SRI SURESH KUMAR T JAIN V. THE INCOME TAX OFFICER

RP/26/2019

AI Insights

The case involves a review petition filed by Sri Suresh Kumar T. Jain against the Income Tax Officer, challenging the application of Sections 41(1) and 68 of the Income Tax Act, 1961 in the context of trade credits. The original appeal (ITA No.160/2010) contested the addition made by the Income Tax Appellate Tribunal, which was upheld by the High Court. The review petition argued that the judgment did not adequately consider the implications of un-served notices to certain creditors, which could affect the cessation of liability. The court agreed to re-examine these specific cases in light of a precedent that clarified the conditions under which liabilities can be considered as ceased.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 761042 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 04-03-2022
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax V/s. Alvares and Thomas [(2017) 394 ITR 0647 (Karn)]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: M DILIP
• Assessee Lawyers: JINITHA CHATTERJEE
• Keywords: Cessation of liability; Income Tax; Review petition; Trade Credits; Unserved Notices
• Section: 68; 260A; 41(1)

Judgement Text

"IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 4TH DAY OF MARCH, 2022 PRESENT THE HON’BLE MRS.JUSTICE S.SUJATHA AND THE HON’BLE MR. JUSTICE K.NATARAJAN R.P.No.26/2019 IN I.T.A.No.160/2010 BETWEEN : SRI SURESH KUMAR T. JAIN S/O SRI TARACHANDJI AGED ABOUT 63 YEARS, PROP: M/s NINZA ELECTRONICS, 115/5, LEELA GOPAL COMPLEX, PR LANE, SP ROAD, BANGALORE-560002. ...PETITIONER (BY SMT.JINITHA CHATTERJEE, ADV.) AND : THE INCOME TAX OFFICER WARD 2(1), ROOM NO.59, HMT BUILDING, VI FLOOR BELLARY ROAD, BANGALORE-560032. …RESPONDENT (BY SRI M.DILIP, ADV.) THIS RP IS FILED UNDER ORDER 47 RULE 1 R/W SECTION 114 OF CPC, PRAYING TO A) REVIEW THE JUDGMENT DATED 20.11.2018 PASSED IN ITA NO.160/2010 AND MODIFY PARAGRAPHS 6.7 AND 12 OF THE JUDGMENT. B) CONSIDER THE SUBMISSIONS OF THE PETITIONER MADE IN THE ABOVE REVIEW PETITION AS WELL AS THE ABOVE REVIEW PETITION AS WELL AS IN QUESTION NO.4 OF THE INCOME TAX APPEAL UNDER SECTION 260A OF THE ACT (ITA NO.160/2010) AND MAY PASS A SPEAKING ORDER WITH REGARD TO THE SAME. - 2 - THIS PETITION COMING ON FOR ADMISSION, THIS DAY, S. SUJATHA, J., MADE THE FOLLOWING: O R D E R This review petition is filed by the petitioner seeking review of the judgment dated 20.11.2018 passed in ITA No.160/2010 insofar as paragraphs 6, 7 and 12 are concerned. 2. The assessee had preferred ITA No.160/2010 challenging the order of the Income Tax Appellate Tribunal, Bengaluru [ITAT] in ITA No.667/Bang/2009 dated 08.01.2010. The said appeal was admitted to consider the following substantial questions of law: “Whether the finding of the Tribunal upholding the impugned addition made by applying the provisions of Section 41(1) and 68 which were made by mere accepting the statements of the creditors who had not been examined and without giving opportunity for cross-examination and upholding the application of Section 68 in respect of trade credits outstanding at the end of the year on account of purchases, - 3 - when the purchases have not been disputed and the trading results have been fully accepted is perverse and arbitrary?” 3. Learned counsel for the assessee had contended that the provisions of Section 4[1][a] and 68 of the Income Tax Act, 1961 [‘Act’ for short] could not have been invoked by the Revenue in the facts and circumstances of the case, placing reliance on the judgment of the Co-ordinate Bench of this Court in the case of Commissioner of Income Tax V/s. Alvares and Thomas [(2017) 394 ITR 0647 (Karn)] more particularly paragraphs 8 and 9, wherein, it has been held as under: “8. Examining of the facts of the present case reveals that, it is not the case of the Department that, any benefit in respect of such trading liability was taken by the assessee but, the Revenue contends that since the burden was not discharged of existence of the liability, it be treated as cessation of the liability and therefore, Section 41(1) could be invoked. Further, stand of - 4 - the Revenue is that, when in respect of debt in question, confirmation was called for, a letter was 18 produced of the creditor with its address but, when the same was verified, the report was that, party could not be traced and therefore, it was not verifiable. 9. In our view, even if we accept the contention of the Revenue that the party could not be traced and therefore debt could not be verified then also, by no stretch of imagination can it be held that it would satisfy the requirement of cessation of liability. In legal parlance, merely because the creditor could not be traced on the date when the verification was made, same is not a ground to conclude that there was cessation of the liability. Cessation of the liability has to be cessation in law, of the debt to be paid by the assessee to the creditor. The debt is recoverable even if the creditor has expired, by the legal heirs of the deceased creditor. Under the circumstances, in the present case, it can hardly be said that the liability had ceased. If the liability had not ceased or the benefit was 19 not taken by the assessee in respect of such trade liability, in our view, the - 5 - conditions precedent were not satisfied for invoking Section 41(1) of the Act in the instant case.” 4. Learned counsel for the Revenue had argued that the creditors have confirmed the balance and provided the details as called for. Hence, the said judgment was not applicable. 5. Having considered the submissions made by the learned counsel for the parties as aforesaid, this Court has dismissed the appeal observing that the judgment of the Co-ordinate Bench of this Court in Alvares and Thomas supra, would not come to the aid of the appellant as the facts and circumstances differs. 6. The assessee has preferred this review petition contending that 12 sundry creditors to whom the notices were sent were returned unserved for insufficient address, no such person etc., since the debts of those 12 sundry creditors could not be verified because of non-service of the notices, it does not satisfy - 6 - the requirement of cessation of liability under Section 41[1] of the Act. This view of this Court in not considering the same is an error apparent on the face of the record inasmuch as in applying the dictum laid down by the Co-ordinate Bench of this Court in the case of Alvares and Thomas supra. 7. Learned counsel appearing for the petitioner reiterating the grounds urged in the review petition submitted that this Court has categorically observed that out of 26 sundry creditors, in 4 cases, the credit balance confirmed as Nil, in 10 cases as the assessee has not furnished the addresses of the creditors and in 12 cases the notices are returned as un-served for insufficient address, no such person etc. As regards these 12 cases, certainly the judgment of the Co-ordinate Bench of this Court in Alvares and Thomas supra is applicable. 8. Learned counsel for the Revenue fairly submits that the matter requires to be re-examined by - 7 - the Assessing Officer as regards these 12 cases wherein the notices were returned as un-served, in the light of the judgment of the Co-ordinate Bench of this Court in Alvares and Thomas supra. 9. We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record. 10. As noticed above, the appeal filed by the assessee came to be dismissed rejecting the contention of the learned counsel for the assessee that the matter is covered by the decision of the Co-ordinate Bench of this Court in Alvares and Thomas supra. In the light of the legal principles laid down by the Co-ordinate Bench of this Court in Alvares and Thomas supra, in paragraphs 8 and 9 extracted herein above, even accepting the contention of the Revenue that the party could not be traced and therefore debt could not be verified, then also it cannot be held that it would specify the requirement of - 8 - cessation of liability. Non tracing of the creditor on the date when the verification was made could not be a ground to conclude that there was cessation of liability. 11. The 12 cases in which the notices were returned as un-served, necessarily requires to be examined in the light of the legal principles enunciated in Alvares and Thomas supra, which indeed is not objected by the Revenue. Hence, we deem it appropriate to re-call the order dated 20.11.2018 passed in ITA No.160/2010 and modify the same in paragraphs 6, 7 and 12 insofar as the 12 cases are concerned where notices are returned as un-served for insufficient address, no such person etc. 12. Hence, we pass the following: ORDER i] The order dated 20.11.2018 passed in ITA No.160/2010 is modified as under: - 9 - The 12 cases where the notices are returned un-served, the Assessing Officer shall examine whether there was cessation of liability of debt to be paid by the assessee to the creditor, in the light of the judgment of the Co- ordinate Bench of this Court in Alvares and Thomas supra. On such verification being made by the Assessing Officer, the tax liability of the assessee can be determined applying the provisions of Section 41[1] and Section 68 of the Act after providing an opportunity to the assessee to examine/cross-examine the creditors on this aspect with respect to 12 creditors where the notices were returned un-served, the total of which amounts to Rs.29,75,621/-. - 10 - ii] Such exercise shall be made by the Assessing Officer in an expedite manner. iii] With the aforesaid modifications, Review Petition stands disposed of accordingly. iv] Consequentially, the appeal in ITA No.160/2010 is partly allowed to the extent indicated above. Sd/- JUDGE Sd/- JUDGE NC. "