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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: Shri Sanjay Garg & Dr. Manish Borad
order : February 9th, 2023 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 23.11.2021 of the National Faceless Appeal Centre [hereinafter referred to as the ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).
The appeal is time-barred by 58 days. An application for condonation of delay has been filed, wherein, it has been mentioned that the appellant is a senior citizen and was effected by Covid and therefore, could not file the appeal in time. Considering the averments made in the application, the delay in filing the present appeal is hereby condoned and the appeal is admitted for hearing. Assessment year: 2014-15 Arun Kumar Bose 3. The assessee in this appeal has taken the following grounds of appeal:
“1. For that the on the facts and in the circumstances of the case, Learned CIT(A) in spite of having arrived at a definite findng that there was no cessation o remission of liability could not have restored the matter to the file of the A.O commence another innings.
2. For that the on the facts and in the circumstances of the case, Learned CIT(A) exceeded the limit of powers statutorily bestowed as per section 251(1)(a) of Income Tax Act, 1961 and grossly erred in law in restoring the case to the A.O for action in terms of impugned order dated 23rd November 2021.
For that appellant craves leave to add, alter, take further grounds of appeal
, if necessary at the time of hearing.
4. The brief facts of the case are that the Assessing Officer during the assessment proceedings noted that the assessee had reflected sundry creditors of Rs.2,15,14,729/- payable to seven parties. The Assessing Officer has mentioned in the assessment order the details of the sundry creditors, opening balance, payment during the year, closing balance and status of the notice sent u/s 133(6) in a chart which, for the sake of ready reference, is reproduced as under:
Sl Name of the Opening Purchase Payment Closing Remarks no. Sundry Balance during the during the Balance Creditors (Rs) year (Rs) year (Rs) (Rs) 1 A.S 39,00,020 37,11,456 26,17,405 49,94,071 Reply Engineering received Works by email 2 Goodwill 28,87,040 29,86,200 29,86,200 28,87,040 Reply Corporation received (India) by email 3 Quality Udyog 15,80,550 Nil Nil 15,80,550 Notice returned Assessment year: 2014-15 Arun Kumar Bose comment - unknown 4 Samanta & Nil 1,91,625 1,00,000 91,625 No reply Brothers received 5 Sharma 3,00,000 15,48,330 9,77,545 8,70,785 Reply Electricasl received Iron Works by post 6 Swaphal 80,91,288 35,50,900 27,15,844 89,26,344 Reply Electrical received Stores by email 7 Swastik 21,64,314 Nil Nil 21,64,314 Notice Trading Mfg. returned comment - unknown The Assessing Officer thereafter discussed the reply/status etc of the sundry creditors and found that the sundry creditors in respect of five parties were either not genuine or the liability of the assessee in case of five sundry creditors had ceased to exist. The Assessing Officer, in this respect, has made the following observations in respect of the said five sundry creditors:
“7. On perusal of the reply received from M/S Goodwill Corporation (India), it is seen from the ledger, which was sent as attachment to the email, that during the, relevant year total sales of Rs. 29,86,200/- was made to the assessee and the total payment for the same amount was received during the same year. In the party's ledger there is no reflection of any opening or closing balance dues as receivable from the assessee. (i) From the above, it is clear that the claim made by the assessee is incorrect. Since no closing or opening balance exist in the books of account of the party [M/S Goodwill Corporation (India)], the liability as Assessment year: 2014-15 Arun Kumar Bose claimed by the assessee in his books of account ceases to exist therefore it is a gain in the hand of the assessee, hence Rs.28,87,040/- is added back to the total income of the assessee as the liability ceases to exist. Penalty u/s 271(1)(c) is initiated for furnishing of inaccurate particulars.
On perusal of the reply received from M/S Sharma Electricals Iron Works, it is seen from the party ledger [M/S Sharma Electricals Iron Works] that there is no reflection of any opening or closing balance. The total sale made by the party matches with the total purchase as claimed by the assessee in his books of account. (i) From the above, it is clear that the claim made by the assessee is incorrect. Since no closing or opening balance exist in the books of account of the party [M/S Sharma Electricals the liability as claimed by the assessee in his books of account ceases to exist therefore it is a gain in the hand of the assessee, hence Rs.8,70,785/- is added back to the total income of the assessee as the liability ceases to exist. Penalty u/s 271(1)(c) is initiated for furnishing of inaccurate particulars. 9 In the case of M/S Quality Udyog, the notice issued u/s 133(6) of the I.T Act, 1961, was returned to the office of the undersigned with the remark of the post office as "UNKNOWN". The assessee was asked to furnish the name and mobile number of the person In-charge, the e-mail address of M/S Quality Udyog. The assessee said he had no contact details besides what is in the purchase bill (copy submitted). The assessee was then asked to produce the details of last transaction done with the party. From the ledger and bills produced in support of his transaction done with the assessee, it is seen that the last transaction was done on 12/2/2012 and the sundry creditor balance has been brought forwarded from A. Y: 2012-13 till date. First and foremost there seems no existence of the party as the notice served in the full address as per the tax invoice return un-served with the comment of the post office "UNKNOWN" Secondly, no prudent businessman would leave his dues receivable pending for so long without giving time to time reminders to the assessee either through letters or telephonic calls. Lastly, on query to the assessee regarding the name, phone number, email address and other details so that the undersigned could get in contact to collect information needed, the assessee claimed he did not have any of the sought for details. From the above discussion, it is clear that the claim made by the assessee is incorrect and no liability as claimed by the assessee in his Assessment year: 2014-15 Arun Kumar Bose books of account exists. Hence, the total sundry creditor of Rs.15,80,550/- is added back and penalty u/s 271 (1)(c) is initiated for furnishing of inaccurate particulars.
In the case of M/S Swastik Trading & Mfg. Co., the notice issued u/s 133(6) of the I.T. Act, 1961, was returned to the office of the undersigned with the remark of the post office as "UNKNOWN". The assessee was asked to furnish the name and mobile number of the person In-charge, the e-mail address of M/S Swastik Trading & Mfg.. Co. The assessee said he had no contact details besides what is in the purchase bill (copy submitted). The assessee was then asked to produce the details of last transaction done with the party. From the ledger and bills produced in support of his transaction done with the assessee, it is seen that the last transaction was done on 02/2/2012 and the sundry creditor balance has been brought forwarded from A. Y: 2012-13 till date. First and foremost there seems no existence of the party as the notice served in the full address as per the tax invoice return un-served with the comment of the post office "UNKNOWN". Secondly, no prudent businessman would leave his dues receivable pending for so long without giving time to time reminders to the assessee either through letters or telephonic calls. Lastly, on query to the assessee regarding the name, phone number, email address and other details so that the undersigned could get in contact to collect information needed, the assessee claimed he did not have any of the sought for details. From the above discussion, it is clear that the claim made by the assessee is incorrect and no liability as claimed by the assessee in his books of account exists. Hence, the total sundry creditor of Rs.21,64,314/- is added back and penalty u/s.271(1)(c) is initiated for furnishing of inaccurate particulars.
In the case of M/S Samanta & Brothers, the notice u/s 133(6) of the I. T. Act, 1961 was served but no reply has been received till date. However on perusal of the ledger submitted by the assessee, it is seen that during the year the assessee had made purchase of Rs. 1,91,625/- from the above party and made payment of Rs. 1,00,000/- and reflected a sundry creditor balance of Rs.91,625/- (i) On perusal of the copy of the bill submitted during the course of hearing it is seen that the assessee had received discount of Rs. 16,000/- and the actual balance for payment was reflected as Rs.75,625/-. It was also found that in the next years the assessee has paid off the due of Rs.75,625/- through bank. Hence, Rs. 16,000/- which was received or claimed as discount has not been disclosed, is I.T.A No.465/Kol/2022 Assessment year: 2014-15 Arun Kumar Bose added back and penalty u/s 271(1)(c) is initiated for furnishing of inaccurate particulars." The Assessing Officer, therefore, held that the liability of the assessee in respect of aforesaid five creditors has ceased to exist. He, therefore, made the impugned addition in respect of the aforesaid liability shown by the assessee as income of the assessee at Rs.85,42,010/-.
Being aggrieved by the above order of the Assessing Officer, the assessee preferred appeal before the CIT(A). The ld. CIT(A), in respect of M/s Goodwill Corporation, 6. observed that a sum of Rs.28,87,040/- was reflected as opening balance in the books of account of the assessee in respect of above creditor and the same amount was shown as closing balance on 31.03.2014. Apart from that, the assessee had shown purchase of goods of Rs.29,86,200/- from the said party during the year and the entire amount was paid during the same financial year. The said party in response to the notice issued u/s 133(6) of the Act, sent reply, wherein, it stated that “we hereby declare that Shri Arun Kumar Bose is completely unknown to us and we have done no transaction with him in the said F.Y 2013-14”. But thereafter, it had taken a u-turn and submitted a copy of ledger account of the assessee as appearing in its books of account for the A.Y 2014-15 and stated that there was no outstanding balance receivable from the assessee as on 01.04.2013 as well as on 31.03.2014. In nutshell, the said party denied any opening balance and closing balance. The assessee contended before the CIT(A) that the said party had made a wrong statement. That the amount of Rs.29,87,040/- was still payable by the assessee to the said company. The ld. CIT(A), though, held that Assessment year: 2014-15 Arun Kumar Bose since the liability was still existent in the books of account of the assessee, and that since the assessee has not written off liability in its books of account, therefore, provisions of section 41(1) were not applicable and held that the applicability of section 41(1) of the Act was void ab initio. However, the ld. CIT(A) further proceeded to direct the Assessing Officer to make certain enquiries in respect of the opening balance and closing balance. The operative part of the order of the CIT(A) is reproduced as under:
6.20 In view of the above, prima facie, I am of the considered opinion that the unexplained/unmatched opening balance as well as closing balance of Rs.28,87,040/- which has been brought forward from the earlier FYs/AYS cannot be subjected to tax in the impugned AY 2014- 15. Accordingly, the AO is directed to delete the addition subject to following conditions. 1) It is imperative on the part of the assessee to explain the year in which the said liability to the extent of Rs.27,87,040/- had originated along with details of corresponding purchases made and the FY/AY in which the said credit entries are made against the party concerned in the books of account of the assessee. 2) Also, the assessee is required to explain whether the said opening as well as closing balance of Rs.28,87,040/- has been paid to the party concerned subsequent to the end of the FY i.e., on or after 01.04.2014. If so, the details of the same such as amount paid, date of payment, mode of payment etc., shall be submitted to the AO at the time of giving effect to this order. 3) Similarly, the A.O is at liberty to examine the books of account and the return of income filed by the assessee including the Tax Audit Report u/s.44AB of the Act relating to the earlier FYs and identify the year in which the said liability to the extent of Rs.28,87,040/- was originated by way of credit entries in the books of account of the assessee against the party concerned. 4) Also, the AO may carry out investigation to find out the year in which the said amount was paid by the assessee to the party concerned. While doing so, the AO may conduct necessary enquiry with the party concerned so as to find out the previous year in which the liability of the assessee had ceased to exist on Assessment year: 2014-15 Arun Kumar Bose account of liquidating the liability by the assessee or on account of cessation of liability as per decision taken by the party concerned, as the case may be. In case of any adverse finding, the assessee may be provided with an opportunity of being heard.
In case of M/s Sharma Electricals Iron Works, the ld. CIT(A) 7. after considering the facts and circumstances of the case deleted the addition made by the Assessing Officer to the extent of Rs.3,00,000/- being opening balance, however, confirmed the addition of balance outstanding of Rs.5,70,785/-. The assessee is not aggrieved by the above action of the CIT(A) in respect of the said party. In case of M/s Quality Udyog, the Assessing Officer had held 8. that the said party was not in existent on the ground that the notice issued in the full address as per the tax invoice was returned unserved with the comments of postal authority ‘unknown’. However, the ld. CIT(A) held that the Assessing Officer had not made any further enquiries including on the spot inspection to demonstrate that the said party was a non-existent party. He, therefore, held that the addition made by the Assessing Officer under the circumstances was not sustainable. The ld. CIT(A), however directed the Assessing Officer to make further enquiries, the relevant part of the order of the CIT(A) in this respect, is reproduced as under:
6.32 Coming to the issue of assessability of brought forward opening balance which is also appearing as closing balance as on 31.03.2014, as the income of the assessee either u/s.68 or u/s.41(1) of the Act, I have already adjudicated the matter in detail vide Para Nos.6.12 to 6.20 above. Accordingly, I am of the considered opinion that the addition made by the AO cannot be sustained in the eyes of the law. However, the AO is directed to delete the addition subject to the following conditions. Assessment year: 2014-15 Arun Kumar Bose 1) It is imperative on the part of the assessee to explain the year in which the said liability to the extent of Rs.15,80,550/- had originated along with details of corresponding purchases made and the FY/AY in which the said credit entries are made against the party concerned in the books of account of the assessee. 2) Also, the assessee is required to explain whether the said opening as well as closing balance of Rs. 15,80,550/- has been paid to the party concerned subsequent to the end of the FY i.e., on or after 01.04.2014 If so, the details of the same such as amount paid, date of payment, mode of payment etc., shall be submitted to the AO at the time of giving effect to this order. 3) Similarly, the AO is at liberty to examine the books of account and the return of income filed by the assessee including the Tax Audit Report u/s.44AB of the Act relating to the earlier FYs and identify the year in which the said liability to the extent of Rs. 15,80,550/- was originated by way of credit entries in the books of account of the assessee against the party concerned. 4) Also, the AO may carry out investigation to find out the year in which the said amount was paid by the assessee to the party concerned. While doing so, the AO may conduct necessary enquiry with the party concerned so as to find out the previous year in which the liability of the assessee had ceased to exist on account of liquidating the liability by the assessee or on account of cessation of liability as per decision taken by the party concerned, as the case may be. In case of any adverse finding, the assessee may be provided with an opportunity of being heard.
In case of M/s Swastik Trading & Mfg. Co., since the notices 9. issued to the said party has also been returned unserved with the remark of postal authority as ‘unknown’, therefore, the similar directions as was issued in the case of M/s Quality Udyog, was issued by the CIT(A), which, for the sake of ready reference, are reproduced as under:
6.39 Coming to the issue of assessability of brought forward opening balance which is also appearing as closing balance as on 31.03.2014, as the income of the assessee either u/s.68 or u/s.41(1) of the Act, I have already adjudicated the matter in detail vide Para Nos.6.12 to Assessment year: 2014-15 Arun Kumar Bose 6.20 above. Accordingly, I am of the considered opinion that the addition made by the AO cannot be sustained in the eyes of the law. Thus, the AO is directed to delete the addition subject to the following conditions. 1) It is imperative on the part of the assessee to explain the year in which the said liability to the extent of Rs.21,64,314/- had originated along with details of corresponding purchases made and the FY/AY in which the said credit entries are made against the party concerned in the books of account of the assessee. 2) Also, the assessee is required to explain whether the said opening as well as closing balance of Rs.21,64,314/- has been paid to the party concerned subsequent to the end of the FY i.e., on or after 01.04.2014. If so, the details of the same such as amount paid, date of payment, mode of payment etc., shall be submitted to the AO at the time of giving effect to this order. 3) Similarly, the AO is at liberty to examine the books of account and the return of income filed by the assessee including the Tax Audit Report u/s.44AB of the Act relating to the earlier FYs and identify the year in which the said liability to the extent of Rs.21,64,314/-was originated by way of credit entries in the books of account of the assessee against the party concerned. 4) Also, the AO may carry out investigation to find out the year in which the said was paid by assessee to party concerned. While doing so, the AO may conduct necessary enquiry with the party concerned so as to find out the previous year in which the liability of the assessee had ceased to exist on account of liquidating the liability by the assessee or on account of cessation of liability as per decision taken by the party concerned, as the case may be. In case of any adverse finding, the assessee may be provided with an opportunity of being heard.
We further note that in respect of 5th party i.e. M/s Samanta & 10. Brothers, neither any submission was made by the assessee before the CIT(A) nor any discussion has been made by the CIT(A) in respect of the aforesaid party. Therefore, the action of the Assessing Officer in respect of meagre addition of Rs.16,000/- seems to have not pressed by the assessee before the CIT(A). Even before us, no argument has Assessment year: 2014-15 Arun Kumar Bose been addressed by the counsel for the assessee in respect of the said party i.e. M/s Samanta & Brothers.
11. The only grievance raised by the assessee through the earlier reproduced grounds of appeal
is in respect of directions of the CIT(A) in restoring the matter to the file of the Assessing Officer for further investigation in respect of three parties as discussed above. The main argument of the ld. counsel for the assessee has been that since the ld. CIT(A) had deleted the addition made by the Assessing Officer, therefore, further action of the CIT(A) in directing the Assessing Officer to make further enquiries was not sustainable. We are unable to accept the aforesaid contentions of the ld. AR. In this case, in respect of one party i.e M/s Goodwill Corporation, earlier the said party had stated that it had done no transaction with the assessee, but later on, though, accepted that there were business transactions but denied any outstanding credit towards the assessee. Under the circumstances, when the creditor himself has stated that the assessee did not owe any liability to him, there seems no liability remaining of the assessee towards said party. However, the ld. CIT(A), to give fair chance to the assessee, has directed the Assessing Officer to make enquiries in respect of said liability shown by the assessee as noted above. Similarly, in respect of other two parties, the notices sent to them were received back unserved. The ld. CIT(A), under the circumstances, though at the first instance, deleted the additions made by the Assessing Officer but thereafter directed the Assessing Officer to make further enquiries in this respect as reproduced in earlier part of this order. It is pertinent to note here that the Hon’ble Delhi High Court in the case of "CIT vs. Chipsoft Technology (P) Ltd." Assessment year: 2014
15. Arun Kumar Bose 210 Taxman 173 (Del), has held that in the case of an employer, omission to pay the dues/liability to employee over a period of time and the resultant benefit derived by the employer/assessee would qualify as a cessation of liability, albeit by operation of law and that a debtor or an employer, holding on to unpaid dues, should not be given the benefit of his showing the amount as a liability, even though he would be entitled in law to say that a claim for its recovery is time barred, and continue to enjoy the same. The relevant para of the above said judgment of the Hon'ble Delhi High court is reproduced as under:
9. Two aspects are to be noticed in this context. The first is that the view that liability does not cease as long as it is reflected in the books, and that mere lapse of time given to the creditor or the workman, to recover the amounts due, does not efface the liability, though it bars the remedy. This view, with respect is an abstract and theoretical one, and does not ground itself in reality. Interpretation of laws, particularly fiscal and commercial legislation is increasingly based on pragmatic realities, which means that even though the law, permits the debtor to take all defences, and successfully avoid liability, for abstract juristic purposes, he would be shown as a debtor. In other words, would be illogical to say that a debtor or an employer, holding on to unpaid dues, should be given the benefit of his showing the amount as a liability, even though he would be entitled in law to say that a claim for its recovery is time barred, and continue to enjoy the amount. The second reason why the assessee's contention is unacceptable is because with effect from 1-4-1997 by virtue of Finance Act, 1996 (No.2), an Explanation was added to Section 41 which spells out that loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by an unilateral act by the first mentioned person under clause". The expression "include" is significant; Parliament did not use the expression "means". Necessarily, even omission to pay, over a period of time, and the resultant benefit derived by the employer/assessee would therefore qualify as a cessation of liability, albeit by operation of law."
12. In view of the above discussion, we do not find any infirmity in the order of the CIT(A) in directing the Assessing Officer to make Assessment year: 2014-15 Arun Kumar Bose further enquiries. There is no merit in the appeal of the assessee and the same is accordingly hereby dismissed.
In the result, the appeal of the assessee stands dismissed.