT IS ESTABLISHED BEYOND ANY DOUBT, THERE IS NO JUSTIFICATION IN OVERLOOKING UPON THOSE SPEAK ING FACTS ON THE TECHNICAL GROUND THAT THE ASSESSEE HAS CLAIMED THE DEPB BENEFIT ON THE GROSS AMOUNT OF THE INVOICE. THE DEPB CLAIM WA S MADE BY THE ASSESSEE ON THE BASIS OF PERMISSION GRANTED BY THE RBI AND THAT HAS NOTHING TO DO WITH THE ACTUAL AMOUNT OF EXPORT SALE S PROCEEDS RECEIVED BY THE ASSESSEE IN THE FORM OF CONVERTIBLE FOREIGN EXCHANGE. PAGE - 10 15. THEREFORE, IT IS QUITE OBVIOUS WITHOUT MUCH DIS CUSSION AND DELIBERATION THAT THE REVENUE HAS NO CASE TO HOLD T HE ASSESSEE RESPONSIBLE FOR AN ADDITIONAL INCOME OF RS.58,08,75 5/-. THE SAID ADDITION IS ACCORDINGLY DELETED. OUR ABOVE VIEW AL SO FINDS SUPPORT FROM THE DECISION OF THIS TRIBUNAL IN THE CASE OF S HRI SANJAY JAIN VS. DCIT IN ITA NO.1533/AHD/2008 FOR ASSESSMENT YEAR 20 04-05 ORDER DATED 16.12.2009. 16. THE SECOND GROUND RAISED BY THE ASSESSEE IS AGA INST THE ADDITION OF RS.2,14,195/- UNDER SECTION 41(1) OF TH E ACT AS CESSATION OF LIABILITY. 17. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) HAS HELD AS UNDER:- 7. IN THIS GROUND OF APPEAL, THE ASSESSEE H AS CONTESTED THE DISALLOWANCE OF A SUM OF RS.2,14,195 UNDER THE PROVISIONS OF SEC 41(1) OF THE IT ACT. VIEW TAKEN BY THE ASSESSING OFFICER (A.O.): 8. THE AO NOTICED THAT THE FOLLOWING DEBTS WE RE SHOWN OUTSTANDING UNDER THE HEAD OF 'SUNDRY CREDITORS' (P ARA-50 OF THE ASSESSMENT ORDER), (I) JALARAM SILK TRADERS : RS. 85,050 (II) MILLENIUM FASHION : RS. 82,153 (III)V-TEXTILES : RS. 46,992 ----------------- RS. 2,14,195 8.1. HE ASKED THE ASSESSEE TO FURNISH CONFIRMATIONS FROM THE AFORESAID PARTIES ALONG WITH THEIR COMPLETE ADDRESS ES AND PAN, AND TO EXPLAIN WHY SUCH CREDITS HAD BEEN OUTST ANDING FOR SUCH A LONG TIME, AND WHY THE SAME SHOULD NOT B E PAGE - 11 DISALLOWED UNDER THE PROVISIONS OF SEC 41(1) OF THE I.T.ACT. ALLEGEDLY, THERE WAS NO RESPONSE FROM THE ASSESSEE' S SIDE. THE AO FURTHER OBSERVED THAT THE ASSESSEE FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING AND THIS MEANT THAT THE DEDUCT ION OF THE AFORESAID SUM HAD ALREADY BEEN CLAIMED AND ALLOWED IN THE EARLIER YEARS. THE ASSESSEE DID NOT EVEN HAVE THE A DDRESSES OF THE SAID PARTIES EVEN THOUGH THEY HAD BEEN APPEARIN G AS SUNDRY CREDITORS FOR THE PAST THREE YEARS. NO SUPPLIER WOU LD FORGET TO CLAIM OUTSTANDING PAYMENTS DUE TO HIM. ON THE BASIS OF SUCH OBSERVATIONS, THE AO CAME TO THE CONCLUSION THAT SU CH DEBTS HAD CEASED TO EXIST OR THAT THE ASSESSEE HAD NO INT ENTION OF CLEARING SUCH DEBTS. HE THEREFORE, ADDED THE SUM OF RS 2,14,195 UNDER THE PROVISIONS OF SEC 41(1) OF THE I T ACT. SUBMISSIONS OF THE ASSESSEE: 9. IN THE WRITTEN SUBMISSION, THE AR HAS VERY BRIEF LY MENTIONED IN A FEW LINES THAT THE ASSESSEE HAD NEIT HER RECEIVED ANY LETTER ASKING FOR CONFIRMATION FROM THE SAID PA RTIES, NOR WAS ANY SHOW-CAUSE NOTICE ISSUED PRIOR TO MAKING TH E DISALLOWANCE U/S 41(1) OF THE ACT. DECISION 10. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. IT IS QUITE EVIDENT FROM VERY CRYPTIC SUBMISSION OF THE AR THAT , THERE IS SIMPLY NO SUBSTANCE IN WHAT HE HAS WRITTEN. HE HAS NOT EVEN BOTHERED TO ARGUE OR CONTEST THE ACTION TAKEN BY TH E AO, OR TO SHOW THAT THE SAID CREDITS HAD NOT CEASED TO EXIST. IN SUCH A SITUATION, I HAVE SIMPLY NO OTHER OPTION BUT TO UPH OLD THE ACTION TAKEN BY THE AO, AND TO CONFIRM THE ADDITION OF THE SUM OF RS.2,14,195 UNDER THE PROVISIONS OF SEC 41(1) OF THE IT ACT. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE LEARN ED ASSESSING OFFICER OBSERVED THAT SUNDRY CREDITORS OF RS.2,14,1 95/- RELATING TO THREE PARTIES NAMELY :- PAGE - 12 (I) JALARAM SILK TRADERS : RS. 85,050 (II) MILLENIUM FASHION : RS. 82,153 (III)V-TEXTILES : RS. 46,992 ----------------- RS. 2,14,195 ARE APPEARING FROM LAST THREE YEARS IN THE BALANCE SHEET OF THE ASSESSEE. ACCORDING TO THE LEARNED ASSESSING OFFIC ER, THE ASSESSEE WAS ASKED TO FURNISH CONFIRMATION DETAILED ADDRESS, PAN ETC. OF THE AFORESAID CREDITORS AND THE ASSESSEE WAS ALSO ASKED TO SHOW CAUSE WHY THE ABOVE AMOUNT SHOULD NOT BE TREATED AS INCOM E UNDER SECTION 41(1) OF THE ACT. THE LEARNED ASSESSING OFFICER OBS ERVING THAT NO COMPLIANCE WAS MADE BY THE ASSESSEE OF THE ABOVE RE QUISITION, HE ADDED RS.2,14,195/- TO THE INCOME OF THE ASSESSEE U NDER SECTION 41(1) OF THE ACT. 19. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS), THE ASSESSEE DISPUTED THE OBSERVATION OF THE LEARNE D ASSESSING OFFICER AND CONTENDED THAT HE WAS NEVER CALLED UPON TO FURNISH SUCH DETAILS OF THE CREDITORS AS MENTIONED IN THE ASSESS MENT ORDER AND HE WAS ALSO NEVER EVER SERVED WITH THE ALLEGED SHOW CA USE NOTICE. HOWEVER, THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) FOUND THE ABOVE CONTENTION OF THE ASSESSEE AS CRYPTIC AND THEREFORE, CONFIRMED THE ACTION OF THE LEARNED ASSESSING OFFIC ER. 20. BEFORE US, ALSO THE ASSESSEE REITERATED THE ABO VE SUBMISSIONS AND ALSO SUBMITTED THAT NO MATERIAL WAS BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT ANY BENEFIT WAS RECEIVED BY TH E ASSESSEE IN PAGE - 13 RESPECT OF THE ABOVE CREDITORS DURING THE YEAR UNDE R CONSIDERATION. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT B RING ANY MATERIAL BEFORE US TO SHOW THAT THE LEARNED ASSESSI NG OFFICER ACTUALLY ASKED THE ASSESSEE TO FURNISH DETAILS OF S UNDRY CREDITOR AS MENTIONED IN THE ORDER OF THE ASSESSMENT OR THE ASS ESSEE WAS ACTUALLY SERVED WITH THE SHOW CAUSE NOTICE AS STATED BY THE LEARNED ASSESSING OFFICER IN THE ORDER OF ASSESSMENT. IN OU R CONSIDERED OPINION, AS THE ASSESSEE HAS CHALLENGED THE SERVICE OF SHOW CAUSE NOTICE AND AS THE EVIDENCE OF SERVICE WAS WITH THE REVENUE AND AS IT IS THE GROUND OF REVENUE THAT THE ASSESSEE WAS ASKE D TO SUBMIT DETAILS OF CREDITOR AND ASSESSEE WAS SERVED WITH TH E SHOW CAUSE NOTICE IN OUR CONSIDERED VIEW, IT WAS A DUTY OF THE REVENUE TO BRING RELEVANT MATERIALS ON RECORD TO SUPPORT ITS ABOVE A SSERTION. BE THAT AS IT MAY, THE ISSUE BEFORE US IS ABOUT ADDITION OF RS .2,14,195/- UNDER SECTION 41(1) OF THE ACT DURING THE YEAR UNDER CONS IDERATION. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS WRITT EN OFF THE ABOVE LIABILITY IN ITS BOOKS OF ACCOUNT OF THE YEAR UNDER CONSIDERATION RATHER IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS SHOWN THE ABOVE AMOUNT AS ITS LIABILITY IN THE BALANCE SHEET OF THE YEAR U NDER CONSIDERATION. IN THE ABOVE CIRCUMSTANCES, WHEN THE REVENUE WANTS TO TAX THE AMOUNT OF LIABILITY AS INCOME OF THE YEAR UNDER SEC TION 41(1) THEN THE ONUS LIES UPON THE REVENUE TO BRING SOME POSITI VE MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE ACTUALLY RECEIVED SOME BENEFIT IN RESPECT OF THE AFORESAID AMOUNT DURING THE YEAR UND ER CONSIDERATION. WE FIND THAT IN THE INSTANT CASE, NO MATERIAL WAS B ROUGHT ON RECORD BY THE LEARNED ASSESSING OFFICER TO DISCHARGE THE A BOVE ONUS WHICH PAGE - 14 IN THE LAW WAS ON IT. IN ABSENCE OF ANY SUCH MATERI AL BROUGHT ON RECORD, IN OUR CONSIDERED VIEW, THE ADDITION MADE U NDER SECTION 41(1) DURING THE YEAR UNDER CONSIDERATION WAS UNSUS TAINABLE AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE SAME. WE THEREFORE, DELETE THE ADDIT ION OF RS.2,14,195/- MADE UNDER SECTION 41(1) AND ALLOW TH E GROUND OF APPEAL OF THE ASSESSEE. 21. IN RESULT, THE APPEAL FILED BY ASSESSEE IS ALL OWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON THIS 11 TH DAY OF JUNE, 2010. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; ON THIS 11 TH DAY OF JUNE, 2010 PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-II, SURAT. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD