ACIT CIR 25(3), MUMBAI V. RUKMINI IYER, MUMBAI

ITA 6242/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2835 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 26-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-10-2012
• Court: TRIBUNAL
• Department Lawyers: CHANDRA VIJAY
• Keywords: Opportunity of being heard; Principle of natural justice; Corroborative evidences; Commercial expediency; Revenue expenditure
• Section: 143(3); 133(6)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI , , , BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.6242/MUM/2012 ASSESSMENT YEAR: 2009-10 A CIT 25(3) R.NO.308, C-11, BANDRA KURLA COMPLEX BANDRA (E) MUMBAI-400051. / VS. MS. RU K MINI IYER, 1002, DOLL APARTMENT BHATT LANE, KANDIVALI (W) MUMBAI-400067 (REVENUE ) (RESPONDENT) P.A. NO. AAAPI7916F REVENUE BY SHRI CHANDRA VIJAY (DR) RESPONDENT BY SHRI HARESH P. SHAH (AR) ! ' / DATE OF HEARING : 24/09/2015 ! ' / DATE OF ORDER: 28/10/2015 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEAL S) -35, MUMBAI {IN SHORT, CIT(A)}, FOR THE ASSESSMENT YEA R 2009-10 RUKIMINI IYER LTD. 2 DATED 09.07.2012, DECIDED AGAINST THE ASSESSMENT OR DER PASSED BY THE ASSESSING OFFICER (IN SHORT AO) U/S 143(3) OF THE ACT. THE GROUNDS RAISED BY THE REVENUE ARE REPR ODUCED BELOW: (1) 'ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING THE AO. TO DELETE THE ADDITION OF RS 94,05,029/- MADE BY THE AO. ON ACCOU NT OF COMMISSION PAID ON SALES WHILE THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE U/S.195 OF THE I.T. ACT AND REMITTED TO THE GOVT. ACCOUNT. THIS AMOUNT IS EVEN OTHERWISE DISALLOWABLE U/S4O(A)(I)(A) OF THE I.T. ACT.' (2) 'ON THE FACTS & CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) ERRED IN DIRECTING THE AO. TO DELETE THE ADDITION OF RS 78,48,442/- MADE ON ACCOUNT OF INFLA TING THE AMOUNT OF AS THE ASSESSEE FAILED TO RECONCILE T HE BALANCES WITH SUPPORTING EVIDENCE.' (3) 'ON THE FACT & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED I DIRECTING THE AO. TO DELETE T HE ADDITION OF RS 1,31,77,941/- MADE ON ACCOUNT OF CEA SED LIABILITY AS MUCH AS THE ASS SEE FAILED TO PRODUCE ANY CONFIRMATION FROM THE PARTIES IN RESPECT OF CREDITS .' (4) 'THE APPELLANT PRAYS THAT THE ORDER OF THE LD.C IT(A) ON THE ABOVE GROUNDS B SET ASIDE AND THAT OF THE AO BE RESTORED.' (5) 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER A NY GROUND OR ADD A NEW GROUND.' 2 . WE HAVE HEARD SHRI CHANDRA VIJAY, SENIOR DR AND S HRI HARESH P SHAH, LD. COUNSEL OF THE ASSESSEE. 2.1 GROUND NO.1 : IN THIS GROUND, REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION OF RS .94,05,029/- MADE BY THE AO ON ACCOUNT OF COMMISSION PAID ON SAL ES, ON THE GROUND THAT ASSESSEE DID NOT DEDUCT TDS U/S 195 . RUKIMINI IYER LTD. 3 2.2. THE BRIEF FACTS, AS CULLED OUT FROM THE ORDERS OF LOWER AUTHORITIES, ARE THAT THE ASSESSEE IS THE PROPRIETO R OF M/S. P. P. INTERNATIONAL, WHICH IS A MERCHANT EXPORTER OF PHARMACEUTICAL PRODUCTS. IT WAS NOTICED BY THE AO T HAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.94,05,029/- TO WARDS COMMISSION ON SALES, AND THAT THE ENTIRE AMOUNT HAD BEEN PAID TO PERSON RESIDING OUTSIDE INDIA. THE AO ASKED THE ASSESSEE TO SUBMIT THE PROOF OF PAYMENTS MADE TO SU CH PERSONS. IN REPLY, THE ASSESSEE SUBMITTED THAT THE SAME WERE ACTUALLY IN THE FORM OF DISCOUNTS WHICH WOULD BE PR OVIDED AS AND WHEN PAYMENTS WOULD BE RECEIVED FROM PARTIES TO WHOM SALES HAVE BEEN MADE BY THE ASSESSEE, AND THAT THE SAME WAS A KIND OF PROVISION FOR DISCOUNT, KEPT IN THE FORM OF COMMISSION. IT HAS BEEN MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE DID NOT SUBMIT ANY PROOF FOR HAVI NG TRANSFERRED THE AMOUNT, AND THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE ENTIRE COMMISSION DEBITED TO P & L A/C SHOULD NOT BE DISALLOWED AS NOT ACTUAL EXPENSE IS INCURRED AND NO PAYMENTS ARE LIKELY TO BE MADE. IN VIEW OF THESE FACTS, IT WAS HELD BY THE AO THAT SINCE NO JU STIFICATION HAS BEEN SUBMITTED TILL THE DATE OF PASSING OF THE ASSESSMENT ORDER, THEREFORE, ASSESSEES CLAIM OF COMMISSION ON SALES TO THE TUNE OF RS.94,05,029/- WAS NOT ALLOWABLE AND TH EREFORE, IT WAS ADDED TO TOTAL INCOME OF THE ASSESSEE, BY THE A O. 2.3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER I N APPEAL BEFORE THE LD. CIT(A), WHEREIN, DETAILED SUBMISSION S WERE FILED RUKIMINI IYER LTD. 4 BY THE ASSESSEE, AND THESE ARE REPRODUCED HEREIN FO R THE SAKE OF READY REFERENCE: THE ASSESSEE HAS DECLARED SALES OF RS.10,58,45,983 /- DURING THE RELEVANT ASSESSMENT YEAR AND HAS DEBITED AN AMOUNT OF RS.94,05,029/- AS COMMISSION ON SALE IN T HE PROFIT & LOSS A/C. THE COMMISSION HAS BEEN DEBITED IN RESPECT OF ONLY THE FOLLOWING PARTIES AS UNDER- NAME OF THE PARTY SALES COMISSION HIL DRUGS/HOODIE INVESTMENT LTD. 5,07,98,951/- 40,0 5,279/- LAPHARCO 42,39,548/- 4,70,953 ONELL PHARMA 1,51,95,879/- 31,33,175 ENERTIS SARL 30,33,044/- 13,77,164/- MEDILAB DAKKAR NIL 2,70,553/- DAILO BAILO NIL 101773/- VIREND INTERNATIONAL NIL 46132/- TOTAL 7,32,67 94,05,029/- THE AMOUNT HAS NOT BEEN PAID BY THE PARTIES TILL DA TE. FURTHER IN CASE OF MEDILAB DAKKAR, DAILO BAILO AND VIREND INTERNATIONAL THE COMMISSION AMOUNT OF RS. 4,18,458 /- IS ACTUALLY BAD-DEBT BUT WRONGLY CLAIMED AS COMMISSION . THESE AMOUNTS ARE NOT RECEIVED SO FAR BY APPELLANT. THIS ERROR WILL NOT AFFECT THE PROFIT POSITION AS BOTH C OMMISSION OR BAD DEBT ARE ALLOWABLE EXPENDITURES. C) THE ASSESSEE HAD OFFERED A TRADE DISCOUNT ON SAL ES TO THE ABOVE REFERRED PARTIES, AND BOOKED THE ENTIRE S ALES IN PROFIT & LOSS A/C TO SHOW HIGHER SALES TO THE BANK FOR OBTAINING LOAN FROM THEM. FURTHER, WE HAD TO MAINTA IN THE PROJECTED SALES, AS SUBMITTED TO THE BANK, WHILE OB TAINING THE CREDIT FACILITIES. THE COMMISSION IS IN FACT IS A TRADE RUKIMINI IYER LTD. 5 DISCOUNT, WHICH WAS TO BE DEDUCTED FROM SALES, BUT HAS BEEN DEBITED TO PROFIT & LOSS ALC AS COMMISSION. D) THE FACTS CAN BE VERIFIED FROM THE STATEMENT OF DISCOUNT AND SUPPORTING DOCUMENTS ATTACHED THEREWITH AS STAT ED IN THE POINT (B) ABOVE, E) THE ASSESSEE IS CONSISTENTLY FOLLOWING THE MERCA NTILE SYSTEM OF ACCOUNTING AND THE LIABILITY EXISTING AT THE YEAR END, HAS BEEN PROPERLY BOOKED AS EXPENDITURE. F) THE ASSESSEE RELIES ON THE FOLLOWING JUDGMENTS I N SUPPORT OF HIS CLAIM I) CIT V ASSOCIATED ELECTRICAL AGENCIES {2004} 266 ITR 63 (MAD.) THE CLAIM HAS TO BE JUDGED IN THE LIGHT OF COMMERCI AL EXPEDIENCY. AS SUCH IF THE PAYMENT IS MADE OUT OF COMMERCIAL EXPEDIENCY, DESPITE THERE WAS NO LEGAL COMPULSION, THE SAME IS ALLOWABLE. II) METAL BOX CO. OF INDIA LTD. V THEIR WORKMEN [19 69J 73 ITR 53 (SC) ACCRUED BUT UNDISCHARGED LIABILITY MUST BE ALLOWED UNDER MERCANTILE SYSTEM. IT WAS HELD BY THE SUPREME COURT THAT IN CASE OF AS SESSEE MAINTAINING HIS ACCOUNTS ON MERCANTILE SYSTEM, A LI ABILITY ALREADY ACCRUED, THOUGH TO BE DISCHARGED AT A FUTUR E DATE, WOULD BE A PROPER DEDUCTION WHILE WORKING OUT THE P ROFITS AND GAINS OF HIS BUSINESS, REGARD BEING HAD TO BE ACCEPTED PRINCIPLES OF COMMERCIAL PRACTICE OF ACCOU NTANCY. IT IS NOT AS IF SUCH DEDUCTION IS PERMISSIBLE ONLY IN CASE OF AMOUNTS ACTUALLY EXPENDED OR PAID. JUST AS ACTUAL RECEIPTS AS WELL AS THOSE ACCRUED DUE ARE BROUGHT I N FOR RUKIMINI IYER LTD. 6 INCOME TAX ASSESSMENT, SO ALSO LIABILITIES ACCRUED DUE WOULD BE TAKEN INTO ACCOUNT WHILE WORKING OUT THE P ROFITS AND GAINS OF THE BUSINESS. III) MYSORE LAMP WORKS LTD [1990J 1851TR 96 (KAR) . 52 TAXMAN 260 (KAR). EXPENDITURE WHICH IS DEDUCTIBLE F OR INCOME TAX PURPOSES IS ONE WHICH IS TOWARDS A LIABI LITY ACTUALLY EXISTING AT THE TIME BUT THE PUTTING ASIDE OF MONEY WHICH MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT IS NOT EXPENDITURE. G) THE DISCOUNT IS GIVEN ONLY TO THESE CUSTOMERS AS MENTIONED IN EARLIER PARAGRAPH. THESE PARTIES ARE NEW PARTIES WITH WHOM THE BUSINES S HAS BEEN CARRIED-OUT FROM THE A Y 2007-08, FOR THE FIRST TIME AND CONTINUED DURING THE RELEVANT ASSESSMENT Y EAR. WE ARE ENCLOSING THE COPY OF LEDGER A/C OF THESE PA RTIES I) HOODIE INVESTMENT / HIL DRUGS II) ONEILL PHARMA III) LAPHARCO IV) ENERTIS SARI V) MEDILAB DAKKAR KINDLY NOTE THAT THE AR OF ASSESSEE HAS SUBMITTED T HE DETAILED CHART INDICATING THE DEDUCTION OF DISCOUNT BY THESE PATTIES IN THE FINANCIAL YEAR 2008-09, WHICH INCLUDED THE AMOUNT PROVIDED FOR THE RELEVANT ASSES SMENT YEAR. FURTHER NOTE THAT THE PRODUCT SUPPLIED TO THESE PAR TIES ALE TOTALLY DIFFERENT, FROM THE SALES MADE TO OTHER PAR TIES, HENCE COMPARISON IN RATE CANNOT BE MADE. RUKIMINI IYER LTD. 7 IN VIEW OF ABOVE WE REQUEST YOU TO ALLOW THE AMOUNT OF RS. 94, 05, 029/- AS COMMISSION/DISCOUNT, AS IT IS ASCERTAINED LIABILITY DEDUCTED IN SUBSEQUENT YEAR F ROM THE PAYMENT MADE TO THE APPELLANT BY THE CUSTOMERS AND THE ACCRUAL METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE APPELLANT. H) IN THE A. Y. 2007-08 ALSO THE A. O. HAS DISALLOW ED THE COMMISSION / DISCOUNT ON SALES STATING THE SIMILAR GROUNDS/REASONS, WHICH YOUR GOODSELF HAS ALLOWED VI DE ORDER DATED 26/07/2010. THE COPY OF THE ORDER IS ATTACHED HEREWITH. I) IN THE A.Y. 2008-09 ALSO THE A.O. HAS DISALLOWED THE COMMISSION/DISCOUNT ON SALES STATING THE SIMILAR GROUNDS/REASONS WHICH YOUR GOODSELF HAS ALLOWED VID E ORDER DATED 03.02.2010. THE COPY OF THE ORDER IS AT TACHED HEREWITH. IN VIEW OF ABOVE WE REQUEST YOU TO ALLOWED THE EXPE NSE ON TRADE DISCOUNT ON SALES AMOUNTING TO RS.94,05,029/- WHICH IS WRONGLY TERMED AS COMMISSION ON SALES, CONSIDERING THE COMMERCIAL EXPEDIENCY, ACCRUAL METH OD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE AN D THE CASE LAWS AS CITED ABOVE. 2.4 THE LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AS WELL AS OBSERVATIONS MADE BY THE AO IN THE ASSESSMENT ORDER. LD CIT(A) ACCEPTED THE ARGUMENT O F THE ASSESSEE THAT THE AMOUNT OF RS 94,05,029/ WAS AN ASCERTAINED LIABILITY AND WAS ACCORDINGLY ALLOWABLE TO THE RUKIMINI IYER LTD. 8 ASSESSEE IN VIEW OF THE ACCRUAL METHOD OF ACCOUNTIN G, CONSISTENTLY FOLLOWED BY THE ASSESSEE. IT WAS FOUND BY LD CIT(A) THAT CONSIDERING THE ENTIRE FACTS OF THE CAS E, CLAIM OF THE ASSESSEE WAS ACCEPTED IN THE APPEAL ORDER DT. 2 6.07.2010 FOR A.Y 2007-08 PASSED BY PREDECESSOR OF LD CIT(A). SIMILARLY, THE ASSESSEE'S SUBMISSIONS WERE ACCEPTED IN SUBSEQU ENT A.Y.2008-09 VIDE APPEAL ORDER DT 03.02.2012. IT WAS HELD BY HIM THAT FACTS AND SITUATION REMAINING THE SAME, TH ERE WERE NO REASONS TO DIFFER WITH EARLIER ORDERS, AND ACCOR DINGLY, DISALLOWANCE OF RS 94,05,029/ WAS DELETED. 2.5 DURING THE COURSE OF HEARING BEFORE US, IT HAS BEE N SUBMITTED BY THE LD. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE THAT THE ISSUE INVOLVED IN THIS GROUND IS COVERED BY THE ORDERS OF HONBLE TRIBUNAL IN ASSESSEE OWN CASE S FOR A.YS.2007-08 & 2008-09, AND COPIES OF THESE ORDERS HAVE BEEN ENCLOSED IN THE PAPER BOOK. IT WAS REQUESTED T HAT THERE IS NO CHANGE IN FACTS, AND POSITION OF LAW REMAINS THE SAME AND THEREFORE, THE ORDERS OF EARLIER YEARS SHOULD BE FO LLOWED TO MAINTAIN CONSISTENCY AND HARMONY. 2.6. ON THE OTHER HAND, LD. DR ARGUED ON BEHALF OF THE DEPARTMENT AS SUBMITTED THAT AO WAS JUSTIFIED IN MA KING ADDITIONS AND THEREFORE, ADDITIONS SHOULD BE CONFIR MED. BUT WITH RESPECT TO THE ORDERS OF THE TRIBUNAL IN ASSES SEES OWN CASE IN EARLIER YEARS, NOTHING WAS SUBMITTED BY THE LD. DR SO AS TO DISTINGUISH THE SAME, ON FACTS OR LAW. RUKIMINI IYER LTD. 9 2.7. WE HAVE CONSIDERED SUBMISSION MADE BY BOTH THE SID ES, ORDERS OF THE LOWER AUTHORITIES AND MATERIAL PLACED BEFORE US AS WELL AS ORDERS OF THE TRIBUNAL OF EARLIER YEARS. THE ISSUE INVOLVED HEREIN IS THAT WHETHER THE AMOUNT OF COMMI SSION EXPENSES DEBITED BY THE ASSESSEE IS ALLOWABLE IN TH E GIVEN FACTS AND CIRCUMSTANCES OR NOT. THE GRIEVANCE OF TH E LD. AO WAS THAT THE ASSESSEE WAS NOT ABLE TO SHOW THAT EXP ENSES INCURRED WERE ACCRUED AND CRYSTALLIZED DURING THE Y EAR. THE LD. CIT(A) HAS RELIED UPON THE ORDERS OF EARLIER YE ARS PASSED BY HIS PREDECESSORS TO DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. IT IS NOTED THAT THIS ISSUE HAS REACHED U P TO TRIBUNAL, WHEREIN IN BOTH THE ASSESSMENT YEARS I.E. A.YS. 2007-08 & 2008-09, THE ORDERS OF LD. CIT(A) HAVE BE EN CONFIRMED, BY DISMISSING THE APPEAL OF THE REVENUE ON THIS ISSUE. IT IS NOTED THAT IN A.Y.2007-08, THE TRIBUNA L IN ITS ORDER DATED 09.04.2014, IN ITA NO.6952/2010 HAS EXAMINED THIS ISSUE IN DETAIL. THE RELEVANT PARA OF THE TRIBUNAL CONTAINING RELEVANT OBSERVATIONS IS REPRODUCED BELOW: 3. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES AND ALSO HAVE GONE THROUGH THE RECORDS. THE FACTS OF THE CASE REVEAL THAT IN FACT THE COMMISSION CLAI MED BY THE ASSESSEE AT THE RATE OF 12% OF SALES PAYABLE TO THE THREE PARTIES IN QUESTION WAS IN FACT A DISCOUNT ON THE SALES. THE O DISALLOWED THE SAME HOLDING THAT THE L IABILITY DID NOT ACCRUE DURING THE YEAR IN QUESTION AS ALMOS T 50% OF THE COMMISSION AMOUNT WAS DEDUCTED BY THE PARTIE S IN THE SUBSEQUENT YEAR. IN OUR VIEW, THE FINDING ARRIV ED AT BY RUKIMINI IYER LTD. 10 THE AO WAS NOT CORRECT. IT IS NOT DISPUTED THAT ALL EGED COMMISSION AT RATE OF 12% OF THE SALES WAS IN FACT A DISCOUNT ON SALES. IT IS OBVIOUS THAT THE PURCHASER WOULD PAY THE SALE PRICE AFTER DEDUCTING THE DISCOUNT GIV EN ON THE SALE OF THE PRODUCT. SO FAR THE QUESTION OF ACC RUAL OF THE LIABILITY DURING THE YEAR UNDER CONSIDERATION I S CONCERNED, IT MAY BE NOTED THAT THE SALES IN QUESTI ON WERE BOOKED BY THE ASSESSEEE DURING THE YEAR. AS AND WHE N THE SALES WERE BOOKED BY THE ASSESSEE, AT THE SAME TIME THE DISCOUNT PAYABLE AGAINST THOSE SALES WAS ALSO T O BE BOOKED ALONG WITH THE SALES. SO THE MOMENT THE SALE S ALONG WITH DISCOUNTS ARE BOOKED, THE LIABILITY TO P AY OR THE RIGHT OF THE PURCHASER TO DEDUCT THE DISCOUNT ACCRU ES. IN VIEW OF THIS, WE DO NOT FIND ANY INFIRMITY IN THE A CTION OF THE LD. CIT(A) IN DELETING THE IMPUGNED ADDITIONS. THIS GROUND OF THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. 2.8. SIMILARLY IN A.Y.2008-09 THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF ASSESSEE VIDE ORDER DATED 1.06.2 015 IN ITA NO.3233/M/2012, WHEREIN THE ORDER OF A.Y. 2007-08 H AS BEEN FOLLOWED BY THE TRIBUNAL. 2.9. WE HAVE CONSIDERED THESE ORDERS AS WELL AS THE MAT ERIAL PLACED BEFORE US. AS STATED ABOVE, NOTHING HAS BEEN BROUGHT BEFORE US TO DISTINGUISH THE ORDERS OF EARLIER YEAR S ON FACTS OR LAW. THEREFORE, FACTUAL AND LEGAL POSITION REMAININ G SAME, FOLLOWING THE ORDERS OF EARLIER YEARS, WE FIND THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT( A), AND RUKIMINI IYER LTD. 11 THEREFORE SAME IS HEREBY CONFIRMED. THUS, THE GROUN D RAISED BY THE REVENUE IS DISMISSED. 3. GROUND NO. 2: IN THIS GROUND THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION OF RS.78,48,442/- MADE BY THE AO ON ACCOUNT OF ANY INF LATING THE AMOUNT OF SUNDRY CREDITORS. THE BRIEF FACTS IN RESPECT TO THIS GROUND ARE THAT DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE AO, ON THE BASIS OF INQUIRIES MADE BY HIM, NOTED IN THE ASSESSMENT ORDER THAT THERE WAS DIFFER ENCE BETWEEN THE BALANCE OF SUNDRY CREDITORS (TWO PARTIE S) AS PER THE AMOUNT SHOWN IN THE BOOKS OF ACCOUNTS AND AS PE R THE CONFIRMATION RECEIVED FROM THE SAID THREE PARTIES, AGGREGATING TO RS.78,48,442/- THE DETAILS OF DIFFERENCE NOTED B Y THE AO IS REPRODUCED HEREIN BELOW: NAME OF THE PARTY AMOUNT (IN RS.) SHOWN IN THE BALANCE SHEET AMOUNT (IN RS.) AS PER THE REPLY RECEIVED DIFFERENCE 1 2 3 2-3 YASH MEDICARE PVT. LTD. 41,69,178 36,87,693 4,81,48 5 LYKA BDR INTERNATIONAL LTD. 1,40,39,775/- 1,24,97,3 24 15,42,451 GLOBELA PHARMA PVT. LTD. 71,97,284 13,72,778 58,24, 506 THE ASSESSEE SUBMITTED RECONCILIATION STATEMENT BEF ORE THE AO EXPLAINING THE DIFFERENCE BUT THE AO WAS NOT SATISF IED WITH THE RUKIMINI IYER LTD. 12 EXPLANATION OF THE ASSESSEE AND THEREFORE, ADDITION WAS MADE BY HIM. 3.1 BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A), WHEREIN IT WAS SUBMITTED THAT THE AFORE SAID PARTIES ARE GENUINE, WHICH SHALL BE EVIDENT FROM THE NOTICE S ISSUED BY THE DEPARTMENT AND RESPONSE RECEIVED FROM THESE PAR TIES. THE ASSESSEE ALSO SUBMITTED RECONCILIATION STATEMENT FO R EXPLAINING THE DIFFERENT BETWEEN THE TWO BALANCES, AS WAS INTIMATED BY THE AO. BUT, WITHOUT POINTING OUT ANY DISCREPANCIES OR DOUBT IN THE MIND OF AO WITH REGAR D TO THE RECONCILIATION STATEMENT, THE AO ARBITRARILY ADDED ALLEGED DIFFERENCE OF RS.78,48,442/-. THE ASSESSEE MADE PAY MENT TO THESE SUPPLIERS THROUGH ACCOUNT PAYEE CHEQUES. THE BANK STATEMENTS WERE MADE AVAILABLE TO AO AND NO DISCREP ANCIES WERE POINTED OUT THEREIN BY THE AO. THE PURCHASES F ROM THESE SUPPLIERS WERE ALSO SHOWN IN THE VAT RETURN FILED B Y THE ASSESSEE, THEIR CORRESPONDING SALES WERE ALSO SHOWN IN THE VAT RETURN AND VAT AUDIT REPORT SUBMITTED BY THE AS SESSEE. THE COPIES OF VAT RETURNS AND VAT AUDIT REPORT WERE SUBMITTED TO THE AO. NO DISCREPANCIES WERE POINTED OUT BY THE AO, EITHER IN PURCHASE OR IN SALES. THE ENTIRE PURC HASES DONE BY THE ASSESSEE WERE EXPORTED, SINCE THE ASSESSEE H AS DONE HUNDRED PERCENT EXPORTS SALES. NO DEFECTS WERE POIN TED OUT IN THE QUANTITATIVE DETAILS SUBMITTED BY THE ASSESSEE. IT WAS SUBMITTED THAT IT WAS IMPOSSIBLE TO EXPORT THE GOOD S WITHOUT PURCHASES, AND THAT THESE WERE DULY SUPPORTED BY CU STOM AND EXCISE CLEARANCE AND BILLS OF LADING. EXPORTS PROCE EDS WERE RUKIMINI IYER LTD. 13 RECEIVED IN FOREIGN CURRENCY IN THE BANK ACCOUNT OF THE ASSESSEE. THE ASSESSEE ALSO SUBMITTED PRODUCT WISE DETAILS OF OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK. IT WAS ALSO SUBMITTED THAT IN THE CASE OF M/S.GLOBELA PHARMA PV T. LTD. (SUPRA), THE ASSESSEE HAD OPENED TWO LEDGER ACCOUNT S IN THE BOOKS OF ACCOUNTS, ONE SHOWING DEBIT BALANCE AND OT HER SHOWING CREDIT BALANCE. THE AO DID NOT EXAMINE BOTH THE LEDGER ACCOUNTS, AND THAT IS HOW THE REASONS FOR DI FFERENCE COULD NOT BE UNDERSTOOD BY HIM. 3.2 LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSES SEE AS WELL AS COMPLETE MATERIAL AVAILABLE ON RECORD AND D ELETED THE DISALLOWANCE MADE BY THE AO, BY GIVING DETAILED REA SONING IN PARA 6.3.1 OF ITS ORDER. 3.3 BEFORE US, LD. DR HAS RELIED UPON THE ASSESSMENT O RDER AND LD. COUNSEL HAS RELIED UPON THE DETAILED FINDIN GS OF LD. CIT(A) GIVEN IN THE APPELLATE ORDER FOR DELETING TH E DISALLOWANCE MADE BY THE AO. 3.4 WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES, AND ORDERS OF LOWER AUTHORITIES AND MATERIAL PLACED BEFORE US FOR OUR CONSIDERATION. IT IS NOTED THAT A O HAD ADDED THE AMOUNT OF DIFFERENCE WITHOUT PROPERLY VERIFYING THE FACTS AND THE MATERIAL PLACED BEFORE HIM. IN OUR CONSIDER ED VIEW, THE ASSESSEE HAS DISCHARGED ITS PRIMARY ONUS BY SUB MITTING REQUISITE EVIDENCES. BUT LD. AO MADE HALF COOKED IN QUIRIES ONLY AND DID NOT EXERCISE HIS POWERS AVAILABLE UNDE R THE LAW TO CLEAR HIS DOUBTS, NOR DID HE CONFRONT ANY OF HIS DO UBTS TO THE RUKIMINI IYER LTD. 14 ASSESSEE. WE FEEL, IF AO WOULD HAVE ACTED FAIRLY BY PUTTING ACROSS ALL HIS QUERIES TO THE ASSESSE, THE ASSESSEE WOULD HAVE EXPLAINED ALL THE DOUBTS THERE AND THEN. THE DISALL OWANCE WAS MADE BY THE AO BY OVERLOOKING EVIDENCES AND FACTUAL MATERIAL PLACED BY THE ASSESSEE BEFORE THE AO. THE LD. CIT(A ) HAS APPRECIATED THESE DOCUMENTARY EVIDENCES AND FACTS A ND CIRCUMSTANCES OF THE CASE IN RIGHT PROSPECTIVE. IT HAS BEEN HELD BY THE LD. CIT(A) THAT THE AO COULD HAVE ISSUE D SHOW CAUSE NOTICE BEFORE MAKING THE ADDITION OR ASKED FO R THE ADDITIONAL PROOF IN WRITING WHICH HE FAILED TO DO S O. IT WAS CONTENDED THAT IN CASE OF GLOBELA, THERE WAS DEBIT AS WELL AS CREDIT BALANCE APPEARING IN ASSETS SIDE AND LIABILI TY SIDE OF BALANCE SHEET WHICH IS CLEARLY MENTIONED IN RECONCI LIATION STATEMENT SUBMITTED BY THE ASSESSEE. FURTHER THE BA LANCE SHEET ALONG WITH SCHEDULES WAS ALSO AVAILABLE ON RE CORD WITH AO. SIMILARLY RECONCILIATION STATEMENT WAS DULY SU BMITTED IN RESPECT OF LYKA AND YASH BUT IT WAS NOT TAKEN COGNI ZANCE BY A.O. AFTER MAKING CONSIDERATION OF FACTS OF THE CA SE AND IN THE ABSENCE OF MATERIAL ON RECORD TO THE CONTRARY, IT W AS HELD BY LD CIT(A) THAT THE CLAIM OF TILE ASSESSEE WAS JUSTI FIED, PARTICULARLY WHEN ASSESSEES BUSINESS IS 100% EXPOR TS AND ALL PURCHASES WERE MADE AS PER SPECIFICATION OF EXPORT ORDER. THE PURCHASES AND SALES QUANTITIES WERE DULY RECONCILED . ALL SALES WERE DULY SUPPORTED BY CUSTOM CLEARANCE AND BILL OF LADINGS, AND PAYMENT TO PARTIES WERE MADE BY ACCOUNT PAYEE C HEQUES. UNDER THESE CIRCUMSTANCES, THE QUESTION OF UNEXPLAI NED CREDITORS COULD NOT ARISE. THESE CREDITORS WERE REG ULAR PARTIES HAVING NORMAL BUSINESS TRANSACTIONS. IT WAS FURTHER NOTED BY RUKIMINI IYER LTD. 15 LD CIT(A) THAT THE TRANSACTIONS WITH THESE PARTIES BY THE ASSESSEE CONTINUED IN SUBSEQUENT ASSESSMENT YEAR AL SO, AND, THEREFORE, BY NO STRETCH OF IMAGINATION THE AMOUNT UNDER CONSIDERATION COULD NOT BE TREATED AS CEASED LIABIL ITY. ACCORDINGLY, KEEPING IN VIEW THE FACTS AND CIRCUMST ANCES OF THE CASE, AS WELL AS THE JUDICIAL PRONOUNCEMENTS, T HE CIT(A) AGREED WITH THE EXPLANATION OF ASSESSEE IN RESPECT OF RECONCILIATION OF BALANCE WITH THESE THREE CREDITOR S AND DIRECTED THE AO TO DELETE ADDITION. WE FIND THAT TH E FINDINGS OF LD. CIT(A) ARE CORRECT AS PER LAW AND FACT AND NO I NTERFERENCE IS CALLED FOR THEREIN, THUS ORDER OF LD. CIT(A) IS CONFIRMED AND GROUND RAISED BY THE REVENUE IS DISMISSED. 4. IN GROUND NO. 3 : IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION OF RS.1,31,77,941/- MADE BY THE AO ON ACCOUNT OF CEASE D LIABILITY. 4.1 THE BRIEF FACTS ARE THAT DURING THE COURSE OF ASSE SSMENT PROCEEDINGS THE AO ISSUED NOTICE TO FOLLOWING TWO P ARTIES :- (I) M/S. THEMIS MEDICARE LTD. (II) ARUL SELVI IN ABSENCE OF RESPONSE FROM THESE TWO CREDITORS, IT WAS PRESUMED THAT THIS IS A CASE OF CEASED LIABILITY AN D ACCORDINGLY THE CLOSING BALANCE OF THESE TWO PARTIES WAS ADDED AS INCOME. RUKIMINI IYER LTD. 16 4.2 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE T HE LD. CIT(A), WHERE DETAILED SUBMISSIONS WERE FILED, AND THESE ARE PRODUCED HEREUNDER FOR READY REFERENCE: M/S. THEMIS MEDICARE LTD. RS.97,77,941/- AND ARUL S ELVI RS.34,00,000/- PARA 4.2 OF ASSESSMENT ORDER U/S.40( A)(IA) THIS INAPPROPRIATE ADDITION HAS BEEN MADE UNDER WRO NG SECTION OF INCOME TAX ACT, WHICH IS NOT APPLICABLE IN RESPECT OF TRANSACTIONS WITH THESE PARTIES. HENCE T HE ADDITION IS VOID AB-INITIO. HOWEVER WE ARE MAKING O UR SUBMISSION UNDER PROTEST AND WITHOUT PREJUDICE, AS UNDER: THE A.O. ISSUED NOTICE U/S 133(6) TO THIS PARTY. HO WEVER THE NOTICE DULY SERVED TO THEMIS MEDICARE LTD AND N O RESPONSE WAS RECEIVED FROM THE ABOVE PARTIES, AS SO ON AS THE MATTER WAS BROUGHT TO NOTICE OF ASSESSEE, SHE ACCORDINGLY TELEPHONICALLY INFORMED THE PARTIES TO RESPOND TO NOTICES OF A.O. STILL THE PARTIES DID NOT RESPON D. THE APPELLANT STATES THAT THE A.O. HAD ALL THE POWER TO SUMMON THEM AND IN CASE OF DEFAULT, PENALIZE. BUT WITHOUT UTILIZING HIS OWN POWERS AS PROVIDED IN THE INCOME-TAX ACT THE A.O. SIMPLY CONCLUDED THE AMOUNT PAYABLE TO THESE PARTIES AS CEASED LIABILITY U/S 40 (A)(IA). THERE IS NO FAULT OF APPELLANT. IT IS FURTHER SUBMITTED THAT THE A.O. HAS INHERENT POWER UNDER THE PROVISIONS OF INCOME TAX ACT SUCH AS SECT ION 131, 133, 272A( 1), 272A(2) ETC. WHICH ARE NOT EXER CISED BY A.O. THE ASSESSEE HAS NO POWER UNDER ANY LAW TO RUKIMINI IYER LTD. 17 COMPEL THIRD PAR Y TO PRODUCE THEM BEFORE A.O. BUT CAN ONLY MAKE REQUEST. THE REQUEST WAS DULY MADE TO SUPPLIERS ON TELEPHONE TO MEET THE REQUIREMENT OF A .O. THE AO DID NOT BOTHER TO SEND REMINDER TO THESE PAR TIES & PENALIZED THEM FOR THEIR NON CO-OPERATION. THEMIS HAS DELIBERATELY NOT COOPERATED WITH THE DEPARTMENT AS THEY HAVE ISSUED LEGAL NOTICE TO APPE LLANT & ALSO SENT LETTER TO ASSESSEE THAT UNLESS THEIR PA YMENT IS MADE THEY WILL NOT CONFIRM THE BALANCES. WE HAVE ATTACHED THE ADVOCATE NOTICE & EMAIL REPLY RECEIVED FROM THEMIS AS EVIDENCE. FURTHER APPELLANT HAS MADE PAYM ENT OF RS.11500000/- IN SUBSEQUENT YEAR. IT MANES TOTAL OUTSTANDING OF RS.97,77,941/- AS ON 31.03.2009 HAS BEEN PAID. THE COPY OF LEDGER ACCOUNT OF FINANCIAL YEAR 2009-10 ATTACHED HEREWITH AS EVIDENCES OF SUBSEQUENT PAYMEN T. HENCE THERE IS NO QUESTION OF CESSATION OF LIABILIT Y TO THIS PARTY. THE NOTICE SENT TO ARUL SELVI WAS NOT SERVED AS APP ELLANT HAD GIVEN ADDRESS AVAILABLE WITH HER. BUT THE ISSUE IS SOMETHING ELSE, WHICH THE AO HAS NOT UNDERSTOOD. TH IS TRANSACTION IS NOT A REVENUE EXPENDITURE AND WAS NO T DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THEREFOR E THE AO WAS NOT JUSTIFIED IN ADDING THE SAME. FOR THE SA KE OF CLARIFICATION, THE APPELLANT ALSO RE-AFFIRMS THAT S HE HAS PURCHASED SHARES OF M/S. SHREE MAKALESWAR PLASTICS PVT. LTD. FROM MS. ARUL SELVI, THE AMOUNT SHOWN AS PAYAB LE TO ARUL SELVI RS.34,OO,OOO/- IS AGAINST THE PURCHASE O F SHARES OF M/S. SHREE MAKALESWAR PLASTICS PVT LTD, W HICH RUKIMINI IYER LTD. 18 IS SHOWN AS INVESTMENT IN THE BALANCE SHEET. THIS A MOUNT HAS NOTHING TO DO WITH THE REGULAR BUSINESS ACTIVIT Y, THIS AMOUNT IS PAYABLE AGAINST THE PURCHASE OR SHARES/INVESTMENTS. THE A.O. HAS NOT CONSIDERED THE FACTS AND SIMPLY ADDED THIS BALANCE AS CEASED U/S 40(A)(IA). ALL THE LIABILITIES ARE GENUINE & PAYABL E IN DUE COURSE. WE HAVE MADE PAYMENTS TO THEM IN SUBSEQUENT PERIOD AMOUNTING TO RS.26,00,000/- THE COPIES OF LEDGER ACCOUNTS OF THESE PARTIES ARE ATTACHED HEREWITH WHICH INDICATE THAT THESE AMOUNTS OUTSTANDINGS ARE SUBSEQUENTLY PAID, WHICH WAS ALSO PRODUCED BEFORE THE AO DURING ASSESSMENT STAGE. IN BOTH THE ABOVE CASES ,THE A.O. DID NOT GIVE REAS ONABLE OPPORTUNITY OF BEING HEARD AND ALSO SHOW CAUSE NOTI CE BEFORE MAKING ADDITION AS CESSATION OF LIABILITY. ACCORDINGLY ADDITIONS ARE NOT JUSTIFIED. AS PAYMENT MADE TO THESE PARTIES IN SUBSEQUENT PERIOD CLEARLY INDIC ATE THE CONTINUITY OF TRANSACTION AND NO CESSATION OF ANY L IABILITY. 4.3. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE A ND PERUSING DETAILED FACTUAL MATERIAL SUBMITTED BEFORE HIM, THE LD. CIT(A) DELETED THE ADDITION BY MAKING DETAILED DISCUSSION IN THE APPEAL ORDER IN PARA 6.3.2., SAME IS REPRODU CED FOR READY REFERENCE: IN RESPECT OF THEMIS, AO HAS STATED THAT NOTICE U/S 133(6) WAS DULY SERVED, HOWEVER THE PARTY FAILED TO SUBMIT THE CONFIRMATION AND DETAILS SOUGHT FOR BY AO. ON RUKIMINI IYER LTD. 19 CONSIDERATION OF THE FACTS, IT IS OBSERVED THAT AP PELLANT HAS NO POWER UNDER THE LAW BUT AO HAS INHERENT POWE R'S UNDER VARIOUS SECTIONS SUCH AS 131,133,272A( I ), 2 72A(2) ETC. WHICH WERE NOT EXERCISED BY HIM. FURTHER THE A R OF APPELLANT HAS EXPLAINED THAT AN AMOUNT OF RS.L,15,OO,OOO/- WAS ALREADY PAID IN SUBSEQUENT A.Y .. THIS AMOUNT OR RS.L,15,OO,OOO/- IS INCLUSIVE OF RS.97,77,941/- WHICH WAS OUTSTANDING IN BALANCE SHE ET AS ON 31.3.2009. THIS CONDUCT OF APPELLANT INDICATE THE GENUINENESS OF TRANSACTION BETWEEN APPELLANT & THEM IS. MOREOVER AR ALSO POINTED OUT DURING APPELLATE PROCE EDINGS THAT THEMIS HAS WRITTEN MAIL TO APPELLANT CLEARLY S TATING THAT THEY WILL NOT CO-OPERATE WITH APPELLANT AS SOM E PAYMENTS ARE OUTSTANDING WHICH IS AGAINST THE LAW & RULE OF NATURAL JUSTICE. THEMIS HAS DELIBERATELY NOT COOPERATED WITH THE INC OME TAX DEPARTMENT FOR WHICH THEY NEED TO BE PENALIZED. HOWEVER THE AO INSTEAD OF PENALIZING THEMIS WRONGLY PENALIZED APPELLANT BY ADDING AMOUNT OF RS 97,77,941/.KEEPING IN VIEW THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS THE JUDICIAL PRONOUNCEMENTS, THE APPELLANT'S SUBMISSION IS ACCEP TED AND, THEREFORE, I DIRECT THE A.O. TO DELETE THE ADD ITION OF RS.97,77,941/-. 6.3.3. IN CASE OF ARUN SELVI , IT STATED BY AR THAT THIS AMOUNT DOES NOT PERTAIN TO PURCHASES . IT RELATES T O PURCHASE OF SHARES OF M/S SHREE 1AKALESHWAR PLASTIC S PVT RUKIMINI IYER LTD. 20 LTD AND AMOUNT OUTSTANDING AS ON 31.03.2009 WAS RS.34,00,000/ OUT OF WHICH AN AMOUNT OF RS 26,OO,OO O/ WAS PAID IN SUBSEQUENT YEAR. THE NOTICE SERVED TO T HEM WAS RETURNED UNSERVED AS PARTY HAD CHANGED ADDRESS. BUT SINCE OUT OF RS.34,OO,OOO/-, THE APPELLANT PAID AN AMOUNT OF RS.26,OO,OOO/- IN SUBSEQUENT A.Y. ITSELF, THEREFORE BY NO STRETCH OF IMAGINATION, THIS AMOUNT COULD HAVE BECOME CEASED LIABILITY IN A. Y. 2009-10. FURT HER, THE BALANCE OUTSTANDING WAS SATISFACTORILY EXPLAINED FO R HAVING CARRIED IT OVER. I AM OF THE CONSIDERED VIEW THAT THE ADDITION MADE BY AO IS UNJUSTIFIED AND DELETE THE A DDITION OF RS 34,0,000/. 4.4. BEFORE US THE LD. DR HAS RELIED UPON THE ORDER OF AO AND THE ASSESSEE HAS RELIED UPON DETAILED FINDINGS OF L D. CIT(A), AS REPRODUCED ABOVE. 4.5. WE HAVE GONE THROUGH RIVAL CONTENTIONS, ORDERS OF LOWER AUTHORITIES AND ENTIRE FACTUAL MATERIAL PLACED BEFO RE US FOR OUR CONSIDERATION. IN OUR CONSIDERED OPINION, LD. CIT(A ) HAS RIGHTLY HELD THAT LIABILITIES WITH RESPECT TO AFORE SAID TWO CREDITORS CANNOT BE PRESUMED TO HAVE CEASED. THE AS SESSEE HAS CONTINUED TO ACKNOWLEDGE THESE LIABILITIES IN I TS BOOKS OF ACCOUNTS. THESE PARTIES HAVE ALSO NOT DENIED EXISTE NCE OF TRANSACTIONS WITH THE ASSESSEE. THERE IS NO PROVISI ON UNDER THE INCOME TAX LAW UNDER WHICH THESE CREDIT BALANCE S, REPRESENTING AMOUNT PAYABLE TO THE AFORESAID PARTIE S, CAN BE ADDED AS INCOME OF THE ASSESSEE, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. WE TAKE SUPPORT OF OUR V IEW FROM RUKIMINI IYER LTD. 21 THE JUDGMENT OF HONBLE PUNJAB AND HARAYANA HIGH CO URT IN THE CASE OF SITA DEVEI JUNEJA 325 ITR 593 , AND RELEVANT OBSERVATIONS FROM THE JUDGMENT ARE REPRODUCED BELOW : 3. AGAINST THE ORDER OF THE COMMISSIONER OF INCOME -TAX (APPEALS), THE REVENUE FILED APPEAL, WHICH HAS BEEN DISMISSED BY THE INCOME-TAX APPELLATE TRIBUNAL, WHI LE OBSERVING AS UNDER: 'IT WAS FOR THE ASSESSING OFFICER TO SHOW THAT THE LIABILITIES IN QUESTION HAD CEASED TO EXIST. IN FACT, THESE LIABIL ITIES WERE PAYABLE BY THE ASSESSEE AND UNLESS DEMONSTRATED, TH EY WERE TO BE SHOWN AS OUTSTANDING. THESE LIABILITIES WERE APPEARING IN THE ASSESSEE'S BALANCE- SHEET, INDICATING ACKNOW LEDGMENT OF THE DEBTS PAYABLE BY THE ASSES SEE, AS HAS BEEN HELD IN CIT V. TAMILNADU WAREHOUSING CORPORATION [2007] 292 ITR 310 (MAD) AND AMBICA MILLS LTD. V. CIT [1964] 54 ITR 167 (GUJ). AS SUCH, THESE LIABILITIES COULD NOT HAVE BEEN TREATED TO HAVE CEASED AND SO, INVOCATION OF THE PROVISIONS OF SECT ION 41(1) WAS NOT AT ALL CALLED FOR. MOREOVER, AS HELD BY THE HON'BLE SUPREME COURT IN CIT V. SUGAULI SUGAR WORKS P. LTD. [1999] 236 ITR 518 , THE CESSATION OF THE LIABILITY CAN COME ABOUT ONL Y BY A BILATERAL ACT AND NOT UNILATERAL ACT. IN THE P RESENT CASE, THE ASSESSEE TREATED THE LIABILITY AS EXISTING. FUR THER, SECTION 41(1) OF THE ACT PROVIDES FOR A DEEMING FICTION, AS PER WHICH AN AMOUNT NOT HAVING THE NATURE OF INCOME IS TREATED A S INCOME. THAT BEING SO, THE BURDEN OF PROVING THE FICTION IS ON THE DEPARTMENT. SANS THE DISCHARGING OF THIS BURDEN, TH E ADDITION CANNOT BE MADE. HERE, THE ASSESSING OFFICER HAS NOT MADE OUT ANY CASE OF APPLICABILITY OF SECTION 41(1). TO ATTR ACT SECTION 41(1), THERE MUST EXIST A TRADING LIABILITY, IN REG ARD TO WHICH THE DEDUCTION HAD BEEN CLAIMED AND ALLOWED. NO SUCH TRADING LIABILITY HAD BEEN PROVED HEREIN. THE ADDITION WAS CLEARLY MADE ON THE BASIS OF MERE PRESUMPTIONS, CONJECTURES AND SURMISES. THE ASSESSING OFFICER FAILED TO SHOW THAT IN ANY EARLIER YEAR, ALLOWANCE OF DEDUCTION HAD BEEN MADE IN RESPECT OF ANY TRADING LIABILITY INCURRED BY THE ASSESSEE, NOR WAS IT PROVED THAT ANY BENEFIT WAS OBTAINED BY THE ASSESSE E CONCERNING SUCH TRADING LIABILITY BY WAY OF REMISSI ON OR CESSATION THEREOF DURING THE CONCERNED YEAR. THERE THUS, DID NOT ACCRUE ANY BENEFIT TO THE ASSESSEE WHICH COULD BE DEEMED RUKIMINI IYER LTD. 22 TO BE THE PROFITS OR GAINS OF THE ASSESSEE'S BUSINE SS WHICH WOULD OTHERWISE NOT BE THE ASSESSEE'S INCOME. THE ASSESSMENT ORDER, AS SUCH, IS DIRECTLY AGAINST THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CHIEF CIT V. KESARIA TEA CO. LTD. [2002] 254 ITR 434 .' 4. AFTER HEARING LEARNED COUNSEL FOR THE APPELLANT AND GOING THROUGH THE IMPUGNED ORDER, WE DO NOT FIND ANY MERI T IN THE INSTANT APPEAL. IT IS THE CONCEDED POSITION THAT IN THE ASSESSEE'S BALANCE-SHEET, THE AFORESAID LIABILITIES HAVE BEEN SHOWN, WHICH ARE PAYABLE TO THE SUNDRY CREDITORS. SUCH LIABILITI ES, SHOWN IN THE BALANCE-SHEET, INDICATE THE ACKNOWLEDGMENT OF T HE DEBTS PAYABLE BY THE ASSESSEE. MERELY BECAUSE SUCH LIABIL ITY IS OUTSTANDING FOR THE LAST SIX YEARS, IT CANNOT BE PR ESUMED THAT THE SAID LIABILITIES HAVE CEASED TO EXIST. IT IS AL SO THE CONCEDED POSITION THAT THERE IS NO BILATERAL ACT OF THE ASSE SSEE AND THE CREDITORS, WHICH INDICATES THAT THE SAID LIABILITIE S HAVE CEASED TO EXIST. IN THE ABSENCE OF ANY BILATERAL ACT, THE SAI D LIABILITIES COULD NOT HAVE BEEN TREATED TO HAVE CEASED. IN VIEW OF THESE FACTS, THE COMMISSIONER OF INCOME-TAX (APPEALS) AS WELL AS THE INCOME-TAX APPELLATE TRIBUNAL HAVE RIGHTLY COME TO THE CONCLUSION THAT THE ASSESSING OFFICER HAS WRONGLY I NVOKED EXPLANATION 1 TO SECTION 41(1) OF THE ACT AND MADE THE AFORESAID ADDITION ON THE BASIS OF PRESUMPTION, CONJECTURES A ND SURMISES. IT HAS BEEN FURTHER FOUND THAT THE ASSESSING OFFICE R FAILED TO SHOW THAT IN ANY EARLIER YEAR, ALLOWANCE OF DEDUCTI ON HAD BEEN IN RESPECT OF ANY TRADING LIABILITY INCURRED BY THE ASSESSEE. IT WAS ALSO NOT PROVED THAT ANY BENEFIT WAS OBTAINED B Y THE ASSESSEE CONCERNING SUCH TRADING LIABILITY BY WAY O F REMISSION OR CESSATION THEREOF DURING THE CONCERNED YEAR. THU S, THERE DID NOT ACCRUE ANY BENEFIT TO THE ASSESSEE WHICH COULD BE DEEMED TO BE THE PROFIT OR GAIN OF THE ASSESSEE'S BUSINESS , WHICH WOULD OTHERWISE NOT BE THE ASSESSEE'S INCOME. IT HAS BEEN FURTHER FOUND AS A FACT THAT THE ASSESSEE HAD FILED THE COP IES OF ACCOUNTS OF SUNDRY CREDITORS SIGNED BY THE CONCERNE D CREDITORS. IN VIEW OF THIS FACT, IN OUR OPINION, THE INCOME-TA X APPELLATE TRIBUNAL HAS RIGHTLY COME TO THE CONCLUSION THAT CO NFIRMATION FROM THE CREDITORS WERE PRODUCED. 5. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY ILLEGAL ITY IN THE IMPUGNED ORDER PASSED BY THE INCOME-TAX APPELLATE T RIBUNAL AND IN OUR OPINION, NO SUBSTANTIAL QUESTIONS OF LAW , AS RAISED RUKIMINI IYER LTD. 23 BY THE REVENUE IN THIS APPEAL, ARISE FROM THE ORDER OF THE INCOME-TAX APPELLATE TRIBUNAL. 4.6. THUS, IN VIEW OF THE FACTS OF THE CASE BEFORE US A ND THE CLEAR POSITION OF LAW, WE FIND THAT ADDITION WAS IL LEGAL AND FACTUALLY INCORRECT AND THEREFORE, THE SAME HAS BEE N RIGHTLY DELETED BY THE LD. CIT(A), NO INTERFERENCE IS CALLE D FOR THRESHING, THEREFORE, SAME IS CONFIRMED AND GROUND NO. 3 IS DISMISSED. 5 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2015. SD/- (SHAILENDRA KUMAR YADAV) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; % DATED : 28/10/2015 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. ' () / THE APPELLANT 2. *+() / THE RESPONDENT. 3. , , - ( ' ) / THE CIT, MUMBAI. 4. , , - / CIT(A)- , MUMBAI 5. 01 2 *34 , , '' 345 , / DR, ITAT, MUMBAI 6. 2 6 7 / GUARD FILE. / BY ORDER, + 0' * //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI