ITO, Ghaziabad V. M/s. Ratan Industries, Ghaziabad

ITA 4751/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3963 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 11-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 29-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH : F NEW DELHI) (DELHI BENCH : F NEW DELHI) (DELHI BENCH : F NEW DELHI) (DELHI BENCH : F NEW DELHI) BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER SHRI A.D. JAIN, JUDICIAL MEMBER SHRI A.D. JAIN, JUDICIAL MEMBER SHRI A.D. JAIN, JUDICIAL MEMBER I.T.A. NO.4751/DEL./2010 I.T.A. NO.4751/DEL./2010 I.T.A. NO.4751/DEL./2010 I.T.A. NO.4751/DEL./2010 (ASSESSMENT YEAR : 2005 (ASSESSMENT YEAR : 2005 (ASSESSMENT YEAR : 2005 (ASSESSMENT YEAR : 2005- -- -06) 06) 06) 06) ITO, WARD 2(2), ITO, WARD 2(2), ITO, WARD 2(2), ITO, WARD 2(2), VS. VS. VS. VS. RATAN INDUSTRIES, RATAN INDUSTRIES, RATAN INDUSTRIES, RATAN INDUSTRIES, GHAZIABAD. GHAZIABAD. GHAZIABAD. GHAZIABAD. 39, OM NAGAR, MOHAN NAGAR, 39, OM NAGAR, MOHAN NAGAR, 39, OM NAGAR, MOHAN NAGAR, 39, OM NAGAR, MOHAN NAGAR, GHAZIABAD. GHAZIABAD. GHAZIABAD. GHAZIABAD. (PAN/GIR NO. : AAHFR4667H) (PAN/GIR NO. : AAHFR4667H) (PAN/GIR NO. : AAHFR4667H) (PAN/GIR NO. : AAHFR4667H) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : NONE ASSESSEE BY : NONE ASSESSEE BY : NONE ASSESSEE BY : NONE REVENUE BY : SMT. ANUSHA KHURANA,SR.DR REVENUE BY : SMT. ANUSHA KHURANA,SR.DR REVENUE BY : SMT. ANUSHA KHURANA,SR.DR REVENUE BY : SMT. ANUSHA KHURANA,SR.DR ORDER ORDER ORDER ORDER PER A.D. JAIN, JM THIS IS DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2005-06 CONTENDING THAT THE CIT(A) HAS ERRED IN FAILING TO A PPRECIATE THAT IN THE ASSESSEES CASE, NEITHER OF THE CONDITIONS REQUIRED FOR AP PLICATION OF SECTION 41(1) OF THE I.T. ACT, 1961 WERE FULFILLED A ND THEREBY ERRONEOUSLY DIRECTING THAT THE AMOUNT OF `951748 ON ACCOUNT OF UNVERIFIABLE SUNDRY CREDITORS BE ADDED IN ASSESSMENT YEAR 2004-05, INSTEAD OF IN ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACT URING PLANT AND MACHINERY FOR INDUSTRIAL UNITS. IT FILED A RETURN OF INCOME SHOWING INCOME OF `180517. THE AO, INTER ALIA, OBSER VED THAT IN THE BALANCE SHEET, THE ASSESSEE HAD SHOWN 61 SUNDRY CREDITORS O F `3125526. THE AO ISSUED LETTERS TO 58 CREDITORS. OF T HEM, ONLY 4 PARTIES FILED REPLIES. THE AO GOT CONDUCTED ENQUIRIE S IN RESPECT OF LOCAL PARTIES. HOWEVER, THEY WERE NOT FOUND. THE AO HELD THAT THESE TRADING LIABILITIES WERE NOT ACTUALLY EXISTING AND TH AT THEY HAD CEASED TO EXIST. AS SUCH, THE AO ADDED THE UNVERIFIABLE LIAB ILITY OF 45 CREDITORS, AMOUNTING TO `951740 U/S 41(1) OF THE ACT. I.T.A. NO.4751/DEL./2010 (A.Y. : 2005-06) 2 3. BY VIRTUE OF THE IMPUGNED ORDER, THE CIT(A) DELE TED THIS ADDITION. NONE HAS PUT IN APPEARANCE ON BEHALF OF THE ASSESSEE, D ESPITE NOTICE. HOWEVER, FINDING THAT THE MATTER CAN BE PROCEEDED W ITH IN THE ABSENCE OF THE ASSESSEE, WE ARE DOING SO. 4. CHALLENGING THE IMPUGNED ORDER, THE LD.DR HAS CON TENDED THAT WHILE WRONGLY DELETING THE ADDITION CORRECTLY MADE, FAILING TO APPRECIATE THAT THE CONDITIONS REQUIRED FOR APPLICAT ION OF SECTION 41(1) WERE FULFILLED, THE CIT(A) HAS FAILED TO CONSIDER THA T AS PER THESE CONDITIONS, THE AMOUNTS MUST HAVE BEEN ALLOWED AS A DED UCTION IN SOME EARLIER YEARS AND DURING THE ASSESSMENT YEAR IN QUEST ION, THE ASSESSEE MUST RECEIVE SOME BENEFIT BY WAY OF CESSATION OR R EMISSION OF LIABILITY; THAT IT HAS NOT BEEN CONSIDERED THAT IN THE EARLIER YEARS, DEDUCTION ON ACCOUNT OF PURCHASES WAS ALLOWED DURING T HE YEAR UNDER CONSIDERATION AND THE AO PROVED THAT THE TRADING LIA BILITY HAD CEASED TO EXIST, ON ACCOUNT OF UNVERIFIABLE SUNDRY CREDITORS; THAT THE CIT(A) HAS ERRONEOUSLY DIRECTED THAT THE AMOUNT OF `951748 O N ACCOUNT OF UNVERIFIABLE SUNDRY CREDITORS BE ADDED IN ASSESSMENT YEAR 2004-05, INSTEAD OF IN ASSESSMENT YEAR 2005-06, EVEN THOUGH THE A O HAD PROVED THAT THE TRADING LIABILITIES CEASED TO EXIST DU RING ASSESSMENT YEAR 2005-06 ON ACCOUNT OF UNVERIFIABLE CREDITORS; A ND THAT THE CIT(A) NOWHERE DISPUTED THE APPLICATION OF THE PROVISIONS OF SECTION 41(1) OF THE ACT, NOR DID THE ASSESSEE RAISE ANY DISPUTE REGARDING THE YEAR OF TAXABILITY. 5. WE HAVE HEARD THE LD.DR. AND HAVE PERUSED THE MAT ERIAL ON RECORD. THE AO MADE THE ADDITION, COMING TO THE CO NCLUSION THAT THE TRADING LIABILITIES WERE NOT ACTUALLY EXISTING OR HAD CEASED TO EXIST. THIS CONCLUSION OF THE AO WAS ARRIVED AT, SINCE OUT OF THE LETTERS ISSUED TO 58 CREDITORS OF THE ASSESSEE, ONLY FOUR WERE REPLIED TO AND IN THE ENQUIRIES WERE GOT CONDUCTED THROUGH THE INSPECTOR, C ONCERNING LOCAL PARTIES, THEY WERE NOT FOUND TO BE PRESENT. HOWEVER, UNDENIABLY, AS I.T.A. NO.4751/DEL./2010 (A.Y. : 2005-06) 3 NOTED BY THE CIT(A), THE AMOUNTS WERE OPENING AND CL OSING BALANCES. THERE WAS NO TRANSACTION CARRIED OUT DURING THE YEAR. THE AMOUNT OF `951748 REPRESENTED JOB WORK PAYMENTS. THE ASSESSEE, ON ITS PART, HAD SUBMITTED ACCOUNT SETTLEMENTS OF ITS 45 CREDITORS BE FORE THE AO. THEY WERE DULY CERTIFIED BY THE PARTIES. IN ALL THE 45 CREDITORS, THERE WERE OPENING CREDIT BALANCES OUTSTANDING AS ON 01.04.0 4. THESE WERE THE VERY AMOUNTS SHOWN AS CLOSING CREDITORS BALANCE AS ON 31.3.05. THE PAYMENTS OF ALL THE CREDITORS WERE MADE IN THE NE XT FINANCIAL YEAR. THE LIABILITIES ARE SHOWN IN THE BALANCE SHEET. THEY WERE NOT AT LEAST WRITTEN OFF TO THE P&L A/C MEANING THEREBY THE ASSESSEE HAS ACKNOWLEDGED THESE LIABILITIES. THE REVENUE HAS NO MA TERIAL WHATSOEVER TO SAY THAT SUCH LIABILITIES CEASED TO EXIST W ITHIN THE MEANING OF SECTION 41(1) OF THE ACT. IN FACT, THE L IABILITIES WERE DISCHARGED DURING THE NEXT FINANCIAL YEAR CONFIRMING THE EXISTING LIABILITIES AS AT THE END OF THE PREVIOUS YEAR. WE, T HEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A), DELETING THE ADDITION THEREBY. 6. IN VIEW OF THE ABOVE, FINDING NO MERIT THEREIN, THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT IS REJECTED. 7. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 13.05.2011. SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: MAY 13, 2011. *SKB* COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A), GHAZIABAD. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT I.T.A. NO.4751/DEL./2010 (A.Y. : 2005-06) 4