Asstt.Commissioner of Income Tax, Circle-5(2), Ahmedabad V. Shri Gokaldas Popatbhai Patel, Ahmedabad

ITA 848/AHD/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94905 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-09-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 10-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: S R SHAH
• Keywords: Business income; Period of limitation; Deemed to accrue or arise in india; Question of law
• Section: 143(3); 133(6)

Judgement Text

ITA NO. 848/AHD/2015 ACIT VS. SHRI GOKALDAS POPATBHAI PATEL A.Y. 2011-12 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND MAHAVIR PRASAD JM] I.T.A. NO.848/AHD/2015 ASSESSMENT YEAR : 2011-12 ASST. COMMISSIONER OF INCOME-TAX .....APPELLANT CIRCLE-5(2), AHMEDABAD VS. GOKALDAS POPATBHAI PATEL .RESPONDENT 21, SUJAN BUNGLOWS, NR. SHREYAS TEKRA, AMBAWADI, AHMEDABAD 380 015 [PAN : ACKPP 9436 H] APPEARANCES BY: SONIA KUMAR FOR THE APPELLANT SR SHAH FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 05.12.2017 DATE OF PRONOUNCING THE ORDER : 13.12.2017 O R D E R PER PRAMOD KUMAR, AM: 1. THIS APPEAL, FILED BY THE ASSESSING OFFICER, IS DIRECTED AGAINST THE ORDER DATED 27 TH JANUARY 2015 PASSED BY THE CIT(A), AHMEDABAD-5, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961, F OR THE ASSESSMENT YEAR 2011-12. 2. GRIEVANCE OF THE APPELLANT IS AS FOLLOWS: 1. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN PA RTLY ALLOWING THE APPEAL ON THE ISSUE THAT THE ASSESSEE HAS FAILED TO ESTABL ISH THAT CREDITORS IN HIS BOOKS OF ACCOUNT ARE GENUINE. THESE CREDITS CONTIN UED TO BE CARRIED FORWARD YEAR AFTER YEAR. EVEN SOME CREDITORS ALSO FURNISHED REPLY IN RESPONSE TO THE NOTICE U/S 133(6) OF THE ACT WHEREI N THEY STATED THAT THEY DID NOT TRANSACT WITH THE ASSESSEE. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THERE ARE CERTAIN CREDITORS WHICH ARE OLDER THAN THREE YEARS. WHEN HE PROBED T HE MATTER FURTHER, HE NARROWED DOWN TO 11 SUCH CREDITORS FOR AGGREGATE AMOUNT OF R S.43,00,081/-. IN SIX CASES, THERE WAS NO REPLY TO THE SUMMONS ISSUED BY THE ASSESSING OFFICER AND IN 5 CASES, ALLEGED ITA NO. 848/AHD/2015 ACIT VS. SHRI GOKALDAS POPATBHAI PATEL A.Y. 2011-12 PAGE 2 OF 5 CREDITORS DENIED HAVING DONE ANY BUSINESS OF THE AS SESSEE. ON THESE FACTS, THE ASSESSING OFFICER MADE AN ADDITION OF RS.43,00,081/ - AS CEASED LIABILITY. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A) WHO REVERSED THE ACTION OF THE ASSESSING OFFICER AND DELETED THE SAID ADDITION. H IS LINE OF REASONING IN COMING TO THIS CONCLUSION, AS SET OUT IN OPERATIVE PORTION OF HIS ORDER, IS AS FOLLOWS:- 3.6. BEFORE DECIDING THE ISSUE, IT WOULD BE OF IMPORTANCE TO GO THROUGH THE DECISIONS/JUDGMENTS OF VARIOUS AUTHORITIES AS U NDER:- IT HAS BEEN HELD BY THE HON'BLE GUJARAT HIGH COURT IN TAX APPEAL NO, 770 OF 2013 IN THE CASE OF CIT VS. HARDIK FABRICS THAT THE DECISION OF THE TRIBUNAL ON THE FACTS OVER THE ISSUE WAS CORRECT AND THE REVENU E'S APPEAL WAS DISMISSED. THE TRIBUNAL IN THE AFORESAID CASE HAS OBSERVED THA T THE REVENUE HAD NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT THE SUNDRY CREDITORS HAD FORGONE THEIR DEBTS IN FAVOUR OF THE ASSESSEE. FURTHER, THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. BHOGILAL RAMJIBHAI ATARA 222 TAXMAN 313 HAS HELD THAT UNCLAI MED LIABILITIES OF EARLIER YEARS WHICH ARE SHOWN AS PAYABLE IN THE ACCOUNTS AR E NOT TAXABLE AS INCOME EVEN IF CREDITORS ARE UNTRACEABLE AND LIABILITIES A RE NON-GENUINE. IN VIEW OF THE AFORESAID RECENT JUDGMENT OF THE HON'BLE GUJARAT HI GH COURT, NO ADDITION U/S.41(L) CAN BE MADE OVER THE FACTS OF THE CASE AS THE LIABI LITIES HAD NOT BEEN WRITTEN BACK IN THE ACCOUNTS BY THE APPELLANT. THE RELEVANT PORTION OF THE FINDING OF THE HON'BLE GUJARAT IS AS UNDER:- 'S.41(1) WOULD APPLY IN A CASE WHERE THERE HAS BEEN REMISSION OR CESSATION OF LIABILITY DURING THE YEAR UNDER CONSID ERATION. IN THE PRESENT CASE, THERE WAS NOTHING ON RECORD TO SUGGEST THERE WAS REMISSION OR CESSATION OF LIABILITY IN THE AY 2007-08. IT IS UND OUBTEDLY A CURIOUS CASE. EVEN THE LIABILITY ITSELF SEEMS UNDER SERIOUS DOUBT . THE AO UNDERTOOK THE EXERCISE TO VERIFY THE RECORDS OF THE SO-CALLED CRE DITORS. MANY OF THEM WERE NOT FOUND AT ALL IN ME GIVEN ADDRESS. SOME OF THEM STATED THAT THEY HAD NO DEALING WITH THE ASSESSEE. IN ONE OR TWO C ASES, THE RESPONSE WAS THAT THEY HAD NO DEALING WITH THE ASSESSEE NOR DID THEY KNOW HIM. OF COURSE, THESE INQUIRIES WERE MADE EX PANE AND IN TH AT VIEW OF THE MATTER, THE ASSESSEE WOULD BE ALLOWED TO CONTEST SUCH FINDI NGS. NEVERTHELESS, EVEN IF SUCH FACTS WERE ESTABLISHED T HROUGH BI-PARTE INQUIRIES, THE LIABILITY AS IT STANDS PERHAPS HOLDS THAT THERE WAS NO CESSATION OR REMISSION OF LIABILITY AND THAT THEREF ORE, THE AMOUNT IN QUESTION CANNOT BE ADDED BACK AS A DEEMED INCOME U/ S 41(1) OF THE ACT. 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 TE RMS OF S.41(1) OF THE ACT THERE IS NO CURE FOR IT. FURTHER IN THE CASE OF CIT VS. MIRAA PROCESSORS (P) LTD. (2012) 208 TAXMAN 93 (GUJ.) IN WHICH DIVISION BENCH OF THIS CO URT OBSERVED AS UNDER :- ITA NO. 848/AHD/2015 ACIT VS. SHRI GOKALDAS POPATBHAI PATEL A.Y. 2011-12 PAGE 3 OF 5 '14. AS POINTED OUT IN THE CASE OF SUGAULI SUGAR WORKS (P) LTD (SUPRA), VIDE THE LAST FIVE LINES OF THE PARAGRAPH-6 OF THE JUDGEMENT, THE QUESTION WHETHER THE LIABILITY IS ACTUALLY BARRED BY LIMITAT ION IS NOT A MATTER WHICH CAN HE DECIDED BY CONSIDERING THE ASSESSEE'S CASE A TONE BUT HAS TO BE DECIDED ONLY IF THE CREDITOR IS BEFORE THE CONCERNE D AUTHORITY. IN THE ABSENCE OF THE CREDITOR, IT IS NOT POSSIBLE FOR THE AUTHORITY TO COME TO A CONCLUSION THAT THE DEBT IS BARRED AND HAS BECOME U NFORCEABLE. THERE MAY BE CIRCUMSTANCES WHICH MAY ENABLE THE CREDITOR TO COME PROCEEDING FUR ENFORCEMENT OF THE DEBT EVEN AFTER EXPIRY OF TH E NORMAL PERIOD OF LIMITATION AS PROVIDED IN THE LIMITATION ACT.' FURTHER IN THE CASE OF CIT VS.NITIN S. GARG, (2012) 208 TAXMAN 16 (GUJ.), IT WAS OBSERVED AS UNDER- '75. IN THE CASE BEFORE US, IT IS NOT BEEN ESTABLIS HED THAT THE ASSESSEE HAS WRITTEN OFF THE OUTSTANDING LIABILITIES IN THE BOOK S OF ACCOUNT. THE APPELLATE TRIBUNAL IS JUSTIFIED IN TAKING THE VIEW THAT AS AS SESSEE HAD CONTINUED TO SHOW THE ADMITTED AMOUNTS AS LIABILITIES IN ITS BAL ANCE SHEET THE SAME CANNOT BE TREATED AS ASSESSMENT OF LIABILITIES. MER ELY BECAUSE THE LIABILITIES ARE OUTSTANDING FOR LAST MANY YEARS, IT CANNOT BE INFERRED THAT THE SAID LIABILITIES HAVE SEIZED TO EXIST. THE APPELLAT E TRIBUNAL HAS RIGHTLY OBSERVED THAT THE ASSESSING OFFICER SHALL HAVE TO P ROVE THAT THE ASSESSEE HAS OBTAINED THE BENEFITS IN RESPECT OF SUCH TRADIN G LIABILITIES BY WAY OF REMISSION OR CESSATION THEREOF WHICH IS NOT THE CAS E BEFORE US. MERELY BECAUSE THE ASSESSEE OBTAINED BENEFIT OF REDUCTION IN THE EARLIER YEARS AND BALANCE IS CARRIED FORWARD IN THE SUBSEQUENT YE AR, IT WOULD NOT PROVE THAT THE TRADING LIABILITIES OF THE ASSESSEE HAVE B ECOME NON EXISTENT. ' FURTHER IN THE CASE OF CIT VS. G.K. PATEL & CO. (20 13) 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 OF HIS LI ABILITY, THE SAME WOULD NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE, IN VIEW OF THE INSERTION OF EXPLANATION 1. HOWEVER, AT THE COST OF REPETITIO N 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 DECISION 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 T HE DEBTOR DECLARING UNEQUIVOCALLY HIS INTENTION NOT TO HONOUR HIS LIABI LITY WHEN PAYMENT IS DEMANDED BY THE CREDITOR, OR A CONTRACT BETWEEN THE PARTIES, OR BY DISCHARGE OF THE DEBT - THE DEBTOR MAKING PAYMENT T HEREOF TO HIS CREDITOR. IN THE PRESENT EASE, ADMITTEDLY THERE IS NO DECLARA TION BY THE ASSESSEE THAT IT DOES NOT INTEND TO HONOUR ITS LIABILITIES N OR IS THERE ANY DISCHARGE OF THE DEBT. IN THE AFORESAID PREMISES, AS NO EVENT HA D TAKEN PLACE IN THE YEAR UNDER CONSIDERATION TO INDICATE REMISSION OR C ESSATION OF THE LIABILITIES IN QUESTION, THE PROVISIONS OF SECTION 41(1) OF THE ACT COULD NOT HAVE BEEN ITA NO. 848/AHD/2015 ACIT VS. SHRI GOKALDAS POPATBHAI PATEL A.Y. 2011-12 PAGE 4 OF 5 INVOKED THE REASONING ADOPTED BY THE TRIBUNAL WHILE HOLDING THAT SECTION 41(1) WOULD NOT BE APPLICABLE TO THE FACTS OF THE P RESENT CASE IS IN THE LINE WITH THE PRINCIPLES ENUNCIATED IN THE ABOVE DECISIO N. THE TRIBUNAL, THEREFORE, COMMITTED NO LEGAL ERROR SO AS TO GIVE R ISE TO ANY QUESTION OF LAW WARRANTING INTERFERENCE BY THIS COURT.' FURTHER IN THE CASE OF CIT VS. WILLARD INDIA LTD (2 008) 302 ITR 221 (ALL) BUSINESS INCOME - PROFITS CHARGEABLE TO TAX UNDER S . 41(1) - TIME-BARRED DEBTS TAKEN TO P & L A/C - UNILATERAL ACT OF ASSESS EE DEBTOR IN WRITING BACK TIME-BARRED DEBTS DOES NOT AMOUNT TO CESSATION OF L IABILITY, HENCE NOT CHARGEABLE UNDER S. 41(1) - CIT VS. SUGAULI SUGAR W ORKS (P) LTD. (1999) 2 SCC 355 RELIED ON. FURTHER IN THE CASE OF AMBICA MILLS LTD. VS. CIT (1 964) 54 ITR 167 (GUJ.) BUSINESS INCOME- PROFITS CHARGEABLE TO TAX UNDER S. 10(2A) - UNPAID AND UNCLAIMED WAGES DUE TO AND PAYABLE BY THE COMPANY T O ITS WORKERS - AMOUNT ACKNOWLEDGED AS LIABILITY IN THE BALANCE SHE ET EVERY YEAR - DOES NOT BECAME TIME BARRED - CANNOT BE ADDED TO INCOME AS PROFITS CHARGEABLE TO TAX. 3.7. IN VIEW OF THE ABOVE DISCUSSION IT IS APPAR ENT THAT THE CESSATION OF THE LIABILITIES CANNOT BE HELD IN THE YEAR UNDER CONSID ERATION MORE PARTICULARLY WHEN THE CREDITORS HAVE NOT WAIVED THEIR RIGHT TO REALIZ E THE DUES FROM THE APPELLANT. ON THE CONTRARY THROUGH THE CONFIRMATION LETTERS SU BMITTED TO THE AO, THE LIABILITY OF THE APPELLANT TO THEM STANDS. MOREOVER THERE IS NOTHING ON RECORD TO SAY THAT THE APPELLANT HAS DERIVED ANY BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF MERELY ON INQUIRIES THROUGH LETTERS THE LIABILITIES FOUND UNVERIFIABLE WOULD NOT BE ENOUGH FOR INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT EVEN THOUGH THOSE MIGHT BE THE BOG US LIABILITIES FOR WHICH THE NECESSARY ACTION BY WAY OF DISALLOWANCE OF THE EXPE NDITURES CLAIMED IN THE RELEVANT PREVIOUS YEARS HAS TO BE MADE IN THE RELEV ANT YEARS AND NO ADVERSE VIEW CAN BE TAKEN FOR THE SAME IN THE YEAR UNDER CO NSIDERATION. SINCE IN THE YEAR UNDER CONSIDERATION NO CLAIM OF EXPENDITURES HAVE B EEN MADE BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS, ITS INCOME HAS NOT BEEN A DVERSELY AFFECTED FROM THE SAME. THUS ON THIS GROUND ALSO, NO DISALLOWANCE IS CALLED FOR. THEREFORE, ON THE FACTS AND SUBMISSION OF THE APPELLANT AND ALSO FOLL OWING THE JUDGMENTS OF JURISDICTIONAL HIGH COURTS AND OTHER AUTHORITIES, T HE ADDITION MADE U/S.41(1) OF THE I.T. ACT BY THE A.O IS DELETED AND THE GROUND OF TH E APPELLANT IS ALLOWED. 4. THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE CIT(A) AND IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. ITA NO. 848/AHD/2015 ACIT VS. SHRI GOKALDAS POPATBHAI PATEL A.Y. 2011-12 PAGE 5 OF 5 6. WE FIND THAT OUT OF ELEVEN CREDITORS, IN RESPECT OF WHICH IMPUGNED ADDITION IS MADE, THE ASSESSEE HAS WRITTEN BACK THREE CREDITORS NAMELY (I) ORIENT LOGISTIC CO. (RS.1,95,000); (II) MAHA GUJARAT IRON & STEEL (RS.1 ,13,091) AND (III) PATEL FIELD MARSHAL AGENCY (RS.1,18,494). THESE AMOUNTS HAVE BEEN WRIT TEN BACK IN A SUBSEQUENT YEAR AND THE ASSESSING OFFICER HAS DULY ACCEPTED THE WRI TE BACK AS INCOME OF THE RELEVANT YEAR. THERE IS NO POINT IN EXPLORING FURTHER THE I SSUE RELATING TO THESE WRITE BACKS AS THE ONLY DISPUTE, IF AT ALL, PERTAINS TO THE YEAR OF TA XATION, AND REVENUE HAS ALSO NOT CHALLENGED IT MUCH. AS REGARDS THE REMAINING EIGHT CREDITORS, WE HAVE PERUSED THE MATERIAL BROUGHT ON RECORD IN THE PAPER BOOK. THER E ARE CONFIRMATION LETTERS, STATEMENTS OF ACCOUNT AND REASONABLE EVIDENCE OF EX ISTING TRADE DISPUTES. IN VIEW OF THESE DISCUSSIONS, EVEN THE CESSATION OF LIABILITY IS NOT ESTABLISHED, MUCH LESS THE APPLICATION OF SECTION 41(1). OUR REASONING MAY BE DIFFERENT BUT WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 7. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRON OUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF DECEMBER, 2017. SD/- SD/- MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE DAY OF DECEMBER, 2017 **BT* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF TAKING DICTATION: .. .3 PAGE MANUSCRIPTS OF HONBLE AM ARE ATTACHED ...11.12.2017.. 2. DATE OF TYPING & DRAFT ORDER PLACED BEFORE THE DI CTATING MEMBER: ... 11.12.2017.................... ..... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S.: ....13.12.2017.... 4. DT. ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT: ... . 13.12.20 17 . 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: . .... 13.12.2017.................. 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: ..... 7. THE DT. ON WHICH THE FILE GOES TO THE ASTT. REGISTR AR FOR SIGNATURE ON THE ORDER: .................. ....... 8. DATE OF DESPATCH OF THE ORDER: ................. ........