The ITO, Ward-1(2), JUNAGADH V. Shri Chelaram Tulsidas Sonaiya, JUNAGADH

ITA 80/RJT/2012

• Counselvise Citation: [2012] 120 COUNSELVISE.COM (IT) 0182 (ITAT-RAJKOT)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: RD LALCHANDANI
• Keywords: Period of limitation

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. . .. . . .. . , , , , . .. . . .. . , , , , $ $ $ $ BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K. SRIVASTAV A, AM ITA NO.80/RJT/2012 / ASSESSMENT YEAR 2007-08 INCOME TAX OFFICER, WARD 1(2), JUNAGADH ( * / APPELLANT) VS. SHRI CHELARAM TULSIDAS SONAIYA, PROP.OF M/S KANAIYA OPTICALS, DHARMBHAKTI APTT. GIRIRAJ MAIN ROAD, JUNAGADH PAN: AFGPS1612F +,* / RESPONDENT - / REVENUE BY SHRI AVINASH KUMAR /- / ASSESSEE BY SHRI R.D.LALCHANDANI - / DATE OF HEARING 26.9.2012 - / DATE OF PRONOUNCEMENT 28.09.2012 / / / / ORDER . .. . . . . . , , , , / T. K. SHARMA, J. M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DATED 17.12.2011 OF CIT (A) FOR THE ASSESSMENT YEAR 2007-08. 2. THE GROUNDS TAKEN BY THE REVENUE IN THIS APPEAL R EAD AS UNDER : 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.8,04,882/- MADE BY THE AO U/S 41(1) OF THE IN COME TAX ACT, 1961, WITHOUT CONSIDERING FACTS BROUGHT ON RECORD BY THE AO; 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.5,65,924/- MADE BY THE AO ON ACCOUNT OF BOGUS PU RCHASES, AS THE ASSESSEE HAD FAILED TO PRODUCED CONFIRMATIONS FROM THE SUPPLIERS ITA NO.80/RJT/2012 2 3. FACTS IN BRIEF IN RESPECT OF THE FIRST GROUND ARE TH AT THE RETURN OF INCOME WAS FILED ON 31.10.2007 DECLARING TOTAL INCOME OF RS.2,71,280/-. THE ASSESSEE IS ENGAGED IN TRADING OF SPECTACLES, FRAMES A ND GLASSES. THE AO NOTICED THAT THE ASSESSEE WAS TO PRODUCE DETAILS O F ALL THE CREDITORS, WHICH HE FAILED TO PRODUCE THE DETAILS IN RE SPECT OF S/SHRI KIRAN OPTICAL, CHENNAI : RS.1,60,228/-, KAILASH OPTICAL, CHEN NAI :RS.1,12,975/-, MIDS MINK OPTICAL (P) LTD :RS.2,30,867/-, MISHWA IMPACTS (INDIA) MUMBAI :RS.1,75,994/- AND KUMAR OPTICAL CO., DELHI : RS.1,24 ,818/- AGGREGATING TO RS.8,04,882/-. THE AO CALLED FOR THE DETAILS IN RESPECT OF ALL THESE CREDITORS, THE ASSESSEE VIDE LETTER DATED 29.12.2009 FIL ED HIS SUBMISSIONS WHICH FORMING PART OF THE ASSESSMENT ORDER AT PAGE 3. THE AO DID NOT FIND FAVOUR WITH THE SUBMISSIONS OF THE ASSESSEE AND ADDED BACK RS.8,04,882/- TO THE TOTAL INCOME OF THE ASSESSEE. 4. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED HIS DE TAILED EXPLANATION WHICH IS FORMING PART OF THE FIRST APPELL ATE ORDER AT PAGES 2 TO 4. THE LD. CIT(A) AFTER DISCUSSING ALL THE FACTUAL MATR IX OF THE CASE AND VIDE DETAILED REASONING GIVEN IN HIS ORDER AT PAGES 6 AND 7 IN PARAGRAPH 4 DELETED THE AMOUNT PERTAINING TO THESE PERSONS VI Z. S/SHRI KIRAN OPTICAL, CHENNAI : RS.1,60,228/-, KAILASH OPTICAL, CHEN NAI :RS.1,12,975/-, MIDS MINK OPTICAL (P) LTD :RS.2,30,867/-, MISHWA IMPACTS (INDIA) MUMBAI :RS.1,75,994/- AND KUMAR OPTICAL CO., DELHI : RS.1,24 ,818/- AGGREGATING TO RS.8,04,882/-. THE OBSERVATIONS OF THE LD. CIT(A ) GIVEN AT PAGE 8 AND 9 IN PARAGRAPHS 4 ARE AS UNDER : 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMIS SIONS OF APPELLANT I FIND THAT THAT ASSESSING OFFICER HAS CO NSIDERED THE CREDIT ITA NO.80/RJT/2012 3 BALANCES IN THE NAMES OF KIRAN OPTICAL, CHENNAI FAR RS.1,60,288/-, KAILASH OPTICAL, CHENNAI FOR RS.1,12,975/-, MID MINT OPTICAL (P) LTD. RS.2,30,867/-, MISSY IMPACTS (INDIA) MUMBAI, :RS.1,75,99 4/- AND M/S KUMAR OPTICAL CO., DELHI FOR RS.1,24,818/- TOTAL ING TO RS.8,04,882/- AS NO EXISTING LIABILITIES OF APPELLANT BECAUSE THESE LIABILITIES ARE OUTSTANDING SINCE PAST. THERE IS NO DISPUTE ON THE FACTS THAT THESE CREDITORS REFER TO TRADING LIABILITIES OF APP ELLANT WHICH HAVE ARISEN ON ACCOUNT OF PURCHASES MADE BY THE APPELLANT IN THE P AST. THE DECISION OF CIT(A)-III, RELIED UPON BY THE APPELLANT WILL NOT BE APPLICABLE IN THIS CASE BECAUSE THE LIABILITY IN THAT CASE WAS A CAPITAL LIABILITY AND NOT A TRADING LIABILITY. FOR ANY LIABILITY TO CEASE U/S 41 (1) OF THE I T ACT, THE APPELLANT MUST OBTAIN A 'CREDIT NOTE' OF THE AMOUNT EQUIVA LENT TO THE CREDIT BALANCES OF THE CREDITORS OR THE APPELLANT MUST WRITE OFF T HE BALANCES OF CREDITORS IN HIS BOOKS OF ACCOUNT AS PER EXPLANATION TO SECTION 41(1) OF THE IT ACT. IN PRESENT CASE THERE IS NO DISPUTE THAT APPELLANT HA S NOT WRITTEN OF THE BALANCES OF TRADE CREDITORS IN HIS BOOKS OF ACCOUNT. ASSESSING OFFICER HAS ASSUMED THAT THE CREDITORS MUST HAVE WAIVED OFF THE IR LIABILITIES BECAUSE APPELLANT DID NOT SUBMIT CONFIRMATIONS FROM THEM. H OWEVER, THERE IS NO EVIDENCE THAT THE APPELLANT HAS OBTAINED ANY BENEF IT FROM THE TRADE CREDITORS IN THE FORM OF 'CREDIT NOTE' IN SETTLEMENT OF THEIR DISPUTE. THE APPELLANT IS REQUIRED TO SUBMIT THE NAME AND ADDRE SSES OF THE CREDITORS AND SAMPLE INVOICES OF PURCHASES OF PAST YEARS AND THE COPY OF ACCOUNTS OF THESE CREDITORS TO DISCHARGE HIS BURDEN I FIND T HAT APPELLANT HAS SUBMITTED ALL THESE DETAILS. THE BURDEN IS NOW SHIFTED TO ASSESSING OFFICER TO PROVE THAT THE CREDITORS HAVE ISSUED THE 'CREDIT NOTE' TO APPELLANT AND HAVE WAIVED THE TRADING LIABILITIES OF APPELLANT. IT IS POSSIB LE THAT THE CREDITORS MAY NOT RESPOND TO THE REQUEST OF APPELL ANT DUE TO DISPUTE. IN FACT THE PURCHASE VOUCHERS ISSUED BY THE CREDITORS FOR PURCHASES BY APPELLANT FROM THEM IN PAST YEAR ITSELF ARE CONFIRM ATION OF THEIR TRANSACTION WITH APPELLANT. IN MERCANTILE METHOD OF ACCOUNTING THE PAYMENT IS NOT THE DETERMINING FACTOR IN CLAIMING THE EXPENDITURE. ANY ASSUMPTION MADE ON THE BASIS OF NON PAYMENT OR PURCHASE PRICE OF EARLI ER YEARS BY APPELLANT TO THE CREDITORS DUE TO DISPUTE WILL BE ONLY SUSPICION WITHOUT ANY FURTHER EVIDENCE AND FINDING. FOR INVOKING SECTION 41 (1). THE RE MUST BE A DEFINITE BENEFIT OBTAINED BY THE APPELLANT IN TERMS OF EVIDENCE OF 'CREDIT NOTE' FROM THE CREDITORS OR THERE MUST BE AN O BVIOUS WRITING OFF OF THE CREDIT BALANCES BY THE APPELLANT IN HIS BOO KS OF ACCOUNT. IN PRESENT CASE BOTH THE SITUATIONS ARE EITHER ABSENT O R NOT ESTABLISHED. THE PRINCIPLE HAS BEEN WELL SETTLED THAT E XPIRY OF THE PERIOD OF LIMITATION PRESCRIBED UNDER THE LIMITATION ACT COULD NOT EXTINGUISH THE DEBT BUT IT WOULD ONLY PREVENT THE CRE DITOR FROM ENFORCING THE DEBT. THEREFORE, TILL THE TIME THE TRA DING LIABILITY EXISTS IN THE BOOKS OF APPELLANT AND TILL THE TIME THE EVIDE NCE OF OBTAINING BENEFIT BY APPELLANT FROM THE CREDITORS IN THE FORM O F 'CREDIT NOTE' IS NOT ESTABLISHED, NO TRADING LIABILITY MAY BE DEEMED A S INCOME U/S 41 (1). I THEREFORE DIRECT THE ASSESSING OFFICER TO DEL ETE THE ADDITION OF RS.804882/- IN RESPECT OF THE CREDIT BALANCES OF THE CR EDITORS IN THE NAMES OF KIRAN OPTICAL, CHENNAI FOR RS.160288/-, KAILASH OPTICAL, CHENNAI FOR RS.112975/-, MID MINT OPTICAL PVT LTD, MUMBAI RS.230867/-, MISSY IMPACTS (INDIA), MUMBAI RS.175994/- AN D MIS. KUMAR OPTICAL CO., DELHI FOR RS.124818/-. ITA NO.80/RJT/2012 4 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE THIS TRIBUNAL. 6. BEFORE US SHRI AVINASH KUMAR, THE LD.DR APPEARED ON BEHALF OF THE REVENUE. HE COULD NOT BRING ANY EVIDENCE ON REC ORD TO REBUT THE FINDING OF THE LD. CIT(A). ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE LD.CIT(A). 7. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT THE LD.CT( A) HAS DELETED THE ADDITION OF RS.8,04,882/- BY GIVING DETAILED REASONS AND THE LD. DR COULD NOT BRING ANY DOCUMENTARY EVIDENCE AS TO WHY THE FINDI NGS OF THE LD. CIT(A) ARE NOT ACCEPTABLE TO THE REVENUE. THEREFORE , WE HAVE NO REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A). ACCORDIN GLY, WE CONFIRM IT. GROUND NO.1 TAKEN BY THE REVENUE IS REJECTED. 8. BRIEF FACTS WITH REGARD TO THE GROUND NO.2 ARE TH AT THE ASSESSEE SHOWN CREDIT BALANCE OF RS.5,15,924/- IN THE ACCOUNT OF M/S NATIONAL OPTICAL CO. NEW DELHI ON THE GROUND THAT THERE ARE ALLEGED PURCHASES OF RS.3,06,002/- AND OPENING CREDIT BALANCE AS ON 1.4.2006 WAS RS.2,59,992/- MAKING TOTAL CREDIT IN THIS ACCOUNT OF RS. 5,65,924/-. THE AO ASKED FOR SUCH CREDIT FOR LONG TIME AND THERE IS NO CONFI RMATION FROM M/S NATIONAL OPTICAL CO.,DELHI. THE AO WAS OF THE OPINION THAT THIS IS AN UNDISCLOSED INCOME OF THE ASSESSEE ADDED BACK TO THE TOTAL I NCOME OF THE ASSESSEE WITHOUT ACCEPTING THE SUBMISSION OF THE ASSESSEE. 9. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THAT THE ASSESSEE GETS GOODS ON CREDIT FROM THIS PARTY AND THE PAYMENTS AR E MADE AS PER ITA NO.80/RJT/2012 5 UNDERSTANDING WITH THIS PARTY. THE ASSESSEE SUBMITTED THE COPY OF THE ACCOUNT OF M/S NATIONAL OPTICAL CO.,DELHI, CREDITOR AND SUPPLIER OF GOODS. THE ASSESSEE PRODUCED ALL NECESSARY DOCUMENTS AND DETAILS BE FORE THE CIT(A). THE LD. CIT(A) VIDE HIS OBSERVATIONS AT PAGE 8 PARAGRAPH 4 HELD THAT THE SUBMISSIONS OF THE ASSESSEE ARE TRUE, GENUINE AND HENCE HE DIRECTED THE AO TO DELETE THE ADDITION OF RS.5,65,9 24/- BY HOLDING AS UNDER : 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMI SSIONS OF APPELLANT. I FIND THAT AO HAS HELD THE PURCHASES OF APPELLANT OF RS.3,06,002/- FROM NATIONAL OPTICAL CO DURING THE YEAR AS NOT GENUINE WITHOUT VERIFYING THE PURCHASE VOUCHERS AND THE PARTY. THE BOOKS OF ACCOUNT OF APPELLANT ARE AUDITED AND THEREFORE THE BURDEN IS MORE ON THE ASSESSING OFFICER TO VERIFY THE PURCHASE VO UCHERS AND THE PARTY BEFORE ARRIVING AT THE CONCLUSION THAT THE PURCHASES ARE NOT GENUINE. MOREOVER, IN CASE OF CREDITOR FOR SUPP LY OF GOODS, THE PURCHASE VOUCHERS ARE ISSUED BY SUCH CREDITORS AND ARE THEMSELVES A THIRD PARTY CONFIRMATION AND THEREFORE BU RDEN IS ON ASSESSING OFFICER TO PROVE SUCH PURCHASE VOUCHERS AS NOT GENUIN E FROM DIRECT ENQUIRY OR EVIDENCE. MERELY ON THE GROUND THAT THE CREDITOR ALLOWED MORE THAN ONE YEAR TIME OF PAYMENT TO APPELLANT IS NO REASON TO HOLD THE PURCHASES AS NOT GENUINE. THEREF ORE THERE IS NO JUSTIFICATION IN DISALLOWING THE PURCHASES OF RS. 3,06,002/- FROM NATIONAL OPTICAL CO DURING THE YEAR. AS FAR AS OPEN ING CREDIT BALANCE OF RS. 2,59,992/- IN THE ACCOUNT OF NATIONAL OPTICAL CO. IS CONCERNED, THE SAME IS UNPAID PRICE OF PURCHASES MADE IN EA RLIER YEARS. APPELLANT HAS SUBMITTED THE COPY OF ACCOUNT OF N ATIONAL OPTICAL CO WHERE PAYMENTS HAVE BEEN MADE BY CHEQUE AND DRAFT BY APPELLANT DURING THE YEAR AND IN SUBSEQUENT I N FINANCIAL YEAR FOR THE UNPAID PURCHASE PRICE OF EARLIER YEARS AND CURRENT YEAR. IN MERCANTILE METHOD OF ACCOUNTING THE PAYMENT IS NOT THE DETERMINI NG FACTOR IN CLAIMING THE EXPENDITURE. MOREOV ER. IN RESPECT OF OPENING CREDIT BALANCE OF RS. 2,59,992/- NO CLAIM OF CORRESPONDING D EDUCTION WAS MADE IN THE CURRENT YEAR. THIS CREDIT BALANCE REPRESEN TS THE CLAIMS OF DEDUCTION ON ACCOUNT OF PURCHASES MADE IN EARLIER ASSESSMENT YEARS AND APPELLANT HAS REPAID SUCH AMOUNT IN CURRENT Y EAR AND IN SUBSEQUENT YEARS. THEREFORE ASSESSING OFFICER HAS INCORRECT LY TREATED SUCH OPENING CREDIT BALANCE OF RS. 2,59,992/- AS INCOME OF APPELLANT OF CURRENT YEAR FROM UNDISCLOSED SOURCES. I DI RECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.565924/- M ADE ON ACCOUNT OF CREDIT OPENING BALANCE AND PURCHASES MADE FROM NATIONAL OPTICAL CO DURING THE YEAR. 10. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT THE LD.CT( A) HAS DELETED THE ITA NO.80/RJT/2012 6 ADDITION OF RS.5,65,924/- BY GIVING DETAILED REASONS AND THE LD. DR COULD NOT BRING ANY DOCUMENTARY EVIDENCE AS TO WHY THE FINDI NGS OF THE LD. CIT(A) ARE NOT ACCEPTABLE TO THE REVENUE. THEREFORE , WE HAVE NO REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A). ACCORDIN GLY, WE CONFIRM IT. GROUND NO.2 TAKEN BY THE REVENUE IS REJECTED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON THE DAT E MENTIONED HEREINABOVE. SD/- SD/- ( .. / D. K. SRIVASTAVA) ( .. / T. K. SHARMA) / ACCOUNTANT MEMBER /JUDICIAL MEMBER 3/ ORDER DATE 28-09-2012. /RAJKOT SRL - -- - +4 +4 +4 [phone] / COPY OF ORDER FORWARDED TO:- 1. * / APPELLANT-, 2. +,* / RESPONDENT- 3. : / CONCERNED CIT. 4. :- / CIT (A). 5. 4 +, , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , TRUE COPY. SENIOR PRIVATE SECRETARY , INCOME TAX APPELLATE TRIBUNAL, RAJKOT. .