Sh. Bharat bhushan Prop., Moga V. Assistant Commissioner of Income Tax, Ludhiana

ITA 577/ASR/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5761 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-01-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 21-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BHAWANI SHANKAR
• Keywords: Business income; Capital receipt; Onus to prove
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NO. 577(ASR)/2016 AS SESSMENT YEAR: 2012-13 [PAN: AASPB 0439L] SH. BHARAT BHUSHAN PROP. M/S KHUBI RAM JOHRI LAL, OLD MARKET, MOGA VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-MOGA, LUDHIANA. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VINAMAR GUPTA ( C.A.) RESPONDENT BY: SH. BHAWANI SHANKAR (D.R.) DATE OF HEARING: 17.01.2018 DATE OF PRONOUNCEMENT: 31.01.2018 ORDER PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE AGITATING THE ORD ER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-4, LUDHIANA ('CIT(A)' FOR S HORT) DATED 26.09.2016, DISMISSING THE ASSESSEES APPEAL CONTESTING HIS ASS ESSMENT U/S. 143(3) OF THE INCOME TAX ACT ('THE ACT' HEREINAFTER) DATED 20.03. 2015 FOR ASSESSMENT YEAR (AY) 2012-13. 2. THE ISSUE ARISING IN THE INSTANT APPEAL IS WITH REGARD TO THE APPLICATION OF SECTION 41(1) AND/OR SECTION 28(IV) OF THE ACT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEES ACCOUNTS WERE DURING THE COURS E OF ASSESSMENT PROCEEDINGS FOUND TO BEAR SUNDRY CREDITS, DETAILED AS UNDER, OU TSTANDING AS SUCH, I.E., WITHOUT ITA NO.577 (ASR)/2016(AY 2012-13) BHARAT BHUSHAN V. ACIT 2 ANY MOVEMENT, FOR THE LAST MANY YEARS, ADMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, SH. VINAMAR GUPTA, BEFORE US TO BE OVER 1 0 YEARS: SR. NO NAME OF THE PERSON AMOUNT OUTSTANDING NATURE 1 . SH. JOHRI LAI MITTAL (DECEASED) GRANDFATHER RS.3,38,642/- UNSECURED LOAN 2. SH. MANGAT RAI MITTAL (DECEASED) RS.2,07,940/- UNSECURED LOAN 3. BHUSHAN TRADING CO. RS.2,14,347/- SUNDRY CREDITOR 4. KHUBI RAM JOHRI LAI & CO. (HUF OF GRANDFATHER) RS.94,066/- SUNDRY CREDITOR 5. RAJIV TEXTILES (FIRM OF SH. MANGAT RAI DECEASED) RS.4,84,288/- SUNDRY CREDITOR 6. VARINDER KUMAR & BROS. (FIRM OF SH. MANGAT RAI DECEASED) RS.86,577/- SUNDRY CREDITOR TOTAL RS.L 4,25,860/- HE WAS ACCORDINGLY SHOW CAUSED BY THE ASSESSING OFF ICER (AO) QUA INVOCATION OF SECTION 41(1), READING AS UNDER; IT BEING APPARENT THAT THE SAME WERE NOT PAYABLE ANY LONGER: PROFITS CHARGEABLE TO TAX. 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY I NCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO AS THE FIRST-MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, - (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHE R IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR E XPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSA TION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHAL L BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE T O INCOME TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION I N RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEA R OR NOT; OR. ITA NO.577 (ASR)/2016(AY 2012-13) BHARAT BHUSHAN V. ACIT 3 THE ASSESSEE EXPLAINED THE SUNDRY CREDITORS TO REPR ESENT ONLY ADVANCE OF MONEY. WHILE THE UNSECURED LOANS WERE GIVEN BY FATHER AND GRANDFATHER, BOTH SINCE DECEASED, THE ADVANCES WERE BY THE BUSINESS CONCERN S IN WHICH THEY WERE PARTNERS/PROPRIETORS, FOR THE PURPOSE OF PURCHASE O F GOODS/SERVICES. NO BUSINESS WAS PRESENTLY BEING UNDERTAKEN IN ANY OF THEM. AS R EGARDS THE REASON FOR NON- PAYMENT, THIS WAS AS THE SAME, FORMING PART OF THE ESTATE OF THE FATHER AND GRANDFATHER, HAD TO BE, ALONG WITH THE OTHER IMMOVA BLE PROPERTY BELONGING TO THEM, DETAIL OF WHICH WAS ALSO FURNISHED, DIVIDED A MONGST THEIR NINE LEGAL HEIRS, GIVING THEIR NAMES (AND ADDRESSES), INCLUDING THE A SSESSEE. THE PROPERTIES WERE THUS SUBJECT TO A FAMILY SETTLEMENT, WHICH HAD REMA INED ELUSIVE IN VIEW OF THE DIFFERENCES AMONG THE SAID LEGAL HEIRS. A JOINT AFF IDAVIT FROM THREE LEGAL HEIRS (I.E., KULBHUSHAN KUMAR, INDER BHUSHAN, AND VARINDER KUMAR ) LISTING INTER ALIA THE ASSESSEES LIABILITIES UNDER REFERENCE, AVERRING TH E SAID FACTS, WAS FURNISHED (COPY ON RECORD ). HOW COULD SECTION 41(1) POSSIBLY APPLY UNDER THE CIRCUMSTANCES? THAT IS, CONSIDERING THAT NEITHER ANY DEDUCTION HAD BEEN CLAIMED QUA THESE LIABILITIES AT ANY STAGE NOR WAS THERE ANY CESSATION OF LIABILITY IN THEIR RESPECT. THE SAME, HOWEVER, DID NOT FIND ACCEPTANCE BY THE REVENUE AS THE SAME WERE ADMITTEDLY BUSINESS LIABILITIES, AND NOT FOR ANY CAPITAL PURPO SE (RECEIPT). THE PERSONS/ENTITIES TO WHOM THE AMOUNTS ARE STATED AS LIABLE TO ARE NO LONGER EXISTENT. MERE NON WRITE BACK THEREOF BY THE ASSESSEE IN HIS ACCOUNTS WOULD NOT BE DETERMINATIVE WHERE THE CESSATION OF LIABILITY WAS OTHERWISE PATENT. THE AF FIDAVIT WAS JUST AN AFTER THOUGHT. THE AMOUNT WAS ACCORDINGLY DEEMED AS INCOME, PLACIN G RELIANCE ON, AMONG OTHERS, KESORAM INDUSTRIES & COTTON MILLS LTD. V. CIT [1992] 196 ITR 845 (CAL) AND CIT V. CHIPSOFT TECHNOLOGY (P.) LTD . [2012] 80 DTR 250 (DEL). ITA NO.577 (ASR)/2016(AY 2012-13) BHARAT BHUSHAN V. ACIT 4 3. BEFORE US, THE LD. COUNSEL WOULD EMPHASIZE THAT THE ONUS TO EXHIBIT THAT THE QUALIFYING CONDITIONS OF SECTION 41(1) ARE SATISFIE D IS ON THE REVENUE. IT WAS FOR IT, AND NOT THE ASSESSEE, TO SHOW THAT A DEDUCTION IN A PRECEDING YEAR QUA THE IMPUGNED LIABILITY HAD BEEN AVAILED OF BY THE ASSES SEE AND, FURTHER, THAT THERE HAS BEEN A CESSATION OF LIABILITY IN RESPECT THEREOF. I T IS ONLY THEN THAT IT COULD PROCEED TO INVOKE SECTION 41(1). THE REVENUE, ON THE OTHER HAND, HAD SHIFTED THE BURDEN ON THE ASSESSEE, AND ITS CASE THEREFORE REQUIRES BEIN G DISMISSED AT THE THRESHOLD. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD PLACE RE LIANCE ON THE ORDERS BY THE REVENUE AUTHORITIES. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. CLAIM AND, RATHER, ALLOWANCE OF DEDUCTION (IN COMPU TING BUSINESS INCOME) FOR ANY PREVIOUS YEARS IS A SINE QUA NON FOR THE INVOCATION OF SECTION 41(1). IN THE PRESENT CASE, THE ASSESSEES ACCOUNTS ITSELF SPEAK OF THE IMPUGNED LIABILITIES AS UNSECURED LOANS AND SUNDRY CREDITORS, BEING FRO M INDIVIDUALS (SINCE DECEASED), AND THEIR BUSINESS CONCERNS RESPECTIVELY. THERE IS NO QUESTION OF APPLICATION OF EITHER SECTION 41(1) OR SECTION 28(IV) QUA THE FORMER, I.E., UNSECURED LOANS. NO DEDUCTION COULD POSSIBLY HAVE BEEN CLAIMED OR ALLOW ED IN RESPECT OF AN UNSECURED LOAN. THE REVENUES CASE IN RESPECT THEREOF IS WITH OUT ANY BASIS IN LAW EVEN IF ASSUMED AS THE REPRESENTING A NON EXISTING LIABILIT Y, I.E., AS AT THE END OF THE RELEVANT YEAR-END, EVEN AS THE ASSESSEE HAS ADVANCE D REASON FOR THE NON DISCHARGE OF THE LIABILITIES. THIS IS AS IT WOULD, EVEN ASSUM ING SO, I.E., TO HAVE INURED TO THE ASSESSEE, BE A CAPITAL RECEIPT AND NOT CONSTITUTE B USINESS INCOME ASSESSABLE U/S. 28. SECTION 56 WOULD ALSO NOT APPLY IN RELATION TO THE SAID CAPITAL RECEIPT; THE AMOUNT HAVING BEEN RECEIVED SINCE PRIOR TO THE AMENDMENTS THERETO. AS REGARDS THE SUNDRY CREDITORS, THE NORMAL INFER ENCE OF SUCH REPRESENTATION IN ACCOUNTS IS OF THE SAME BEING A T RADE LIABILITY, I.E., AGAINST ITA NO.577 (ASR)/2016(AY 2012-13) BHARAT BHUSHAN V. ACIT 5 PURCHASE OF GOODS OR SERVICES. TRUE, THE ONUS IS ON THE REVENUE, BUT THEN HOW COULD THE SAME BE DISCHARGED WHEN THE ASSESSEE DOES NOT PRODUCE THE BOOKS OF ACCOUNT FOR THE YEAR WHEN THE LIABILITY AROSE? THE ASSESSEE (THROUGH THE LD. COUNSEL) CLAIMS THAT THE BOOKS OF ACCOUNT FOR YESTE R YEAR/S ARE NOT AVAILABLE. HOW, THEN, WE WONDER, THE ASSESSEE CLAIMS IT TO BE AN AD VANCE OF MONEY? IT IS ONLY WHERE THE ASSESSEE, WHO IS IN THE INTIMATE KNOW OF HIS AFFAIRS, ADDUCES THE BASIS ON WHICH HE CLAIMS THE CREDIT TO REPRESENT AN EXISTING LIABILITY, THAT THE ONUS WOULD SHIFT TO THE REVENUE TO SHOW THAT THERE HAS IN FACT BEEN A CESSATION IN RESPECT THEREOF AND, FURTHER, HAD BEEN CLAIMED AS A DEDUCTI ON IN COMPUTING THE INCOME, SO THAT SECTION 41(1) IS ATTRACTED. IT MAY BE NOTED TH AT THE WORDS EXISTING AND CESSATION ARE CONTRARY TO EACH OTHER. IN THE PRE SENT CASE, AS AFORE-NOTED, THE ASSESSEE HAS NO BASIS TO STATE THAT THE AMOUNT/S RE FLECTED AS SUNDRY CREDITORS IS, AS STATED, AN ADVANCE OF MONEY (FOR SUPPLY OF GOODS/SE RVICES), OR AS TO WHY, IN VIEW OF THE CREDITOR-FIRMS BEING NO LONGER EXISTING/OPER ATIONAL FIRMS, WHY SHOULD NOT THE SAME BE REGARDED AS NO LONGER PAYABLE, SO THAT THER E HAS SINCE BEEN A CHANGE IN THEIR CHARACTER, AND BENEFIT IN ITS RESPECT INURED TO THE ASSESSEE. THE PRIMARY ONUS TO PROVE HIS RETURN, AND THE CLAIMS PREFERRED THERE BY, IS ON THE ASSESSEE ( CIT V. VENKATASWAMY NAIDU [1956] 29 ITR 529 (SC) CIT V. CALCUTTA AGENCY LTD. [1951] 19 ITR 191 (SC)). THE PRIMARY EVIDENCE, IT MAY BE APPRECIATED, HAS TO FLOW FROM THE ASSESSEE ONLY. THIS GETS ACCENTUATED AS THE EMP LOYMENT OF THE NOMENCLATURE SUNDRY CREDITORS SUGGESTS, AND THE INFERENCE THAT FLOWS THERE-FROM, BEING A TERM WIDELY USED IN THE PREPARATION AND PRESENTATION OF ACCOUNTS, IS THAT THE SAME IS A TRADE LIABILITY AGAINST PURCHASE OF GOODS/SERVICES. AND IN WHICH CASE IT WOULD BE RATHER FOR THE ASSESSEE TO SHOW THAT DEDUCTION IN I TS RESPECT, DESPITE BEING INCURRED FOR BUSINESS PURPOSES, HAD NOT BEEN CLAIMED OR ALLO WED. IN OTHER WORDS, TRUE, THE BURDEN IS ON THE REVENUE WHICH SEEKS TO INVOKE SE CTION 41(1) (OR SECTION 28(IV)), TO SHOW THAT DEDUCTION HAD BEEN CLAIMED OR , ALTERNATIVELY (I.E., QUA SECTION ITA NO.577 (ASR)/2016(AY 2012-13) BHARAT BHUSHAN V. ACIT 6 28(IV)), A BENEFIT HAS ARISEN TO THE ASSESSEE. BUT THE VERY FACT OF THE AMOUNT BEING CLASSIFIED UNDER A HEAD WHICH, AS A MATTER OF GENER ALLY ACCEPTED AND FOLLOWED ACCOUNTING PRACTICE, IS EMPLOYED TO CATEGORIZE SUMS REPRESENTING A TRADE LIABILITY, WHICH WOULD THEN FORM PART OF THE ASSESSEES PROFIT AND LOSS ACCOUNT (P&L A/C), IT IS FOR THE ASSESSEE TO SHOW THAT, DESPITE BEING SO CATEGORIZED, NO DEDUCTION HAD BEEN CLAIMED QUA THE SAME AS IT WAS AN ADVANCE OF MONEY. AND FOR WH ICH (I.E., THE CLAIM OF ADVANCE OF MONEY), AS IT TRANSPIRES, THE A SSESSEE HAS NO BASIS (TO SO CONTEND). THE ASSESSEE HAS ALSO NOT LED ANY MATERIA L ON RECORD, OR EVEN MADE ANY CONTENTION TO THE EFFECT THAT HE GENERALLY SUPPLIES GOODS/SERVICES AGAINST ADVANCE. IN FACT, THE ASSESSEE HAS NOT EVEN SHOWN THAT THE S AID BUSINESS CONCERNS ARE THE CUSTOMERS OF THE ASSESSEE-FIRM, I.E., RATHER THAN H IS SUPPLIERS, SUPPLYING GOODS OR SERVICES. THIS IS AS AN ADVANCE WOULD BE RECEIVED O NLY FROM A CUSTOMER AND, WHERE SO, IS NORMALLY REFLECTED AS ADVANCE AGAINST SUPPL Y (FROM CUSTOMERS) AND NOT, AS AFORE-STATED, SUNDRY CREDITORS. AGAIN, WE ARE CONSCIOUS THAT EVEN CONSIDERING THE SUNDRY CREDITORS TO BE A TRADE LIABILITY, SECTION 41(1) CANNOT BE INVOKED IN -AS-MUCH AS THERE IS NO CESSATION OF LIABILITY, AND FOR WHICH THE ASSESSEE HAD FURNIS HED A SATISFACTORY EXPLANATION, BACKED BY AFFIDAVIT BY THE LEGAL HEIRS OF THE FATHE R AND GRANDFATHER, STATED TO BE THE PROPRIETORS OF THE CREDITOR FIRMS. THIS ASPECT, THO UGH APPARENTLY IN ORDER, SUFFERS FROM SEVERAL INFIRMITIES WHEN SUBJECT TO EXAMINATIO N. IT IS INTRIGUING THAT THE DUES (FROM THE ASSESSEE-FIRM) ARE THE ONLY DEBTS (ASSETS ) OF THE SAID BUSINESS CONCERNS THAT ARE SUBJECT TO DIVISION. IF SO, IT IS SURPRISI NG THAT THOUGH THE SAID CONCERNS, CLOSING THEIR BUSINESS, WERE ABLE TO RECOVER ALL OT HER TRADE DEBTS, WERE UNABLE TO RECOVER THE DUES FROM THE ASSESSEE, A CLOSELY RELAT ED PERSON. WAS THE DEBT IN DISPUTE? RATHER, THE ASSESSEE, AS AGAINST OUTSIDE ( UNRELATED) PARTIES, WOULD HAVE A FORE-KNOWLEDGE OF THE IMPENDING DISCONTINUANCE/CLOS URE OF BUSINESS AND, ACCORDINGLY, SETTLE THE ACCOUNT, WHICH WOULD IN TUR N ENABLE THE CREDITOR FIRM TO ITA NO.577 (ASR)/2016(AY 2012-13) BHARAT BHUSHAN V. ACIT 7 SETTLE ITS ACCOUNTS WITH OTHER PARTIES/LIABILITIES . THE ACCOUNTS OF THE SAID BUSINESS CONCERNS ARE NOT ON RECORD. HOW HAS THE DEBT FROM T HE ASSESSEE, OR FOR THAT MATTER, OTHERS, BEEN TREATED IN ACCOUNTS? IS THE DUE FROM T HE ASSESSEE-FIRM THE ONLY ASSET APPEARING IN THE CLOSING BALANCE-SHEET OF THESE FIR MS, WITH, FURTHER, NO LIABILITIES? ARE THESE FIRMS THE PROPRIETARY OR THE PARTNERSHIP FIRMS OF THE FATHER AND GRANDFATHER? ARE THESE THE ONLY FIRMS IN WHICH THEY HAD INTEREST IMMEDIATELY BEFORE THEIR DEMISE? THIS IS AS ONLY IN SUCH A CASE /S THE EXPLANATION AS TO THE DUES BEING LIABLE TO DIVISION AMONGST THE LEGAL HEIRS VA LID. IS IT A CASE/S OF NO WILL, OR ARE THEIR WILLS SUBJECT MATTER OF DISPUTE? THIS IS AS IN CASE OF THE LATTER, THE WILL SHALL ALSO REFLECT THE OTHER ASSETS (PROPERTY) OF T HE FATHER AND GRANDFATHER. BOTH THE CLAIM OF THE ADVANCE OF MONEY AND NO DEDUCTION ARE UNPROVED. IN FACT, EVEN IF A TRADE ADVANCE, AS CONTENDED, THE SAME CEASES TO HAV E THE SAID CHARACTER IN VIEW OF CESSATION OF BUSINESS OF THE ADVANCERS AN ADMITTE D FACT. WHY SHOULD NOT THE SAME BE REGARDED AS HAVING INURED TO THE ASSESSEE, SO TH AT IT IS A BENEFIT ARISING IN THE COURSE OF BUSINESS, ASSESSABLE U/S. 28(IV)? REFEREN CE IN THIS CONTEXT IS MADE TO THE DECISIONS IN CIT V. TVS IYENGER & SONS LTD . [1996] 22 ITR 344 (SC) AND CIT V. ARIES ADVERTISING (P.) LTD . [2002] 255 ITR 510 (MAD), RELIED UPON BY THE REVENUE. THIS IS MORE SO AS, APART FROM BEING NOT P AID/ADJUSTED DESPITE FORE- KNOWLEDGE OF AND THE ACTUAL CLOSURE OF BUSINESS, TH E ASSESSEE DID NOT TRANSFER THE SUM/S AS AN UNSECURED LOAN IN THE NAMES OF THE PROP RIETOR/S, BUT CONTINUED TO REFLECT THE SAME AS DUES TO THE DEFUNCT (NON-EXISTI NG) FIRMS (IN-AS-MUCH AS THE PROPRIETOR/S IS NOT ALIVE) IN HIS ACCOUNTS. THE MATTER OF SUNDRY CREDITORS IS, IN VIEW OF THE FOREGOING, FACTUALLY INDETERMINATE. WE, ACCORDINGLY, REMAND THE SAME BAC K TO THE FILE OF THE A.O. FOR THE PURPOSE, WHO SHALL ADJUDICATE BY ISSUING DEFINI TE FINDINGS OF FACT, BASED ON THE MATERIAL ON RECORD, ALLOWING THE ASSESSEE A FAIR OP PORTUNITY TO REPRESENT AND ITA NO.577 (ASR)/2016(AY 2012-13) BHARAT BHUSHAN V. ACIT 8 SUBSTANTIATE HIS CASE. WE HAVE ALREADY HELD THE REV ENUES CASE QUA UNSECURED LOANS AS WITHOUT MERIT. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON JANUARY 31, 2 018 SD/- SD/- (N. K. CHOUDHRY) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 31.01.2018. /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: BHARAT BHUSHAN (2) THE RESPONDENT: ASSISTANT COMMISSIONER OF I NCOME TAX, CIRCLE MOGA (3) THE CIT(A)-4, LUDHIANA. (4) THE PR. CIT, 03, LUDHIANA. (5) THE SR. DR, I.T.A.T. TRUE COPY BY ORDER