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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH, AHMEDABAD
ITA No. 2282/Ahd/2016 Shri Abdullakhan A Pathan Vs. ACIT Assessment year: 2012-13 Page 1 of 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH, AHMEDABAD [Coram: Pramod Kumar AM and Mahavir Prasad JM] ITA No. 2282/Ahd/2016 Assessment Year: 2012-13 Abdullakhan A. Pathan ............…………......Appellant Nr. Panjarigarwada Masjid, Ahmedabadi Bazar, Nadiad Kheda-387 001 [PAN : ACZPP 4845 P] Vs. ACIT, ...........................Respondent Kheda Circle, Nadiad
Appearances by: Parin Shah for the Appellant James Kurian for the Respondent Date of concluding the hearing : 25.01.2018 Date of pronouncing the order : 24.04.2018
O R D E R Per Pramod Kumar, AM:
By way of this appeal, the assessee has challenged correctness of learned CIT(A)’s order dated 13th May 2016, for the assessment year 2012-13, on the following grounds:-
“1. Ld. CIT (A) erred in law and on facts in confirming addition made by AO of Rs. 7, 54, 280/- as unexplained cash credit u/s 68 by converting addition as unpaid/ unproved liability u/s 41(1) of the Act without issuing notice in this regard to the appellant. This action of Id. CIT (A) is harsh and against the principles of law that deserves to be quashed. It be so held now.
Ld. CIT (A) erred in law and on facts in confirming impugned addition of Rs. 7,54, 280/- u/s 41(1) of the Act when the provisions of the sec. 41 (1) are not at all applicable to the facts of the case. Ld. CIT (A) ought not to have held long outstanding amounts as cessation or remission of liability assessable as income u/s 41 (1) of the Act.
Without prejudice to the above grounds the amounts received in earlier years being accepted as genuine the provisions of sec. 68 of the Act be held to be not applicable. The appeal is delayed by 23 days, but the assessee has filed a condonation petition. Having perused the said petition and having heard rival contentions on the same, we are inclined to condone the delay. Delay is thus condoned.
ITA No. 2282/Ahd/2016 Shri Abdullakhan A Pathan Vs. ACIT Assessment year: 2012-13 Page 2 of 4
Briefly stated, the relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer made an addition of Rs.7,54,280/-, as unexplained credits under section 68, by observing as follows:-
“5. During the assessment proceedings, the genuineness of the unsecured loan creditors was examined on test check basis, since the loans are shown to be carried forward for more than five years. The credit balances in the case of the following loan creditors indicated that the same were non genuine loan liabilities shown in the assessee's books. These creditors were shown in the names of Shri Bhaviniben S Patel - Rs.1,04,050/-, Shri Sudhir J Patel - Rs.1,65,465/-, Smt. Shantaben J Patel - Rs. 1,04,050/-, Shri Manish T Sukadia - Rs.91,021/-, Smt. Alpaben R Desai - Rs.1,10,741/-, Smt. Alpaben M Saraiya - Rs.62,620/-, Smt Bhaviniben M Saraiya - Rs.61,016/- and Smt. Raksaben M Saraiya -Rs.55,317/-. The total of these non genuine loan creditors amounts to Rs.7,54,280/-. The assessee could not explain the genuineness of the above loan creditors which were verified by this office and no explanation could be advanced for the same. In view of the above, the assessee has not discharged the onus cast upon him to the existence of the liability amounting to Rs.7,54,280/- as required u/s.68 of the Act. Hence, theses non genuine loan liability is disallowed and added to the total income.”
Aggrieved, assessee carried the matter in appeal before the CIT(A) and pointed out that the credits in question, which have been treated as unexplained credits, in fact represents credits given by Janta Co-operative Bank Ltd, upon maturity of fixed deposits by these persons. The assessee also furnished copies of the related FDRs and bank certificates demonstrating that credits were so given by the bank and that the FDRs were made in the financial year 2005-06. On these facts, learned CIT(A), inter alia, observed as follows:- “4, I have carefully considered the facts on records and submission of the Ld. Authorized Representative. The appellant has been carrying on the business of manufacturing and sale of Hing (Asafoetida) in the name and style of a New Bharat Hing Supplying Co. The appellant had a cash credit account with Janta Co-operative Bank Ltd. On perusal of the copy of bank statement placed on record for the period from 01.09.2002 to 27.09.2006, it is noticed that the appellant had borrowed funds from that bank to the extent of Rs.25,36,124/- as on 30.11.2002. Thereafter, the interest was charged by the bank to the extent of Rs.8,72,148/- upto 30.06.2004. Since the bank was unable to pay the money to the depositors, he had taken liability to repay some of the fixed deposits in lieu of loan to be repaid to the bank. Accordingly, the fixed deposits existing in the accounts of following parties were transferred to the bank account of the appellant reducing the amount of loan payable accordingly.
Sr. Name of Party from whom unsecured loan Amount No. taken 1 Smt. Bhaviniben 5, Patel 1,04,050/- 2 Shri Sudhir J. Patel 1,65,465/- 3 Smt. Shantaben J. Patel 1,04,050/- 4 Shri ManishT. Sukadia 1,04,050/-
ITA No. 2282/Ahd/2016 Shri Abdullakhan A Pathan Vs. ACIT Assessment year: 2012-13 Page 3 of 4 5 Smt. Alpaben R. Desai 1,10,741/- 6 Smt. Alpaben M. Sariya 62,6207- 7 Smt. Bhaviniben M. Saraiya 61,0167- 8 Smt. Raksaben R. Saraiya 55,3177-
4.1. From the above mentioned Bank Account, the appellant was making payments for expenses and also depositing sale proceeds therein. Thus, from the bank entries, it is clear that the money was borrowed from Janta Co- operative Bank Ltd. for the purpose of working capital including interest thereon and accordingly the FDRs of above mentioned persons transferred to the bank account of the appellant had been utilized for repayment of the liability of working capital. Since the liability to pay against the fixed deposits had been taken over by the appellant in year 2005, he had shown the respective FD Account holders in his books of account as creditors. Even after lapse of eleven years, the appellant has not repaid the liability' He has also failed to furnish the confirmation from the creditors. During the course of appellate proceeding also, the Ld. Authorized Representative has expressed his inability to furnish the confirmation from the loan creditors. Accordingly, it emerges that the liability towards the loan creditors has ceased to exist with the passage of time. In the case of Legitronics Pvt. Ltd. Vs. CIT (2011) 233 ITR 386 (Del.), the Hon'ble High Court has held that the waiver of loan or credit obtained for working capital i.e. trading activities Is liable to be taxed as income of the assessee. Accordingly, unclaimed/unproved loan liability shown by the appellant in the books of account is liable to be taxed in his hands.
4.1.1. The question as to whether the income is liable to be taxed u/s. 41(1), only at the time of writing off of entries from the books of account has been considered in various cases. In the case of CIT Vs. Chip Soft Technology Pvt. Ltd. (2012) 26 taxmann.com 109 (Del.), the Hon'ble High Court has held that if liability was outstanding in the books of account for a longer period and no confirmation was furnished, then the assessee cannot continue to enjoy the benefit of the same. Referring to the Explanation which was inserted w.e.f. 01.04.1997 to section 41, it has been further held that even omission to pay the liability over a period of time has to be included in the definition of remission or cessation of liability. Accordingly, the unpaid salary outstanding in the books of account in the name of various employees was held to be income taxable u/s. 41(1). Following this decision of Hon'ble Delhi High Court, Hon'ble ITAT in the case of Bharat Dana Bera Vs. ITO (2015) 56 taxmann.com 388 (Mum.) has held that failure to establish genuineness of the old liability means that there is a cessation or remission of such liability. Similarly in the case of ITO Vs. Sajjan Kumar Didwani 65 SOT 179 (Mum.), it has been held that the unclaimed and unproved liability deemed to have been ceased and hence is assessable as income u/s. 41(1).
4.1.2. In view of the above factual matrix and legal position, thus I hold that the unpaid/unproved loan liability amounting to Rs.7,54,280/- shown outstanding for a very long period has ceased to exist and accordingly the addition made by the Assessing Officer is confirmed u/s. 41(1) instead of section 68. Hence, all the grounds of appeal raised by the appellant are dismissed.”
ITA No. 2282/Ahd/2016 Shri Abdullakhan A Pathan Vs. ACIT Assessment year: 2012-13 Page 4 of 4
In effect thus while CIT(A) accepted explanation of the assessee with respect to the credits, he reiterated the additions nevertheless – though in a different avatar as ceased liability under section 41(1). The assessee is aggrieved and is in further appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
We have noted that the case of the Assessing Officer was that the credits are unexplained, but then as a plain reading of the CIT(A)'s impugned order shows, non- availability of explanation is no longer the issue. Learned CIT(A) has noted the explanation and did not even dispute the same. He has, however, shifted the goal post and decided the issue against the assessee by treating it as a ceased liability under Section 41(1) but then the assessee was not even put to notice in that aspect of the matter. No doubt the powers of the CIT(A) are co-terminus with that of the Assessing Officer but then he has to exercise such powers in a fair and transparent manner which can meet the tests of natural justice. That is not the case here. Be that as it may, even factually the stand of the CIT(A) is incorrect inasmuch as the bank is under liquidation and the liability of assessee still exists. In view of these discussions, we are of the considered view that the impugned addition of Rs.7,54,280/- indeed deserves to be deleted. We, therefore, direct the Assessing Officer to delete the impugned addition of Rs.7,54,280/-. 7. In the result, the appeal is allowed as per the terms indicated above. Pronounced in the open court today on the 24th April, 2018 Sd/- Sd/- Mahavir Prasad Pramod Kumar (Judicial Member) (Accountant Member) Ahmedabad, the 24th day of April, 2018 **bt Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad 1. Date of dictation: .....order prepared as per 4 pages manuscripts of Hon’ble AM which are attached...24.04.2018... 2. Date on which the typed draft is placed before the Dictating Member: ....... 24.04.2018.......... 3. Date on which the approved draft comes to the Sr. P.S./P.S.: …24.04.2018... 4. Date on which the fair order is placed before the Dictating Member for Pronouncement: 24.04.2018. 5. Date on which the file goes to the Bench Clerk : .. 24.04.2018.... 6. Date on which the file goes to the Head Clerk : …24.04.2018…………………………. 7. The date on which the file goes to the Assistant Registrar for signature on the order: …… 8. Date of Despatch of the Order: ………………......