Rama Steel Rolling Mills & General Engineering Works V. The I.T.O. Ward -3 (1)

ITA/578/2011

AI Insights

The case involves M/s Rama Steel Rolling Mills & General Engineering Works, a partnership firm, which appealed against the order of the Income Tax Appellate Tribunal, Jaipur. The dispute centered on the addition of Rs.34,91,181 to the firm's income for the assessment year 2007-2008, which was initially a liability to M/s Tirupati Steels for goods purchased in 2001-2002 & 2002-2003. The Income Tax Officer (ITO) questioned the genuineness of this liability during the scrutiny of the firm's accounts and, upon finding no evidence of payment or existence of M/s Tirupati Steels, added the amount to the firm's income under Section 41(1) of the Income Tax Act, 1961. The Tribunal upheld this decision, leading to the present appeal.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 806119 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 11-12-2012
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: GUNJAN PATHAK
• Keywords: Assessment Year; Balance sheet; Income tax appeal; Partnership firm; Scrutiny; Sundry creditors; Trade liability; Genuineness of Trade Liability
• Section: 133(6); 260A; 41(1)

Judgement Text

" D.B. Income Tax Appeal No.578/2011 M/s Rama Steel Rolling Mills & General Engineering Works Versus The I.T.O. Ward -3 (1) 1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH D.B. Income Tax Appeal No.578/2011 M/s Rama Steel Rolling Mills & General Engineering Works Versus The I.T.O. Ward -3 (1) Date of Order : 11.12.2012 HON'BLE MR. JUSTICE AJAY RASTOGI HON'BLE MS. JUSTICE BELA M. TRIVEDI Mr. Gunjan Pathak, for appellant. ******* The present appeal has been filed under Section 260A of the Income Tax Act, 1961 assailing order of Income Tax Appellate Tribunal, Jaipur dated 20.05.2011 for the assessment year 2007-2008. The appellant as alleged is a partnership firm and had purchased goods from M/s Tirupati Steels during the financial years 2001-2002 & 2002-2003. However, it is alleged that on account of short supply and period calculated there was a dispute between the appellant-firm and M/s Tirupati Steels and the appellant failed to make payment of Rs.34,91,181/-to M/s Tirupati Steels and that amount was suitable to sundry creditors and balance was standing for the sundry trade creditor in the books of account of the appellant-firm. After the case of the appellant was selected for scrutiny during the assessment proceedings and on perusal of balance sheet it was observed that D.B. Income Tax Appeal No.578/2011 M/s Rama Steel Rolling Mills & General Engineering Works Versus The I.T.O. Ward -3 (1) 2 Rs.41,01,012/- was shown as sundry creditors, for goods supply and out of the total sundry creditors, Rs.34,91,181/- stood in the name of M/s Tirupati Steels but the assessee firm was asked to furnish confirmation of account of the above sundry creditor shown in the balance sheet to prove the genuineness of the sundry creditor. However, since it failed to submit confirmation statement, to ascertain the genuineness of the trade liability notice under Section 133(6) of the Act of 1961 was issued requiring complete copy of the account of the appellant-firm for the financial year 2006-2007 as appearing in the books of accounts of M/s Tirupati Steels. But it was reported that no such entity existed on the given address of M/s Tirupati Steels and accordingly the assessment was made after taking note of addition of Rs.34,91,181/- in view of Section 41(1) of the Income Tax Act, 1961 adding the same to the total income of the appellant. However, the matter was travelled to the Income Tax Appellate Tribunal and it was observed that there has been a credit on account of three bills in April 2003 and the outstanding balance of Rs.34,91,181/- on 13.04.2003 and no payment has been made till the end of the accounting period relevant to the assessment year under consideration. It was further observed that D.B. Income Tax Appeal No.578/2011 M/s Rama Steel Rolling Mills & General Engineering Works Versus The I.T.O. Ward -3 (1) 3 liability at the end of the year if not proved can be added and it was not the case of the assessee at any later stage that the payment has been made and thus the Tribunal observed that the liability in respect of M/s Tirupati Steels remain the same for a number of years and it could not be held that amount cannot be added u/s 41(1) of the Act. However while remitting it was left open for the the assessing authority to verify the discharge of liability till the date of fresh assessment and if the liability has been discharged till date then there will be remission or cessation of the liability and if the assessee fails to produce the creditor or unable to give the exact address then such liability will stand ceased during the year and the assessing authority will be free to add back the same as per law. Counsel for the appellant submits that in the facts of the given case, a substantial question of law arises for consideration regarding the effect of Section 41(1) of the Income Tax Act resulting into remission or cessation of the trade liability standing in the books of accounts. In our opinion, it is based on factual matrix of the matter and the liability in the end of the year if not proved can certainly be D.B. Income Tax Appeal No.578/2011 M/s Rama Steel Rolling Mills & General Engineering Works Versus The I.T.O. Ward -3 (1) 4 added u/s 41(1) of the Act but it is still left open for the assessing authority to examine and opportunity is available before the assessing authority to produce the creditor and if unable to give the exact address, it will be open for the assessing authority to add back the same as per law. We do not find any substantial question of law arises in the facts & circumstances of the case which may require any consideration. Consequently, the appeal is devoid of merits and accordingly stands dismissed. [BELA M. TRIVEDI], J. [AJAY RASTOGI], J. R.Vaishnav 61. Certificate: “All corrections made in the judgment/order have been incorporated in the judgment/order being emailed.” Ramesh Vaishnav Jr.P.A. "