Siddheshwar Iron & Steel P. Ltd., Solapur V. Assistant Commissioner of Income-tax,

ITA 650/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9181 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 08-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR CHAWARE
• Assessee Lawyers: K SRINIVASAN
• Keywords: Opportunity of being heard; Principle of natural justice; Question of law; Reasonable cause
• Section: 142(1); 68; 144

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.650/PUN/2015 / ASSESSMENT YEAR : 2007-08 SIDDHESHWAR IRON & STEEL PVT. LIMITED, PLOT NO.29/2, B-EAST M, KHED, TAL. NORTH SOLAPUR, DIST. SOLAPUR. PAN : AAECS4034P. . / APPELLANT V/S ASST. COMMISSIONER OF INCOME TAX, CIRCLE 1, SOLAPUR. . / RESPONDENT / ASSESSEE BY : SHRI K. SRINIVASAN. / REVENUE BY : SHRI ANIL KUMAR CHAWARE. / ORDER PER ANIL CHATURVEDI, AM : THIS APPEAL FILED BY ASSESSEE IS EMANATING OUT OF THE ORD ER OF COMMISSIONER OF INCOME-TAX (A)-III, PUNE DT.27.10.2014 FOR A.Y. 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- 2.1 ASSESSEE IS THE COMPANY STATED TO BE ENGAGED IN TH E BUSINESS OF MANUFACTURING OF STEEL BARS. ASSESSEE ELECTRON ICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 31.10.2007 DEC LARING NIL TAXABLE INCOME. THE CASE WAS SELECTED FOR SCRUTINY. A O NOTED / DATE OF HEARING : 31.05.2017 / DATE OF PRONOUNCEMENT: 12.07.2017 2 THAT THOUGH NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE BUT THERE WAS NO COMPLIA NCE. AO HAS ALSO NOTED THAT EVEN AFTER SEVERAL OPPORTUNITIES GRA NTED BY HIM TO FURNISH THE REQUIRED DETAILS, ASSESSEE DID NOT COMPLY. HE THEREAFTER FRAMED ASSESSMENT U/S 144 OF THE ACT VIDE OR DER DT.29.12.2009 AND DETERMINED THE TOTAL INCOME AT RS.77,49,94 0/- AS AGAINST THE LOSS OF RS.11,89,338/- CLAIMED BY THE ASSESS EE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE AND REMAND REPORT GRANTED PARTIAL RELIEF TO THE ASSESSEE . AGGRIEVED BY THE ORDER OF LD.CIT(A) ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND: THE LEARNED ASSESSING OFFICER ERRED AND LD.CIT(A) ERRED IN CONFIRMED AN ADDITION OF RS.81,67,677/- TOWARDS CES SATION OF LIABILITY / FICTITIOUS EXPENDITURE OR BOGUS CREDITO RS U/S 68. 3. THE CASE FILE REVEALS THAT THERE IS DELAY IN FILING THE PRE SENT APPEAL BY 112 DAYS. BEFORE US, ASSESSEE HAS FILED SWORN AFFIDAVIT OF THE DIRECTOR EXPLAINING THE REASONS FOR DELAY AND HAS P RAYED FOR CONDONATION OF DELAY. CONSIDERING THE AVERMENTS MADE BY THE ASSESSEE IN THE AFFIDAVIT, WE ARE OF THE VIEW THAT THERE W AS REASONABLE CAUSE IN DELAYED FILING OF APPEAL AND ACCORDINGLY, THE DELAY IN FILING THE APPEAL IS CONDONED AND THE APPEAL IS ADMIT TED FOR HEARING. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTIC ED THAT ASSESSEE HAD SHOWN LIABILITY TO THE EXTENT OF RS.1,23,0 0,401/-. THE ASSESSEE WAS ASKED TO PRODUCE THE CONFIRMATION IN R ESPECT OF NINE CREDITORS AGGREGATING TO RS.88,60,348/- (LIST OF WHICH IS TABULATED AT PAGE 8 OF THE ASSESSMENT ORDER). AO NOTICE D THAT 3 ASSESSEE FAILED TO PRODUCE THE CONFIRMATION LETTERS AND DID NOT FILE THE CORRECT ADDRESSES OF THE PARTIES AND THEREFORE THE LETTERS WRITTEN BY THE AO WERE RECEIVED BACK. ONLY IN THE CASE OF GOVIN DJI DEVSHI & COMPANY, BALANCE SHOWN BY THE ASSESSEE WAS CONFIRMED. IN THE ABSENCE OF BALANCE CONFIRMATIONS, AO COMPUTED THE AMOUNT OF RS.81,67,677/- AS CESSATION OF LIABILITY U/S 41(1) OF THE ACT A ND ADDED TO THE INCOME. AGGRIEVED BY THE ORDER OF AO, ASSE SSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER : 4. AS MENTIONED AT PARA 3 ABOVE, THE ADDITION MADE BY THE ASSESSING OFFICER IS ON ACCOU N T OF CESSATION OF LIABIL I TY IN RESPECT OF 8 SUNDRY CREDITORS AMOUNTING TO RS . 81 , 67,677/- . THE APPELLANT'S BALANCE SH E ET SHOWS THAT THE TOTAL SUNDRY CREDITORS AS ON 31 . 03.2007 AMOUNTED TO RS . 1, 1 4 , 57 , 9 60 /- . T HE ASSESSING OFFICER M ENTIONS THAT THE LIABILITY OF ON ACCOUNT OF SUNDRY CREDITORS I S TO AN EXTENT OF RS.1,23,00 , 401/-. PERUSAL OF AUDITED BALANCE SHEET REVEALS THIS FIGURE TO BE INCORRECT. MOV I NG FORWARD, IN THE ASSESSMENT ORDER DATED 29.12.2009, THE ASSES SING OFFICER HAS ACCEPTED THE CONFIRMATION IN THE CASE OF GOVIND JI DEVSHI AND COMPANY, BALANCE OF WHICH IS S HO W N AT RS . 6 , 92 , 671/ - . HOWEVER, HE HAS A GAIN ISSUED CONFIRMATION LETTER TO TH E S AID PARTY ON 13.06.2013. THERE IS NO MENTION IN THE REMAND REPOR T AS T O WHY HE IS DI FF ERING FROM HIS PREDECESSOR'S V IEW. IT IS ALSO SEEN THAT THE ASSESS I NG OF F ICER HAS NOT AT ALL EXAMINED THE ADD IT IONAL EVIDENCES IN THE FORM OF CONFIRMATIONS FILED BY THE APPEL L ANT ALONG WITH TH E LEDGER A CCOUNTS O F PURCHASES AND OTHER TRA NSACTION, T H E BANK ACCOUNT STAT E M E NT ETC. WHICH THE APPELLANT HAS FILED FO R T H E CURRENT AND SUBSEQUENT F I NA NCI A L YE AR. HO WEV E R, SINCE T HE ADD I T I ON AL E VI D EN C E S S TAN D ADMITT E D AS DISCU SSE D I N P A RA 3.2 AND S I NC E THE APPEL LANT H A S R EQ U ESTED THAT THESE EVIDENCES A R E M A T ER IAL TO T HE ISSUES UNDER APP E A L, T HEY NEED TO B E ANALYSED AND DISCUSSED IN THE APPEAL. THE APPELLA NT HAS SUBSEQUENT TO THE ASSESSMENT PROCEEDINGS, FILED CON FIRMATIONS IN RESPECT OF R.C . TRADING COMPANY, SWAR N R E - RO LL IN G MILLS P V T. LTD . , L . SHANKARILAL & CO., M UNOT TRADE R S A ND RUBY STE E L, W HICH WE RE PART I ES B ASED A T BOMBA Y. 4.1 TAKING UP THE CASE OF R.C . TRADING COMPANY, IT IS SEEN FROM THE LEDGER A CCOUNT THAT THERE IS NO OPENING BALANC E AS ON 31 . 03 . 2006. YET THE APPE L LANT HAS MADE THREE PAYMENTS, SUPPOSEDLY BY CHEQUES ISSUED ON ING VYSYA BANK, SOLAPUR BRANCH ON 07.06.2 006, 20.06.2006 & 14.07.2006 FOR RS.1,00,000/-, RS.90,00 0/- AND RS.L,50,000/- RESPECTIVELY. IT IS VERY SURPRISING T HAT THE APPELLANT COMPANY HAS MADE PAYMENTS TO THIS PARTY 6-8 MONTHS PRIOR TO THE ACTUAL TRANSACTION S W HEN THERE IS NO OUTSTANDING BALANCE PAYABLE TO THE PARTY. THE COPY OF ACCOUNT FURNISHED SHOWS THAT THERE ARE NO TRANSACTIONS WITH THIS P ARTY THEREAFTER UNTIL FEBRUARY AND MARCH 2007 WHEREIN THE APPELLANT HAD MADE 9 TRANSACTIONS OF PURCHASE OF M.S. ROLLING SCRAP TOTALING RS.27,68,552/-. THUS TH E BALANCE OUTSTANDING IN RESPECT OF THIS PARTY STANDS AT RS.2 4,28,S52/- AS ON 4 31.03.2007. DURING THE ASSESSMENT PROCEEDINGS, ENQU IRY LETTER OF THE ASSESSING OFFICER WAS RECEIVED BACK FROM THIS P ARTY. EVEN DURING THE REMAND PROCEEDING, THERE HAS BEEN NO RES PONSE TO THE QUERY LETTER OF THE ASSESSING OFFICER. THE CONFIRMA TION LETTER PRODUCED BY THE APP E LLANT DOES NOT I NDICATE THE PAN NUMBER OF THE PARTY AND THEREFORE THE APPELLANT'S CLAIM THAT BECA USE PAYMENT HAS BEEN MADE IN THE SUBSEQUENT PERIOD BY BANKING CHANN EL, THE CLAIM OF PURCHASES IS GENUINE, REMAINS VALIDATED. THERE I S NO PROOF THAT THE MATERIALS PURCHASED FROM THE SAID PART HAVE BEE N RECEIVED BY THE APPELLANT. THE APPELLANT HAS NOT CONCLUSIVELY P ROVED, THAT THE PAYMENTS MADE ARE BY ACCOUNT PAYEE CHEQUES OR BEARE R CHEQUES. EVEN THE PHYSICAL PRESENCE OF THIS PARTY IS NOT PRO VED AS THEY HAVE NOT RESPONDED TO THE ASSESSING OFFICER ALTHOUGH THE LETTER HAS NOT BEEN RETURNED BACK BY THE POSTAL AUTHORITIES. THE SAME I S THE POSITION WITH REGARD TO THE OTHER PURCHASE TRANSACT IONS. THERE ARE ALSO CONTRADICTIONS IN THE ACCOUNT STATEMENT OF SO ME OF THE PARTIES. FOR EXAMPLE, IN THE CASE OF SWARN RE-ROLLING MILLS PVT. LTD. THE PURCHASE INVOICE OF RS.4,92,208/- DATED 19.07.2006 MENTIONS PAYMENT OF RS.L,50,000/- THROUGH ING VYSYA BANK, WH ICH PAYMENT HAS ACTUALLY BEEN MADE SUPPOSEDLY ON 23.08.2006. AS ALREADY STATED ABOVE, THERE IS NO CORROBORATIVE EVIDENCE FI LED BY THE APPELLANT TO DEMONSTRATE THAT THE MATERIALS PURCHAS ED FROM THE SAID PARTY HAVE BEEN RECEIVED BY THE APPELLANT. NONE OF THE INVOICES MENTION THE MODE OF TRANSPORTATION, REGISTRATION N O. OF THE VEHICLE, COUNTER SIGNATURE OF THE RECEIVER (I.E. THE APPELLA NT) OR INDEED THE PAYMENT MODE. 4.1.1 SINCE THE APPELLANT HAS CLAIMED THAT THE GENU INE PURCHASES WERE MADE DURING THE YEAR, WHICH REMAINED TO BE PAI D AT THE END OF THE YEAR TO THESE CREDITORS, THE ONUS WAS CAST ON T HE APPELLANT TO PROVE THAT THESE PARTIES WERE GENUINE PARTIES AND T HE PURCHASE TRANSACTION STOOD COMPLETED IN EVERY RESPECT SUCH A S RECEIPT OF THE RAW MATERIAL IN THE APPELLANT'S PREMISES, OCTROI RE CEIPT, GATE PASS, ENTRY IN STOCK REGISTER ETC. HOWEVER, NONE OF THESE ABOVE EVIDENCES HAVE BEEN PRODUCED. THE APPELLANT WAS MADE AWARE WA Y BACK IN DECEMBER 2009, BY THE SHOW CAUSE LETTER THE ASSESSI NG OFFICER DATED 24.12.2009 THAT THE LETTERS TO THE CREDITORS COULD NOT BE SERVED BUT WERE RETURNED BACK BY THE POSTAL AUTHORITY. IT WAS ALSO MADE AWARE THAT NO RESPONSE HAD BEEN RECEIVED IN 4 CASES. HOWEVER, EVEN DURING REMAND PROCEEDINGS, WHICH WERE CONDUCTED IN THE YEARS 2013 & 2014, THE APPELLANT HAS NEITHER PRODUCED THE PARTIES BEFORE THE ASSESSING OFFICER NOR THE PARTIE S HAVE COME FORWARD ON THEIR OWN WITH THE RELEVANT DETAILS SOUGHT FOR SUCH AS PAN, RETURN OF INCOME & LEDGER ACCOUNT OF THE APPEL LANT. THE APPELLANT HAS SUBMITTED THAT SINCE ALL THE PARTIES FROM WHOM PURCHASES WERE MADE ARE REGISTERED UNDER MAHARASHTR A VALUE ADDED TAX ACT 2002 AND POSSESSED TIN NOS. HENCE THE SE PURCHASES SHOULD BE CONSIDERED AS GENUINE. HOWEVER, IT IS NOT ICED THAT' FOLLOWING ENQUIRY BY MAHARASHTRA SALES TAX DEPARTME NT INTO ALLEGATIONS OF FICTITIOUS ENTRIES PROVIDED BY IRON & STEEL TRADERS IN THE STATE OF MAHARASHTRA, A NUMBER OF SUCH DEALERS HAVE BEEN BLACK LISTED OR DECLARED NON-GENUINE AND THEIR DEALERSHIP STANDS CANCELLED BY THE SALES TAX DEPARTMENT. PERUSAL OF THE LIST AV AILABLE ON THE MAHARASHTRA SALES TAX DEPARTMENT WEBSITE SHOWS THAT AT LEAST TWO OF THE PARTIES WITH WHOM THE APPELLANT TRANSACTED DURING T HE RELEVANT PREVIOUS VEER NAMELY JAI AMBE STEEL CO. (T IN NO.27720660510V) & MUNOT TRADER (BEARING TIN NO.27090401139V & 27100028120V) HAVE BEEN PUT ON THE CANCELLED DEALER LIST. THIS IS ALSO CONSIDERED RELE VANT TO THE ISSUE UNDER APPEAL PARTICULARLY IN THE BACKGROUND THE APP ELLANT HAS NOT ONLY FAILED TO PRODUCE 'THE CREDITORS BEFORE THE AS SESSING OFFICER FOR EXAMINATION AND ALSO FAILED TO PRODUCE INDEPENDENT DOCUMENTARY 5 EVIDENCE THAT PURCHASES IN QUESTION ARE GENUINE AND THUS ALLOWABLE. THE ABOVE CIRCUMSTANCES LEAD TO THE INESCAPABLE CONCLUSION THAT PURCHASES AND THEREFORE THE CREDITO RS IN QUESTION ARE NOT GENUINE. IT IS NOT A QUESTION OF CESSATION OF TRADING LIABILITY OR A CASE WHERE THE APPELLANT HAS BEEN AL LOWED DEDUCTION IN RESPECT OF LOSS, EXPENDITURE OR TRADIN G LIABILITY THAT WAS INCURRED IN AN EARLIER YEAR. THEREFORE ALTHOUGH THE ASSESSING OFFICER HAS MADE THE ADDITION U/S 41(1), THE ADDITION IS CONFIRMED UNDER THE HEAD FICTITIOUS EXP ENDITURE OR BOGUS CREDITORS U/S 68. 4.2 THE ASSESSING OFFICER HAS ALSO MENTIONED THAT T HE APPELLANT HAS NOT BEEN ABLE TO EXPLAIN THE LOSS OF RS.9,91,84 7/- INCURRED DURING THE YEAR, THE PRIMARY REASON BEING THAT THE PURCHASES AMOUNTING TO RS.79,26,338/- ARE A STAGGERING 80% OF THE TURNOVER OF THE YEAR WHICH STANDS AT RS.99,02,625/- . DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AR HAS ALSO FA ILED TO FURNISH AND SUBSTANTIATE THE REASONS FOR THE LOSS INCURRED. IN FACT, THERE IS NO ATTEMPT WHATSOEVER TO FURNISH THE REASONS FOR THE LOSS INCURRED. THE REASONS HOWEVER, DO NOT APPEAR FAR TO SEEK. FROM THE FACTS OF THE CASE, THERE SEEMS TO BE EVERY GROU ND TO BELIEVE THAT FICTITIOUS PURCHASES WERE SHOWN IN THE NAMES OF CER TAIN MUMBAI-BASED PARTIES AND THE FICTITIOUS CREDITS IN THE NAMES OF THESE PARTIES WERE SQUARED OFF BY MEANS OF FICTITIO US PAYMENTS IN THE SUBSEQUENT YEARS, OSTENSIBLY MADE THROUGH BANKI NG CHANNELS . 4.3 FINALLY, IT IS SEEN THAT THE APPELLANT HAS NOT PRODUCED THE CONFIRMATION FROM DEVA STEEL IN WHOSE NAME THE BALA NCE OUTSTANDING AT THE END OF THE YEAR I.E. AS ON 31 . 3.2007 WHICH IS A BROUGHT FORWARD BAL A NCE IS RS. 24,19,948/- . THE APPELLANT HAS NOT FURNISHED THE LEDGER ACCOUNT E X TRACT OF THIS PARTY FOR THE IMPUGNED YEAR OR THE PREVIOUS YEAR IN THE SUBMISSI ONS FILED BEFORE MY PREDECESSOR ON 24.02.2010 AND 14.10.2011 . THE COPY OF ACCOUNT FURNISHED IS FOR THE SUBSEQUENT PERIOD I . E. FINANCIAL YEAR 2007-08. IT HAS BEEN SUBMITTED THAT THERE IS A N ONGOING DISPUTE WITH THE SAID PARTY ABOUT QUALITY AND SELLI NG RATE. THE DISPUTE IS IN THE FINAL STAGE IN THE NEGOTIATION AN D THE PAYMENT LIKELY TO BE MADE WITHIN A PERIOD OF ONE MONTH. DUR ING T HE COURSE OF APPELLATE PROCEEDINGS CONDUCTED ON 08.10.2014, T HERE IS NO MENTION THAT THE ACCOUNT OF THIS PARTY HAS BEEN SQUARED OFF OR THAT THE PARTY HAS BEEN REPAID IN THE SUBSEQUENT PERIOD, AND IF SO, BY HOW MUCH. THE APPELLANT'S CASE IS THAT SINCE IT IS CONTINUING TO SHOW THE LIABILITY IN THE BALANCE SHEET .AND PAYMENT WILL HAVE TO BE MADE EVENTUALLY, THERE IS NO CESSATION OF LIABILITY AS A LLEGED BY THE ASSESSING OFFICER. I AM UNABLE TO AGREE WITH THE AP PELLANT'S ARGUMENT THAT SINCE A LARGE CHUNK OF WHAT THE ASSE SSING OFFICER ADDED WERE BROUGHT FORWARD BALANCES, THESE COULD NO T BE ADDED IN THE YEAR UNDER CONSIDERATION. THE FACT IS THAT THE APPELLANT HAS PROVIDED A BALANCE SHEET DRAWN UP BAS D ON ITS BOOK S OF ACCOUNT IN WHICH CERTAIN AMOUNTS ARE BEING CLAIMED AS LIABILIT IES DUE TO DIFFERENT PARTIES AS AT THE END OF THE ACCOUNTING Y EAR IN QUESTION. IT IS FOR THE APPELLANT TO ESTABLISH THE GENUINENESS O F THESE LIABILITIES BY LEADING NECESSARY EVIDENCE WHEN ASKED TO DO SO B Y THE REVENUE AUTHORITIES. THE MERE FACT OF LIABILITIES BEING REF LECTED AGAINST CERTAIN NAMES IN THE APPELLANT'S OWN BOOKS OF ACCOUNT CAN H ARDLY BE ACCEPTED AS EVIDENCE. THE ASSESSING OFFICER, ON HIS PART, HAS CARRIED OUT NECESSARY ENQUIRIES AND FOUND THAT EITHER THE P ARTIES DID NOT EXIST OR THAT THE LIABILITIES BEING CLAIMED BY THE APPELLANT WERE NOT CONFIRMED BY THE PARTIES. THE ONUS,' IN SUCH CIRCUM STANCES, IS THEREFORE CLEARLY CAST ON THE APPELLANT TO ESTABLI SH ITS CLAIM. IN MY 6 VIEW, THE APPELLANT HAS CLEARLY FAILED TO DISCHAR GE SUCH ONUS. THE ASSESSING OFFICER, HAVING ESTABLISHED THAT SUCH LIA BILITIES DID NOT EXIST AT THE END OF THE ACCOUNTING YEAR IN QUESTIO N, WAS WELL WITHIN HIS RIGHTS TO ADD THE AMOUNTS IN QUESTION AS LIABIL ITIES THAT HAD CEASED TO EXIST. IN THIS CASE THE APPELLANT HAS NOT FURNISHED DETAILS ON AS TO WHICH PERIOD THE TRANSACTION RELATES TO. T HE TWO PAYMENTS WHICH SUPPOSEDLY HAVE BEEN MADE TO THE PARTY IN THE SUBSEQUENT FINANCIAL YEAR 2007-08 TOTALING RS.8,00,000/- CANNO T BE SAID TO BE GENUINE IN THE ABSENCE OF EVIDENCE THAT THESE ARE P AID BY ACCOUNT PAYEE CHEQUES. FURTHER IT IS APPARENT THAT THE CRED IT BALANCE OF THIS PARTY IS OUTSTANDING EVEN AS ON 14.10.2011 WHICH MA KES THE TRANSACTION APPEAR FICTITIOUS. THE BANGALORE BENCH OF ITAT IN THE CASE OF SURESH KUMAR T. JAIN (128 ITD 74) HELD THA T IN A CASE WHERE THE ASSESSEE HAS FAILED TO PROVE THE GENUINEN ESS OF BROUGHT FORWARD TRADE CREDITORS, THE ADDITIONS MADE UNDER C ESSATION OF LIABILITY (IN RESPECT OF BROUGHT FORWARD TRADE CRED ITORS) AND SECTION 68 (BOGUS CREDITORS DURING THE YEAR) DESERVES TO BE UPHELD. IN DOING SO, THE ITAT FOLLOWED THE HON'BLE KARNATAKA HIGH CO URT DECISION IN THE CASE OF SOUTHERN INDIA PLYWOOD CO. VS. ASSTT. CIT [IT APPEAL NO. 180 OF 2002, DATED 16-11-2007] WHICH CONSIDERED THE FOLLOWING SUBSTANTIAL QUESTION OF LAW- 'WHETHER THE AUTHORITIES WERE JUSTIFIED IN MAKING A N ADDITION OF RS. 13,03,008 AS UNPROVED CREDITORS WHEN THE SAME H AD BEEN ACCEPTED FOR THE PREVIOUS YEAR?' THE HON'BLE KARNATAKA HIGH COURT HELD THUS AT PARA 10 OF ITS JUDGMENT - 'SO FAR AS THE LAST QUESTION OF LAW IS CONCERNED, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAS A RIGHT TO INQUIRE ABOUT THE CORRECTNESS OF THE ENTRY SHOWN BY THE ASSESSEE. EVEN IF THE ASSESSING OFFICER HAD ACCEPTED THE CREDIT ENTRIES S HOWN BY THE ASSESSEE FOR THE PREVIOUS ASSESSING YEARS, T HERE IS NO' PROHIBITION FOR THE ASSESSING OFFICER TO CALL UPON THE ASSESSEE TO PROVE THE EXISTENCE OF SUCH CREDITS AND TO CONFIRM WHETHER THE CREDIT SHOWN IN THE ENTRIES ARE REALLY IN EXISTENCE OR NOT. WHEN THE ASSESSING OFFICER HAS FOUND THAT SUCH ENTR IES ARE INCORRECT, WHEN AN OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO PROVE SUCH ENTRIES, WHEN THE ASSESSEE HAS FAILED TO PRICE THE SAME IN SPITE OF GIVING AN OPPORTUNITY FOR THE ASSE SSING OFFICER, WE ARE OF THE OPINION THAT ALL AUTHORITIES WERE JUSTIFIED IN HOLDING THAT THE AMOUNT OF RS. 13,03,008 AS AN UNPROVED CREDIT. IN THE CIRCUMSTANCES, WE HAVE TO ANSWER THE QUESTION NO. 3 AGAINST THE ASSESSEE. ' 4 .3 . 1 TH E H O N'B LE RAJAST HAN H I GH C OURT IN T HE CASE O F R A M A STE E L ROL LI NG MI LLS & G ENER AL E NG G. W ORKS VS I T O REPORT E D I N 3 5 T A X M ANN. COM 262 HAS AFFIRMED THE V I EW T HAT I N A CA SE O F BR OU GHT FOR W ARD TR A D E C R EDITOR, W H ER E THE ASS ES SE E U NA B L E TO PRODUCE THE SA I D CR E D I TOR O R FUR NI S H C O M P LETE A DDR ESS, THE SA ME CA N BE TRE AT E D AS C E SSATION OF LIAB I L I T Y I N THE Y E A R O F EXAM INATI ON A N D ASSES SE D TO TA X UNDER THE PROVISION OF SECTION 41(1) OF THE INCOM E - TAX ACT, 1961 . THE ABOVE CREDIT IS RA I S E D F OR T HE TRAD I NG AC TI V IT Y C AR RIED B Y TH E APPE LLANT. IN OTHER W ORDS, T H E MONE Y S H A D ARISEN OUT OF O R DINAR Y TR A DING T R ANS A CT IO NS. IN T H E C A SE OF DEV A STEEL , THE C RE D IT BEING NO N 7 GENU I NE , I T C AN BE HE L D THA T TH ESE MONEYS D I D NOT REM A I N M O N EY O F I T S C U ST OM E R S AND S U P P LIE RS R ES P E CTI VE LY SINC E T HE LIAB I L I TY T O PA Y BAC K CEASE D TO E X I S T. T HE S E A M O UNTS TH E R E AF TE R HAD BEC OM E M ONE Y S OF THE APPEL L ANT AND CH A RACTER OF RECE IPTS TO O C H A N GE D TO T H E I N C O ME OF THE APP E LLANT, EVEN T H O UG H THE SA M E CO U L D NOT BE BROUGH T TO T AX BY A PP LICATIO N OF S ECT ION 68 OF THE AC T . T H E S ET TLED P R IN CI P LE I S TH AT I F AN AMO U NT IS R E CE I V ED I N TH E CO U RS E O F TRAD I NG TR ANS A CT IO N, E V E N T HOU G H IT I S NOT T A X AB L E I N TH E Y E A R OF R ECE I P T AS B E IN G O F REVENUE CH ARAC TER , THE AMOUNT CH AN GES ITS CHA R AC T E R , W HEN THE AMO U N T BECOMES T HE AS S ESSEE ' S O W N M ON EY B E CA U SE O F L IMIT AT I O N O R B Y ANY OT HER STATUTORY OR CONTRACTUAL RIGH T . WHE N SU C H A THI N G HAPPENS, THE COMMONS E NSE , DEMANDS THAT TH E A MOUNT SHOULD BE TREATED AS INCOM E OF THE ASSESSEE. A US E FUL REFERENCE TO THIS PRINCIPLE, MAY BE HAD TO THE JUDGMENT IN THE CASE OF MO R L E Y (INSPECTOR OF TA X ES) V. TAT T ERSALL [1939] 7 ITR 316 (CA) . T HIS PR I NC I P L E HA S AL SO BEEN EXPLAINED IN T HE J U DGMENT IN THE CASE OF CIT V . T . V . SUNDA R AM I YEN GAR AND SONS LIMITED, 222 ITR 344 (SC). IN THE O V ERALL CONSP E CTUS OF T H E C A SE, I T HAS TO BE HELD THAT THE AFO R ESAID AMOUNT OF RS. 24,19,948/ - AGAINST M/S D EV A STEEL HAS BEEN CORRECTLY ADDED BACK BY THE ASSESSING OFFICER U/S 41(1) OF THE INCO ME TAX ACT, 1961 . THE APPELLANT HAS NOT BEEN ABLE TO SUBSTANTIATE TH AT BROUGHT FORWARD LIABILITY THAT IS EXISTING IN BOOKS OF ACCO UNTS IS A GENU I NE LIABILITY, IN THE ABSENCE OF ANY PROOF WHATSOEVER ON THE PART OF THE APPELLANT. ACCORDINGLY, THE ADDITION OF RS.24,19,948/- MADE UNDER SECTION 41 IN RESPECT OF CESSATION OF LIABILIT Y OF THE APPELLANT TOWARDS DEVA STEEL IS CONFIRMED. 4.3 IN VIEW OF THE FINDINGS RECORDED AT PARAS 4.1 TO 4.3 . 1 HEREIN BEFORE , GROUND NO.2 STANDS - DISMISSED. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NO W IN APPEAL BEFORE US. 5. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFOR E LOWER AUTHORITIES AND FURTHER SUBMITTED THAT AO HAD MADE ADDITION U/S 41(1) OF THE ACT. HE FURTHER SUBMITTED THAT LD.CIT(A) CHANGED THE HEAD AND MADE ADDITION U/S 68 OF THE ACT. HE SUBMIT TED THAT BEFORE MAKING ADDITION U/S 68 OF THE ACT, NO SHOW CAUSE N OTICE OR OPPORTUNITY WAS GIVEN TO THE ASSESSEE. HE THEREFORE SUBMITTED THAT ADDITION BE DELETED. LD.D.R. ON THE OTHER HAND, SUPP ORTED THE ORDER OF LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT IN THE PRESENT CASE, THE AO HAS PROCEEDED TO MAKE ADDITION U/S 41(1) OF THE ACT. 8 WHEN THE MATTER WAS CARRIED BEFORE LD.CIT(A), LD.CIT(A) HAS CHANGED THE SECTION UNDER WHICH THE ADDITION WAS MADE. HE PROCEEDED TO MAKE ADDITION U/S 68 AS AGAINST U/S 41(1) O F THE ACT MADE BY AO. BEFORE US, IT IS ASSESSEES CONTENTION THAT BEFORE PROCEEDING TO MAKE ADDITION U/S 68 OF THE ACT, LD.CIT(A) D ID NOT GRANT ANY OPPORTUNITY OF HEARING. BEFORE US, REVENUE HA S NOT PLACED ANY MATERIAL ON RECORD TO DEMONSTRATE THAT LD.CI T(A) HAS GRANTED OPPORTUNITY OF HEARING TO ASSESSEE WHILE CHANGING THE HEAD UNDER WHICH ADDITION WAS MADE BY HIM. 7. IT IS A SETTLED LAW THAT THE POWER OF LD.CIT(A), WHILE DEC IDING THE APPEAL IS CO-TERMINUS WITH THE AO AND THEREFORE LD.CI T(A) CAN DEFINITELY CAN DO SUCH THINGS AS THE AO COULD HAVE DONE FOR THE PURPOSE OF MAKING PROPER ASSESSMENT OF INCOME. THE POWE RS WHICH CAN BE EXERCISED AGAINST THE INTEREST OF THE ASSE SSEE INTER- ALIA INCLUDES THE POWER TO ENHANCE ASSESSMENT, ENHANCE P ENALTY OR REDUCE REFUND. HOWEVER THE AFORESAID POWER IS SUBJEC T TO THE RESTRICTIONS IMPOSED IN THE PROCEDURE PRESCRIBED FOR THE FUNCTIONING OF LD.CIT(A). SUB-SEC.2 OF SECTION 251 OF THE ACT DEALS WITH THE PROCEDURE REQUIRED IN RESPECT OF ENHANCEMENT O F AN ASSESSMENT OR PENALTY OR REDUCTION OF THE AMOUNT OF REFU ND AND ACCORDING TO THIS PROVISION, THE LD.CIT(A) SHOULD HAVE ALLOWED REASONABLE OPPORTUNITY OF SHOWING CAUSE AGAINST SUCH ENHANCEMENT OF ASSESSMENT OR PENALTY OR REDUCTION OF R EFUND. WHERE THE LD.CIT(A) HAS CHANGED THE HEAD OF ADDITION FROM U/S 41(1) TO SECTION 68, THEN ALSO IT IS CASE OF ENHANCEMENT R EQUIRING OPPORTUNITY OF HEARING. IN OUR VIEW, A REASONABLE OPPOR TUNITY AS CONTEMPLATED BY THE PROVISIONS OF THE ACT WOULD MEAN THA T THE AUTHORITY SHOULD POINT OUT THE ISSUE OF ENHANCEMENT AND THEN 9 ALLOW SOME REASONABLE PERIOD SO THAT THE ASSESSEE CAN C HECK FACTUAL AND LEGAL POSITION AND MAKE A PROPER REPRESENTATI ON AS TO WHY ENHANCEMENT IS NOT REQUIRED. IT IS ALSO A SETTLED LAW THAT ONE OF THE PRINCIPLES OF NATURAL JUSTICE CONTEMPLATES THAT NO DECISION SHOULD BE GIVEN AGAINST A PARTY WITHOUT AFFORDING REASONAB LE OPPORTUNITY OF BEING HEARD. 8. IN THE PRESENT CASE, AS NOTED ABOVE, NO OPPORTUNIT Y WAS GRANTED TO ASSESSEE BY LD.CIT(A) BEFORE MAKING ADDITION U/ S 68 OF THE ACT. IN SUCH A SITUATION, WE ARE OF THE VIEW THAT TH E ADDITION COULD NOT BE MADE IN VIOLATION OF THE PRINCIPLES OF NATURAL JU STICE. WE THEREFORE SET ASIDE THE ADDITION MADE BY LD.CIT(A). THUS THE GROUND OF THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED ON 12 TH JULY, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; ! DATED : 12 TH JULY, 2017. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. CIT(A)-III, PUNE CIT-IV, PUNE. #$% &&'(, '(, / DR, ITAT, A PUNE; %,-./ GUARD FILE. / BY ORDER, // // TRUE COPY // / 0123 / ASSISTANT REGISTRAR, '(, / ITAT, PUNE.