ACIT, Meerut V. M/s Fazal Frozen Foods Pvt. Ltd., Meerut

ITA 5626/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3410 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 10-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA
• Section: 68

Judgement Text

ITA NO. 5626/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 5626/DEL/2010 A.Y. : 2007-08 A CIT, CIRCLE - 1 , MEERUT VS. M/S FAZAL FROZEN FOODS PVT. LTD. 13, ISMAIL NAGAR, MEERUT (PAN/GIR NO. : AAACF7364F) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. K. SAMPATH, ADV. DEPARTMENT BY : SHRI KRISHNA, C.I.T. (D.R.) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 17.9.2 010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCO ME TAX (APPEALS) ERRED IN LAW AND FACTS IN DELETING THE A DDITION MADE U/S 41 OF THE IT ACT IGNORING THE FACT THAT THE ASSESSEE H AD NO EVIDENCE TO PROVE THE EXISTENCE OF THE LIABILITY SHOWN AS SUNDR Y CREDITORS. 3. IN THIS CASE, THE ASSESSEE IS A COMPANY ENGAGED I N THE BUSINESS OF SALE AND PURCHASE OF MEAT, FREEZING AND PROCESS ING OF MEAT, MANUFACTURING AND SALE OF ICE. DURING THE PERIOD U NDER CONSIDERATION, ASSESSING OFFICER OBSERVED SUNDRY CREDITORS OF ` 2,65,50,114.50. ASSESSING OFFICER PROCEEDED TO MAKE AN EXAMINATION OF THE SAME AND ITA NO. 5626/DEL/2010 2 CONCLUDED THAT THE CREDITORS WERE BOGUS. ON COMING TO THIS CONCLUSION, ASSESSING OFFICER HELD AS UNDER:- THE EXISTENCE OF THE PERSONS IS NOT ESTABLISHED AS THEY COULD NOT BE LOCATED AT THEIR ADDRESSES PROVIDED BY THE A SSESSEE. THE ASSESSEE FAILED TO FILE ANY DOCUMENTARY EVIDENCE B E IT VOTER-ID- CARD, PAN CARD, RATION CARD ETC., OF ANY KIND, IN O RDER TO ESTABLISH THEIR EXISTENCE. FROM THE LETTERS AND CERTIFICATES FILED BY THE ASSESS EE, IT IS SEEN THAT ALL OF THEM HAVE CERTIFIED THAT THEY DO NOT MAINTAIN BOOKS OF ACCOUNTS. THEIR PAN HAVE NOT BEEN PROVIDED BY TH E ASSESSEE, SO IT IS CLEAR THAT THEY ARE NOT INCOME TAX ASSESS EES. SO, THEY MUST BE ENGAGED IN A BUSINESS OF SMALL SCALE. BUT, T HE QUANTUM OF LIABILITY AS ON 31.3.2007 OWED BY THE ASSESSEE D OES NOT SUPPORT THIS VIEW. ANY UNEDUCATED, ILLITERATE BUSI NESSMAN OF A SMALL SCALE WILL NOT PROVIDE RAW MEAT TO THE ASSESSE E ON CREDIT. MOREOVER, BY ANY STRETCH OF IMAGINATION, SUCH A PERSO N GIVING GOODS ON CREDIT, AND THAT TOO, FOR SUMS RANGING FROM ` 97,500/- - ` 13,38,600/- IS NOT POSSIBLE. THIS BELIEF ALSO GE TS STRENGTHENED FROM THE FACT, THAT NONE OF THEM MAINTAIN BOOKS OF A CCOUNTS. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE, THE HUG E LIABILITY STANDING AGAINST THEM IS ALSO DOUBTFUL. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE, THE OU TSTANDING LIABILITY DECLARED BY THE ASSESSEE AGAINST THE 48 C REDITORS CANNOT BE CONSIDERED AS GENUINE, WHEN THE ASSESSEE HAS FAI LED TO DISCHARGE THE ONUS OF ESTABLISHING THAT THE LIABILI TY EXISTED ON 31.3.2007 AGAINST THESE SUNDRY CREDITORS. I, THERE FORE, HEREBY TREAT THE OUTSTANDING LIABILITY OF ` 2,65,50,114.50 AS BOGUS AND ITA NO. 5626/DEL/2010 3 ADD IT TO THE INCOME OF THE ASSESSEE U/S 41 OF THE I T ACT, 1961, TREATING THE SAME AS A CESSATION OF LIABILITY ON TH E PART OF THE ASSESSEE, AS THE ASSESSEE HAS FAILED TO ESTABLISH T HE EXISTENCE OF THE LIABILITY AGAINST THE SUNDRY CREDITORS. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) ELABORATELY CONSIDERED THE ISSUE AND HELD AS UNDER:- I HAVE CONSIDERED THE AO'S ORDER, THE AR'S SUBMISSI ONS AND THE FACTS OF THE CASE CAREFULLY. THE AO MADE THE AD DITION UNDER SECTION 41 IN RESPECT OF THE TRADE CREDITORS BECAUSE SHE WAS NOT SATISFIED BY THE CONFIRMATIONS FILED OF SUCH CREDITORS. THE AO HAS MADE THE ADDITION WITHOUT SPEC IFICALLY BRINGING OUT HOW THE CREDIT BALANCES OF SUPPLIERS A GAINST PURCHASE MADE FROM THEM COULD BE DEEMED AS REMISSION OR CESSATION OF THE ASSESSEES LIABILITY IN TERMS O F SECTION 41 OF THE ACT, THUS, NOT PAYABLE BY IT. IN THEIR RECENT DECISION, THE HON'BLE MUMBAI ITAT IN ACIT VS KNP SECURITIES PVT LTD. (2010-TIOL-232-ITAT-MUM) HAVE HELD AS UNDER:- SECTION 41 (1) - WHILE VERIFYING THE SUNDRY CREDIT ORS CONFIRMATION IN RESPECT OF TWO SUNDRY CREDITORS, HAV E NOT BEEN FURNISHED BY THE ASSESSEE AND AO TREATED THE AMOUNT9 AS INCOME U/S 41(1) - CIT(A) DELETES TH E ADDITION - HELD, THE A.O. HAS NOT MADE OUT ANY CASE THAT THERE IS CESSATION OF LIABILITY. JUST BECAUSE ASSESSEE HAS NOT BEEN ABLE TO FURNISH CONFIRMATION I N RESPECT OF THE OUTSTANDING CREDITS IT DOES NOT MEAN THAT THE AMOUNTS HAVE BEEN CEASED TO BE IN THE BOOKS ITA NO. 5626/DEL/2010 4 OF ACCOUNT AND BE TREATED AS INCOME U/S. 41(1). LD. COMMISSIONER OF INCOME TAX (APPEALS) ORDER UPHELD. FURTHERMORE, EVEN WHEN THE DEBTS HAVE BECOME TIME BARRED, THE SAME DOES NOT AMOUNT TO CESSATION OF LIABILITY U/S 41(1), AS HELD BY THE HON'BLE DELHI H IGH COURT IN THEIR RECENT DECISION IN CJT VS DALMIA FINANC E LTD (2010-TIOL-521-HC-DEL-IT) AS UNDER:- 'INCOME TAX - SECTION 41 (1) - WHETHER RECOVERY OF A DEBT BARRED BY LIMITATION AMOUNTS TO CESSATION OF LIABILITY UNDER SECTION 41(1) - NO.' THE HON'BLE JURISDICTIONAL ALLAHABAD HIGH COURT IN CIT VS. WILLARD INDIA LTD., 302 ITR 221 HELD THAT IN CA SE OF UNCLAIMED BALANCES IT DOES NOT AMOUNT TO CESSATION O F LIABILITY AND WOULD NOT BE ASSESSABLE UNDER SECTION 41. THUS, THE ADDITION SO MADE U/S 41 BY THE AO IS UNTENABLE . IT WAS REPRESENTED BY THE AR THAT CONFIRMATIONS WERE FILED ALONG WITH CONFIRMED COPIES OF ACCOUNTS. THE ASSESSEE ALSO PRODUCED DETAILS OF PURCHASES MADE DURING THE Y EAR, AMOUNTS PAID DURING THE YEAR AND ALSO THE CLOSING BA LANCES STANDING TO THE CREDIT OF MEAT SUPPLIERS. ACCORDING TO THE AO, SOME OF THE PARTIES COULD NOT BE FOUND AT THE G IVEN ADDRESSES. THE ASSESSEE ALSO EXPLAINED BEFORE THE A O THAT THE MEAT SUPPLIERS WERE SMALL TIME BUTCHERS WHO COLL ECTED MEAT FROM VARIOUS PLACES AND SUPPLIED IT IN A VERY CR UDE OPERATION. THEY WERE MOSTLY UNEDUCATED AND ILLITERAT E AND ITA NO. 5626/DEL/2010 5 THEREFORE, SLIGHT VARIATIONS IN THEIR SIGNATURES WA S QUITE NATURAL WHICH COULD NOT JUSTIFY ANY ADVERSE INFEREN CE TO BE DRAWN ABOUT THEIR EXISTENCE. IT WAS ALSO STATED BEF ORE THE AO THAT THERE WAS NO POSSIBILITY OF ANY VARIATIONS IN CASE OF THEIR THUMB IMPRESSIONS. IT WAS ALSO ASSERTED BEFORE THE AO THAT ALL THE PERSONS WERE AVAILABLE AND WERE LIVING AT THEIR GIVEN ADDRESSES AND THEIR ADDRESSES COULD NOT BE MOR E ELABORATE AS THEY WERE LIVING IN FAR-FLUNG AND REMO TE AREAS. IT WAS ALSO STATED BEFORE THE AO THAT THEY COULD BE EXAMINED BY SENDING AN INSPECTOR AT THEIR GIVEN ADDR ESSES FOR WHICH THE ASSESSEE WAS PREPARED TO BEAR THE COS T. IT WAS STATED DURING APPELLATE PROCEEDINGS THAT THE AO DID NOT CHOOSE TO DO SO AND THUS DID NOT DO HER DUTY IN TER MS OF THE ORDER OF THE APEX COURT IN THE CASE OF KALRA GLUE FA CTORY VS. ST.TRIBUNAL, 167 ITR 498 (SC). IT HAS ALSO BEEN STA TED THAT BOOKS OF ACCOUNT WERE ACCEPTED AND SO WERE THE TRAD ING RESULTS IN TOTALITY WHICH OBVIOUSLY MEANT THAT SUND RY CREDITORS WERE PART OF IT. THE AO IN EARLIER YEARS DULY ACCEPTED THE FACT OF SUNDRY CREDITORS APPEARING IN ACCOUNTS. DETAILED CHARTS OF SUNDRY CREDITORS AS ON 31.3.2006, 31.3.2007 AND 31.3.2008 WERE FILED AND IT WAS STATE D THAT SEVERAL NAMES OF CREDITORS IN THESE YEARS WERE COMMO N. IT IS FOUND THAT THESE CREDITORS WERE AGAINST PURCH ASES MADE BY THE ASSESSEE AND ACCEPTED BY THE AO. IT IS T HUS NOT EVEN A CASE THAT CAN BE COVERED UNDER THE PROVI SIONS OF, SECTION 68 SINCE THE GENUINENESS OF TRANSACTION ALREADY STANDS PROVED AND THE IDENTITY OF THE CREDITORS WAS KNOWN TO THE AO FROM THE DETAILS OF PURCHASES PRODUCED FOR HIS ITA NO. 5626/DEL/2010 6 EXAMINATION DURING THE ASSESSMENT PROCEEDINGS. MOREOV ER, CREDITWORTHINESS OF A TRADE CREDITOR AUTOMATICALLY S TANDS ACCEPTED ONCE THE PURCHASES ARE NOT QUESTIONED AS B OGUS BY THE AO SINCE EXTENDING CREDIT TO CUSTOMERS IS AN ABSOLUTELY NORMAL TRADE PRACTICE. RESPECTFULLY FOLLOWING THE DECISIONS OF THE HIGHER AUTHORITIES CITED ABOVE, THE ADDITION MADE UNDER SE CTION 41 BY THE AO WITHOUT BRINGING ON RECORD AS TO HOW THE SAME COULD BE DEEMED AS REMISSION AND CESSATION OF LIABIL ITY STANDS DELETED. GROUNDS ARE ALLOWED. 5. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) O BSERVED THAT ASSESSEE HAS FILED CONFIRMATIONS AND COPIES OF ACCO UNTS. HE ALSO FOUND THAT THESE CREDITORS WERE AGAINST PURCHASE MADE BY T HE ASSESSEE AND ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSING O FFICER HAS MADE THE ADDITION WITHOUT SPECIFICALLY BRINGING OUT HOW THE CREDIT BALANCES OF SUPPLIERS AGAINST PURCHASES MADE FROM THEM COULD BE DEEMED AS REMISSION OR CESSATION OF LIABILITY IN TERMS OF SECT ION 41 OF THE ACT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS FUR THER NOTED THAT THE PERSONS INVOLVED ARE SMALL TIME BUTCHERS WHO COLL ECTED MEAT FROM VARIOUS PLACES AND SUPPLIED IN A VERY CRUDE OPERATI ON. THEY WERE MOSTLY UNEDUCATED AND ILLITERATE. IT WAS ALSO STATE D BEFORE THE ASSESSING OFFICER THAT THEY COULD BE EXAMINED BY SE NDING INSPECTOR AT THEIR GIVEN ADDRESSES FOR WHICH ASSESSEE WAS PREPAR ED TO BEAR THE COST. BUT THE ASSESSING OFFICER DID NOT CHOOSE T O DO SO. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS FURTHER NOT ED THAT BOOKS OF ITA NO. 5626/DEL/2010 7 ACCOUNTS WERE ACCEPTED AND SO WERE THE TRADING RESU LTS WHICH OBVIOUSLY INCLUDED SUNDRY CREDITORS. THE ASSESSING OFFICER IN EARLIER YEARS DULY ACCEPTED THE SUNDRY CREDITORS APPEARING IN ACCOUNTS. MANY CREDITORS IN CURRENT YEAR WERE ALSO CREDITORS I N EARLIER YEARS ALSO. THUS, WE FIND THAT THE LD. COMMISSIONER OF INCOME TA X (APPEALS) HAS MADE A REASONABLE ORDER WHICH DOES NOT NEED ANY INTE RFERENCE ON OUR PART. ACCORDINGLY, WE UPHOLD THE SAME. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENU E STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/7/2011. SD/- SD/- [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 22/7/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3.CIT 4.CIT (A) 5. DR, IT AT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES