SHANTI LAL BHANDARI, Jaipur V. ITO, Jaipur

ITA 73/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2174 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 21-02-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 25-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Assessee Lawyers: B P MOONDRA
• Keywords: Rejection of books of accounts; Depreciation
• Section: 133(6); 131

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPAN] YS[KK LNL; ] DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 73/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 SHANTI LAL BHANDARI, 80, USHA COLONY, MALVIYA NAGAR, JAIPUR. CUKE VS. INCOME TAX OFFICER, WARD-6(1), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAYPB 1171 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI B.P. MOONDRA (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (ADDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 05/04/2017 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 17/04/2017 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE EMANATES TH E ORDER DATED 26/11/2015 PASSED BY THE LD. CIT(A)-2, JAIPUR FOR T HE A.Y. 2012-13, WHEREIN THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. IN THE FACTS & CIRCUMSTANCES OF THE CASE, THE L D. CIT (A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 36,76,180/- U/S 41(1) OF THE INCOME TAX ACT,1961 BY HOLDING TO BE CESSATION OF LIABILITY IN FORM OF SUN DRY CREDITORS. 2. IN THE FACTS & CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) HAS ERRED UP HOLDING THE ACTION OF THE LD A.O. IN ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 2 REJECTING THE BOOKS OF ACCOUNTS U/S 145(3) OF THE INCOME TAX ACT, 1961. 3. IN THE FACTS & CIRCUMSTANCES OF THE CASE, THE LD . CIT (A) HAS ERRED BY APPLYING G.P. RATE @ 12% INSTEAD OF G.P. RATE 10.39% WHICH WAS BETTER THAN PAST HISTORY O F THE ASSESSEE. 4. LD. CIT APPEAL ERRORS IN CONFIRMING DISALLOWANCE O F INTEREST OF RS. 36720/-WHICH IS BAD IN LAW & FACTS. 5. LD. CIT APPEAL ERRORS IN CONFIRMING BY RESTRICTED DISALLOWANCE @ 10% ON DEPRECIATION OF RS. 98480/-AS THE DEPRECIATION IS STATUTORY ALLOWANCE AND THEREFOR E BAD IN LAW & FACTS. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFA CTURING AND EXPORT OF GARMENTS FROM PAST MANY YEARS IN THE NAME AND STYLE OF M/S PAS HOME TEXTILES. DURING THE YEAR, THE ASSESSEE DECLARE D GROSS PROFIT OF RS. 1374755/- ON THE TURNOVER OF RS. 13230025/- GIVING GP RATE OF 10.39%. THE GROSS PROFIT COMPARATIVELY BETTER THAN IMMEDIATE PAST TWO YEARS WHEREIN THE GROSS PROFIT WAS10.36% AND 10.34% FOR THE ASSESSMENT YEAR 2011-12 AND 2010-11 RESPECTIVELY. THE ASSESSING OFFI CER NOTICED CERTAIN DISCREPANCIES AND INVOKED THE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT). THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE TUR NOVER AT RS. 13500000/- BY APPLYING GP RATE @ 14%. ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 3 3. FIRSTLY, I AM DECIDING GROUND NOS. 2 AND 3 OF TH E APPEAL WHEREIN BOOKS OF ACCOUNT OF THE ASSESSEE HAS BEEN REJECTED AND THE GROSS PROFIT RATE WAS SUSTAINED @ 12% INSTEAD OF 10.39% DECLARED B Y THE ASSESSEE. 4. THE LD. CIT(A) UPHELD THE REJECTION OF BOOKS OF A CCOUNT. HOWEVER, HE FOUND THAT THE GROSS PROFIT @ 12% WILL BE REASONAB LE AT THE TURNOVER DECLARED BY THE ASSESSEE AT RS. 1,32,30,025/-. THE RELEVANT PORTION OF THE ORDER OF THE LD. CIT(A) IS REPRODUCED HEREUNDER:- 4.3.1 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSESSMEN T ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER OBSERVED THE FOLLOWING DEFECTS IN THE BOOKS OF ACCOU NTS WHILE VERIFYING THE ACCOUNTS. 1. THE ASSESSEE HAS NOT SHOWN THE OPENING STOCK OF RAW MATERIAL, WORK IN PROGRESS AND OF FINISHED GOODS SEPARATELY. SIMILAR IS THE CASE OF CLOSING STOCK. 2. THE ASSESSEE HAS NOT MAINTAINED DAY TO DAY STOCK REGISTER OF THE RAW MATERIAL, CONSUMPTION OF RAW MATE RIAL AND PRODUCTION OF GARMENTS. IN THE ABSENCE OF THE D AY TO DAY STOCK REGISTER, IT IS NOT POSSIBLE TO VERIFY TH E CONSUMPTION OF RAW MATERIAL SHOWN BY THE ASSESSEE. 3. IN ABSENCE OF THE STOCK REGISTER, THE ASSESSEE DOES NOT HAVE INVENTORY OF THE OPENING STOCK AND CLOSING STO CK OF RAW MATERIAL, FINISHED GOODS AND OF WORK IN PROGRESS. HENCE THE VALUATION OF THE OPENING STOCK, CLOSING S TOCK IS ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 4 DONE ON ESTIMATE BY THE ASSESSEE, AND IT IS NOT SUB JECT TO VERIFICATION. 4. IN ABSENCE OF THE, PRODUCTION REGISTER IT IS NO T POSSIBLE TO VERIFY THE RAW MATERIAL CONSUMED FOR PRODUCTION O F THE ITEMS AND FIND VALUATION OF THE ITEMS IN OPENING ST OCK AND CLOSING STOCK. HENCE THE VALUATION OFFERED BY THE A SSESSEE IN THE TRADING ACCOUNT IS ON ESTIMATE BASIS AND THE PRETEXT IS THAT THE VALUATION IS ON THE NET REALIZABLE VALU E. 5. THE ASSESSEE HAS ALSO NOT PRODUCED THE REGISTER OR JOB CARD FOR THE GOODS ISSUED FOR JOB WORK LIKE PRINTING , DYEING, WASHING, EMBROIDERY ETC. HENCE THE VERACITY OF THE J OB WORK EXPENSES CANNOT BE VERIFIED. 6. THE ATTENDANCE REGISTER OF THE WORKERS IN THE WORK SHOP HAD ALSO NOT BEEN PRODUCED, IN ABSENCE OF WHICH THE ACTUAL WAGES PAYMENT COULD NOT BE VERIFIED. 7. FOR THE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT, UNDER THE HEAD CONVEYANCE, OFFICE & GENERAL EXPENSE S, PRINTING & STATIONERY, REPAIRS AND MAINTENANCE, STA FF WELFARE EXPENSES, THE SUPPORTING BILLS ARE NOT THERE AND THE EXPENSES HAVE BEEN CREDITED THROUGH SELF MADE VOUCHERS. 8. THE ASSESSEE HAS NOT SHOWN THE WASTAGES AND THE RECEIPTS FROM SALE OF WASTAGES IN HIS BOOKS OF ACCOU NTS. 9. NO DETAILS OF SHRINKAGE OF CLOTH ON WASHING AND DYEING HAS BEEN MAINTAINED. ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 5 10. THE ASSESSEE HAD SHOWN SUNDRY CREDITORS OF RS. 12244358/-, ON VERIFICATION THE CREDITORS WERE FOUND TO BE FALSE. THE AUTHORIZED REPRESENTATIVE STATED THAT THE INVEN TORY OF STOCK HAD BEEN SUBMITTED AND THAT IS AS CERTIFIED B Y THE PROPRIETOR. IN VIEW OF THE DEFECTS AS POINTED OUT BY THE ASSESSING OFFICER, REJECTION OF BOOKS OF ACCOUNTS U /S 145(3) IS UPHELD. 4.3.2 AS REGARDS ESTIMATION OF GROSS PROFIT THE ASS ESSING OFFICER HAS POINTED OUT THAT THE SAME IS BETTER THAN THE PR EVIOUS YEAR AND ESTIMATED THE SAME AT 14% ON A TURNOVER OF RS. 1,35,00,000/- AS AGAINST A TURNOVER OF RS. 13,20,00 ,025/- RETURNED BY THE ASSESSEE. WHILE IT IS TRUE THAT IN THE RELEVANT YEAR, THE GROSS PROFIT IS BETTER THAN THE LAST TWO YEARS BUT THESE YEARS WERE NOT SUBJECTED TO SCRUTINY OF ACCOUNTS. FURTHER, THE ASSESSING OFFICER HAS CLEARL Y FOUND DEFECTS IN THE BOOKS AND HENCE BOOKS RESULTS CANNOT BE ACCEPTED. HOWEVER, THE ENHANCEMENT OF TOTAL TURNOVER WITHOUT ANY SPECIFIC REASON FOR DOING SO, IS NOT ACC EPTED. IT WILL BE REASONABLE TO TAKES THE GP AT 12% ON THE AMO UNT OF TURNOVER AS RETURNED BY THE ASSESSEE (RS. 13,20, 00,25) THE GROUND OF APPEAL IS PARTLY ALLOWED. 5. I HAVE HEARD BOTH THE SIDES ON THE ISSUE OF REJE CTION OF BOOKS OF ACCOUNT FOR INVOKING THE PROVISIONS OF SECTION 145( 3) OF THE ACT AND ALSO ON ESTIMATING THE GROSS PROFIT RATE @ 12% SUSTAINED BY THE LD. CIT(A). IT ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 6 IS NOTED THAT THE ASSESSEE HAS NOT SHOWN THE OPENING STOCK OF RAW MATERIAL WORK IN PROGRESS AND FINISHED GOODS SEPARAT ELY AND SIMILAR FACTS WERE WITH REGARD TO THE CLOSING STOCK. THE ASSESSEE WAS NOT MAINTAINING DAY TO DAY STOCK REGISTER, CONSUMPTION OF RAW MATERI AL REGISTER AND THE PRODUCTION OF GARMENTS. IN ABSENCE OF SUCH VITAL IN FORMATION, THE VALUATION OF OPENING STOCK, CLOSING STOCK IS DONE ON ESTIMATE BY THE ASSESSEE, WHICH CANNOT BE SUBJECTED TO VERIFICATION. IN ABSENCE OF PRODUCTION REGISTER, INPUT OUTPUT RATIO CAN ALSO NOT BE WORKED OUT. THE AS SESSING OFFICER HAS ALSO NOTED THAT THE ASSESSEE HAS NOT PRODUCED JOB WO RK LIKE PRINTING, DYEING, WASHING, EMBROIDERY ETC. THE DETAILS OF WASTAG E WERE ALSO NOT SHOWN AND WAS ALSO NOT MAINTAINED AND IN VIEW OF THESE DEFECTS, THE LD. CIT(A) HAD SUSTAINED THE REJECTION OF BOOKS OF ACCOU NT. THEREFORE, I AGREE WITH THE FINDINGS OF THE LD. CIT(A) IN RESPECT OF REJ ECTION OF BOOKS OF ACCOUNT. AS FAR AS ESTIMATION OF THE GROSS PROFIT R ATE IS CONCERNED, THE LD. CIT(A) HAS REDUCED IT FROM 14% TO 12% AND THE GROSS TURNOVER OF THE ASSESSEE WAS ACCEPTED. IT IS PERTINENT TO NOTE THAT THE COMPARATIVE G.P. FOR THE YEAR UNDER CONSIDERATION WAS BETTER THAN THE EARLIER YEAR. HOWEVER, TO COVER THE LEAKAGE OF REVENUE ON AC COUNT OF VARIOUS DEFECTS NOTED IN THE BOOKS OF ACCOUNT, I HOLD THAT ESTIMATING LUMP SUM ADDITION OF RS. 80,000/- SHALL BE REASONABLE AND SU FFICIENT. HENCE, ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 7 GROUND NO. 2 OF THE ASSESSEES APPEAL IS DISMISSED AND GROUND NO. 3 OF THE APPEAL IS PARTLY ALLOWED. 6. IN THE GROUND NO. 1, THE ISSUE INVOLVED IS AGAIN ST SUSTAINING THE ADDITION OF RS. 36,76,180/- BY INVOKING THE PROVISI ONS OF SECTION 41(1) OF THE ACT BY HOLDING THAT THERE WAS A CESSATION OF LIA BILITY IN THE FORM OF SUNDRY CREDITORS. ON THIS ISSUE, THE LD AR HAS SUBM ITTED AS UNDER:- A) YOUR HONOUR AMOUNT PAYABLE IN RESPECT OF ABOVE CRED ITORS, THE ASSESSEE PURCHASED RAW MATERIALS FROM THE THESE CREDITORS DU RING PRECEDING PREVIOUS YEARS ON CREDIT. DUE TO QUALITY VARIATIONS AND LATER ON SEVERE CANCER TO THE ASSESSEE THE ASSESSEE COULD NOT PAID TO THESE CREDITORS AND THEREFORE ARE APPEARING AS OUTSTANDING DUE TO THE C REDITORS IN THE ASSESSEES SUCCESSIVE BALANCE SHEETS. LD. AO HAS VE RIFIED AND APPROVED THE CREDIT APPEARING IN ASSESSEE'S BOOK. THE ASSESSEE HA S NOT OBTAINED IN CASH OR IN ANY OTHER MANNER ANY AMOUNT OR ANY BENEFIT ET C. FROM ANY PERSON REGARDING THE PURCHASES MADE BY THE COMPANY. IT IS NEITHER THE CASE THAT THE ASSESSEE HAS WRITTEN OFF THE OUTSTANDING DUES I N ITS BOOKS OF ACCOUNTS BY CREDITING THE AMOUNT TO PROFIT & LOSS ACCOUNT NO R HAS THE ASSESSEE AT ANY TIME REFUSED TO THE CREDITORS THAT IT IS NOT WI LLING TO MAKE PAYMENT. IN THE ONGOING DISPUTES, THE CREDITOR COMPANY HAS NEVE R AGREED NOR EVEN HINTED TO THE ASSESSEE ABOUT THE WAIVER OF THE OUTS TANDING AMOUNT. IN SUCH CIRCUMSTANCES THE UNDISPUTED FACTS THAT EMERGE ARE ASSESSEE PURCHASED GOODS IN PREVIOUS FINANCIAL YEARS FROM TH E CREDITOR'S. THE ASSESSEE HAS NOT MADE ANY PAYMENT TO THE CREDITOR A ND THE AMOUNT IS OUTSTANDING TILL DATE DUE TO DISPUTES. THE ASSESSEE HAS NOT RECEIVED ANY COMMUNICATION REGARDING ANY WRITE OFF BY THE CREDIT OR COMPANY NOR HAS RECEIVED ANY CREDIT NOTE REGARDING THE SAME. AS FEW CREDITORS HAVE IN ITS BOOKS OF ACCOUNTS REMOVED THE OUTSTANDING TOWARDS TH E ASSESSEE, IT IS CLEARLY A UNILATERAL ACT OF THE CREDITOR WHICH MIGH T HAVE BEEN IN SOME PREVIOUS YEAR (CLEARLY NOT IN F.Y. 2012-13). ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 8 B) OUT OF 127 SUNDRY CREDITORS LETTERS FOR CONFIRMATIO NS OF THE SUNDRY CREDITS WERE SENT IN 15 CASES WHERE IT WAS THOUGHT BY THE L D. AO THAT THE ADDRESS MIGHT BE COMPLETE AND IT WAS FOUND THAT 8 LETTERS W ERE RETURNED BY POSTAL AUTHORITIES UNSERVED IN 4 CASES THE NEGATIVE REPLY WAS RECEIVED AND IN 3 CASES NO REPLY HAS BEEN RECEIVED THOUGH THE LETTER HAS BEEN SERVED. YOUR HONOUR THE LD. AO HAD NOT GIVEN ANY EXPLANATION THA T HOW THE LD. AO THOUGHT THAT THE ADDRESS OF 15 MIGHT BE COMPLETE. T HE REPLY OF 4 SUNDRY CREDITORS WERE GIVEN TO THE AR OF THE ASSESSEE. THE ASSESSEE FURNISHED THE REPLY APPEARING AT PAGE NO. 20 OF THE AO ORDER. YOU R HONOUR CAN SEE THAT IN THE CASE OF FIRST CREDITOR JANKI LAL RADHEYSHYAM KIND LY SEE AT THE PAGE NO. 16 OF THE AO ORDER. YOUR HONOUR THE CA OF THE JANKI LAL RADHEYSHYAM STATED THAT THERE IS NO DEALING FOR AY 2012-13 AND N O AMOUNT IS OUTSTANDING TOWARDS THE ASSESSEE IN THIS AY OUT OF ANY PREVIOUS YEAR AS ANY ENUMERATED IN THE LETTER OF THE LD. AO. YOUR HONOU R CAN VERIFY THAT THROUGH PAGE NO. 20 SUB POINT NO. 1.B WHEREIN THE A SSESSEE REQUEST THAT HE IS SUFFERING FROM SEVERE CANCER AND IS NOW NOT IN P OSITION TO PAY MUCH TIME TO THE BUSINESS. ACCOUNTANT OF THE ASSESSEE IS ALSO ON PART SICK AS HE IS MORE THAN 60 YEARS OLD. KINDLY SEE PAGE NO.20 SUB PO INT NO. 1.C WHERE IN THE ASSESSEE REQUEST TO CALL M/S JANKI LAL RADHEYSHY AM U/S 131/133(6) ALONG WITH BOOKS SO THAT SO THAT PROPER CHECKING MAY BE POSSIBLE AND CROSS VERIFICATION MAY BE POSSIBLE. KINDLY NOTE THAT IN SUB CLAUSE (C) OF THE SAME LETTER THE ASSESSEE REQUEST THAT THE LD. AO IS SUED NOTICE U/S 133(6) AND GENERALLY PARTIES IS IN FEAR WITH INCOME TAX NO TICE AND THERE IS EVERY CHANCE THAT THE PARTY MAY REFUSE TO AVOID TO APPEAR BEFORE INCOME TAX OFFICE. SO THE ASSESSEE REQUESTED TO THE LD. AO TO CALL M/S JANKILAL RADHEYSHYAM U/S 131 OR 133(6 ) ALONGWITH ACCOUNTS B OOKS SO THAT PROPER CHECKING MAY BE POSSIBLE AND CROSS VERIFICATION MAY BE POSSIBLE. THE LD. AO HAD NOT CALLED INSPITE OF REQUEST OF THE ASSESSEE. YOUR HONOUR KIND ATTENTION IS INVITED TO REMAINING 3 CREDITORS TO WH OM THE LD. AO ISSUED NOTICE U/S 133(6). THE SAME IS APPEARING AT THE LD. AO ORDER PAGE NO.20 SUB POINT NO. 2 AND 3. YOUR HONOUR CAN VERIFY THAT THE FACTS ARE SIMILAR TO M/S JANKI LAL RADHEYSHYAM. IN CONCLUSION THE LD. AO ISSUED NOTICE ONLY TO 15 SUNDRY CREDITORS (THE ADDITION IS MADE FOR 37 CR EDITORS KINDLY SEE THE LD. AO ORDER PAGE NO. 7 AND 8 WHEREIN THE TABLE IS APPE ARING.) AND OUT OF THEM COULD GOT THE CONFIRMATION FROM 4 CREDITORS. INSPIT E OF REQUEST TO CALL ALL 15 SUNDRY CREDITORS U/S 131/133(6) ALONG WITH BOOKS SO THAT SO THAT PROPER ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 9 CHECKING MAY BE POSSIBLE AND CROSS VERIFICATION MAY BE POSSIBLE. THE ASSESSEE FURNISHED COMPLETE NAME AND ADDRESSES OF A LL 127 CREDITORS. ALSO THERE IS GENUINE REASON WITH THE ASSESSEE REGARDING REQUESTING THAT THE ASSESSEE IS SUFFERING FROM SEVERE CANCER AND IS NOW NOT IN POSITION TO PAY MUCH TIME TO THE BUSINESS. ACCOUNTANT OF THE ASSESS EE IS ALSO ON PART SICK AS HE IS MORE THAN 60 YEARS OLD. YOUR HONOUR AFTER GIVING NAME AND ADDRESSES THE ONUS SHIFTED TO THE REVENUE AND THE R EVENUE FAILED TO PROVE THAT THE THERE IS A CESSATION OF TRADE LIABILITIES. C) DERIVATION: - YOUR HONOUR, THE CREDITOR HAS NO DEALI NG WITH THE APPELLANT COMPANY. THE OPENING BALANCE AS WELL AS CLOSING BAL ANCE WERE NIL FOR FINANCIAL YEAR 01.04.2011 TO 31.03.2012. AS THE OPE NING BALANCE IN CREDITOR BOOKS AS ON 01.04.2011 WAS NIL IT IMPLIES THAT THERE HAS BEEN NO REMISSION OR CESSATION OF LIABILITY IN PREVIOUS YEAR 2011-12, IT CAN BE REASONABLY INFERRED THAT THE CREDITORS MIGHT HAVE SUO-MOTTO CRE DITED THE ACCOUNT OF THE ASSESSEE (FROM ITS OWN SOURCES) AND/OR MIGHT H AVE SQUARED OFF/WRITTEN OFF THE BALANCE DUE BY THE ASSESSEE IN PREVIOUS YEA R ITSELF. IN SUCH SUO- MOTTO ACTION OF CREDITOR, SECTION 41(1) DOES NOT AP PLY AS FOR NO AMOUNTS REMISSION HAS BEEN OBTAIN BY THE APPELLANTS IN F.Y. 2011-12. THIS FACT DOES NOT MEAN THAT THE APPELLANT HAS RECEIVED ANY BENEFI T BY REMISSION OR CESSATION OF LIABILITY IN PREVIOUS YEAR 2011-12 WHIC H LEADS TO DEEMING INCOME UNDER SECTION 41(1). THUS NO INCOME BECOMES TAXABLE IN A.Y. 2012- 13. D) THE AR RELIED ON DECISION HELD IN SHREE PADMAVATI M ARBLES PVT. LTD. VS. INCOME TAX OFFICER HON'BLE JAIPUR TRIBUNAL IN I TA NO. 596/JP/13 ON AUG 22, 2016 REPORTED IN (2016) 47 CCH 0764 JAIPURT RIB. FURTHER IN VARIOUS JUDICIAL PRONOUNCEMENTS, IT HAS BEEN REPEATEDLY HEL D THAT UNLESS IT IS PROVED THAT AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT IN ANY PREVIOUS YEAR, IT IS NOT OPEN TO THE REVENUE TO INVOKE SECTION 41(1). RELIANCE IS PLACED ON THE DECISION IN CASE OF TIRUN ELVELI MOTOR BUS SERVICE CO. PVT. LTD. VS. CIT (1970) 78 ITR 55 (SC). FURTHE R, IN STEEL AND GENERAL MILLS CO. LTD VS. CIT (1974) 96 ITR 438 (DELHI) IT HAS BE EN HELD THAT BURDEN LIES UPON THE DEPARTMENT TO PROVE THAT AN ALLOWANCE OR D EDUCTION HAD BEEN GIVEN FOR THIS AMOUNT TO THE ASSESSEE IN THE EARLIE R ASSESSMENT YEARS. ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 10 E) YOUR HONOUR THE LD. AO MENTION THE CASE LAW OF COMMISSIONER OF INCOME TAX, ... VS M/S, T.V. SUNDARAM IYENGAR & SONS ... ON 1 1 SEPTEMBER, 1996 222 ITR 344. (KINDLY REFER PAGE NO. 1 TO 6). THIS CA SE LAW IS NOT APPLICABLE ON THE ASSESSEE AS THE CIRCUMSTANCES ARE ENTIRELY DIFFER ENT. IN THIS CASE THE INCOME TAX OFFICER FOUND THAT THE ASSESSEE HAD TRANSFERRED AN AMOUNT OF RS. 17,381/- TO THE PROFIT AND LOSS ACCOUNT OF TH E COMPANY DURING THE ACCOUNTING PERIOD ENDED ON 31ST MARCH, 1982 (ASSESS MENT YEAR 1982-83), AND AN AMOUNT OF RS. 38,975/- (ASSESSMENT YEAR 1983-8 4), BUT THESE AMOUNTS WERE NOT INCLUDED IN THE TOTAL INCOME OF TH E ASSESSEE. OUR CASE IS ENTIRELY DIFFERENT. IN THE CASE OF THE ASSESSEE THE SUNDRY CREDITORS ARE APPEARING AS LIABILITIES AND HAD NOT BEEN TRANSFERR ED TO PROFIT & LOSS A/C. F) FURTHER RELIANCE WAS PLACED ON THE DECISION OF THE HONORABLE BOMBAY HIGH COURT IN THE CASE OF THE COMMISSIONER OF INCOME TAX V/S BENNEIT COLEMON & CO LTD (201 ITR 1021(BOM) WHERE IN IT HAS BEEN HE LD THAT WHEN THE LIABILITY IS TIME BARRED IT AMOUNT TO CESSATION OF LIABILITY U/S 41(1) UNLESS EXTRAORDINARY CIRCUMSTANCES SHOWN TO THE AUTHORITIE S TO PROVE THE POINT. YOUR HONOUR INCOME TAX APPELLATE TRIBUNAL - AHMEDABAD NARENDRASIN GH C.SAINI, BHARUCH VS DEPARTMENT OF INCOME TAX ON 8 NOVEM BER, 2012 HELD AS UNDER:- ' HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE CONSIDERED VIEW THAT IN THE ABSENCE OF ANY COGENT EVIDENCE TO BELIEVE THAT THE LIABILITIES IN QUESTION HAVE ACTUALLY CEASED TO EXIST, IT WAS U NJUSTIFIABLE ON THE PART OF THE AO TO ASSUME ON HIS OWN THAT THE SAME HAVE BECO ME BARRED BY LIMITATION BEING APPEARING IN THE BOOKS OF ACCOUNTS FOR MORE THAN THREE YEARS. RATHER, IN THE CASE OF CIT VS. SILVER COTTON MILLS COMPANY 125 TAXMAN 741(GUJ.), THE HON'BLE COURT HAS HELD THAT THE LIAB ILITIES IF APPEARING IN THE BOOKS OF ACCOUNTS SHOULD SUBSIST ALTHOUGH IT MIGHT NOT BE ENFORCEABLE ON ACCOUNT OF SOME PROVISIONS OF LAW OF LIMITATION UNL ESS AND UNTIL IT WAS LEGALLY HELD SO. WE THEREFORE HOLD THAT UNPAID LIABILITY CA NNOT BE ADDED IN THE TOTAL INCOME OF THE ASSESSEE BY INVOKING SECTION 41(1) OF IT ACT MERELY BECAUSE THE LIABILITY REMAINED UNPAID FOR FEW YEARS UNLESS AND UNTIL THERE IS AN EVIDENCE TO SHOW THAT EITHER BY OPERATION OF LAW OR THE CREDITOR HAD REMITTED THE DEBT. CONSIDERING THE FACTS OF THE CAS E, WE HEREBY APPROVE THE VIEW TAKEN BY THE LD.CIT(A) AND DISMISS THIS GROUND OF THE REVENUE.' ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 11 G) THE LD. AO FURTHER PLACED RELIANCE ON THE DECISION OF COMMISSIONER OF INCOME TAX V/S GENERAL INDUSTRIAL SOCIETY LTD (207 I TR, 169(COL)) WHERE IT HAS BEEN HELD THAT ASSESSEES INTENTION TO DISOWN O BLIGATION TO PAY SUCH LIABILITIES THUS BEING CLEAR FROM THESE FACTS, AMOU NT ARE TAXABLE U/S 4L(1). IN THE CASE THE AMOUNT HAS BEEN WRITTEN BACK BY THE COM PANY AND YET NOT OFFERED TO TAXATION, HERE IN CASE OF ASSESSEE THE I NTENTION TO DISOWN THE LIABILITY IS CLEAR AND HENCE THE AMOUNT IS BEING WR ITTEN BACK FOR THE PURPOSE OF TAXABILITY. YOUR HONOUR THE CASE DISCUSSED BY TH E LD. AO IS NOT APPLICABLE IN OUR CASE AS THE ASSESSEE HAD NOT WRITTEN BACK THE LIABILITIES. H) THE HON'BLE DELHI HIGH COURT AS PER ITS RECENT DECISIO N IN THE CASE OF CIT VS. CHIPSOFT TECHNOLOGY (P .) LTD. [2012] 210 TAXMAN 173 (DEL), EXAMINING THE LEGAL ASPECT OF THE MATTER, HAS CLARIFIED THAT TH E VIEW THAT MERELY BECAUSE A LIABILITY OUTSTANDS IN BOOKS, AND THAT LAPSE OF TIME BARS THE REMEDY BUT DOES NOT EFFACE THE LIABILITY, IS AN ABST RACT AND THEORETICAL ONE WHICH DOES NOT GROUND ITSELF IN REALITY. THE INTERPRE TATION OF LAW, PARTICULARLY FISCAL AND COMMERCIAL LEGISLATION, IS TO BE BASED ON PRAGMATIC REALITIES. IT WOULD BE INDEED PARADOXICAL, IF NOT IL LOGICAL, TO ALLOW THE ASSESSEE-DEBTOR TO, WHILE AVOIDING A LIABILITY ON THE BASI S THAT IT IS NO LONGER ENFORCEABLE IN LAW, YET CLAIM HIS STATUS AS A DE BTOR, SO THAT HE WAS INDEED LIABLE FOR THE AMOUNT REFLECTED AS A LIABILIT Y IN ACCOUNTS. I) THE LD. CIT APPEAL CONFIRMED THE ADDITION MADE BY T HE LD. AO. THE LD. CIT APPEAL RELIED THE DECISION HELD IN NATURAL GAS COMP ANY (P) LTD. VS.DEPUTY COMMISSIONER OF INCOME TAX 61 TAXMAN.COM 297 (MUMBAI- TRIB. YOUR HONOUR IN THAT CASE IT WAS ALSO HELD THA T THE ONUS TO ESTABLISH THAT THE CONDITIONS OF TAXABILITY STAND SATISFIED I S ALWAYS ON THE REVENUE. J) YOUR HONOUR, THEREFORE, THE ASSESSEE PRAYED TO DEL ETE THE ADDITION. FURTHER THE CASE LAWS REFERRED BY THE LD. ASSESSING OFFICER AND LD CIT(A) ARE DISTINGUISHABLE FULLY AS IN ALL THESE CASES. YOUR H ONOUR, PRINCIPLE LAID DOWN IN CASE OF TV SUNDARAM IYENGAR & SONS LTD. IS NOT A PPLICABLE IN THE CASE OF THE ASSESSEE. K) YOUR HONOUR, THE PROVISIONS OF SECTION 41(1)(A) WHI CH STATES AS UNDER: SEC. 41 PROFITS CHARGEABLE TO TAX: ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 12 (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE I N THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO AS THE FIRST-MENTI ONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR (A) THE FIRST MENTIONED PERSON HAS OBTAINED, WHETHE R IN CASH OR ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LO SS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY B Y WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERS ON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFI TS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESS ION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXIS TENCE IN THAT YEAR OR NOT. L) YOUR HONOUR THE AR RELIED THE DECISION HELD IN BROT HERS PHARMA P LTD., JAIPUR VS ASSESSEE ON 21 OCTOBER, 2015 IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR REPORTED IN 54 TW 163 WHEREIN IT WAS HELD THAT IT IS UNDISPUTED FACT THAT THE ASSESSEE H AD NOT WRITTEN OFF ANY LIABILITY ON ACCOUNT OF TRADE CREDITOR DURING THE Y EAR UNDER CONSIDERATION. FURTHER THE ASSESSEE HAD FURNISHED REQUIRED DETAILS BEFORE THE ASSESSING OFFICER AS WELL AS LD CIT(A). IN ONE OF THE CASE TH E INQUIRY LETTER U/S 133(6) HAS BEEN RETURNED BACK TO THE ASSESSING OFFICER. IT IS FACT THAT THESE AMOUNTS WERE VERY OLD, IT IS POSSIBLE THAT THE CRED ITOR HAS CLOSED OR SHIFTED THE BUSINESS FROM THE GIVEN ADDRESS. THE ASSESSEE H AD PRODUCED COPY OF BALANCE SHEET AND IT IS CLAIMED BY THE ASSESSEE THA T TO THE TUNE OF RS. 18,05,000/- ARE UNSECURED LOAN FROM EARLIER YEARS, W HICH HAS NOT BEEN CLAIMED AS DEDUCTION OR ALLOWANCES IN EARLIER YEAR BY THE ASSESSEE. THE LOWER AUTHORITIES ALSO HAD NOT ABLE TO ESTABLISH TH EIR CASE THAT THE ASSESSEE HAD DEDUCTED OR ALLOWED THESE ADVANCES AS DEDUCTION IN EARLIER YEARS. AS THE CASE LAWS REFERRED BY THE ASSESSEE INCLUDING HO N'BLE SUPREME COURT AND HON'BLE JURISDICTIONAL HIGH COURT HELD THAT BURDEN IS ON THE REVENUE TO PROVE THAT THE ASSESSEE HAS TAKEN DEDUCTION IN EARLI ER YEAR AND THERE IS A WRITE-OFF BILATERAL. IN ASSESSEE'S CASE, EVEN UNILAT ERAL WRITTEN OFF HAS NOT BEEN CLAIMED BY THE ASSESSEE. THE REVENUE HAS NOT B ROUGHT ON RECORD ANY ADVERSARY EVIDENCE TO ESTABLISH THAT LIABILITY WAS NOT INEXISTENCE OR NOT PAID ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 13 IN THE SUBSEQUENT YEAR. FURTHER REMAINING AMOUNT, T HE ASSESSEE FILED CONFIRMATION AND THE LD ASSESSING OFFICER HAD NOT M ADE ANY INQUIRY AND ESTABLISHED THE CASE THAT LIABILITY IS NOT INEXISTE NCE. IT WAS FURTHER HELD THAT THE CASE LAWS RELIED UPON BY THE ASSESSEE ARE SQUAR ELY APPLICABLE PARTICULAR HON'BLE SUPREME COURT DECISION IN THE CASE OF CHIEF CIT VS. KESARIA TEA CO. LTD. (SUPRA) AND THE CASE LAWS REFERRED BY THE LD C IT(A) ARE SQUARELY DISTINGUISHABLE ON THE GROUND THAT THERE WAS A WRIT TEN OFF EITHER BY THE ASSESSEE OR BILATERALLY. AND THEREFORE THE HON'BLE ITAT HELD THAT AFTER CAREFUL CONSIDERATION OF ALL THE FACTS AND CIRCUMST ANCES OF THE CASE AND WRITTEN SUBMISSIONS MADE BY THE LD AR ON SECTION 41(1) OF THE ACT, THE HON'BLE ITAT DO NOT FIND ANY REASON TO CONFIRM THE ORDER OF THE LD CIT(A). ACCORDINGLY, THE ADDITION CONFIRMED BY THE LD CIT(A ) WAS DELETED. M) YOUR HONOUR IT IS UNDISPUTED FINDING THAT THE EXPEN DITURE HAS BEEN CLAIMED IN THE EARLIER YEAR AND HENCE, THE FIRST CONDITION OF INVOKING SECTION 41(1)(A) IS SATISFIED. THE SECOND CONDITION TALKS ABOUT THE Y EAR OF TAXABILITY OF SUCH AMOUNT AND STATES THAT DURING ANY PREVIOUS YEAR, TH E ASSESSEE HAS OBTAINED SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY B Y WAY OF REMISSION OR CESSATION THEREOF, THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS AND CHARGEABLE TO TAX AS INCOME OF THAT PREVIOUS YEAR. WHAT IS THEREFORE RELEVANT IS TO DET ERMINE THE YEAR OF OBTAINING THE BENEFIT AS THE BENEFIT CAN BE BROUGHT TO TAX IN THAT YEAR ITSELF AND NOT IN ANY OTHER YEAR. IN THE INSTANT CASE, FOU R SUNDRY CREDITORS HAS CONFIRMED THAT THERE ARE NO TRANSACTIONS DURING THE PREVIOUS YEAR UNDER CONSIDERATION AS WELL AS THE FACT THAT THERE IS NO OPENING BALANCE IN THE ACCOUNT OF THE CREDITORS MAINTAINED IN THEIR BOOKS O F ACCOUNTS FOR THE YEAR UNDER CONSIDERATION. IT IS THEREFORE CLEAR THAT THE UNILATERAL ACTION ON THE PART OF THESE CREDITORS IN REMITTING THE SUBJECT AM OUNT HAS NOT HAPPENED IN THE PREVIOUS YEAR UNDER CONSIDERATION. IN LIGHT OF THE SAME, EVEN WHERE THE ASSESSEE HAS OBTAINED THE BENEFIT BY WAY OF REMISSI ON OF ITS TRADE LIABILITY, THE SAME CANNOT BE BROUGHT TO TAX DURING THE YEAR U NDER CONSIDERATION AS THE EVENT OF REMISSION HAS NOT HAPPENED DURING THE YEAR. HENCE, THE ADDITION OF RS 36,76,180/- UNDER SECTION 41(1)(A) IS BAD IN LAW AND FACTS. ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 14 7. ON THE OTHER HAND, THE LD. SR.DR HAS RELIED ON T HE ORDERS OF THE AUTHORITIES BELOW. 8. I HAVE HEARD BOTH THE SIDES ON THIS ISSUE. THE RE VENUE HAS NOT DOUBTED THE PURCHASE OF RAW MATERIAL FROM THESE CRE DITORS. THE GENUINENESS OF CREDITORS IS NOT IN DOUBT. NOW THE ON US TO ESTABLISH THAT PROVISIONS OF SECTION 41(1) OF THE ACT ARE APPLICAB LE AND CONDITIONS TO TAXABILITY ARE SATISFIED IS ON REVENUE. THE ASSESSEE WAS SUFFERING FROM SEVERE CANCER DURING THE RELEVANT PERIOD. THERE WAS A LSO QUALITY VARIATIONS. IN VIEW OF THESE FACTS, THE ASSESSEE CLA IMS THAT THE AMOUNT REMAINED OUTSTANDING. THERE IS NOTHING ON RECORD, WHI CH COULD SUGGEST THAT THE ASSESSEE HAS OBTAINED ANY CASH OR ANY OTHE R BENEFIT IN LIEU OF THESE CREDITS. THE ASSESSEE HAS NOT WRITTEN OFF THESE OUTSTANDING DUES IN ITS BOOKS OF ACCOUNT. THERE IS ALSO NOTHING ON RECOR D THAT THE ASSESSEE AT ANY TIME REFUSED TO PAY THE AMOUNT BACK TO THE CRED ITORS AND NOT WILLING TO MAKE THE PAYMENTS. IT IS ALSO CLEAR FROM THE FAC TS THAT THE ASSESSEE HAD NEVER RECEIVED ANY COMMUNICATION REGARDING WRITING O FF THESE BALANCES BY THE CREDITORS. IN THE BOOKS OF ACCOUNT THERE WERE 12 7 SUNDRY CREDITORS, HOWEVER, ASSESSING OFFICER SENT LETTERS TO ONLY 15 P ERSONS. EIGHT LETTERS WERE NOT SERVED BY THE POSTAL AUTHORITIES. NO REPLY WAS RECEIVED IN THREE CASES. ONLY FOUR CREDITORS REPLIED. IT IS PERTINENT TO NOTE THAT FOUR SUNDRY CREDITORS, WHO GAVE THE REPLY, ONE OF THEM WAS SHRI J ANKI LAL ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 15 RADHEYSHYAM AND THE C.A. OF SHRI JANKI LAL RADHEYSH YAM STATED THAT THERE WAS NO DEALING DURING THE ASSESSMENT YEAR 201 2-13 AND NO AMOUNT WAS OUTSTANDING TOWARDS THE ASSESSEE. IN THIS CASE, THE ASSESSEE HAS ALSO REQUESTED TO THE ASSESSING OFFICER THAT THE SUNDRY CREDITOR MAY BE SUMMONED BY ISSUING SUMMONS U/S 131 OF THE ACT. THE AR OF THE ASSESSEE HAS HEAVILY RELIED ON THE DECISION OF THE ITAT, JAIPUR BENCHES IN THE CASE OF SHREE PADMAVATI MARBLES PVT. LTD. VS ITO (SUPRA) WHEREIN THE ITAT HAS HELD THAT UNLESS IT IS PROVED THAT AN ALLOWA NCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT IN ANY PREVIOUS YEAR, I T IS NOT OPEN TO THE REVENUE TO INVOKE SECTION 41(1) OF THE ACT. IN THIS CASE, THE ASSESSING OFFICER HAS FAILED TO ESTABLISH THE FACT THAT THE A MOUNT OUTSTANDING AGAINST CREDITORS HAVE BEEN CLAIMED BY THE ASSESSEE AS DEDU CTION OR ALLOWANCES. THE LD AR ALSO DISTINGUISHED THE FACTS OF CIT VS. M/S T.V. SUNDARAM IYENGAR & SONS WHICH HAS BEEN RELIED BY THE ASSESSIN G OFFICER BY STATING THAT IT WAS HAVING ENTIRELY DIFFERENT FACTS. RELIANC E WAS PLACED BY THE LD AR ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF BROTHERS PHARMA (P) LTD. VS ITO IN ITA NO. 635/JP/2012 WHEREIN THE I TAT HAS HELD AS UNDER:- 24. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS UNDISPUTED FACT THAT THE ASSESSEE HAD NOT WRITTEN OFF ANY LIABILITY ON ACCOUNT OF LOAN CREDITOR, TRADE CREDITOR OR SECURITY CREDITOR DURING THE YEAR ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 16 UNDER CONSIDERATION. THE ASSESSEE HAD FURNISHED REQ UIRED DETAILS BEFORE THE ASSESSING OFFICER AS WELL AS LD CIT(A). IN ONE OF THE CASE THE INQUIRY LETTER U/S 133(6) HAS BEEN RETURNED BAC K TO THE ASSESSING OFFICER. IT IS FACT THAT THESE AMOUNTS WE RE VERY OLD, IT IS POSSIBLE THAT THE CREDITOR HAS CLOSED OR SHIFTED TH E BUSINESS FROM THE GIVEN ADDRESS. THE ASSESSEE HAD PRODUCED COPY O F BALANCE SHEET AND IT IS CLAIMED BY THE ASSESSEE THAT TO THE TUNE OF RS. 18,05,000/- ARE UNSECURED LOAN FROM EARLIER YEARS, WHICH HAS NOT BEEN CLAIMED AS DEDUCTION OR ALLOWANCES IN EARLIER YEAR BY THE ASSESSEE. THE LOWER AUTHORITIES ALSO HAD NOT ABLE TO ESTABLI SH THEIR CASE THAT THE ASSESSEE HAD DEDUCTED OR ALLOWED THESE ADVANCES AS DEDUCTION IN EARLIER YEARS. AS THE CASE LAWS REFERRED BY THE ASSESSEE INCLUDING HON'BLE SUPREME COURT AND HON'BLE JURISDICTIONAL HI GH COURT HELD THAT BURDEN IS ON THE REVENUE TO PROVE THAT THE ASS ESSEE HAS TAKEN DEDUCTION IN EARLIER YEAR AND THERE IS A WRITE-OFF BILATERAL. IN ASSESSEES CASE, EVEN UNILATERAL WRITTEN OFF HAS NO T BEEN CLAIMED BY THE COMPANY. THE OTHER CREDITORS WERE ADVANCE RECEI VED FROM THE CUSTOMER TO THE TUNE OF RS. 9,41,354/-, WHICH WAS P AID OF IN LATER YEARS. THE AR OF THE ASSESSEE FILED RELEVANT EVIDEN CES FOR REPAYMENT IN SUBSEQUENT YEAR, WHICH PROVED THAT THE ASSESSEES LIABILITY WAS IN EXISTENCE. THE REVENUE HAS NOT BRO UGHT ON RECORD ANY ADVERSARY EVIDENCE TO ESTABLISH THAT LIABILITY WAS NOT INEXISTENCE OR NOT PAID IN THE SUBSEQUENT YEAR. THE ASSESSEE HAS SHOWN RS. 3.60 LACS AS SECURITY DEPOSIT OUT OF THIS RS. 2.10 LACS WERE ADDED BY THE ASSESSING OFFICER IN A.Y. 1996-97 , WHICH HAS BEEN DELETED BY THE LD CIT(A). NO APPEAL HAD BEEN F ILED BY THE REVENUE BEFORE THE ITAT, THEREFORE, ISSUE IS SETTLE D. FURTHER REMAINING AMOUNT, THE ASSESSEE FILED CONFIRMATION A ND THE LD ASSESSING OFFICER HAD NOT MADE ANY INQUIRY AND ESTA BLISHED THE ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 17 CASE THAT LIABILITY IS NOT INEXISTENCE. THE CASE LA WS RELIED UPON BY THE ASSESSEE ARE SQUARELY APPLICABLE PARTICULAR HON 'BLE SUPREME COURT DECISION IN THE CASE OF CHIEF CIT VS. KESARIA TEA CO. LTD. (SUPRA). THE CASE LAWS REFERRED BY THE LD CIT(A) AR E SQUARELY DISTINGUISHABLE ON THE GROUND THAT THERE WAS A WRIT TEN OFF EITHER BY THE ASSESSEE OR BILATERALLY. AFTER CAREFUL CONSIDER ATION OF ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND WRITTEN SUB MISSIONS MADE BY THE LD AR ON SECTION 41(1) OF THE ACT, WE DO NOT FIND ANY REASON TO CONFIRM THE ORDER OF THE LD CIT(A). ACCORDINGLY, THE ADDITION CONFIRMED BY THE LD CIT(A) IS DELETED. THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. THE LD AR ALSO PLACED RELIANCE ON THE DECISION OF TH E COORDINATE BENCH IN THE CASE OF SHREE PADMAVATI MARBLES PVT. LTD. VS ITO IN ITA NO. 596/JP/2013 (2016) 47 CCH 0764 JAIPUR TRIB WHEREIN TH E COORDINATE BENCH HAS HELD AS UNDER:- 5.8 REGARDING AMOUNT PAYABLE IN RESPECT OF M/S KA Y JAY MARBLES CERAMICS PVT. LTD, THE AMOUNT IS VERY OLD RELATING TO THE YE AR 2003, THERE HAS BEEN NO CORRESPONDENCE FOR RECOVERY AND ALSO THERE HAS B EEN NO RESPONSE FROM M/S KAY JAY MARBLES CERAMICS U/S 133(6) OF THE ACT. ALL THESE FACTS LEAD THE ASSESSING OFFICER TO TREAT THE AMOUNT AS TAXABL E UNDER SECTION 41(1)(A) OF THE ACT. THERE IS HOWEVER NO EVIDENCE T O SUPPORT THE PROPOSITION THAT THERE IS A UNILATERAL ACTION ON TH E PART OF THE CREDITOR IN TERMS OF REMISSION OF LIABILITY UNLIKE THE CASE OF M/S TIRUPATI BALAJI MINERALS PVT. LTD. FURTHER, THE ASSESSEE CONTINUES TO SHOW THE LIABILITY IN ITS BOOKS OF ACCOUNTS AND HAS ALSO NOT DONE ANY UNI LATERAL WRITE OFF IN ITS BOOKS OF ACCOUNTS. IN SUCH SITUATION, MERELY BECAUS E THE AMOUNT IS OUTSTANDING SINCE 2003, IT CANNOT BE INFERRED THAT THE LIABILITY HAS CEASED ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 18 TO EXIST AND THE ASSESSEE HAS OBTAINED ANY BENEFIT BY WAY OF REMISSION OR CESSATION OF ITS TRADING LIABILITY. THERE HAS TO BE SOME POSITIVE EVIDENCE OR ACTION ON THE PART OF THE ASSESSEE OR THE CREDITOR TO SUPPORT THE THEORY OF REMISSION OR CESSATION WHICH IS APPARENTLY NOT PRES ENT IN THE INSTANT CASE. HAVING SAID THAT, THE NECESSITY IS NOT FELT TO EXAM INE THE CONTENTION OF THE ASSESSEE THAT SINCE THE PURCHASES ARE INCLUDED IN T HE CLOSING STOCK, THERE HAS BEEN NO DEDUCTION THAT HAS BEEN CLAIMED BY THE APPELLANT. WE LEAVE THIS CONTENTION OPEN. HENCE, IN LIGHT OF ABOVE, THE POSITION ADOPTED BY THE REVENUE IS NOT AGREED THAT IT IS CASE WHICH FALLS WITHIN THE FOUR CORNERS OF SECTION 41(1)(A) OF THE ACT. HENCE, THE ADDITION OF RS 1,81,251 UNDER SECTION 41(1)(A) IS HEREBY DELETED. THE GROUND NO. 3 IS ACCORDINGLY ALLOWED IN FAVOUR OF THE ASSESSEE. 8.1 AFTER CONSIDERING THE FACTS OF THE CASE AND THE CASE LAWS RELIED UPON, I AM OF THE VIEW THAT THE ASSESSEE HAS NOT WRIT TEN OF THE AMOUNT IN ITS BOOKS OF ACCOUNT. THE ASSESSEE HAS ALSO NOT DENI ED THE PAYMENT OF THESE AMOUNTS TO THESE CREDITORS. THE GENUINENESS OF THESE CREDITORS WERE NOT IN DOUBT. NOTICES ISSUED U/S 133(6) OF THE ACT WERE NOT SERVED ON SOME CREDITORS AND SOME OF THEM DID NOT RESPOND. ON LY FOUR PERSON RESPONDED NEGATIVELY. THE ASSESSEE REQUESTED THE ASS ESSING OFFICER TO ISSUE THE SUMMONS U/S 131 OF THE ACT, WHICH HE HAS N OT DONE. HEAVY ONUS IS ON THE REVENUE TO ESTABLISH THAT THE LIABIL ITY SHOWN IN THE BOOKS OF ACCOUNT HAS BEEN EXTINGUISHED. THE SICKNESS OF THE ASSESSEE AS WELL AS DISPUTE REGARDING THE QUALITY VARIATION IS ALSO NOT IN DOUBT. CONSIDERING ALL ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 19 THESE ASPECTS, I DIRECT TO SUSTAIN THE ADDITION ONL Y IN RESPECT OF FOUR CREDITORS, THE DETAILS OF THIS IS AS UNDER:- (I) M/S JANKILAL RADHESHYAM RS. 1,32,000/- (II) M/S MOOLCHAND MADAN GOPAL RS. 1,48,400/- (III) M/S ARIHANT AGENCY RS. 1,27,900/- AND (IV) AMAR COLLECTION RS. 1,47,050/- TOTAL RS. 5,55,350/- THEREFORE, I DIRECT TO DELETE THE BALANCE OF THE AMO UNT AS THE REVENUE HAS FAILED TO ESTABLISH THE LIABILITY IN RESPECT OF THE SE CREDITORS. 9. GROUND NO. 4 OF THE APPEAL IS AGAINST CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 36,720/-. THE ASSESSING OFFICER HAS DISALLOWED RS. 1,50,216/- AND ADDED IN THE INCOME OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAD BEEN PAYING INTEREST AND ON THE OT HER HAND HAD FORWARDED INTEREST FREE LOANS, THE INTEREST ON RS. 2 9,61,000/- @ 12% BEING MORE THAN THE INTEREST PAID. 10. THE LD. CIT(A) HAS RESTRICTED THE ADDITION OF RS . 36,720/- INSTEAD OF RS. 1,50,216/- BY HOLDING AS UNDER:- 5.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSES SMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER NOTICED THAT CERTAIN AMOUNTS HAD BEEN ADVANCED BY THE ASSESSEE AS LOANS AND NO INTEREST WAS BEING CHARGED WHILE THE ASSESSEE WAS PAYING INTERES T AT 12% ON LOANS IT HAD TAKEN. A DISALLOWANCE OF EXCESS INTEREST PAID W AS MADE OF AN AMOUNT OF RS. 1,50,216/- THE AUTHORIZED REPRESENTATIVE POI NTED OUT THAT A LOAN OF ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 20 RS.26,65,000/- RELATED TO SHANTILAL BHANDARI (LOAN ACCOUNTS). THE AR STATED THAT THE ASSESSEE IS MAINTAINING TWO ACCOUNT S OF CAPITAL ONE IS CAPITAL ACCOUNT AS SHOWN IN LIABILITIES IN THE BALA NCE SHEET AND ANOTHER ACCOUNT UNDER THE HEAD SHANTILAL BHANDARI LOAN ACCO UNT OF RS.26,65,000/-. FURTHER, PLEADED THAT SINCE BOTH AC COUNT BELONG TO THE ASSESSEE, INTEREST CANNOT BE CHARGED TO ITSELF. THI S ISSUE WAS FORWARDED TO THE ASSESSING OFFICER FOR VERIFICATION AND HIS COMM ENTS. IN THE REMAND REPORT, THE ASSESSING OFFICER HAS STATED THAT THE P URPOSE OF ADVANCE AND BUSINESS EXPEDIENCY WERE NOT CLEAR, HENCE THE DISAL LOWANCE OF INTEREST WAS JUSTIFIED. HOWEVER, AS PER THE FACTS ABOVE, SIN CE INTEREST ON ASSESSEES OWN ACCOUNT CANNOT BE CHARGED AND DISALLOWED ON NOT IONAL BASIS, THIS AMOUNT IS EXCLUDED FROM THE TOTAL AMOUNT ON WHICH T HE INTEREST PAYMENT IS TO BE DISALLOWED. THUS, ADDITION UNDER THIS HEAD SHALL COME TO RS.36,720/-. 11. THE LD AR OF THE ASSESSEE HAS REITERATED THE ARG UMENTS AS MADE IN THE WRITTEN SUBMISSIONS. ON THE CONTRARY, THE LD DR HAS SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 12. AFTER HEARING BOTH THE SIDES ON THIS ISSUE. FRO M PERUSAL OF THE RECORDS, IT TRANSPIRES THAT THE ASSESSEE IS HAVING SUFFICIENT CAPITAL BALANCE OF RS. 57,63,821.14/- TO GIVE LOAN OF RS. 3,06,000/ -. THE ASSESSEES OWN NON-INTEREST BEARING FUNDS WERE FAR IN EXCESS OF THE INTEREST FREE ADVANCES GIVEN. DEDUCTION CLAIMED U/S 36(1)(III) IN RESPECT OF INTEREST ON ITS BORROWINGS COULD NOT BE DECLINED. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 I TR 340 (BOM) HAS HELD ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 21 THAT THE PRESUMPTION WOULD ARISE THAT INVESTMENT WOUL D BE AT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH ASSE SSEE. THE FINDINGS OF THE HON'BLE BOMBAY HIGH COURT HAS HELD AS UNDER:- IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN AS SESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD R AISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTERES T-FREE FUNDS AVAILABLE. IN OUR OPINION, THE SUPREME COURT IN EAST INDIA PHA RMACEUTICAL WORKS LTD. V. CIT [1997] 224 ITR 627 HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. [1 982] 134 ITR 219 WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR A ND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THES E CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSI DERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS OF INDIA LTD.' S CASE [1982] 134 ITR 219 THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND TH E PROFITS WERE DEPOSITED IN THE OVER DRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFIT S OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUS INESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIA L AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRI NCIPLE, THEREFORE, WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST- FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT IN VESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUND GENERATED OR AVAILABLE WI TH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENTS. CONSIDERING ALL THESE FACTS AND CIRCUMSTANCES OF TH E CASE, I DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. THIS GROUN D OF THE ASSESSEES APPEAL IS ALLOWED. 13. THE 5 TH GROUND OF THE APPEAL IS AGAINST CONFIRMING THE RES TRICTED DISALLOWANCE @ 10% ON DEPRECIATION OF RS. 98,480/-. TH E ASSESSING OFFICER HAS DISALLOWED 20% OF THE EXPENSES IN RESPEC T OF CONVEYANCE AND ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 22 DEPRECIATION. THE LD CIT(A) HAS RESTRICTED THE DISAL LOWANCE @ 10% BY HOLDING THAT THE ASSESSING OFFICER HAS MADE A DISAL LOWANCE OF 20% ON THE EXPENDITURE AND DEPRECIATION FOR NO PRODUCTION OF C OMPLETE VOUCHERS AND ELEMENT OF PERSONAL USE. THE ADDITION MADE BY THE A SSESSING OFFICER IS FOUND TO BE EXCESSIVE AND RESTRICTED TO 10%. 14. AFTER CONSIDERING BOTH THE SIDES ON THIS ISSUE , I HOLD THAT ONCE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED THEN NO SUCH AD HOC DISALLOWANCE IS CALLED FOR. FURTHER THE ASSESSING OFFICER HAD NOT G IVEN ANY FINDING OF PERSONAL USE OF CONVEYANCE, THEREFORE, THE PERSONAL USE IS NOT ESTABLISHED. IN VIEW THEREOF, THE AD HOC ADDITION @ 10% SUSTAIN BY THE LD. CIT(A) IS HEREBY DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17/04/2017. SD/- HKKXPAN (BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 17 TH APRIL, 2017 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SHRI SHANTI LAL BHANDARI, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD-6(1), JAIPUR. 3. VK;DJ VK;QDR @ CIT ITA 73/JP/2016_ SHANTI LAL BAHNDARI VS ITO 23 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 73/JP/2016) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR