A.C.I.T.-9(1), MUMBAI V. BORAL INFOTECH PVT. LTD., MUMBAI

ITA 5817/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83947 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 21-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Keywords: Wrong claim

Judgement Text

ITA NO.5817/MUM/2012 1 , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.5817/MUM/2012 (A.Y. 2009-10) DCIT - RANGE - 9(1) ROOM NO.223, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. / VS. M/S. BORAL INFOTECH PVT. LTD. B-1/1, MAYUR MA-KRUPA SOCIETY, OPP. GOKHALE SCHOOL, SHIMPOLI ROAD BORIVALI (W) MUMBAI-400 092. ( ! / // / APPELLANT) ( '# ! / RESPONDENT) P.A. NO. ! $ % $ % $ % $ % /APPELLANT BY : SHRI VIJAY KUMAR BORA '# ! $ % $ % $ % $ % /RESPONDENT BY : NONE $ &'( / / / / DATE OF HEARING : 27.10.2014 )*+ $ &'( / DATE OF PRONOUNCEMENT : 27.10.2014 ,- ,- ,- ,- / / / / O R D E R PER JOGINDER SINGH (JM) : THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 23/7/2012 OF THE LD. FIRST APPELLATE AUTHORIT Y DELETING ITA NO.5817/MUM/2012 2 THE ADDITION OF RS.58,71,836/- MADE U/S. 41(1) OF T HE ACT. THE CRUX OF ARGUMENT ADVANCED ON BEHALF OF THE REVENUE BY SHRI VIJAY KUMAR BORA LD. DR IS IN SUPPORT TO THE ADDITI ON MADE BY THE LD. AO, BY FURTHER PLEADING THAT THE LD. CIT (A) DELETED THE ADDITION WITHOUT APPRECIATING THAT THE ASSESSEE DID NOT PRODUCE CONFIRMATIONS. NONE APPEARED FOR THE ASSESS EE INSPITE OF SERVICE OF NOTICE, THEREFORE, IT IS PRESUMED THA T THE ASSESSEE HAS NOTHING TO SAY, CONSEQUENTLY, WE TEND TO PROCEE D EX-PARTE QUA THE ASSESSEE AND DISPOSE OF THIS APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 2. BEFORE COMING TO ANY CONCLUSION WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION FROM THE ORDER OF THE LD. CIT(A) FOR READY REFERENCE:- THE SECOND GROUND IS RAISED AGAINST ADDITION OF RS.58,71,836/- U/S 41(1) OF THE I.T. ACT. 4.1 ON PERUSAL OF THE DETAILS SUBMITTED BY THE ASS ESSEE FOR THE SUNDRY CREDITORS PERTAINING TO MORE THAN THREE YEAR S OLD, IT WAS OBSERVED BY THE AO THAT THE SUNDRY CREDITORS PERTAI NING TO THIS PERIOD ARE RS.3,50,41,176/-, THE ASSESSEE WAS ASKED TO' FILE THE CONFIRMATION OF THESE SUNDRY CREDITORS. THE ASS ESSEE FILED 'BREAKUP OF THE CURRENT LIABILITIES. THE ASSESSEE H AS FAILED TO PROVIDE ANY DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CLAIM IN RESPECT OF FOLLOWING PARTIES: / ITA NO.5817/MUM/2012 3 (I) DALLAS TRADING COMPANY RS.10,50, 000 (II) OM CLADING RS.32,03,504 (III) VIRAL ROOF SYSTEMS RS.16,18,332 R S. 58,71,836 ==== ========= THE SUBMISSION OF THE ASSESSEE IS NOT ACCEPTABLE B ECAUSE THE ASSESSEE WAS ASKED TO FILE THE CONFIRMATIONS, ADDRE SS OF THE SUNDRY CREDITORS TO EXAMINE THE GENUINENESS OF THE SAME. THE ASSESSEE FAILED TO PROVIDE EITHER OF THEM. THE ASSE SSEE HAS FAILED TO SUBMIT THE CORRESPONDENCE WITH ITS CREDIT ORS AND DID NOT HAVE ANY TRANSACTION SINCE LONG TIME. THUS, IT IS ESTABLISHED THAT SUNDRY CREDITORS SHOWN UNDER THE LIABILITIES D OES NOT EXIST. THE ASSESSEE HAS MADE A WRONG CLAIM REGARDING ALLOW ABILITY OF SUNDRY CREDITORS. HENCE, AN AMOUNT OF RS.58,71,836/ - IS DISALLOWED AND ADDED IN THE INCOME OF THE ASSESSEE U/S.41(1) OF THE I.T. ACT. 'THE LEARNED ACIT, ASSIGNED THE ONLY REASON WHI LE MAKING ADDITIONS WHICH IS ON 'PAGE 3 AT LINE 5 TH LAST PARA OF THE ASSESSMENT ORDER'. 'IT IS ALSO TO BE NOTED THAT THESE CREDITORS ARE MO RE THAN 3 YEARS OLD AND ALSO BARRED BY LIMITATION OF ACT'. PROVISIONS OF SECTION 41(1) OF THE IT ACT 1961 MENT IONS, REMISSION OR CESSATION OF TRADING LIABILITY. THE AC T HAS NOT LAID DOWN ANY TIME LIMIT FOR TREATING THE 0/S. LIABILITY AS DEEMED REMITTED LIABILITY. SECONDLY, THE FACT THAT THE CRE DITORS ARE TIME BARRED BY LIMITATION ACT, DOES NOT MEAN THAT THE LI ABILITY IS TO BE REMITTED AND TREATED AS INCOME. REMISSION OR CESSATION REFERRED TO IN SEC 41(1) IS TO BE EXPLICIT AND NOT IMPLICIT. THUS, THE FACT THAT 3 YEARS OR MO RE ARE OVER, DOES NOT BY ITSELF IMPLY THAT THE LIABILITY IS CEAS ED OR REMITTED. SECONDLY, THE LEARNED ACIT PLACED RELIANCE ON CIT V S. T.V. SUNDARAM IYENGAR & SONS LTD 222 1TR 344 (SC) HOWEVE R, WE BEG TO SUBMIT THAT THE FACTS OF THE ABOVE REFERRED CASE LAW ORE ITA NO.5817/MUM/2012 4 DIFFERENT FROM THE ONE IN THE CASE OF APPELLANT. THE ABOVE REFERRED CASE LAW STATES THAT THE ASSESSE E HAS TRANSFERRED AN AMOUNT OF RS. 17,381/- TO THE PROFIT AND LOSS ACCOUNT OF THE COMPANY DURING THE ACCOUNTING PERIOD / ENDED MARCH 31, 1982 (AY 1982-83) AND AN AMOUNT OF RS. 38 ,975/- DURING THE ACCOUNTING PERIOD ENDED ON MARCH 31, 198 3 (AY 1983-84). BUT THESE AMOUNTS ARE NOT INCLUDED IN TOT AL INCOME OF THE ASSESSEE'. IN ABOVE REFERRED CASE THE ASSESSEE HAD EXPLICITLY RECOGNISED THE REMISSION AND SUO MOTO CREDITED THE SUM TO PROF IT AND LOSS ACCOUNT AND LATER NOT OFFERED THE SAME AS INCOME. I N THE CASE REFERRED TO, THE ASSESSEE HIMSELF HAD REMITTED THE LIABILITY AND HAVING DONE SO, CREDITED THE SOME TO PROFIT & LOSS ACCOUNT AND LATER DID NOT OFFER FOR TAXATION. WHEREAS IN THE CASE OF THE APPELLANT, IN THE FIRST PLACE THE LIABILITY IS NOT REMITTED ONLY.THE QUESTION TO CRED IT OR NOT TO CREDIT TO PROFIT & LOSS ACCOUNT DOES NOT ARISE ONLY. THE LD ACIT ALSO REFERRED TO THE JUDGEMENT OF CIT V S. AVM LTD (1985) 21 TAXMANN (232) MOD. IN THIS CASE ALSO EXCE SS OF DEPOSITS WERE CREDITED TO PROFIT AND LOSS ACCOUNT. SINCE, THE FACTS IN BOTH ABOVE CASES ARE NOT SIMILA R TO THAT THE APPELLANT'S FACTS, ITS APPLICATION BY THE LD AC1T I S UNJUST AND UNWARRANTED. OUR ARGUMENTS: IT IS PERTINENT TO BRING TO YOUR NOTICE THE FOLLOWI NG PRONOUNCEMENT. SUPREME COURT IN THE CASE OF CIT V. SUGAULI SUGAR W ORKS P. LTD. [1999] 236 !TR 518. IT HAS BEEN OBSERVED BY THE SUPREME COURT THAT UNLESS THERE IS A CESSATION OF L IABILITY, INCOME CANNOT BE ADDED AS PER THE PROVISIONS OF SEC TION 41(1) OF THE ACT. THE CASE ON HAND CAN BE VERY WELL COMPARED WITH THE CASE DECIDED BY THE SUPREME COURT IN CIT V. SUGAULI SUGAR WORKS P. LTD. [1999] 235 ITR 5 18. BEFORE AN AMOUNT COULD BE BROUGHT WITHIN THE AMBIT OF SEC 41 ITA NO.5817/MUM/2012 5 (1) THERE HAS TO BE CLEAR CUT CESSATION OR REMISSIO N OF LIABILITY AND IT CANNOT BE PRESUMED OR IMPLIED. IF REMISSION OR CESSATION IS PRESUMED, IT WOULD AM OUNT TO TAXING A NOTIONAL AMOUNT. WE NEED TO SUBMIT THAT UNLESS THERE IS CESSATION OF LIABILITY, INCOME CANN OT BE ADDED AS PER THE PROVISIONS OF SECTION 41(1) OF T HE ACT. IN THE MEANWHILE YOUR HONOUR HAS SOUGHT FOR SOME MO RE INFORMATION ABOUT THESE LIABILITIES WHICH ARE AS UN DER. THE LIABILITIES INCURRED ABOVE WERE OF THE CAPITOL NATURE, PRECISELY SPEAKING, BORROWINGS FROM THE CONCERNS OF THE DIRECTORS OR THE SHARE HOLDER OR THEIR FAMILY MEMBE RS. IN OTHER WORDS, THESE LIABILITIES WERE NOT OF REVENUE NOTATE . THE LAW IS VERY CLEAT ON THIS POINT, THE ADDITIONS ON ACCOUNT OF ACTUAL REMISSION ( AND NOT JUST PRESUMED) IS TO BE MADE IF AND ONLY IF THE ASSESSEE HAS, CLAIMED THESE AS AN EXPENSE IN PA ST. ON PERUSAL OF THE ENCLOSED LEDGERS ALONG WITH BA NK PARTICULARS AMOUNT(RS.) OUTSTANDING SINCE INTEREST PAYMENTS LEDGER ACCOUNT FOR VERIFICATION DALLAS TRADING CO. RS.10,50,000 FY 2004-05 NOT PAID PG-NO.1 TO 4 OM CLADING RS.32,03,504 FY-2003-04 NOT PAID PG-NO.5 TO 7 VIRAL ROOF SYSTEMS RS.16,18,332 FY-2005-06 NOT PAID PG-NO.8 TO 10 TOTAL RS.58,71,836 ITA NO.5817/MUM/2012 6 STATEMENTS, IT IS VER Y CLEAR THAT THE APPELLANT HAD IN FACT BORROWED FUNDS AND NOT PURCHASED ON' MERCHANDISE. THE APPELLANT HAS NEVER DEBITED PROFIT & . LOSS ACCOUNT AT ANY TIME IN POST ON ACCOUNT OF AFORESAID TRANSACTIONS, THUS THE ADDITIONS MADE ON ACCOUNT OF THE 'ASSUMED' REMISSION UNLAWFUL. TO SUM UP : IN ORDER TO BRING THE REMISSION OF LIABILITY WITHI N THE AMBIT OF SECTION 41(1) TWO THINGS HAVE, TO BE ESTABLISHED CO NCURRENTLY:- 1. , THE EXPLICIT REMISSION OF THE LIABILITY AS AGAINST THE PRESUMED OR UNILATERAL. 2. THE LIABILITY MUST HAVE BEEN INCURRED FOR EXPENS ES, WHICH MUST HAVE BEEN DEBITED TO PROFIT & LOSS ACCOUNT IN PRECEDING YEARS. IN THE CASE OF THE APPELLANT, NONE OF THE ABOVE EVE NT TOOK PLACE. BESIDES, THE LEARNED ACIT HAS NOT BROUGHT ANY EVIDE NCE TO THE CONTRARY, WHILE MAKING THIS SUBSTANTIAL ADDITIO N. WE, THEREFORE, VEHEMENTLY URGE YOUR HONOR TO DELETE THE ADDITIONS MADE BY THE LEARNED ACIT U/S. 41(1)OF THE IT ACT AND ACCORD JUSTICE TO THE APPELLANT.' 4.3. I HAVE CAREFULLY PERUSED THE FACTS OF THE CASE , THE SUBMISSIONS OF THE APPELLANT AND ASSESSMENT ORDER. THE AO HAS NOT BROUGHT OUT ANY EVIDENCE ON RECORD TO PROVE THAT THERE IS A REMISSION OR CESSATION OF LIABILITY. IN FACT T HE FACTS ON RECORD AND SUBMISSION OF THE APPELLANT CLEARLY PROVE THAT THE LIABILITIES INCURRED ARE CAPITAL IN NATURE. THEY ARE BORROWING FROM THE ASSOCIATE CONCERNS AND ASSESSEE HAS NOT PURCHASED A NY MERCHANDISE. THE AO HAS NOT BROUGHT OUT ANYTHING ON RECORD TO SHOW THAT THE APPELLANT HAS DEBITED ITS P& L ACCOUN T AT ANYTIME IN PAST ON THE AFORESAID AMOUNT. THE TWO CONDITIONS PRECEDENT FOR APPLICABILITY OF S UB SECTION(1) OF SECTION 41 ARE :- (I)AN ALLOWANCE OR DEDUCTION HAD BEEN MADE, IN THE COMPUTATION ITA NO.5817/MUM/2012 7 OF PROFITS AND GAINS OR A BUSINESS OR PROFESSION, I N THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE, AND (II)SUBSEQUENTLY DURING ANY PREVIOUS YEAR THE ASSES SEE HAD OBTAINED WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. THE AMOUNT WILL BE CHARGEABLE EVEN IF WRITTEN OFF COLLA TERALLY. FROM THE FACTS ON RECORD AND THE SUBMISSION OF THE APPELLANT, IT IS CLEAR THAT THE ASSESSEE DOES NOT FULFILL ANY OF THE TWO CONDITION PRECEDENT I. FOR INVOKING THE PROVISION O F SECTION 41(1). IN FACT, THE SUNDRY CREDITORS IS IN THE NATU RE OF UNSECURED LOANS AND NOT IN THE NATURE OF PURCHASES MADE. IT HAS BEEN HELD, IN THE CASE OF INDERSONS LEATHERS PV T. LTD., 295 ITR 295 (ASR-TRIB), WHERE UNSECURED LOANS RECEIVED BY THE ASSESSEE WERE NEITHER WRITTEN OF NOR WAS THERE A TR ADING TRANSACTION TRANSFERRED TO PROFIT AND LOSS A/C, THE REFORE, COULD NOT BE ASSESSED AS INCOME UNDER SECTION 41(1). 4.4 IN VIEW OF THE AFORESAID FACTS OF THE CASE AND RELEVANT JUDICIAL PRONOUNCEMENT, I AM INCLINED TO AGREE WITH THE CONTENTION OF THE ASSESSEE THAT THERE IS NEITHER AN Y REMISSION NOR ANY CESSATION OF LIABILITY, HENCE ADDITION OF R S.58,71,836/- U/S.41(1) IS DELETED. GROUND NO.2 IS ALLOWED. 5. IN THE EVENT APPEAL IS PARTLY ALLOWED. 2.1 IF THE BASIS FOR MAKING THE ADDITION U/S. 41(1) OF THE INCOME TAX ACT, CONCLUSION DRAWN IN THE IMPUGNED OR DER AND THE SUBMISSIONS MADE BY THE LD. DR, IF KEPT IN JUXT APOSITION THERE IS FACTUAL FINDING BY THE LD. CIT(A) THAT THE ASSESSEE HAS ITA NO.5817/MUM/2012 8 PROVED THAT THE LIABILITIES INCURRED ARE OF CAPITAL NATURE AND FURTHER THEY ARE BORROWING FROM THE ASSOCIATE CONCE RNS AND ASSESSEE HAS NOT PURCHASED ANY MERCHANDISE. IN VIEW OF THIS CLEAR FACT WE FIND NO INFIRMITY IN THE CONCLUSION O F THE LD. CIT(A). IT IS AFFIRMED. 3. FINALLY THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. DEPARTM ENTAL REPRESENTATIVE AT THE CONCLUSION OF THE HEARING ON 27 TH DAY OF OCTOBER, 2014 . ,- $ )*+ .,/ 27.10.2014 * $ 6 SD/- SD/- (N.K. BILLAIYA) (JOGINDER SINGH) ( ,7 ( ,7 ( ,7 ( ,7 / ACCOUNTANT MEMBER ,7 ,7 ,7 ,7 / JUDICIAL MEMBER MUMBAI; ., DATED : 27 TH OCT. 2014. ../ JV, SR.PS . ,- $ '&8 98+& ,- $ '&8 98+& ,- $ '&8 98+& ,- $ '&8 98+&/ COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. : ( ) / THE CIT, MUMBAI. 4. : / CIT(A)-13, MUMBAI 5. 8=6 '& , , / DR, ITAT, MUMBAI 6. 6> ? / GUARD FILE. ,- ,- ,- ,- / BY ORDER, #8& '& //TRUE COPY// @ @@ @/ // /A B A B A B A B (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI