The ITO, Ward-8(1), Ahmedabad V. Sanghvi Fincap Ltd., Ahmedabad

ITA 536/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89437 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 21-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 22-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: M K PATEL
• Keywords: Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: S H RI SHAILENDRA KR. YADAV , JUDICIAL MEMBER AND SHR I ANIL CHATURVEDI , ACCOUNTANT MEMBER THE ITO, WARD 8(1), AHMEDABAD (APPELLANT) VS SANGHVI FINCAP LTD, 3 - 54, DHAVAL AVENUE B/H ASSOCIATE PETROL PUMP, NAVRANGPURA, AHMEDABAD PAN: AACCS7458K (RESPONDENT) REVENUE BY: SMT. SONIA KUMAR, SR.D.R. ASSESSEE BY: SHRI M.K. PATEL, A.R. DATE OF HEARING : 21 - 04 - 2 015 DATE OF PRONOUNCEMENT : 14 - 05 - 2 015 / ORDER P ER : SHAILENDRA KR. YADAV , JUDICIAL MEMBER : - THIS A PPEAL HAS BEEN FILED BY REVENUE AG AINST THE ORDER OF LD. CIT(A) - X I V , AHMEDABAD DATED 05 TH OCTOBER, 2010 ON FOLLOWING GROUNDS: - 1. THE LD. CIT(A) - XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF DISALLOWANCES OF I T A NO . 536 / A HD/20 11 A SSESSMENT YEAR 200 7 - 08 I.T.A NO. 536 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ITO VS. SANGHVI FINCAP LTD 2 CESSATION OF LIABILI TY MADE BY THE ASSESSING OFFICER U/S. 41(1) OF THE ACT AMOUNTING TO RS. 81,60,350/ - 2. THE LD. CIT(A) - XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF UNACCOUNTED PURCHASE AND SALE OF SHARES OF RS. 14,727/ - . 2. ASSESSEE IS ENGA GED IN THE BUSINESS OF TRADING OF SHARES AND SECURITIES. ASSESSMENT HAS BEEN COMPLETED DETERMINING TOTAL INCOME OF RS. 79,17,988/ - AS AGAINST RETURN ED TOTAL LOSS OF RS. 1,37,176/ - BY MAKING ADDITION OF RS. 81,60,350/ - ON ACCOUNT OF CESSATION OF LIABILITY U/S. 41(1) OF THE ACT AND RS. 14 ,7,47/ - ON ACCOUNT OF UNACCOUNTED PURCHASE AND SALE OF SHARES. THUS , FIRST ISSUE IS AGAINST THE ADDITION OF RS. 81,60,350/ - ON ACCOUNT OF CESSATION OF LIABILITY U /S. 41(1) OF THE ACT. AS PER ASSESSING OFFICER , THE LIABILIT Y IN DISPUTE WAS INCURRED ON ACCOUNT OF PURCHASE OF SHARES FROM VARIOUS PARTIES FOR TRADING PURPOSES, B UT PAYMENT HAD NOT BEEN MADE TO THEM . THE AS SESSEE ALSO FURNISHED LIST OF SUCH CREDITORS TO WHOM PAYMENT HAD TO BE MADE. ASSESSING OFFICER HAS OBSERVED THA T ASSESSEE HAS DEBITED THE AMOUNT IN PROFIT AND LOSS ACCOUNT IN RESPECT IVE YEAR IN WHICH TRANSACTION HAS TAKEN PLACE . COPY OF ACCOUNT IN RESPECT OF THESE PARTIES FROM END OF THE YEAR IN WHICH TRANSACTION HAD TAKEN PLACE TO TILL DATE AND PURCHASE BILL S IN RESPECT OF PURCHASES MADE DURING RESPECTIVE YEARS WERE SUBMITTED. IN RESPECT OF REM AINING CREDITORS AS LISTED BY ASSESSING OFFICER IN THE YEAR THE OUTSTANDING AMOUNT TO THEM WAS RS. 81,60,350/ - IN RESPECT OF WHICH ASSESSEE FAILED TO FILE CONFIRMATION AND ALSO FAILED TO FURNISH ADDRESS IN I.T.A NO. 536 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ITO VS. SANGHVI FINCAP LTD 3 S EVERAL CASES. ASSESSING OFFICER STATED THAT TRANSACTION WITH THESE CREDITORS HAVE TAKEN PLACE IN A.Y . 1996 - 97 AND FROM THE DATE OF TRANSACTION TIL L DATE NOT A SINGLE RUPEE HAS BEEN PAID IN SPITE OF LAPSES OF 12 TO 13 YEARS. ACCORDING TO ASSESSING OFFICER , ASSESSEE COULD NEITHER BRING ANY CONFIRMATION FROM CREDITOR NOR COULD IT PRODUCE SUPPORTING EVIDENCE TO PROVE THAT LIABIL ITY STILL EXIST S . ULTIMATELY, ASSESSING OFFICER CONCLUDED THAT ALL LIABILITY TOWARDS CREDI TORS TOTALING TO RS . 81,60,350/ - WAS NO MORE PAID BY ASSESSEE AND ARE CEASED LIABILITY AS COVERED BY SECTION 41(1) OF THE ACT. MATTER WAS CARRIED BEFORE FIRST APPELLATE AUTHORITY WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF THE ASESSEE AND HAVING CONSIDERED THE SAME CIT(A) DELETED ADDITION THAT OF DISALLOWANCES OF CESSATION OF LIABILITY MADE BY ASSESSING OFFICER U/S. 41(1) OF THE ACT AMOUNTING TO RS. 81,60,350/ - . THE SAME HAS BEEN OPPOSED ON BEHALF OF THE REVENUE INTERALIA SUBMITTING THAT CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF DISALLOWANCE OF CESSATION OF LIABILITY. ACCORDINGLY , ORDER OF THE CIT(A), BE SET A SIDE AND THAT OF AO BE RESTORED. ON THE OTHER HAND, LD. AR SUPPORTED THE ORDER OF CIT(A). 2.1 AFTER GOING THROUGH RIVAL SUBMI SSIONS AND MATERIAL ON RECORD, WE FIND THA T ASSESSEE - COMPANY HAD PURCHASED SHARES FROM VARIOUS PARTIES AND THE SAME WERE DELIVERED TO COMPANY IN PHYSICAL FORM. SINCE THE SAME COULD NOT BE SUBSEQUENTLY TRANSFERRED IN THE NAME OF ASSESSEE - COMPANY ON ACCOUN T OF I.T.A NO. 536 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ITO VS. SANGHVI FINCAP LTD 4 CERTAIN DISPUTES BETWEEN PARTIES. THE PAYMENTS TOWARDS SAID SHARES WERE NOT MADE AND IT REMAINED OUTSTANDING IN BOOKS OF COMPANY SINCE 1996 - 97. EVEN TODAY COMPANY IN POSSESSION OF SAID SHARES IN PHYSICAL FORM AND THE SAME ARE DEALT AS STOCK IN TRADE IN AUDITED BOOKS OF ACCOUNTS . IT IS CLAIMED THA T COPIES OF SHARES HAVE BEEN FI L E D WITH SUBMISSIONS BEFORE AUTHORITIES BELOW AND ORIGINAL SHARES HAVE ALSO BEEN PRODUCED FOR VERIFICATION. IN FACT, THE ADDITION OF DISALLOWANCE OF CESSATION OF LIABILITY U/S . 41(1) IS A BASIS FOR MAKING ADDITION. THE RELEVANT PORTION OF SECTION 41(1) OF THE ACT IS REPRODUCED HEREIN FOR READY REFERENCE: - SECTION 41(1 ) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, - (A) THE FIRST MENTIONED PERSON HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF S UCH LOSS OR EXPENDITURE OR SOM E BENEFI T IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFITS & GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME - TAX AS THE INCOME TAX OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTIONS HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETHER IN CASH OR IN AN Y OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF WHICH LOSS OR EXPENDITURE WAS INCURRED BY THE FIRST ME NTIONED PERSON OR SOME I.T.A NO. 536 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ITO VS. SANGHVI FINCAP LTD 5 BENEFIT I N RESPECT OF THE LIABILITY, REFERRED TO IN CLAUSE(A) BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY THE SUCCESSOR IN BUSINESS OR THE VALUE OF BENEFIT ACCRUING TO THE SUCCESSOR IN BUSINESS SHALL BE DEEMED TO BE PROFITS & GAINS OF THE BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME - TAX AS THE INCOME OF THAT PREVIOUS YEAR. [ EXPLANATION 1 - FOR THE PURPOSES OF THIS SUB - SECTION, THE EXPRESSION 'LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF' SHALL INCLUDE THE REMISSION OR CESSATION, OF ANY LIABILITY BY A UNILATERAL ACT BY THE F IRST MENTIONED PERSON UNDER CLAUSE (A) OR THE SUCCESSOR IN BUSINESS UNDER CLAUSE (B) OF THAT SUB - SECTION BY WAY OF WRITING OFF SUCH LIABILITY IN HIS ACCOUNTS,] [EXPLANATION 2 - FOR THE PURPOSE OF THIS SUB - SECTION, 'SUCCESSOR IN BUSINESS' MEANS, - (V) WHERE THERE HAS BEEN AN AMALGAMATION OF A COMPANY WITH ANOTHER COMPANY, THE AMALGAMATED COMPANY; (VI) WH ERE THE FIRST MENTIONED PERSON I S SUCCEEDED BY ANY OTHER PERSON I N THAT BUSINESS OR PROFESSION , THE OTHER PERSON; (VII) WHERE A FIRM CARRYING ON A BUSINESS OR PROFESSI ON IS SUCCEEDED BY ANOTHER FIRM , THE OTHER FIRM:] (VIII) WHERE THERE HAS BEEN A DEMERGER, THE RESULTING COMPANY.]' THAT FROM THE PERUSAL OF THE ABOVE SECTION, I N ORDER TO APPLY AND INVOKE THE PROVISIONS OF SECTION 41(1) OF THE ACT, THE FOLLOWING POINTS ARE TO BE KEPT IN MIND; (A) IN THE COURSE OF ASSESSMENT FOR AN EARLIER YEAR, ALLOWANCE OR DEDUCTION HAS BEEN MADE I N RESPECT OF TRADING LIABILITY I NCURRED BY THE ASSESSEE. (B) SUBSEQUENTLY, A BENEFIT IS OBTAINED IN RESPECT OF S UCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION I.T.A NO. 536 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ITO VS. SANGHVI FINCAP LTD 6 THEREOF BY THE FIRST MENTIONED PERSON I.E. THE ASSESSEE DURING THE YEAR IN WHICH SUCH EVENT OCCURRED. ON PLAIN READING OF THE PROVISION OF THE SAID SECTION, IT IS CLEAR THAT SAME ARE APPLICABLE ONLY IF ASSESSEE HAS OBTAINED WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER , ANY AMOUNT IN RESPECT O F SUCH LOSS OR EXPENDITURE OR SO ME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION OF THEREOF, THE AMOUNT OBTAINED BY SUCH PERS ON OR VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFIT AND GAIN OF BUSINESS OR PROFESSION AND AC CORDINGLY CHARGEABLE TO INCOME TAX AS THE INCOME OF THAT P REVIOUS YEAR. IN CASE BEFORE US IT IS NOT THE CASE OF ASSESSING OFFICER THAT ASSESSEE - C OMPANY HAS RECEIVED ANY CASH OR BENEFIT IN RESPECT OF TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF AS ENVISAGED IN THE SAID SECTION. ASSESSEE HAS FI L E D VARIOUS DETAILS AND EXPLANATION IN RESPECT O F OUTSTANDING CREDITORS IN THE FORM OF COMPLE TE LIST OF CREDITORS, COPY OF LEDGER ACCOUNT OF PARTIES FROM YEAR 1996 - 97 IN WHICH LIABILITY WAS RAISED TILL THE YEAR UNDER CONSIDERATION, ORIGINAL BILLS FOR PURCHASE OF SHARES FOR WHICH LIABILITY IS OUTSTANDING ETC. ASSESSEE HAS ALSO FURNISHED CONFIRMATI ON OF FEW PAR TIES AND ALSO EXPLAINED THAT ADDRESSE S WERE FURNISHED AS AVAILABLE WITH HIM. IN RESPECT OF GOENKA GROUP IT WAS CLARIFIED THAT THERE WAS CERTAIN DISPUTE WITH THEM RESULTING IN NON - TRANSFER OF SHARES IN NAME OF COMPANY HENCE RE SULTING IN UNPAID LIABILITY. ASSESSING OFFICER HAS NOT DEALT CONFIRMATIONS FI L E D IN THIS REGARD. IN VIEW OF ABOVE, CIT(A) I.T.A NO. 536 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ITO VS. SANGHVI FINCAP LTD 7 RIGHTLY HELD THAT ADDITION TO THE EXTENT OF RS. 81,44,439/ - U/S. 41(1) OF THE ACT WAS NOT JUSTIFIED. SAME WAS DELETED. THIS VIEW OF CIT(A) IS FORTI FIED BY THE HON BLE GUJARAT HIGH COURT IN CASE OF COMMISSIONER OF INCOME TAX VS. DHOBIBHAI RAMJEELAL ATARA WHEREIN IT HAS BEEN HELD THAT PROVISIONS OF SECTION 41(1) OF THE ACT WOULD APPLY IN CASE WHERE THERE HAS BEEN REMISSION OR CESSATION OF LIABILITY DUR ING THE YEAR UNDER CONSIDERATION SUBJECT TO CONDITIONS CONTAINED IN STATUTE BEING FULFILLED. ADDITIONALLY , SUCH CESSATION OR REMISSION HAS TO BE DURING PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. EVEN IN CASE BEFORE US BOTH ELEMENT S ARE MISSING THERE IS NOTHING ON RECORD TO SUGGEST THAT THERE WAS REMISSION OR CESSATION OF LIABILITY THAT TOO PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN VIEW OF ABOVE , ORDER OF CIT(A) IS UPHELD WHEREBY HE HAS DELETED THE ADDIT ION OF DISALLOWANCE OF CESSATION OF LIABILITY MADE BY AO U/S. 41(1) OF THE ACT AMOUNTING TO RS. 81,60,350/ - . 3 . NEXT ISSUE IS WITH REGARD TO ADDITION OF RS. 14,727/ - ON ACCOUNT OF ALLEGED UNACCOUNTED SALE. 4 . THE SAID ADDITION WAS MADE IN TWO PARTS ; (A ) UNACCOUNTED SALE OF SHARES 14,490/ - AND (B) UNACCOUNTED PURCHASE OF RS. 237/ - . ASSESSING OFFICER STATED THAT ON VERIFICATION OF TRANSACTION OF VARIOUS SHARE TRADING ACCOUNT IT WAS NOTICED THAT ASSESSEE HAD PURCHASED 1,21,483 SHARES OF I.T.A NO. 536 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ITO VS. SANGHVI FINCAP LTD 8 SPECTRA AND H AD SOLD 59 211 SHARES WHICH IMPLIES THAT ASSESSEE SH OULD HAVE SHOWN A BALANCE OF 62272 SHARES AS CLOSING STOCK. AFTER TAKING INTO CONSIDERATION THE TOTAL HOLDING IN DEMAT ACCOUNT OF 4791 AND POOL ACCOUNT HOLDING OF 56981 SHARES , IT WA S CONCLUDED THAT AS SES SEE HAS BEEN SHOWING A BALANCE OF ONLY 61 772 SHARES AND IN ABSENCE OF ANY REPLY OR EVIDENCE, THE BALANCE OF 500 SHARES VALUED AT 14,490/ - , SAME WAS ADDED AND SIMILARLY ADDITION OF 237/ - WAS ALSO MADE. 4.1 IN APPEAL, VARIOUS CONTENTIONS WERE RAISED ON BE HALF OF THE ASSESSEE AND HAVING CONSIDERED THE SAME CIT(A) GRANTED RELIEF WITH REGARD TO ADDITION OF RS. 14,490/ - AND REST ADDITION OF R S. 237/ - WAS CONFIRMED. UNFORTUNATELY, REVENUE HAS TAKEN WHOLE AMOUNT OF RS . 14,270/ - SO PRACTICALLY ISSUE BEFORE US I S WITH REGARD TO D E LE TION OF R S. 14,490/ - WHICH WAS DELETED BY CIT(A). 4.2 WE FIND THAT ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE SHOULD HAVE SHOWN 62,272/ - SHARES OF S PECTRA I NDUSTRIES AS CLOSING STOCK WHILE ASSESSEE HAD BEEN SHOWING 61 772 SHARES I.E. 4791 AS PER DEMAT ACCOUNT 5698 IN THE POOL HOLDING ACCOUNT. THE DETAILS OF CLOSING STOCK FURNISHED REVEALED THAT ASSESSEE HAD SHOWN 62 272 SHARES OF SPECTRA INDUSTRIES AND NOT 71772 SHARES AS STATED BY ASSESSING OFFICER BASED ON DEMAT ACCOUNT. THE STAND OF ASSESSEE SHORTAGE OF 500 SHARES IN DEMAT AND POOL HOLDING AS ON I.T.A NO. 536 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ITO VS. SANGHVI FINCAP LTD 9 ACCOUNT OF TRANSACTION OF PURCHASE OF 7500 SHARES OF SPECTRA INDUSTRIES ON 29 - 03 - 2007 OUT OF WHICH THERE WAS SHORT DELIVERY OF 500 SHARES AT THE YEAR AND OR FOUND PLAUSIBLE BY CIT SIN CE IT IS AS PER SYSTEM OF STOCK EXCHANGES PAY IN AND PAY OUT, DELIVERY OF SHARES NOR MALLY COMES AFTER 3 DAYS AND IN CASE THERE IS SHORT DELIVERY F R O M STOCK THEN EXCHANGE PROCEEDINGS TO AUCTION SHARES AND ONLY AFTER 7 - 8 DAYS THEREOF BROKERS ARE ABLE TO CONF IRM WHETHER DELIVERY OF SHARES HAD COME OR NOT OR WHETHER THEY GOT CLOSE OUT OPPORTUNITIES OF THE SHARES . SELL DELI VERY THEN IT WILL SHOW SHORT TO THE EXTENT IN THE POOL ACCOUNT UNTIL BROKERS GET CONFIRMED FROM EXCHANGE. IN CLOSING , AS P ER BOOKS AND ACCO UNT TOTAL STOCK WAS SHOWN AS 62272 SHARES IN NOT 61772 SHARES AS ASSUMED BY ASSESSING OFFICER. ACCORDINGLY , CIT (A) HELD THAT THERE IS NO REASON FOR ADDITION ON THE BASIS OF SHORTAGE OF DELIVERY OF 500 SHARES SINCE CONTRA ACCOUNT OF BROKER ALSO SHOWS STOCK AT 62272 SHARES. ACCORDINGLY, CIT(A) WAS JUSTIFIED IN DELETING ADDITION OF RS. 14,490/ - , SAME IS CONFIRMED. 5 . AS A RESULT, APPEAL FILED BY REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONED HEREINABOVE AT CAPTION PAGE 1. SD/ - SD/ - ( ANIL CHATURVEDI ) ( SHAILENDRA KR. YADAV ) ACCOUNTANT MEM BER JUDICIAL MEMBER AHMEDABAD : DATED 1 4 /05 /2015 AK I.T.A NO. 536 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ITO VS. SANGHVI FINCAP LTD 10 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,