Mr.K. Simon Paul, Ernakulam V. The ITO, Cochin

ITA 97/COCH/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8514 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 08-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 24-02-2016
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Assessee Lawyers: A S NARAYANAMURTHY

Judgement Text

ITA NO.97/COCH/2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI B P JAIN, AM & GEORGE GEORGE.K, JM ITA NO.97/COCH/2016 (ASST YEAR :2011-12 ) SHRI K. SIMON PAUL, PROP. LOOKLITE, FLOWER JUNCTION, JEW STREET,ERNAKULAM. THE INCOME TAX OFFICER, WARD- 2(3), KOCHI. ( ASSESSEE APPELLANT) VS (REVENUE -RESPONDENT) PAN NO. AIOPP 4081C ASSESSEE BY SHRI A.S. NARAYANAMURTHY, CA REVENUE BY SHRI A. DHANARAJ, SR. DR DATE OF HEARING 08/06/2016 DATE OF PRONOUNCEMENT 09/06/2016 ORDER PER B.P. JAIN, AM: THIS APPEAL OF THE ASSESSEE ARISES FROM THE O RDER OF THE LD. CIT(A)-II DATED 03/12/2015 FOR THE ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER THE LEARNED CIT(APPEALS) IS AGAINST FA CTS AND LAW. 2. THE COMMISSIONER OF INCOME TAX(APPEALS) IS NOT C ORRECT IN HIS CONCLUSION THAT THERE WAS CESSATION OF LIABILITY IN RESPECT OF SUNDRY CREDITORS AMOUNTING TO RS.32,85,648, WHO DID NOT RESPOND TO THE NOTICE FROM THE DEPARTMENT FOR CONFIRMATION. THE BALANCE DUE WERE REFLECTED AS LI ABILITIES IN THE BALANCE SHEET. THE COMMISSIONER OF INCOME TAX (APPEALS) HA S NOT GIVEN ANY REASONING FOR CONFIRMING THE ADDITION. THE ASSESSI NG AUTHORITY MADE THE ITA NO.97/COCH/2016 2 ADDITION MERELY ON THE FACT THAT THE CREDITORS HAD NOT RESPONDED TO THE NOTICE OF THE DEPARTMENT. THE PARTIES WHOSE LETTERS WERE RETURNED WERE NOT FURNISHED TO THE APPELLANT AND THUS THE ADDITION WA S MADE BEHIND THE APPELLANTS BACK. NON AVAILABILITY OF CREDITORS AN D LACK OF ANY CORRESPONDENCE WITH THEM DOES NOT OBLITERATE THE DE BT AS THE APPELLANT CONTINUES TO SHOW THE SAME IN ITS BOOKS OF ACCOUNT AS LIABILITIES AND THE PROVISIONS OF SECTION 41(1) IS NOT APPLICABLE. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FRO M THE ORDER OF THE LD. CIT(A) ARE REPRODUCED HEREINBELOW: 3.1 IT HAS BEEN OBSERVED BY THE ASSESSING OFFICER BY LISTING 22 CREDITORS, FROM WHOM CONFIRMATION OF CREDIT WERE NOT RECEIVED. AS I T IS MENTIONED BY THE ASSESSING OFFICER THAT OUT OF THE SUNDRY CREDITS OF RS.1,65,91,767/--, APPEARING IN THE BALANCE SHEET TOWARDS PURCHASES, THE CONFIRMATI ONS WERE RECEIVED ONLY IN RESPECT OF THE SUNDRY CREDITS AMOUNTING TO RS.1,11, 29,138/-. THE ASSESSING OFFICER HAS LISTED UNCONFIRMED CREDITS TO THE EXTEN T OF RS.50,99,388/- AND HAS OBSERVED THAT:- 4. THE ASSESSEE WAS REQUESTED SEVERAL TIMES TO FUR NISH CONFIRMATION IN RESPECT OF ALL THE SUNDRY CREDITORS. ALL THE ABOVE SUNDRY CREDITORS ARE BELONGING TO DELHI, MUMBAI AND CHENNAI. HOWEVER TH E ASSESSEE COULD NOT FURNISH ANY CONFIRMATION. SOME OF THE LETTERS ISSUED TO THE SUNDRY CREDITORS FROM THE OFFICE WERE RETURNED WITH THE RE MARK NO SUCH ADDRESS. IN CASE OF SOME OF THE SUNDRY CREDITORS, NO RESPON SE HAVE BEEN RECEIVED. THE ASSESSEES REPRESENTATIVE STATED THAT THE ITEMS PURCHASED FROM THE ABOVE PARTIES WERE DAMAGED ITEMS AND THE PAYMENTS W ERE NOT MADE AND THE CREDITORS WERE NOT WILLING TO RETURN BACK T HE DAMAGED ITEMS. IF THESE WERE DAMAGED ITEMS, IT SHOULD HAVE BEEN REFLE CTED IN THE BOOKS AS DAMAGED ITEMS AND SHOULD BE REDUCED FROM THE STOCK. HOWEVER, NO SUCH ENTRIES REFLECTED IN THE BOOKS. THE ASSESSEE STATED THAT PAYMENTS TOWARDS THE LIABILITY WILL NEVER PAY OFF. THERE WAS NO EVID ENCE IN THE HANDS OF THE ASSESSEE TO PROVE THAT THE LIABILITY EXISTED OR THE SUBSEQUENT PAYMENT TO THE CREDITORS. HENCE IT IS CLEAR THAT THE ASSESSEE HAD WRITTEN OFF THE CREDITORS BY CESSATION. IN THIS SITUATION NO PAYME NT IS DUE TO THE ASSESSEE AND THE LIABILITY ALSO IS NOT EXISTING. AS PER SEC TION 41(1)(A) SUCH LIABILITY CEASED TO EXIST AND THE CLAIM TOWARDS SUNDRY CREDIT ORS AMOUNTING TO ITA NO.97/COCH/2016 3 RS.50,99,388/- IS DISALLOWED AND IS ADDED TO THE TO TAL INCOME OF THE ASSESSEE. 4. THE LD. CIT(A) DELETED THE ADDITION OF RS.18,13 ,740/- AND SUSTAINED THE ADDITION OF RS.32,85,648/- SINCE THE CREDITS OF RS. 12,88,740/- AND RS.5,25,000/- WERE PAID IN THE FOLLOWING YEARS. 5. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSES SEE THAT THE ASSESSEE HAS NOT OBTAINED ANY BENEFIT OUT OF THE TRADING LIABILITY A ND THEREFORE, THERE CANNOT BE ANY INCOME TO THE ASSESSEE UNDER SECTION 41(1) OF T HE ACT. HENCE, SECTION 41(1) OF THE ACT IS NOT APPLICABLE IN THE PRESENT C ASE. 6. THE LD. DR RELIED UPON THE ORDERS OF BOTH THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE FACTS OF THE CASE. IN THE PRESENT CASE, THE ASSESSEE HAS NOT FILED CONFIR MATIONS FROM THE CREDITORS TOTALING TO RS.50,99,388/- OUT OF WHICH A SUM OF RS .12,88,740/- HAS BEEN PAID DURING THE ASSESSMENT YEAR 2012-13 AND RS.5,25,000/ - HAS BEEN PAID DURING THE ASSESSMENT YEAR 2013-14 TOTALLING TO RS.18,13,740/- AND THE REMAINING CONFIRMATIONS TO BE FILED BY THE ASSESSEE WERE TO T HE TUNE OF RS.32,85,648/-. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THESE CREDITS ARE PAYABLE AND AS AND WHEN MONEY IS AVAILABLE TO THE ASSESSEE, THE SAME SHALL BE PAID TO THE SAID CREDITORS. ITA NO.97/COCH/2016 4 8. AS PER SECTION 41(1), WHERE AN ALLOWANCE OR D EDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXP ENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING AN Y PREVIOUS YEAR, THE ASSESSEE HAS OBTAINED WHETHER IN CASH OR IN ANY MAN NER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SO ME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THEN AND THEN ONLY THE AMOUNT SO OBTAINED BY SUCH PERSON TO THE EXTENT OF THE VALUE OF THE BENEFIT ACCRUED TO HIM, SHALL BE DEEMED TO BE PROFITS AND G AINS OF BUSINESS OR PROFESSION AND ACCORDINGLY, CHARGEABLE TO THE INCOM E TAX AS THE INCOME OF THE PREVIOUS YEAR. IN THE PRESENT CASE, THE ASSESSEE H AS DEBITED THE PURCHASES ACCOUNT TO THE SUNDRY CREDITORS. THE ASSESSEE HAS INCURRED THE EXPENDITURE AND THEREBY THE TRADING LIABILITY IN THE FORM OF SUNDRY CREDITORS. THE ESSENTIAL CONDITION AS PER SECTION 41(1)(A) IS THAT THERE SHO ULD BE REMISSION OR CESSATION THEREOF AND THE ASSESSEE SHOULD OBTAIN SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY. WHEREAS IN THE PRESENT CASE, THE ASSESS EE HAS NOT OBTAINED ANY SUCH BENEFIT IN RESPECT OF SUCH TRADING LIABILITY, I.E. THE SUNDRY CREDITORS BYWAY OF REMISSION OR CESSATION THEREOF. NOTHING HAS BEEN B ROUGHT ON RECORD BY THE AUTHORITIES BELOW TO PROVE THAT THE ASSESSEE HAS OB TAINED ANY BENEFIT OUT OF SUCH TRADING LIABILITY. ACCORDINGLY, THE PROVISIONS OF SECTION 41(1) IS NOT APPLICABLE IN THE PRESENT CASE. THEREFORE, SUSTEN ANCE OF RS.32,85,648 BY THE LD. CIT(A) IS NOT CORRECT AND ACCORDINGLY, THE ORDER O F THE LD. CIT(A) TO THAT EXTENT, ITA NO.97/COCH/2016 5 I.E., SUSTENANCE OF ADDITION IS DIRECTED TO BE REVE RSED. THUS THIS GROUND OF THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09-0 6-2016 SD/- SD/- (GEORGE GEORGE K.) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : COCHIN DATED: 9TH JUNE, 2016 GJ COPY TO: 1. SHRI K. SIMON PAUL, PROP. LOOKLITE, FLOWER JUNC TION, JEW STREET ,ERNAKULAM. 2. THE INCOME TAX OFFICER, WARD-2(3), KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. THE DR/ITAT, COCHIN BENCH. 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN ITA NO.97/COCH/2016 6