M/s Supreme Steel and General Mills, New Delhi V. ITO, New Delhi

ITA 4638/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3784 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 15-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-12-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KISHORE B
• Keywords: Unexplained cash credit; Bad and doubtful debts
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G : NEW DELHI DELHI BENCH G : NEW DELHI DELHI BENCH G : NEW DELHI DELHI BENCH G : NEW DELHI BEFORE SHRI R.P.TOLANI, JM AND SHRI K.D.RANJAN, AM BEFORE SHRI R.P.TOLANI, JM AND SHRI K.D.RANJAN, AM BEFORE SHRI R.P.TOLANI, JM AND SHRI K.D.RANJAN, AM BEFORE SHRI R.P.TOLANI, JM AND SHRI K.D.RANJAN, AM ITA NO.46 ITA NO.46 ITA NO.46 ITA NO.46 38/DEL/2009 38/DEL/2009 38/DEL/2009 38/DEL/2009 ASSESSMENT YEAR : 2006 ASSESSMENT YEAR : 2006 ASSESSMENT YEAR : 2006 ASSESSMENT YEAR : 2006 - -- - 07 0707 07 M/S SUPREME STEEL AND GENERAL M/S SUPREME STEEL AND GENERAL M/S SUPREME STEEL AND GENERAL M/S SUPREME STEEL AND GENERAL MILLS, MILLS, MILLS, MILLS, B BB B- -- -23, OKHLA INDUSTRIAL AREA, 23, OKHLA INDUSTRIAL AREA, 23, OKHLA INDUSTRIAL AREA, 23, OKHLA INDUSTRIAL AREA, PHASE PHASE PHASE PHASE- -- -I, I,I, I, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. PAN NO.AABFS1576L. PAN NO.AABFS1576L. PAN NO.AABFS1576L. PAN NO.AABFS1576L. VS. VS. VS. VS. INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -22(4), 22(4), 22(4), 22(4), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.SAMPATH, ADVOCATE. RESPONDENT BY : SHRI KISHORE B., DR. ORDER ORDER ORDER ORDER PER R.P.TOLANI, JM : PER R.P.TOLANI, JM : PER R.P.TOLANI, JM : PER R.P.TOLANI, JM : THIS IS ASSESSEES APPEAL. FOLLOWING GROUNDS ARE R AISED:- THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE FOLLOWING AC TIONS OF THE LEARNED ASSESSING OFFICER:- I. IN CONSTRUING THE AMOUNT OF SALE CONSIDERATION R ECEIVED IN CASH IN A SUM OF RS.30,49,022/- AS INCOME FROM UNDISCLOS ED SOURCES TAXABLE U/S 68 OF THE ACT; II. IN MAKING AN ADDITION OF RS.77,024/- BEING THE EXPENDITURE INCURRED ON INTEREST BY TREATING THE SAME AS PENALT Y. THE ORDER OF THE LEARNED CIT(A) BEING ARBITRARY, ER RONEOUS AND UNTENABLE, MUST BE QUASHED. 2. GROUND NO.1 IS NOT PRESSED. HENCE, THE SAME IS DISMISSED. ITA-4638/DEL/2009 2 3. BRIEF FACTS ARE THAT ASSESSEE IS A DEALER IN IRO N AND STEEL SCRAP. IT HAD BUSINESS RELATIONS WITH THREE PARTIES MENTIONED BEL OW INASMUCH AS THE ASSESSEE HAD MADE SALES IN EARLIER YEARS ON CREDIT AND WERE OUTS TANDING AGAINST THESE THREE PARTIES :- G.R.OVERSEAS 5,00,000/- NASIR AHMAD & SONS 16,08,045/- ZABAR AHMAD & SONS 9,40,977/- 4. DURING THE YEAR IN QUESTION, THE ASSESSEES BOOK S REVEALED THAT THESE PARTIES HAVE REPAID CASH AMOUNTS TO THE ASSESSEE WHICH ARE DEPOSITED IN ITS BANK. AO DESIRED TO VERIFY THESE CASH RECEIPTS AND RAISED QU ERIES THAT SUCH PAYMENTS WERE HIT BY SECTION 40A(3). AO FURTHER FOUND THAT ASSESSEE HAD NO FRESH BUSINESS DEALING DURING THE YEAR WITH THESE PARTIES AND SURPRISINGLY HUGE CASH AMOUNTS WERE RECEIVED AND WAS OF THE VIEW THAT THE GENUINENESS O F DEPOSITS WAS QUESTIONABLE. AO CALLED FOR INFORMATION U/S 133(6), IT WAS FOUND THAT THE PARTIES COULD NOT BE LOCATED AT THE ADDRESSES FURNISHED BY THE ASSESSEE. IN CASE OF G.R.OVERSEAS, ASSESSEE PROVIDED PAN DETAILS. IT, HOWEVER, REPLIE D THAT NO SUCH PAYMENT WAS MADE DURING THE PERIOD 1.4.2005 TO 31.3.2006. THE ASSESSEE PRODUCED TWO CONFIRMATIONS FROM NASIR AHMAD & SONS AND ZABAR AHM AD & SONS WHICH, ACCORDING TO THE AO, DID NOT CONTAIN THEIR ADDRESSE S OR PAN DETAILS. THE AO WAS OF THE VIEW THAT IF THE CONFIRMATIONS WERE GENUINE, IT INDICATED THAT THE ASSESSEE WAS IN TOUCH WITH THE PARTIES AND WAS AWARE OF THE LATE ST WHEREABOUTS AND SHOULD HAVE PRODUCED THEM. THE ASSESSEE COULD NOT EXPLAIN THE CONTRADICTION IN ITS STAND ABOUT G.R.OVERSEAS HAVING DENIED TO MAKE ANY PAYMENT TO T HE ASSESSEE. THESE AMOUNTS THUS WERE ADDED BY THE AO U/S 68 AS UNEXPLAINED CAS H CREDITS. 5. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL. ITA-4638/DEL/2009 3 6. THE LEARNED CIT(A) AFTER DISCUSSION OF FACTS AND VARIOUS CASE LAWS CONFIRMED THE ADDITIONS BY FOLLOWING OBSERVATIONS:- 19. IN THE FINAL ANALYSIS, IT CAN BE REASONABLY CO NCLUDED THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE IDENTITY, GENU INENESS AND CREDIT WORTHINESS OF M/S NASIR AHMAD & SONS AND M/S ZABBAR AHMAD & SONS. THE IDENTITY AND CREDIT WORTHINESS OF M/S G. R.OVERSEAS (P) LTD. STAND ESTABLISHED BUT NOT THE GENUINENESS OF THE TR ANSACTION. EXPLANATION GIVEN BY THE ASSESSEE (THAT THEY WERE S ALE CONSIDERATION) HAS NO LEGS TO STAND. ASSESSEE FAILS IN GROUND OF APPEAL NO.1. 7. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. 8. THE LEARNED COUNSEL FOR THE ASSESSEE RAISES FOLL OWING CONTENTIONS:- (I) THE ABOVE AMOUNTS ARE NOT CASH CREDITS BUT THE TRAD E OUTSTANDINGS RECEIVED IN CASH BY THE ASSESSEE. THEREFORE, THEY CANNOT BE ADDED U/S 68 AS UNEXPLAINED INCOME OF THE ASSESSEE. (II) THE TRADE DEBTORS HAVE BEEN ACCEPTED BY THE AO IN E ARLIER YEARS WHICH SHOWS THAT THE SALES MADE BY THE ASSESSEE WER E GENUINE. MERELY NON-ATTENDANCE OF PARTIES COULD NOT LEAD TO AN INFERENCE THAT THE AMOUNTS REPRESENTED ASSESSEES UNEXPLAINED CASH CREDITS. (III) AFTER THE PAYMENTS, ASSESSEE LOST CONTACT WITH THE PARTIES, AND COULD NOT PRODUCE THE PARTIES. NO OPPORTUNITY TO CROSS-E XAMINE G.R.OVERSEAS WAS GIVEN TO THE ASSESSEE AND IN RESPE CT OF TWO OTHER PARTIES I.E. NASIR AHMAD & SONS AND ZABBAR AHMAD & SONS, NON- TRACING OF THEIR LOCATION CANNOT BE ATTRIBUTED TO T HE ASSESSEE. THEREFORE, THE ADDITIONS ARE UNCALLED FOR. (IV) ALTERNATIVELY, THE ASSESSEE IS ELIGIBLE FOR THE CLA IM OF BAD DEBTS U/S 36(1)(VII). THESE WERE TRADE ADVANCES PART OF PROF ITS AND ACCEPTED IN ITA-4638/DEL/2009 4 THE EARLIER YEARS BY THE AO; EVEN IF IT IS ASSUMED THAT THE CASH REPRESENTED UNDISCLOSED INCOME OF THE ASSESSEE, THE ASSESSEE IS ELIGIBLE FOR WRITE OFF OF BAD DEBTS AND IN THAT CAS E, REVENUE EFFECT WOULD BE NIL AS THE AMOUNT THOUGH ADDED U/S 68 WILL STAND NEUTRALIZED BY THE WRITING OFF OF BAD DEBTS U/S 36( 1)(VII). 9. THE LEARNED DR, ON THE OTHER HAND, CONTENDS THAT :- (I) AS PER MANDATE OF SECTION 68, ANY CASH CREDIT ENTRY CAN BE EXAMINED BY THE AO AND ASSESSEE HAS TO GIVE A SATIS FACTORY EXPLANATION IN THIS BEHALF. IN THIS CASE, ALL THE P AYMENTS WERE THROUGH CASH AND WERE UNUSUAL IN NATURE AND ASSESSEES EXPL ANATION WAS FOUND TO BE NOT SATISFACTORY. (II) G.R.OVERSEAS WHICH WAS ASSESSED TO TAX DENIED IN WR ITING HAVING PAID ANY CASH AMOUNT TO THE ASSESSEE AND THE OTHER TWO PARTIES COULD NOT BE TRACED EITHER BY POST OR BY PHYSICALLY SENDI NG THE INSPECTOR TO SERVE THE NOTICES U/S 133(6). (III) IF ASSESSEES REPLY IS NOT SATISFACTORY, THE UNEXPL AINED CASH CREDITS CAN BE TREATED AS INCOME OF THE ASSESSEE U/S 68. IN TH IS CASE, THERE ARE CLEAR FINDINGS OF FACT THAT ASSESSEES EXPLANATION IS NOT SATISFACTORY. NO FURTHER EXPLANATION IS GIVEN. (IV) THE FACT THAT ASSESSEE PRODUCED THE CONFIRMATIONS P URPORTING TO BE SIGNED BY THESE PARTIES CLEARLY INDICATES THAT ASSE SSEE WAS IN COMMUNICATION WITH THEM. IN SUCH CASES, THE ASSESS EE SHOULD HAVE PRODUCED THE PARTIES OR HAVE FAIRLY COOPERATED IN L OCATING THEIR WHEREABOUTS. THIS BURDEN HAS NOT BEEN DISCHARGED B Y THE ASSESSEE AND ITS EXPLANATION REMAINS UNSUBSTANTIATED. ITA-4638/DEL/2009 5 (V) THE ALTERNATIVE CLAIM OF BAD DEBTS BY THE ASSESSEE CANNOT BE ALLOWED WITHOUT ACTUALLY WRITING OFF THE BAD DEBTS IN ACCOU NT BOOKS AS SPECIFICALLY PROVIDED BY SECTION 36(1)(VII). IN TH E ABSENCE OF WRITING OFF A DEBT, IT CANNOT BE HELD THESE OUTSTANDING BAD DEBTS MORE SO WHEN THE ASSESSEES CLAIMS THAT THESE PARTIES ALLEG EDLY PAID THE AMOUNTS. IN THE ABSENCE OF ACTUAL WRITE OFF, THE B AD DEBTS CANNOT BE ALLOWED TO THE ASSESSEE U/S 36(1)(VII). (VI) THERE IS NO MERIT IN THE ARGUMENT THAT EVEN IF IT I S ASSUMED THAT THE ADDITION WAS MADE, IT WILL BE REVENUE NEUTRALIZED. THE ASSESSEE CAN CLAIM BAD DEBT BY ACTUALLY WRITING OFF IN ITS BOOKS SUBJECT TO THE VERIFICATION AS PER LAW. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND MERIT IN THE ARGUMENTS OF THE LEAR NED DR AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD:- (I) THESE CASH CREDITS ARE AMENABLE TO SECTION 68. IN THIS CASE, THE ASSESSEE CLAIMS TO HAVE RECEIVED CASH ALBEIT IN THE NAME OF PURPORTED TRADE DEBTORS. SINCE SECTION 68 DOES NOT MAKE ANY DIFFERENTIATION, THESE CASH ENTRIES ARE VERIFIABLE U/S 68. (II) THE BURDEN TO GIVE THE REASONABLE EXPLANATION IS ON THE ASSESSEE. IN THIS CASE, ASSESSEE CLAIMED TO HAVE RECEIVED THE AM OUNT FROM THE PARTIES WHICH IS NOT TENABLE. IF THE PARTIES GAVE CONFIRMATIONS, IT CLEARLY DEMONSTRATES THAT THE ASSESSEE COULD APPROA CH THEM, IN THAT CASE, IT WAS OBLIGATORY ON ITS PART TO PRODUCE THE PARTIES OR GIVE THEIR PROPER ADDRESSES TO THE DEPARTMENT. (III) THE FACT THAT G.R.OVERSEAS DENIED HAVING MADE THE C ASH PAYMENT CLINCHES THE ISSUE QUA THIS AMOUNT. ITA-4638/DEL/2009 6 (IV) IN CASE OF NASIR AHMAD & SONS AND ZABBAR AHMAD & SO NS, THE FACT THAT NEITHER THE CONFIRMATIONS CONTAINED THEIR PROP ER PARTICULARS NOT THEY WERE AVAILABLE BY WAY OF POSTAL CORRESPONDENCE OR INSPECTORS PHYSICAL VERIFICATION LEADS TO A CONCLUSION THAT TH E ASSESSEES EXPLANATION WAS NOT SATISFACTORY. THEREFORE, IT FA ILED TO DISCHARGE ITS BURDEN CAST BY SECTION 68. (V) THE ALTERNATIVE CLAIM OF BAD DEBTS CANNOT BE ALLOWE D U/S 36(1)(VII) UNLESS THEY ARE ACTUALLY WRITTEN OFF. A CLAIM OF B AD DEBT U/S 36(1)(VII) CANNOT BE ALLOWED ON IMAGINATION AND IS ALLOWABLE O NLY ON SATISFACTION OF MANDATORY REQUIREMENTS OF ACTUAL WR ITE OFF WHICH IS ABSENT IN THIS YEAR. 11. IN THE TOTALITY OF OUR OBSERVATIONS AND FINDING S, WE SEE NO REASON TO INTERFERE WITH THE ORDERS OF LOWER AUTHORITIES. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE, 2011. SD/- SD/- (K.D.RANJAN) (K.D.RANJAN) (K.D.RANJAN) (K.D.RANJAN) (R.P.TOLANI) (R.P.TOLANI) (R.P.TOLANI) (R.P.TOLANI) ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 17.06.2011. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ITA-4638/DEL/2009 7 ASSISTANT REGISTRAR