Smt. Sushama Kedia, Ahmedabad V. The Income tax Officer,Ward-2(3), Ahmedabad

ITA 666/AHD/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0948 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 20-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: PRADIP TULSIAN
• Keywords: Business income; Deemed to accrue or arise in india; Question of law
• Section: 234B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.666/AHD/2012 / ASSTT. YEAR: 2008-2009 MRS.SUSHAMA KEDIA 306, SACHET-II, OPP: S.M. PATEL COLLEGE NR.TOMATOS RESTAURANT OFF : C.G. ROAD AHMEDABAD 380009. PAN : AGEPK 1715 E VS ITO, WARD - 2(3) AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI PRADIP TULSIAN REVENUE BY : SHRI DINESH SINGH, SR.DR / DATE OF HEARING : 23/06/2016 / DATE OF PRONOUNCEMENT: 04/08/2016 $%/ O R D E R ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST T HE ORDER OF THE LD.CIT(A)-6 DATED 9.1.2012 FOR THE ASSTT.YEAR 2008. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF R S.5,07,145/- WHICH WAS ADDED WITH THE AID OF SECTION 41(1) OF THE INCOME T AX ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED HER RETURN OF INCOME ON 27.9.2008 DECLARING TOTAL INCOME AT RS.1, 51,720/-. HER CASE WAS SELECTED FOR SCRUTINY ASSESSMENT. ACCORDING TO THE AO ON VERIFICATION OF THE BALANCE SHEET IT REVEALED THAT THE ASSESSEE HAS SHO WN RS.5,07,145/- OUTSTANDING IN THE NAME OF M/S.A.K.PATEL & CO., CAL CUTTA SINCE THE ITA NO.666/AHD/2012 2 ASSTT.YEAR 2003-04. HE ASSUMED THAT LIABILITY SHOU LD HAVE BEEN CEASED, AND THEREFORE, THE ASSESSEE OUGHT TO HAVE INCLUDED IT I N THE INCOME. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 4. BEFORE ME, THE LD.COUNSEL FOR THE ASSESSEE CONTE NDED THAT THE AO HARBOURED A BELIEF ON THE GROUND THAT THE ASSESSEE HAD MADE PURCHASES FROM M/S.A.K.PATEL & COMPANY AND DID NOT MAKE PAYMENT. THE PURCHASE PRICE WAS REQUIRED TO BE PAID BY THE ASSESSEE, AND THUS, THE LIABILITY HAS CEASED. HE TOOK ME THROUGH ANNEXURE APPENDED WITH THE PAPER BO OK AND CONTENDED THAT FIRSTLY NO PURCHASES WERE MADE BY THE ASSESSEE DURI NG THE ACCOUNTING YEAR RELEVANT TO THE ASSTT.YEAR 2001-02 I.E. F.Y.2000-01 AS CONTEMPLATED BY THE AO. THE ALLEGED TRANSACTION HAS BEEN CARRIED OUT O N 7.6.2001 IN THE F.Y.2001-02. MORE SO, IT WAS SOMETHING OF COMMISSI ON ON SALE AND NOT THE PURCHASES. ON THE OTHER HAND, THE LD.DR RELIED UPO N THE ORDERS OF THE REVENUE AUTHORITIES. 5. I HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORD. SECTION 41(1) OF THE INCOME TAX ACT HAS BE EN INCORPORATED TO COVER A PARTICULAR FACT SITUATION. THE SECTION APPLIES WHER E A TRADING LIABILITY WAS ALLOWED AS A DEDUCTION IN AN EARLIER YEAR IN COMPUT ING THE BUSINESS INCOME OF THE ASSESSEE AND THE ASSESSEE HAS OBTAINED A BENEFI T IN RESPECT OF SUCH TRADING LIABILITY IN A LATER YEAR BY WAY OF REMISSI ON OR CESSATION OF THE LIABILITY. IN SUCH A CASE THE SECTION SAYS THAT WHA TEVER BENEFIT HAS ARISEN TO THE ASSESSEE IN THE LATER YEAR BY WAY OF REMISSION OR C ESSATION OF THE LIABILITY WILL BE BROUGHT TO TAX IN THAT YEAR. THE PRINCIPLE BEHIN D THE SECTION IS THAT THE PROVISION IS INTENDED TO ENSURE THAT THE ASSESSEE D OES NOT GET AWAY WITH A DOUBLE BENEFIT - ONCE BY WAY OF DEDUCTION IN AN EAR LIER ASSESSMENT YEAR AND AGAIN BY NOT BEING TAXED ON THE BENEFIT RECEIVED BY HIM IN A LATER YEAR WITH REFERENCE TO THE LIABILITY EARLIER ALLOWED AS A DED UCTION. ITA NO.666/AHD/2012 3 6. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BHOGILAL RAMJIBHAI ATARA, TAX APPEAL NOS.588 OF 2013 HAS CON SIDERED SOMEWHAT SIMILAR ISSUE. IN THAT CASE A LIABILITY OF RS.37.5 2 LAKHS BY WAY OF DEBT WAS OUTSTANDING. IT PERTAINS TO 27 DIFFERENT CREDITORS . THE AO HAD ISSUED SUMMONS TO THESE SO-CALLED CREDITORS AND QUESTIONED THEM ABOUT THE ALLEGED CREDITS TO THE ASSESSEE. A NUMBER OF PARTIES WERE NOT FOUND AT THE GIVEN ADDRESS. MANY OF THEM STATED THAT THEY HAD NO CONC ERN WITH THE ASSESSEE. SOME OF THEM CONVEYED THAT THEY DID NOT EVEN KNOW T HE ASSESSEE. THE AO HAS MADE ADDITION, WHICH TRAVELLED UPTO THE TRIBUNA L AND THE TRIBUNAL DELETED THE ADDITION. WHEN THE DISPUTE FURTHER TRAVELLED T O THE HONBLE HIGH COURT, THE HONBLE COURT HAS AFFIRMED THE ORDER OF THE TRI BUNAL. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT READS AS UNDE R: (III) IN THE CASE OF CIT V. G.K. PATEL & CO. (2013) 212 TAXMAN 384 (GUJ)., IN WHICH A DIVISION BENCH OF THIS COURT HEL D AND OBSERVED AS UNDER: TO THE EXTENT THE SAID DECISION HOLDS THAT A UNILA TERAL ACT ON THE PART OF THE DEBTOR CANNOT BRING ABOUT A CESSATION O F HIS LIABILITY, THE SAME WOULD NOT BE APPLICABLE TO THE FACTS OF TH E PRESENT CASE, IN VIEW OF THE INSERTION OF EXPLANATION 1. HOWEVER, AT THE COST OF REPETITION IT MAY BE STATED THAT IN THIS CASE THERE IS NO UNILATERAL ACT ON THE PART OF THE DEBTOR SO AS TO BRING ABOUT A CESSATION OF ITS LIABILITY. THEREFORE, THE OTHER PART OF THE DEC ISION WOULD STILL APPLY TO THE FACTS OF THE PRESENT CASE, NAMELY THAT THE CESSATION OF LIABILITY HAS TO BE EITHER BY REASON OF OPERATIO N OF LAW, I.E., ON THE LIABILITY BECOMING UNENFORCEABLE AT LAW BY THE CREDITOR AND THE DEBTOR DECLARING UNEQUIVOCALLY HIS INTENTION NO T TO HONOUR HIS LIABILITY WHEN PAYMENT IS DEMANDED BY THE CREDI TOR, OR A CONTRACT BETWEEN THE PARTIES, OR BY DISCHARGE OF TH E DEBT THE DEBTOR MAKING PAYMENT THEREOF TO HIS CREDITOR. IN T HE PRESENT CASE, ADMITTEDLY THERE IN NO DECLARATION BY THE ASS ESSEE THAT IT DOES NOT INTEND TO HONOUR ITS LIABILITIES NOR IS TH ERE ANY DISCHARGE OF THE DEBT. IN THE AFORESAID PREMISES, A S NO EVENT HAD TAKEN PLACE IN THE YEAR UNDER CONSIDERATION TO INDI CATE REMISSION OR CESSATION OF THE LIABILITIES IN QUESTION, THE PR OVISIONS OF ITA NO.666/AHD/2012 4 SECTION 41(1) OF THE ACT COULD NOT HAVE BEEN INVOKE D. THE REASONING ADOPTED BY THE TRIBUNAL WHILE HOLDING THA T SECTION 41(1) WOULD NOT BE APPLICABLE TO THE FACTS OF THE P RESENT CASE IS IN LINE WITH THE PRINCIPLES ENUNCIATED IN THE ABOVE DECISION. THE TRIBUNAL, THEREFORE, COMMITTED NO LEGAL ERROR SO AS TO GIVE RISE TO ANY QUESTION OF LAW WARRANTING INTERFERENCE BY THIS COURT. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL. SECTION 41(1) OF THE ACT AS DISCUSSED IN THE ABOVE THREE DECISIONS WOULD APPLY IN A CASE WHERE THERE HAS BEEN REMISSION OR CESSATION OF LIAB ILITY DURING THE YEAR UNDER CONSIDERATION SUBJECT TO THE CONDITIONS CONTA INED IN THE STATUTE BEING FULFILLED. ADDITIONALLY, SUCH CESSATION OR RE MISSION HAS TO BE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THE PRESENT CASE, BOTH ELEMENTS A RE MISSING. THERE WAS NOTHING ON RECORD TO SUGGEST THERE WAS REMISSIO N OR CESSATION OF LIABILITY THAT TOO DURING THE PREVIOUS YEAR RELEVAN T TO THE ASSESSMENT YEAR 2007-08 WHICH WAS THE YEAR UNDER CONSIDERATION . IT IS UNDOUBTEDLY A CURIOUS CASE. EVEN THE LIABILITY ITSE LF SEEMS UNDER SERIOUS DOUBT. THE ASSESSING OFFICER UNDERTOOK THE EXERCISE TO VERIFY THE RECORDS OF THE SO CALLED CREDITORS. MANY OF THE M WERE NOT FOUND AT ALL IN THE GIVEN ADDRESS. SOME OF THEM STATED THAT THEY HAD NO DEALING WITH THE ASSESSEE. IN ONE OR TWO CASES, THE RESPONS E WAS THAT THEY HAD NO DEALING WITH THE ASSESSEE NOR DID THEY KNOW HIM. OF COURSE, THESE INQUIRIES WERE MADE EX PARTE AND IN THAT VIEW OF TH E MATTER, THE ASSESSEE WOULD BE ALLOWED TO CONTEST SUCH FINDINGS. NEVERTHELESS, EVEN IF SUCH FACTS WERE ESTABLISHED THROUGH BI-PARTE INQ UIRIES, THE LIABILITY AS IT STANDS PERHAPS HOLDS THAT THERE WAS NO CESSATION OR REMISSION OF LIABILITY AND THAT THEREFORE, THE AMOUNT IN QUESTIO N CANNOT BE ADDED BACK AS A DEEMED INCOME UNDER SECTION 41(C) F THE A CT. THIS IS ONE OF THE STRANGE CASES WHERE EVEN IF THE DEBT ITSELF IS FOUND TO BE NON- GENUINE FROM THE VERY INCEPTION, AT LEAST IN TERMS OF SECTION 41(1) OF THE ACT THERE IS NO CURE FOR IT. BE THAT AS IT MAY, INS OFAR AS THE ORDERS OF THE REVENUE AUTHORITIES ARE CONCERNED, THE TRIBUNAL NOT HAVING MADE ANY ERROR, THIS TAX APPEAL IS DISMISSED. IN MY OPINION, THE ADDITION WITH THE HELP OF SECTIO N 41(1) IS NOT SUSTAINABLE BECAUSE THE ASSESSEE HAS NOT WRITTEN OFF AMOUNTS IN THE ACCOUNTS, AND HAS NOT GIVEN EFFECT IN THE ACCOUNT THAT LIABILITY HAS CEAS ED. THE ASSESSEE HAS SUBMITTED THAT IT WAS NOT CLAIMED DEDUCTION. THIS FACT WAS NOT REBUTTED BY THE LD.AO. ACCORDINGLY, THIS GROUND OF APPEAL OF THE A SSESSEE IS ALLOWED. ITA NO.666/AHD/2012 5 7. IN THE NEXT GROUND OF APPEAL, THE GRIEVANCE OF T HE ASSESSEE IS THAT THE LD.CIT(A) HAS CONFIRMED THE DISALLOWANCE AT 1/6 TH OF VARIOUS EXPENDITURE. I FIND THAT A SUM OF RS.53,714/- HAVE BEEN DEBITED IN THE PROFIT & LOSS ACCOUNT UNDER THE HEAD OFFICE EXPENSES, TELEPHONE, PETROL A ND VEHICLE EXPENSES ETC. 1/6 TH OF THE TOTAL AMOUNT HAS BEEN DISALLOWED WHICH WORK ED OUT AT RS.8,952/-. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF TH E CASE, I DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL, BECAUSE POSSIBILITY OF USER OF THESE FACILITY FOR PERSONAL PURPOSE CANNOT BE RULED OUT. THE ASSESSEE DID NOT MAINTAIN DETAILS OF TELEPHONE CALLS, LOG BOOK FOR CAR ETC. THEREFORE, THIS GROUND OF APPEAL IS REJECTED. 8. IN THE NEXT GROUND OF APPEAL, THE ASSESSEE HAS C HALLENGED CHARGING OF INTEREST UNDER 234B OF THE INCOME TAX ACT. IT IS C ONSEQUENTIAL IN NATURE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 4 TH AUGUST, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER