Shri Nitin S.Garg, Surat V. The ACIT.,Circle-4, Surat

ITSSA 170/AHD/2009

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 9251 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-05-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 04-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N L AGARWAL
• Keywords: Unexplained investment
• Section: 143(3); 68; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND N. S. SAINI, AM) ITA NO.169, 170, 171 AND 172/AHD/2009 A. Y.: 2001-02, 2002-03, 2003-04 AND 2006-07 SHRI NITIN S. GARG, 19, DWARKA NANDAN SOCIETY, ALKAPURI, BARODA PA NO. ABHPG 8630Q VS THE A. C. I. T., CIRCLE-4, SURAT (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. N. L. AGARWAL, AR RESPONDENT BY SHRI ANIL KUMAR, DR O R D E R PER BHAVNESH SAINI, JM: ALL THE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE LEARNED CI T(A)-II, AHMEDABAD DATED 01-10-2009 FOR THE ABOVE ASSESSMENT YEARS. 2. IN ITA NO.172/AHD/2009 FOR ASSESSMENT YEAR 2006- 07, THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS GROU ND NOS. 4, 5 AND 6, THESE GROUNDS ARE ACCORDINGLY DISMISSED BEING NOT P RESSED. 3. IN ALL THE APPEALS THE ASSESSEE CHALLENGED THE O RDERS OF THE LEARNED CIT(A) IN CONFIRMING THE ADDITIONS U/S 41(1)(A) O F THE IT ACT ON OLD AND OUTSTANDING LIABILITIES OF RS.38,17,601/-, RS.1,60, 090/-, RS.40,032/- AND RS.1,32,118/- RESPECTIVELY OBSERVING THAT THE S AID LIABILITY HAD CEASED TO EXIST IRRESPECTIVE OF THE FACT THAT THE A SSESSEE HAD NOT WRITTEN IT OFF IN ITS BOOKS OF ACCOUNT. IT IS FURTHER STATED I N THE GROUNDS OF APPEAL THAT THE LEARNED CIT(A) ERRED IN NOT CONSIDERING TH AT IN THE REGULAR ASSESSMENT FOR THE ASSESSMENT YEAR 2002-03 AND 2005 -06, NO ADDITION WAS MADE IN RESPECT OF THESE LIABILITIES. ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 2 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND T HE MATERIALS AVAILABLE ON RECORD. 5. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AO M ADE THE ABOVE ADDITIONS IN ALL THE ASSESSMENT YEARS RESPECTIVELY U/S 41(A) OF THE IT ACT AS CESSATION OF LIABILITIES. THE AO MADE THE ADDITI ONS ON THE BASIS THAT THE ASSESSEE HAD SHOWN THE LIABILITIES IN RESPECT O F THE EXPENDITURE INCURRED DURING THE YEARS BUT HE HAS NOT GIVEN THE DETAILS AND ADDRESSES OF THE PARTIES AND THUS ARE NOT VERIFIABLE, HENCE, THE LIABILITIES CLAIMED IN RESPECT OF THE EXPENDITURE INCURRED, HAS CEASED AND INCOME IS LIABLE TO TAX U/S 41 (1) OF THE IT ACT. THE ASSESSEE SUBMITTE D BEFORE THE LEARNED CIT(A) THAT THESE ARE VERY OLD CREDITORS AND HENCE DOES NOT HAVE PERMANENT ACCOUNT NUMBERS AND CONFIRMATIONS OF THES E PARTIES. FURTHER, THERE WAS NO REMISSION OR CESSATION OF LIA BILITIES AND IN THE BOOKS OF ACCOUNT THE ASSESSEE HAS NOT WRITTEN OFF T HESE AMOUNTS. HENCE, THESE ARE NOT COVERED U/S 41(1) OF THE IT ACT. THE ASSESSEE RELIED UPON THE DECISIONS IN THE CASES OF PARMESHWAR BOHRA 301 ITR 404 (RAJ.), CIT VS TAMILNADU WAREHOUSING CORPORATION 292 ITR 310 (M AD.) AND NATVERSINGH CHAUHAN VS ITO (AHMEDABAD BENCH). IT WA S ALSO SUBMITTED THAT THE AMOUNT OF RS.1,60,590/- AND RS.1,10,520/- OUT OF THE AMOUNTS PERTAINING TO ASSESSMENT YEAR 2001-02 HAS BEEN PAID TO ROYAL ENGINEERING WORKS IN FINANCIAL YEAR 2008-09. THEREF ORE, THESE AMOUNTS ARE NOT TO BE DISALLOWED. THE LEARNED CIT(A) CONSID ERING THE SUBMISSIONS OF THE ASSESSEE AND MATERIAL ON RECORD CONFIRMED AL L THE ABOVE ADDITIONS. THE FINDINGS OF THE LEARNED CIT(A) ARE SIMILAR IN A LL THE ASSESSMENT YEARS. THE SAME IS REPRODUCED AS UNDER AS IS TAKEN FROM PA RA 5.2 FROM ITA NO.169/AHD/2007: 5.2 I HAVE CONSIDERED THE FACTS AND THE SUBMISSION S. I DO NOT AGREE WITH THE APPELLANTS VIEW. WHEN THE PARTI ES ARE NOT TRACEABLE AND THE EXPENDITURE IS NOT VERIFIABLE, TH E ADDITION ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 3 HAS TO BE MADE. WHEN THE LIABILITY ITSELF IS NOT TO BE PAID AS THE PARTY IS NOT TRACEABLE, AND THE APPELLANT HAS C LAIMED THE EXPENSES IN THE EARLIER YEARS, THE SAME HAS TO BE T AXED U/S. 41(1) OF THE I. T. ACT IRRESPECTIVE OF THE FACT THA T THE APPELLANT HAS WRITTEN IT OFF OR NOT. THE RATIOS OF THE CASE L AWS RELIED UPON ARE NOT APPLICABLE AS FACTS ARE DIFFERENT. IN THE CASE OF NATVERSINGH CHAUHAN VS ITO, THE PARTIES WERE EXISTI NG BUT HERE, THE PARTIES ARE NOT TRACEABLE. IN THE CASE OF CIT VS PARMESHWAR BOHRA, IT WAS HELD THAT CARRY FORWARD AM OUNT OF PREVIOUS YEAR, DID NOT BECOME AN INVESTMENT OR CASH CREDIT GENERATED DURING THE YEAR AND CANNOT BE ASSESSED AS INCOME. HERE THE ISSUE IS APPLICATION OF SECTION 41(1) FOR CESSATION OF LIABILITIES WHICH IS DIFFERENT. FURTHER, FOR THE AM OUNT TO BE PAID TO ROYAL ENGG. WORKS, THE PARTY HAS NOT CONFIRMED T HAT THIS WAS THE RECEIPT OF AMOUNT RELATING TO A. Y.2001-02. HENCE, THE ADDITIONS ARE CONFIRMED AND THIS GROUND IS REJECTED . 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE HAS FILED COP IES OF THE BALANCE SHEETS OF ASSESSMENT YEARS 2000-01 TO 2007-08 IN TH E PAPER BOOK AND DEMONSTRATED THAT ON THE SAME ISSUE THERE WAS OUTST ANDING LIABILITY OF RS. 1,29,83,564/- IN ASSESSMENT YEAR 2000-01 (PB -2 ), WHICH WAS REDUCED IN THE SUBSEQUENT ASSESSMENT YEARS BY MAKIN G THE PAYMENTS TO THE PARTIES. THE LIST OF THE PARTIES IS FILED AT PA GE 1 OF THE PAPER BOOK AND SEPARATE CHART IS ALSO FILED. THE LEARNED COUNSEL F OR THE ASSESSEE, THEREFORE, DEMONSTRATED THAT SINCE IT WAS OLD LIABI LITY IN EARLIER YEARS AND OUTSTANDING BALANCES/LIABILITIES HAVE BEEN CARRIED FORWARD IN ASSESSMENT YEARS UNDER APPEAL, THEREFORE, NO ADDITION U/S 41(1 ) OF THE IT ACT CAN BE MADE. HE HAS SUBMITTED THAT IT IS ADMITTED FACT THA T ALL THE ABOVE AMOUNTS IN QUESTION UNDER APPEAL PERTAIN TO THE EAR LIER YEARS IN WHICH THE AO DID NOT DISPUTED GENUINENESS OF THE EXPENDIT URE AND EVEN OUTSTANDING BALANCES AGAINST NAMES OF SEVERAL PARTI ES HAVE ALSO NOT BEEN DOUBTED BY THE AO IN THE PRECEDING ASSESSMENT YEAR IN WHICH OUTSTANDING BALANCES WERE REFLECTED IN THE BALANCE SHEET. THEREFORE, OPENING BALANCES OF THE EXISTING LIABILITIES IN THE ASSESSMENT YEARS IN ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 4 QUESTION CANNOT BE ADDED U/S 41(1) OF THE IT ACT. H E HAS RELIED UPON THE FOLLOWING JUDGMENTS IN SUPPORT OF HIS CONTENTIONS: 1) CIT VS TAMILNADU WAREHOUSING CORPORATION (292 ITR 3 10) 2) CIT VS SMT. SITA DEVI JUNEJA (187 TAXMAN 96) 3) N. R. CHAUHAN VS ITO (ITAT AHMEDABAD DATED 23-01-2 009) 4) DCIT VI, KANPUR VS ALIED LEATHER INDUSTRIES (P) LTD .(32 SOT 549) 5) GENERAL INDUSTRIES CORPORATION VS ITO (33 ITD 524) 6) CIT VS PARMESHWAR BOHRA (301 ITR 404) 7) ACIT CENTRAL CIRCLE 32, MUMBAI VS VIP INDUSTRIES LT D. (30 SOT 254) 8) DSA ENGINEERS (BOMBAY) VS ITO (30 SOT 31) THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT THE SAME DETAILS ARE ALSO INCORPORATED BY THE AO AT PAGE 12 OF THE ASSESSMENT ORDER IN RESPECT OF WHICH THE ASSESSEE HAS FILED DE TAILS AT PB-1 AND THE CHART SUBMITTED DURING THE COURSE OF ARGUMENTS. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE AMOUNT OF R S.1,60,590/- IS ADDED IN THE ASSESSMENT YEAR 2002-03 IS THE SAME AM OUNT WHICH IS REFLECTED IN THE PRECEDING ASSESSMENT YEAR 2001-02 IN RESPECT OF THE SAME PARTY NAMELY ROYAL ENGINEERING WORKS WHICH IS ALSO ADDED IN THE ASSESSMENT YEAR 2001-02, THEREFORE, IT WOULD AMOUNT TO DOUBLE ADDITION IN THE ASSESSMENT YEAR 2002-03. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT IN ASSESSMENT YEAR 2003-04 T HE ADDITION IS MADE OF RS.40,032/- IN RESPECT OF 3 PARTIES NAMELY SANJA YA SPAL, ANKIT ENGINEERING AND MOTILALJI WHICH ARE NEW LIABILITIES IN THIS ASSESSMENT YEAR UNDER APPEAL. FURTHER IN ASSESSMENT YEAR 2006- 07 THE LIABILITIES OF RS.1,32,118/- PERTAIN TO MAHALAXMI ROADWAYS AND NIH AL ROADWAYS WHICH WERE DEBIT BALANCE IN THE ASSESSMENT YEAR 200 5-06 WHICH IS ALSO EXPLAINED IN THE CHART FILED FOR CONSIDERATION . THE LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN APPLYING PROVISIONS OF SECTION 41(1) OF THE IT ACT IN THOSE ASSESSMENT YEARS PARTICULARLY WHEN THE GENUINENESS OF THE EXPE NDITURE HAS NOT BEEN DOUBTED BY THE AO IN RESPECT OF THESE PARTIES WHOSE AMOUNTS WERE SHOWN AS LIABILITIES IN THE BALANCE SHEET. COPIES O F THE ACCOUNTS OF THE ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 5 PARTIES ARE FILED IN THE PAPER BOOK. THE LEARNED CO UNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT ULTIMATELY THE INCOME OF THE ASSESSEE IS COMPUTED BY THE LEARNED CIT(A) BY APPLYING THE PROV ISIONS OF SECTION 44AE OF THE IT ACT. THEREFORE, NO ADDITION U/S 14(1 ) OF THE IT ACT COULD BE MADE. HE HAS RELIED UPON THE DECISION IN THE CASE O F TIRUNELVELI MOTOR BUS SERVICE CO. P. LTD. VS CIT 78 ITR 55. HE HAS FU RTHER SUBMITTED THAT ONCE THE INCOME IS COMPUTED U/S 44 AE OF THE IT ACT , PROVISIONS OF SECTION 41(1) OF THE IT ACT WOULD NOT APPLY. 7. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. THE LEARNED DR SUBMITTED THAT TH E EXPENSES WERE CLAIMED BY THE ASSESSEE IN RESPECT OF OUTSTANDING L IABILITIES IN THE EARLIER YEARS AND DEDUCTIONS HAVE BEEN ALLOWED. THE LEARNED DR SUBMITTED THAT LIABILITIES HAVE HOWEVER, STILL EXISTING IN THE BOO KS OF THE ASSESSEE BEING SUNDRY CREDITORS. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS FAILED TO FURNISH ADDRESSES OF THE PARTIES, THEIR PERMANEN T ACCOUNT NUMBERS AND CONFIRMATIONS OF OUTSTANDING BALANCES. THE LEAR NED DR SUBMITTED THAT THE AO BECAUSE OF THE ABOVE FACTS FOUND THAT T HE SAID TRADING LIABILITIES HAVE CEASED AS NO EVIDENCE AND CONFIRMA TION OF EXISTENCE OF THE PARTIES HAVE BEEN FILED. THE LEARNED DR SUBMITTED T HAT SINCE THE ASSESSEE FAILED TO PRODUCE RELEVANT MATERIAL ON REC ORD, THEREFORE, ADVERSE INFERENCE SHALL HAVE TO BE DRAWN AGAINST THE ASSESS EE. THEREFORE, THE AO WOULD BE JUSTIFIED IN APPLYING PROVISIONS OF SECTIO N 41(1) OF THE IT ACT BECAUSE THE ISSUE WOULD ARISE AS TO ON WHAT DATE TH E LIABILITY IS CEASED. SINCE NO PROOF IS FILED BY THE ASSESSEE, THEREFORE, THE AUTHORITIES BELOW WERE JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESS EE. THE LEARNED DR SUBMITTED THAT THE AO HAS GIVEN A CATEGORICAL FINDI NG THAT THE ASSESSEE HAS CLAIMED CERTAIN DEDUCTION AGAINST THE INCOME EA RNED DURING EARLIER YEAR. THEREFORE, NON-EXISTING LIABILITIES IN THE SU BSEQUENT YEAR WOULD AMOUNT TO CESSATION OF LIABILITIES. THE LEARNED DR SUBMITTED THAT SINCE THE ASSESSEE HAS NOT PAID ANY AMOUNT TOWARDS OUTSTA NDING LIABILITIES FOR ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 6 SEVERAL YEARS AND CARRIED FORWARD THE BALANCES TO T HE ASSESSMENT YEARS UNDER APPEAL, IT WOULD PROVE INTENTION OF THE ASSES SEE THAT THE ASSESSEE HAS NO LONGER WANTED TO PAY OFF THE DEBTS. THE LEAR NED DR RELIED UPON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF KESORAM INDUSTRIES AND COTTON MILL VS CIT 196 ITR 845 IN WH ICH IT WAS HELD THAT UNCLAIMED WAGES WRITTEN BACK IN THE PROFIT & LOSS ACCOUNT IS ASSESSABLE UNDER INCOME TAX ACT. THE LEARNED DR SUBMITTED THAT BURDEN IS UPON THE ASSESSEE TO PROVE THAT THE DETAI LS FILED IN THE RETURN OF INCOME IS TRUE AND CORRECT. THE LEARNED DR RELIE D UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF L. H. SUGA R FACTORY AND OIL MILLS (P) LTD. VS CIT 125 ITR 293 IN WHICH IT WAS H ELD THAT WHEN EXPENSES WERE NOT WHOLLY AND EXCLUSIVELY LAID OUT F OR THE PURPOSE OF ASSESSEES BUSINESS SAME IS NOT ALLOWABLE DEDUCT ION. THE LEARNED DR ALSO RELIED UPON THE DECISION OF THE HON BLE GAUHATI HIGH COURT IN THE CASE OF ASSAM PESTICIDES AND AGRO CHEM ICALS VS CIT 227 ITR 846 IN WHICH IT WAS HELD THAT PAYMENT OF COMMISSION NOT MADE OUT OF COMMERCIAL CONSIDERATION NOT ALLOWABLE DEDUC TION. THE LEARNED DR SUBMITTED THAT THE FIGURES GIVEN IN THE CHART FILED BY THE ASSESSEES COUNSEL SHOWS THAT THE FIGURES ARE STATI C IN ASSESSMENT YEAR 2001-02 AS COMPARED WITH EARLIER YEAR AND NO AMOUNT IS PAID. THE LEARNED DR SUBMITTED THAT THERE IS NO MOVEMENT IN A NY OF THE YEARS, THEREFORE, BY APPLYING THE PRINCIPLE OF PREPONDERAN CE OF PROBABILITIES WHICH IS APPLICABLE TO THE IT ACT, IT COULD BE REAS ONABLY INFERRED THAT THE ASSESSEE HAS NO INTENTION TO MAKE THE PAYMENT AGAIN ST THE OUTSTANDING LIABILITIES. THE LEARNED DR SUBMITTED THAT THE ASSE SSEE HAS NOT MADE ANY OFFER TO PAY THE PARTIES. SIMILARLY, NO EFFORT IS M ADE BY THE PARTIES WHOSE OUTSTANDING BALANCES ARE REFLECTED IN THE BALANCE S HEET OF THE ASSESSEE TO MAKE RECOVERY AGAINST THE ASSESSEE. THEREFORE, THES E ARE SQUARED UP LIABILITIES AND SHOULD BE TREATED AS LIABILITIES AG AINST UNKNOWN PARTIES FOR WHICH NO EVIDENCE HAS BEEN FILED. THEREFORE, PROVIS IONS OF SECTION 41(1) OF THE IT ACT HAVE BEEN RIGHTLY APPLIED IN THE MATTER. THE LEARNED DR ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 7 SUBMITTED THAT SINCE THE ASSESSEE CLAIMED DEDUCTION , THEREFORE, ONUS IS UPON THE ASSESSEE TO PROVE THAT DEDUCTION IS ADMISS IBLE FOR THE PURPOSE OF THE BUSINESS. THE LEARNED DR IN HIS CONCLUDING S UBMISSIONS SUBMITTED THAT THE ASSESSEE HAS NO LIABILITIES TO M AKE THE PAYMENT AS ON DATE. THE ASSESSEE HAS NO EVIDENCE WHATSOEVER TO BA CK UP ITS CLAIM AND HE FAILED TO PRODUCE THE CREDITORS BEFORE THE AO FO R VERIFICATION. THEREFORE, IT IS CLEAR THAT LIABILITY TO MAKE THE P AYMENT TO THE OUTSTANDING CREDITORS HAS CEASED. THEREFORE, ADDITI ON WAS RIGHTLY MADE U/S 41(1) (A) OF THE IT ACT. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD. SECTION 41 (1) (A) OF THE IT ACT READS A S UNDER: 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXP ENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HERE INAFTER REFERRED TO AS THE FIRST-MENTIONED PERSON) AND SUBS EQUENTLY DURING ANY PREVIOUS YEAR, ( A ) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSI ON OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERS ON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEME D TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACC ORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREV IOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR 8.1 HONBLE MADRAS HIGH COURT IN THE CASE OF TAMILN ADU WAREHOUSING CORPORATION (SUPRA) HELD AS UNDER: THE ASSESSEE FILED ITS RETURN FOR THE ASSESSMENT Y EAR 1989-90 AND ASSESSMENT ERAS COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. THE ASSESSEE HA D SURRENDERED THE GROUP GRATUITY SCHEME WITH LIC AND ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 8 RECEIVED A SUM OF RS.8,22,925/- DURING THE YEAR REL EVANT TO THE ASSESSMENT YEAR 1989-90. AS THERE WAS NO PRO PER ENQUIRY MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT COMPLETED ON JANUARY 21,1992, THE COMMISSIONER PASSED ORDER UNDER SECTION 263 OF THE ACT AND SET ASIDE THE ASSESSMENT WITH A DIRECTION TO TH E ASSESSING OFFICER TO ASSESS THE SAID AMOUNT UNDER SECTION 41(1) OF THE ACT FOR THE ASSESSMENT YEAR 19 89- 90. THE TRIBUNAL SET AIDE THE ORDER OF THE COMMISSIONER. ON APPEAL TO THE HIGH COURT: HELD, THAT THE ASSESSEE HAD CONTINUED TO SHOW THE ADMITTED AMOUNT OF RS.8,22,925 AS LIABILITY IN THE BALANCE-SHEET. THE UNDISPUTED FACT WAS THAT IT WAS A LIABILITY REFLECTED IN THE BALANCE-SHEET. ONCE IT W AS SHOWN AS LIABILITY BY THE ASSESSEE, THE COMMISSIONE R WAS WRONG IN HOLDING THAT IT WAS ASSESSABLE UNDER SECTION 41(1) OF THE ACT. UNLESS AND UNTIL THERE IS A CESSATION OF LIABILITY, SECTION 41 IS NOT APPLICABL E. 8.2 HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CA SE OF SMT. SITA DEVI JUNEJA (SUPRA) HELD AS UNDER: IT IS THE CONCEDED POSITION THAT IN THE ASSESSEES BALANCE SHEET THE AFORESAID LIABILITIES HAVE BEEN S HOWN, WHICH ARE PAYABLE TO THE SUNDRY CREDITORS. SUCH LIABILITIES, SHOWN IN THE BALANCE SHEET, INDICATE T HE ACKNOWLEDGEMENT OF THE DEBTS PAYABLE BY THE ASSESSE E. MERELY BECAUSE, SUCH LIABILITY IS OUTSTANDING FOR T HE LAST SIX YEARS, IT CANNOT BE PRESUMED THAT THE SAID LIABILITIES HAVE CEASED TO EXIST. IT IS ALSO CONCED ED POSITIN THAT THERE IS NO BILATERAL ACT OF THE ASSES SEE AND THE CREDITORS, WHICH INDICATES THAT THE SAID LIABIL ITIES HAVE CEASED TO EXIST. IN ABSENCE OF ANY BILATERAL A CT, THE SAID LIABILITIES COULD NOT HAVE BEEN TREATED TO HAV E CEASED. 8.3 ITAT AHMEDABAD BENCH IN THE CASE OF N. R. CHAUH AN (SUPRA) HELD AS UNDER: THE LD. COUNSEL FOR THE ASSESSEE SPECIFICALLY DRAW N OUR ATTENTION TO THE ACCOUNT COPIES AND STATED THAT THE SE ARE OUTSTANDING AS ON DATE AND THIS AMOUNT ARE NOT WRITTEN OFF IN THE BOOKS OF ACCOUNT. ACCORDINGLY, T HE ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 9 SAME CANNOT BE ADDED U/S. 41(1) OF THE ACT AS THE LIABILITY OF OUTSTANDING AND THE PARTIES ARE IN EXI STENCE. WE ARE IN FULL AGREEMENT WITH THE ARGUMENT OF THE L D. COUNSEL FOR THE ASSESSEE, AS IS SEEN FROM THE DOCUM ENTS AND PAPERS FILED BEFORE US THAT THE PARTIES DO EXIS T AND THESE AMOUNTS ARE OUTSTANDING IN THE BOOKS OF THE ASSESSEE AS PAYABLE. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE FEEL THAT THESE AMOUNTS CANNOT BE ADDED EITHER U/S. 68 OR 41(1) OF THE ACT. WE DELETE THE ADDITION AND THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. 8.4 ITAT LUCKNOW BENCH IN THE CASE OF DCIT VS ALLIE D LEATHER FINISHERS (P) LTD. (SUPRA) HELD AS UNDER: 21.7 A LIABILITY COULD NOT BE TREATED AS A CESSATION IF IT WAS BEING MERELY CARRIED FORWARD FO R YEARS. A NON-GENUINE NON-TRADING LIABILITY STANDING IN THE BALANCE SHEET CAN BE TAXED BUT UNDER SECTION 68 IF IT CAME IN THE BOOKS IN THE CURRENT YEAR. IF SUCH N ON- GENUINE NON-TRADING LIABILITY CAME IN THE BOOKS IN AN EARLIER YEAR THAN SAME CANNOT BE TAXED IN THE CURRE NT YEAR EVEN UNDER SECTION 68. A NON-GENUINE TRADING LIABILITY CAN BE CONSIDERED IN THE CURRENT YEAR IF IT IS RELATED TO CURRENT YEARS TRADING/MANUFACTURING OR PROFIT & LOSS ACCOUNT BUT NOT UNDER SECTION 41(1) O R UNDER SECTION 68. IT CAN BE CONSIDERED ONLY UNDER SECTION 28, I.E. IT CAN BE CONSIDERED FOR DISALLOWA NCE WHILE EXAMINING THE CLAIM OF EXPENSES OR OUTGOINGS AGAINST REVENUE RECEIPTS. CURRENT YEARS GENUINE TRADING LIABILITIES, WAVED/REMITTED OR CEASED TO EX IST IN THE CURRENT YEAR ITSELF WILL NOT FORM PART OF TRADING/MANUFACTURING OR P/L ACCOUNT EXCEPT A NOTE APPENDED TO THEM AS DISCLOSURE OF INFORMATION. 21.10 EVEN IN A CASE WHERE A LIABILITY CEASED TO EXIST DUE TO LIMITATION I.E. THE CLAIM OF THE CREDI TOR IS BARRED BY LIMITATION UNDER LIMITATION ACT OF 1963 BUT IF THE LIABILITY SUBSIST OR HAS NOT BEEN WRITTEN OF F BY THE ASSESSEE, OR THE ASSESSEE DOES NOT ABSOLVE HIMSELF FROM THE LIABILITY, THOUGH NOT LEGALLY ENFORCEABLE, IT C ANNOT BE TAXED UNDER SECTION 41(1). ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 10 8.5 THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS PRAMESHWAR BOHRA (SUPRA) HAS HELD AS UNDER: THE ASSESSEE ON THE FIRST DAY OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1993-94 I.E. ON APR IL 1, 1992, CREDITED AN AMOUNT OF INVESTMENT/CASH CREDIT OF RS.1,55,316 IN HIS BOOKS OF ACCOUNT. THE ASSESSING OFFICER ADDED THIS AMOUNT IN THE INCOME OF THE ASSE SSEE AS UNEXPLAINED INVESTMENT IN THE ASSESSMENT YEAR 1993-94. THE TRIBUNAL HELD THAT THIS WAS NOT A CASE OF CASH CREDIT ENTERED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE DURING THE YEAR BUT IT WAS A CASE IN WHICH THE ASSESSEE HAD INVESTED THE CAPITAL IN THE BUSINESS A ND THIS AMOUNT WAS SHOWN AS A CLOSING CAPITAL AS ON MARCH 31, 1992 AND ON APRIL 1, 1992, IT WAS AN OPEN ING BALANCE. THEREFORE THE TRIBUNAL HELD THAT WHAT WAS ALREADY CREDITED IN THE BOOKS OF ACCOUNT ENDING ON MARCH 31, 1992, FOR FINANCIAL YEAR 1991-92 RELEVANT TO ASSESSMENT YEAR 1992-93 COULD NOT BE UNEXPLAINED CA SH CREDIT OR INVESTMENT IN THE BOOKS OF ACCOUNT MAINTA INED FOR THE FINANCIAL YEAR 1992-93, THE ACCOUNTING PERI OD FOR WHICH ENDED ON MARCH 31, 1993. ON APPEAL: HELD, DISMISSING THE APPEAL, THAT THE CARRIED FORWARD AMOUNT OF THE PREVIOUS YEAR DID NOT BECOME AN INVESTMENT OR CASH CREDIT GENERATED DURING THE RELE VANT YEAR 1993-94. THIS ALONE WAS SUFFICIENT TO SUSTAIN THE ORDER OF THE TRIBUNAL IN DELETING THE AMOUNT OF R.1,55,316 FROM THE ASSESSMENT FOR THE ASSESSMENT YEAR 1993-94. 8.6 ITAT MUMBAI BENCH IN THE CASE OF ACIT VS VIP IN DUSTRIES (SUPRA) HELD AS UNDER: SECTION 41(1) IS ATTRACTED WHEN THERE IS CESSATION FOR REMISSION OF A TRADING LIABILITY. SIMPLY BECAUSE A PERIOD OF THREE YEARS HAS EXPIRED AND THE CREDITOR CANNOT LAWFULLY ENFORCE HIS CLAIM, IT DOES NOT MEAN THAT THERE IS A CESSATION OR REMISSION OF LIABILITY. THE RE MAY BE SEVERAL SITUATIONS WHEN THE MONEY IS NOT CLAIMED OR PAID BY ONE PARTY TO ANOTHER WITHIN THREE YEARS AND THEREAFTER THE CLAIM IS MADE AND HONOURED BY THE OT HER. SO, SIMPLY BECAUSE A PARTICULAR AMOUNT IS OUTSTANDI NG ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 11 FOR A PERIOD OF MORE THAN THREE YEARS, THAT DOES NO T CONSTITUTE INCOME UNDER SECTION 41(1). 9. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE ABOVE PROVISIONS AND THE DECISION REFERRED TO ABOVE, IT I S CLEAR THAT THE EXPENDITURE CLAIMED AS DEDUCTION IN THE EARLIER YEA R HAVE NOT BEEN DISALLOWED IN THE EARLIER YEAR IN WHICH THEY WERE C LAIMED. EVEN THE AO IN THE EARLIER YEAR HAS NOT DOUBTED THE EXISTENCE OF T HE PARTIES. THE LEARNED COUNSEL FOR THE ASSESSEE FILED COPIES OF BALANCE SH EET OF THE ALL YEARS UNDER APPEAL, AS WELL AS PROCEEDINGS EARLIER ASSESS MENT YEARS WHICH PROVE THAT THE OUTSTANDING LIABILITIES FROM EARLIER YEARS WERE CARRIED FORWARDED TO THE ASSESSMENT YEARS UNDER APPEAL STAR TING FROM ASSESSMENT YEAR 2001-02. THE LIABILITIES IN ASSESSM ENT YEAR 2000-01 WERE IN A SUM OF RS.1,29,83,564/-. THE PARTICULARS OF THOSE PARTIES AGAINST WHOM THE LIABILITIES WERE SHOWN IS MENTIONE D AT PB-3, 4 AND 5. THE SAME PARTIES CONTINUED IN THE ASSESSMENT YEAR 2 001-02 UNDER APPEAL BUT THE BALANCES OF SOME OF THE PARTIES HAVE REDUCED WHICH WOULD SHOW THAT PART PAYMENTS HAVE BEEN MADE TO THEM. THE ABOVE FACTS WOULD SHOW THAT THE LIABILITIES SHOWN IN THE BALANC E SHEET IN THE ASSESSMENT YEAR UNDER APPEAL I.E. 2001-02 WHICH ARE OPENING BALANCES WHICH ARE CARRIED FORWARD FRO THE PRECEDING ASSESSM ENT YEAR. THE LIABILITIES HAVE BEEN SHOWN IN THE BALANCE SHEET OF THE ASSESSEE WHICH WOULD SHOW THAT THE ASSESSEE ACKNOWLEDGED THE LIABI LITIES OF THE OUTSTANDING AMOUNTS. THE BALANCES WERE THUS CARRIED FORWARD FROM EARLIER YEARS. IN ASSESSMENT YEAR 2002-03, THE AO M ADE ADDITION OF RS.1,60,590/- IN RESPECT OF ROYAL ENGINEERING WORK WHOSE BALANCE WAS ALSO OUTSTANDING IN THE ASSESSMENT YEAR 2000-01 AND 2001-02. IT WOULD, THEREFORE, SHOW THAT SIMILAR ADDITION IS MADE IN THE ASSESSMENT YEAR 2002-03 WHICH WOULD AMOUNT TO DOUBLE ADDITION IN RE SPECT OF THE SAME PARTY. IN ASSESSMENT YEAR 2003-04 THE AO MADE ADDIT ION OF RS.40,032/- IN RESPECT OF SANJAY SPAL , RS.32/-, ANKIT ENGINEER ING RS.20,000/- AND MOTILALJI RS.20,000/-. THESE AMOUNTS WERE NOT C ARRIED FORWARD FROM ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 12 EARLIER YEARS AS PER THE DETAILS FILED IN THE PAPER BOOK. IT WOULD SHOW THAT THESE ARE THE CURRENT LIABILITIES OF THE ASSESSEE I N THE ASSESSMENT YEAR 2003-04. SIMILARLY, IN ASSESSMENT YEAR 2006-07 THE AO MADE ADDITION OF RS.1,32,118/- IN RESPECT OF AMOUNT OF RS.45,409/- A ND RS.86,709/- IN RESPECT OF MAHALAXMI ROADWAYS AND NIHAL ROADWAYS. T HESE WERE THE CREDIT BALANCES IN THE ASSESSMENT YEAR UNDER APPEAL WHICH WERE CARRIED FORWARD IN THE PRECEDING ASSESSMENT YEAR 2005-06 AN D IN THAT YEAR THERE WERE DEBIT BALANCES AGAINST THESE PARTIES AS PER TH E DETAILS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THESE FACTS W OULD SHOW THAT THE AUTHORITIES BELOW HAVE NOT APPLIED THEIR MIND TO TH E FACTS OF THE CASE THAT THESE ARE NOT THE FIT CASES FOR INVOKING THE PROVIS IONS OF SECTION 41(1) OF THE IT ACT IN THE MATTER AS DONE BY THE AO. 9.1 CONSIDERING THE FACTS OF THE CASE AS NOTED ABOV E IT IS CLEAR THAT THE ASSESSEE HAD CONTINUED TO SHOW THE ADMITTED AMOUNTS AS LIABILITIES IN ITS BALANCE SHEET. THE LIABILITIES REFLECTED IN THE BAL ANCE SHEET CANNOT BE TREATED AS CESSATION OF LIABILITIES. MERELY BECAUSE THE LIABILITIES ARE OUTSTANDING FOR LAST MANY YEARS, IT CANNOT BE INFER RED THAT THE SAID LIABILITIES HAVE CEASED TO EXIST. IT IS ALSO A FACT THAT THE ASSESSEE HAS NOT WRITTEN OFF THE OUTSTANDING LIABILITIES IN THE BOOK S OF ACCOUNT AND THE OUTSTANDING LIABILITIES ARE STILL IN EXISTENCE WOUL D PROVE THAT THE ASSESSEE ACKNOWLEDGED HIS LIABILITIES AS PER THE BOOKS OF AC COUNT. SECTION 41(1) OF THE IT ACT IS ATTRACTED WHEN THERE IS CESSATION OR REMISSION OF A TRADING LIABILITY. THE AO SHALL HAVE TO PROVE THAT THE ASSE SSEE HAS OBTAINED THE BENEFITS IN RESPECT OF SUCH TRADING LIABILITIES BY WAY OF REMISSION OR CESSATION THEREOF. MERELY BECAUSE THE ASSESSEE OBTA INED BENEFIT OF DEDUCTION IN THE EARLIER YEARS AND BALANCES ARE CAR RIED FORWARD IN THE SUBSEQUENT YEAR, WOULD NOT PROVE THAT THE TRADING L IABILITIES OF THE ASSESSEE HAVE BECOME NON-EXISTENT. IT MAY ALSO BE N OTED HERE THAT THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION OF THE EXPEN DITURE IN ALL THE ASSESSMENT YEARS UNDER APPEAL. THE DECISIONS CITED BY THE LEARNED ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 13 COUNSEL FOR THE ASSESSEE SQUARELY APPLY TO THE FACT S OF THE CASE. THEREFORE, WE ARE OF THE VIEW THAT PROVISIONS OF SE CTION 41 (1) (A) OF THE IT ACT HAVE BEEN WRONGLY APPLIED IN THE MATTER. WE MAY ALSO NOTE HERE THAT THE LEARNED COUNSEL FOR THE ASSESSEE HAS FILED DETA ILS OF PARTICULARS OF PAYMENTS OF LIABILITIES IN SUBSEQUENT YEARS WHICH A RE IN THE NATURE OF ADJUSTMENT THROUGH JOURNAL ENTRY, CASH PAYMENT AND SOME PAYMENTS BY BANKING CHANNEL. THE LEARNED DR OBJECTED TO THE FIL ING OF SUCH DETAILS AT THIS STAGE AND FURTHER SUBMITTED THAT THE PAYMENT B Y CASH AND JOURNAL ENTRY WOULD NOT PROVE GENUINENESS OF THE PAYMENTS. WE DO NOT AGREE WITH THE SUBMISSION OF THE LEARNED DR BECAUSE THOSE DETAILS WERE CALLED FOR BY THE BENCH DURING THE COURSE OF HEARING AND E VEN PAYMENT BY CHEQUES AND/OR JOURNAL ENTRY WOULD NOT ABSOLVE THE AO FOR MAKING OUT A CASE U/S 41 (1) (A) OF THE IT ACT. THE LAST CONTEN TION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT SINCE INCOME OF T HE ASSESSEE IS COMPUTED U/S 44AE OF THE IT ACT, THEREFORE, PROVISI ONS OF SECTION 41(1) OF THE IT ACT WOULD NOT APPLY. HOWEVER, CONSIDERING TH E FINDING GIVEN ABOVE THAT PROVISIONS OF SECTION 41 (1) WOULD NOT APPLY T O THE FACTS AND CIRCUMSTANCES OF THE CASE; THERE IS NO NEED TO GIVE FURTHER FINDINGS ON THIS ISSUE. 10. ON CONSIDERATION OF THE ABOVE DISCUSSION, WE FI ND THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING THE ADDITIONS AGAINST THE ASSESSEE IN ALL THE ASSESSMENT YEARS UNDER APPEAL O F THE ABOVE AMOUNTS WITH THE AID OF SECTION 41(1)(A) OF THE IT ACT. AS A RESULT, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTI RE ADDITIONS. 11. IN VIEW OF THE ABOVE FINDINGS, THE DECISIONS CI TED BY THE LEARNED DR WOULD NOT SUPPORT THE CASE OF THE REVENUE. 12. AS A RESULT, THESE GROUNDS OF APPEAL OF THE ASS ESSEE IN ALL THE APPEALS ARE ALLOWED. ITA NOS. 169, 170, 171 AND 172/AHD/2009 SHRI NITIN S. GARG VS ACIT 14 13. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN I TA NO.169, 170 AND 171/AHD/2009 ARE ALLOWED WHEREAS THE APPEAL OF THE ASSESSEE IN ITA NO.172/AHD/2009 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04-06-2010 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 04-06-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD