Smt. Victoria Roberts, Mysore V. ACIT, Mysore

ITA 88/BANG/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63639 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 23-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Assessee Lawyers: V CHANDRASEKHAR

Judgement Text

IN THE INCOME TAX APPELLATE TRI BNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.88(BNG.)/2012 (ASSESSMENT YEAR : 2008-09) SMT VICTORIA ROBERTS, THE ASST. C OMMISSIONER OF INCOME- TAX, PROP: M/S VICTRON ENTERPRISES, CIRCLE-1(1), V.V.MOHALLA, MYSORE . MYSORE PAN NO. ABBPR5857L VS APPELLANT RESPONDENT ASSESSEE BY : SHRI V. CHANDRASEKHAR, ADVOCATE REVENUE BY : SMT. SUSAN THOMAS JOSE, JCIT DATE OF HEARING : 0 5-09-2012 DATE OF PRONOUNCEMENT : 14- 09-2012 O R D E R PER SHRI N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 23-11- 2011OF CIT(A), MYSORE, RELATING TO AY: 2008-09. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN M AKING THE ADDITION OF RS.25,51,792.86 TO THE TOTAL INCOME OF THE ASSESSEE BY ITA NO.88(B)/2012 2 INVOKING PROVISIONS OF SEC. 41(1) (A) OF THE IT ACT , 1961 (HEREIN AFTER REFERRED TO AS THE ACT). THE MATERIAL FACTS OF T HE CASE ARE AS FOLLOWS; 3. THE ASSESSEE IS AN INDIVIDUAL. SHE IS ENGAGED I N THE BUSINESS OF TRADING IN COPPER ANODES, PCB DRIVES AND OTHER ITEM S, BESIDES DERIVING INCOME AS COMMISSION AGENT. FOR THE ASSES SMENT YEAR 2008-09, THE ASSESSEE FILED RETURN OF INCOME DECLAR ING A TOTAL INCOME OF RS.25,51,750/-. THE AO FOUND FROM THE B ALANCE SHEET OF THE ASSESSEE THAT ON 31-03-2008, A SUM OF RS.55,21, 457.86 WAS REFLECTED IN THE NAME OF M/S INTERNATIONAL METAL AN D CHEMICALS, USA (M/S IMC), AS SUNDRY CREDITORS. AS ON 31-03-20 07 THE AMOUNT PAYABLE TO THE AFORESAID PARTIES WAS RS.25,30,792.8 6. THE AO CALLED UPON THE ASSESSEE TO GIVE A CONFIRMATION FRO M THE CREDITOR. THE ASSESSEE SUBMITTED THAT IN RESPECT OF THE OPENI NG BALANCE AS ON 31-03-2007 OF RS.25,30,792.86, THE SAME WAS WITH HELD BY M/S IMC BECAUSE OF SOME DISPUTE BETWEEN M/S IMC AND M/S SYNERGY DOORAY AUTOMATIVE LTD (HEREINAFTER REFERRED TO AS M /S SYNERGY, VISAKAPATNAM). THE ASSESSEE ALSO SUBMITTED THAT T HE DISPUTES WERE WITH REGARD TO TRANSACTION BETWEEN M/S IMC AND M/S SYNERGY, VISAKAPATNAM IN RESPECT OF WHICH THE ASSES SEE HAD ACTED AS COMMISSION AGENT FOR WHICH THE ASSESSEE WAS TO R ECEIVE COMMISSION FROM IMC. ITA NO.88(B)/2012 3 4. THE AO HOWEVER MADE AN ADDITION OF RS.25,30,792 .86 TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVIS IONS OF SEC.41(1)(A) OF THE ACT OBSERVING AS FOLLOWS; SINCE THE ASSESSEE HAS ACTED AS COMMISSION AGENT F OR THE TRANSACTION, THE SUPPLIER I.E M/S IMC, USA HAS NOT PAID; THE COMMISSION TO THE ASSESSEE. THEREFORE, TH E ASSESSEE HAS APPROPRIATED THE CREDIT OF RS.25,30,79 2.86 TOWARDS THE COMMISSION RECEIVABLE. THUS, THE CREDI T OF RS.25,30,792.86 CEASED TO EXIST AS ON 31-03-2008. THEREFORE, THE SAID SUM OF RS.25,30,792.86 IS ADDED UNDER THE PROVISIONS OF SEC.41(1)(A) OF THE ACT. 5. AGAINST THE ORDER OF THE AO, THE ASSESSEE PREFE RRED APPEAL BEFORE CIT(A). BEFORE THE CIT(A), THE ASSESSEE SUBMITTED SHE WAS INVOLVED IN THE BUSINESS OF TRADING IN COPPER ANODES, PCB DR IVES AND OTHER ITEMS AND IMC WAS ONE OF HER MAIN SUPPLIER. THE A SSESSEE FOR THE PURPOSE OF ITS TRADING BUSINESS USED TO IMPORT CERT AIN GOODS FROM IMC ON CREDIT BASIS. THE ASSESSEE HAD A RUNNING A CCOUNT WITH M/S IMC AND THE ASSESSEE USED TO MAKE PAYMENTS TO M /S IMC PROMPTLY. THE ASSESSEE AS ON 31-03-2007 HAD SHOWN A SUM OF RS.25,30,762.86 AS PAYABLE TO IMC FOR THE GOODS IMP ORTED FROM THEM. THE SAID OUTSTANDING LIABILITY WAS ALSO SHOW N IN THE BALANCE SHEET ANNEXED TO THE ASSESSMENT YEAR 2007-08. 6. THE ASSESSEE FURTHER SUBMITTED THAT M/S IMC WANT ED TO DIVERSIFY ITS BUSINESS IN INDIA AND WERE LOOKING FOR CERTAIN OTHER INDIAN CUSTOMERS TO MARKET THEIR PRODUCT. M/S IMC APPROAC HED THE ASSESSEE TO LOOK FOR AN INDIAN CUSTOMER FOR ITS PRO DUCTS AND THE APPELLANT IDENTIFIED M/S SYNERGY, VISHAKAPATNAM. M /S IMC ITA NO.88(B)/2012 4 STARTED SUPPLYING ITS GOODS TO M/S SYNERGY, VISHAKA PATNAM AND M/S IMC WAS CARRYING ON ITS BUSINESS WITH M/S SYNER GY, VISHAKAPATNAM. THE ASESSEE WAS TO RECEIVE COMMISSIO N FOR IDENTIFYING THE INDIAN CUSTOMER ON FULFILLMENT OF T HE TERMS AND CONDITIONS. THE QUANTUM OF THE COMMISSION WAS NOT FINALIZED. 7. THE ASSESSEE POINTED OUT THAT THE AO ERRONEOUSL Y CONCLUDED THAT THE ASSESSEE WITHHELD THE AMOUNT OF RS.25,30,7 92.86 DUE TO M/S IMC BECAUSE CERTAIN DISPUTE AROSE BETWEEN M/S I MC, USA AND M/S SYNERGY, VISAKAPATNAM, AND THUS, THE SUPPLIER M /S IMC DID NOT PAY THE COMMISSION TO THE ASSESSEE AND HENCE TH E ASSESSEE HAS APPROPRIATED THE CREDIT OF RS.25,30,792.86 TOWARDS THE COMMISSION RECEIVABLE AND BROUGHT TO TAX THE ENTIRE SUM OF RS. 25,30,792.86 AS INCOME BY INVOKING THE PROVISIONS OF SEC.41(1)(A) O F THE ACT. 8. THE ASSESSEE ALSO SUBMITTED THAT IT WAS A FACT THAT THERE AROSE A DIFFERENCE BETWEEN M/S IMC AND THE ASSESSEE AS REGA RDS THE PAYMENTS DUE TO M/S IMC BY M/S SYNERGY,VISAKAPATNAM FOR WHICH M/S IMC HELD THE ASSESSEE RESPONSIBLE FOR NON-PAYME NT FOR THE GOODS SUPPLIED TO M/S SYNERGY, VISHAKAPATNAM. THE ASSESSEE SUBMITTED THAT THIS FACT HAS NOTHING TO DO WITH THE PAYMENT OF OUTSTANDING BY THE ASSESSEE TO M/S IMC. 9. THE ASSESSEE REITERATED THAT THERE WAS NO REMIS SION OR CESSATION OF LIABILITY PAYABLE TO M/S IMC MUCH LESS THE SUM O F RS.245,30,792.86. THE ASSESSEE POINTED OUT THAT SH E MAINTAINED BUSINESS RELATIONSHIP WITH M/S IMC AND THERE WAS CO NTINUITY OF ITA NO.88(B)/2012 5 BUSINESS WITH M/S.IMC AND THAT THE BUSINESS TRANSAC TIONS BETWEEN THE ASSESSEE ARE STILL IN OPERATION AND THE SAID OUTSTANDING CONTINUES TO BE SHOWN IN THE BOOKS OF ACCOUNT OF TH E APPELLANT AS LIABILITY, AND IS RUNNING ACCOUNT. THE ASSESSEE SU BMITTED THAT AS ON 31-03-2008, THE ASSESSEE HAS SHOWN A SUM OF RS.5 5,21,457/- AS PAYABLE TO M/S IMC IN ITS BOOKS OF ACCOUNT. O N THE ABOVE FACTS THE ASSESSEE SUBMITTED THAT THE ADDITION OF A SUM O F RS.25,30,792.86 MADE BY THE AO BY INVOKING THE PROV ISIONS OF SEC.41(1)(A) OF THE ACT CANNOT BE SUSTAINED. 10. THE CIT(A) FIRSTLY, HELD THAT THE ASSESSEE DID NOT FILE ANY CONFIRMATION OF OUTSTANDING DUES TO M/S IMC. THE C IT(A) THEREAFTER FOUND THAT AS ON 01-04-2007, THERE WAS A OPENING BA LANCE OF RS.25,30,792.86 AND THIS CONTINUED EVEN IN FY: 2008 -09 AND 2009. THE CIT(A) WAS THEREFORE, OF THE VIEW THAT THE ASSE SSEE WAS WITH HOLDING THE AFORESAID SUM BECAUSE, IT HAD TO RECEIV E COMMISSION FROM M/S IMC IN RESPECT OF THE TRANSACTION BETWEEN M/S IMC AND M/S SYNERGY, VISAKAPATNAM. THE CIT(A) ALSO NOTICED THAT THE ASSESSEE HAD ALSO FILED A WINDING UP PETITION AGAIN ST M/S SYNERGY, VISHAKAPATNAM, ON BEHALF OF M/S IMC. THEREFORE, THE CIT(A) WAS OF THE VIEW THAT A SUM OF RS.25,30,792.86 WAS RETAINE D BY THE ASSESSEE AS COMMISSION FOR SERVICES RENDERED IN CON NECTION WITH THE TRANSACTION BETWEEN M/S IMC AND M/S SYNERGY, VISAKAPATNAM. IN THIS REGARD, THE CIT(A) ALSO DREW AN ADVERSE INFERENCE, BECAUSE FOR THE ASSESSEEES FAILURE TO F ILE A CONFIRMATION FROM M/S IMC. THE CIT(A) ACCORDINGLY, CONFIRMED THE ORDER OF THE ITA NO.88(B)/2012 6 AO GIVING RISE TO THE PRESENT APPEAL BY THE ASSESSE E BEFORE THE TRIBUNAL. 11. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATE D THE STAND OF THE ASSESSEE AS PUT FORTH BEFORE THE LOWER AUTHORITIES. THE LEARNED DR REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE ORDER OF THE CIT(A). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. SEC .41(1) OF THE ACT, PROVIDES THAT WHERE AS ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILIT Y AND SUBSEQUENTLY, THE ASSESSEE OBTAINS WHETHER IN CASH OR IN ANY OTHE R MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOS OR EX PENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY B Y WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT SO OBTAINED BY SUC H PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHA RGEABLE TO INCOME TAX AS THE INCOME OF THE PREVIOUS YEAR, WHET HER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLO WANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEA R OR NOT OF SUCH LIABILITY IN RESPECT OF SUCH LOSS, EXPENDITURE OR T RADING LIABILITY, IT IS CHARGEABLE TO TAX. SEC.41(1) ACTUALLY CONTAINS TW O LIMBS AND CATERS TO TWO DIFFERENT SITUATION; A) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF ANY LOSS EXPENDITURE INCURRED BY THE ASSESSEE IN AN EARLIER ITA NO.88(B)/2012 7 YEAR, AND SUBSEQUENTLY, THE ASSESSEE RECEIVES ANY A MOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE IN A LATER YEAR . B) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF ANY TRADING LIABILITY INCURRED BY THE ASSESSEE I N AN EARLIER YEAR, AND IN LATER YEAR, AND IN A LATER YEAR, THE A SSESSEE RECEIVES ANY BENEFIT IN RESPECT OF SUCH TRADING LIA BILITY BY WAY OF REMISSION OR CESSATION THEREOF. SEC.41(1) IS A DEEMING FICTION AND SEEKS TO TAX REC EIPT OR BENEFIT WHICH MAY NOT STRICTLY BE INCOME, THE BURDEN TO P ROVE THAT A PARTICULAR BENEFIT OR RECEIPT FALLS WITHIN THE FOUR CORNERS OF THE PROVISIONS OF SEC.41(1) LIES UPON THE REVENUE. IN OTHER WORDS, IT SHALL BE INCUMBENT UPON THE ASSESSING OFFICER TO PR OVE WITH THE HELP OF MATERIAL OR EVIDENCE THAT A DEDUCTION OR AL LOWANCE HAS BEEN ALLOWED TO THE ASSESSEE IN EARLIER YEARS AND AFTER SUCH DEDUCTION OR ALLOWANCE HAVING BEEN ALLOWED, THE ASSESSEE HAS OBT AINED ANY AMOUNT OR BENEFIT IN RESPECT OF THE SAME FOR WHICH DEDUCTION OR ALLOWANCE HAS BEEN ALLOWED. THE ASSESSING OFFICER S HALL HAVE FURTHER TO PROVE THAT SUCH BENEFIT HAS BEEN OBTAINE D BY THE ASSESSEE IN A PARTICULAR PREVIOUS YEAR. IF ANY OF THE INGREDIENTS OF SEC.41(1) IS MISSING, HE REVENUE WILL FAIL TO ROPE THE VALUE OF THE BENEFIT IN THE TAX NET IN A PARTICULAR YEAR. THESE INGREDIENTS HAVE NECESSARILY TO BE PROVED AND CANNOT BE PRESUMED. 13. IN OUR VIEW, THE CONCLUSION DRAWN BY THE CIT(A ) ARE PURELY ON SURMISES. THERE IS NO EVIDENCE ON RECORD, TO SHOW THAT A SUM OF ITA NO.88(B)/2012 8 RS.25,30,792.86 WHICH WAS ADMITTEDLY, LIABILITY PAY ABLE BY THE ASSESSEE TO M/S IMC WAS ADJUSTED TOWARDS THE COMMIS SION PAYABLE TO THE ASSESSEE BY M/S IMC. THE FACT THAT NO CONFI RMATION WAS FILED FROM M/S IMC CANNOT LEAD TO THE CONCLUSION TH AT THERE WAS A CESSATION OR REMISSION OF LIABILITY OF THE ASSESSEE TO M/S IMC WARRANTING INVOCATION OF PROVISIONS OF SEC.41(1) OF THE IT ACT, 1961. THE RELIANCE PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. SHRI VARDHMAN OVERSEAS LTD. 343 ITR 408 (DEL) SUPPORTS T HE PLEA OF THE ASSESSEE. IN THAT CASE THE ASSESSEE WROTE OF THE L IABILITY BY CREDITING THE AMOUNTS OUTSTANDING IN THE PROFIT AND LOSS ACCOUNT BUT SHOWED THEM AS LIABILITY IN THE BALANCE SHEET. THE HONBLE DELHI HIGH COURT HELD THAT THE FACT THAT THE LIABIL ITY IS REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE WAS AN ACKNOWLEDG EMENT OF LIABILITY WHICH CAN BE RELIED UPON BY THE CREDIT FO R SAVING LIMITATION OF TIME FOR ACTION BY LEGAL PROCEEDINGS U/S.18 OF T HE LIMITATION ACT, 1963. IN THE PRESENT CASE THERE IS NOT EVEN SUCH A WRITE OFF IN THE PROFIT AND LOSS ACCOUNT. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ACTION OF THE REVENUE AUTHORITIES IN BRINI NG TO TAX THE DISPUTED AMOUNT BY INVOKING PROVISIONS OF SEC.41(1) OF THE ACT CANNOT BE SUSTAINED. EVEN ASSUMING THAT THE COMMIS SIONER HAS SUSTAINED THE ADDITION ON THE BASIS THAT A SUM OF R S.25,30,792.86 IS COMMISSION INCOME OF THE ASSESSEE, THE SAME IS W ITHOUT ANY EVIDENCE AND IS PURELY ON SURMISES. WE THEREFORE, HOLD THAT THE ADDITION MADE BY THE AO AND SUSTAINED BY THE CIT(A) DESERVES TO BE DELETED. WE ACCORDINGLY, DIRECT THAT THE ADDITION B E DELETED. ITA NO.88(B)/2012 9 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 14 TH DAY OF SEPT.2012. SD/- SD/- (JASON P BOAZ) (N.V.VASUD EVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE: D A T E D : 14-09-2012 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A), MYSORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE (1+1) SR. PRIVATE SECRETARY ITAT, BANGALORE