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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI LALIET KUMAR
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and the same is directed against the order of ld. CIT(A)-VI, Bangalore dated 17.01.2013 for Assessment Year 1998-99.
The grounds raised
by the assessee are as under.
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2[A]. The order of re-assessment is bad in law and void-ab-initio for want of requisite jurisdiction especially, the mandatory requirements to assume jurisdiction u/s 148 of the Act did not exist and have not been complied with and consequently, the re-assessment requires to be cancelled. 2[B]. The notice issued u/s.148 of the Act is bad in law as the same was with a view to verify the cash payment made to one Sri Devarajaiah, and that by itself would not induce a belief that income has escaped assessment and further having verified that such payment was shown and no addition was made on that any count any further, the assumption of jurisdiction to make other additions is bad in law Page 2 of 9 and consequential assessment requires to be annulled.
The learned A.O. is not justified in assessing a sum of Rs. 50,50,000/-erroneously credited to the account of M/s. TECHNO ART CONSTKEUCTIONS PVT. LTD., in the appellants books of accounts - M/s P.Dayananda Pai in which Sri P.Dayananda Pai, is one of the partners of the appellant firm was a partner, which sum was transferred to his account on his retirement in M/s. RMV CLUSTERS, instead of crediting to the capital or current account of Sri P.Dayananda Pai in the firm accounts of M/s. P.Dayananda Pai - appellant firm. 3.1 This is purely an accounting entry and the authorities are not justified in assessing the said sum as unexplained credit in spite the Managing Director M/s.Techno Art Constructions Pvt. Ltd., and also a partner of M/s. RMV CLUSTERS having categorically confirmed this transaction in response to summons issued u/s.131 of the Act by the learned A.O. and also filing the confirmation letters before the learned A.O. to the same effect. 3.2 The rejection of the self-manifest explanation is arbitrary and capricious and the resultant addition requires to be deleted.
4. The authorities below are not justified in summoning the other creditors, which he considered as unexplained under the facts and circumstances of the appellant's case.
The authorities below failed to appreciate that the amounts were received by account payee cheques from the other creditors and none of them have waived and therefore, in the absence of any evidence, that they had waived it could not be said the appellant had not proved the existence of liability and there is nothing to suggest that there was any extinguishment of the debt to warrant an addition.
Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 234-A, 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 6.1 Further, the order having been set-aside by the Hon'ble ITAT, the amounts paid pursuant to the original assessment to the extent of Rs.55,54,085/- which was given even credit to by the learned A.O. in the order u/s.143[3] read with 153C and the said amount paid requires to be adjusted against the tax payable along with the payment made u/s.140A - Rs.36,743/-and the interest u/s.234A and 234B of the Act ought to have been calculated thereafter. 6.2 Further, the levy of interest u/s.234A of the Act, is up to the date of filing the return in response to original notice u/s.148 of the Act i.e., for a period of about 01/05/2001 to 25/06/2001 i.e., 2 months and not Page 3 of 9 up to the date of the impugned assessment order dated 19/12/2008, in which case there will not be any warrant to levy interest u/s.234A of the Act at all in view of the payments made prior to the impugned order. 6.3 Further, the levy of interest of interest u/s.234B of the Act, could be for the period commencing from the expiry of the date of original assessment after giving credit to the payments made under the original order till the date of the impugned assessment in which case, there will not be any warrant to levy of interest u/s.234B of the Act, which requires to be cancelled.
7. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
3. The assessee has also raised some additional grounds but in course of hearing of the appeal, it was submitted by ld. AR of assessee that the additional grounds are not pressed and accordingly, we reject these additional grounds and do not reproduce the same in the present order.
It was submitted by ld. AR of assessee that ground no. 1 is general and he also submitted that ground nos. 2[A], 2[B], 4 and 5 are not pressed and hence, these grounds are rejected as not pressed.
5. Regarding ground nos. 3, 3.1 and 3.2, it was submitted that in these grounds, the only issue in dispute is regarding addition made by the AO of Rs. 50.50 Lakhs and confirmed by ld. CIT (A). He submitted that this appeal of the assessee is in second round of the proceedings and he pointed out that the Tribunal order in the first round of appeal is available on pages 48 to 52 of paper book in & 327/Bang/2005 dated 10.08.2007 and our attention was drawn to para 4 of this Tribunal order and it was pointed out that as per this para, the Tribunal has restored back the matter to the file of AO with the direction to redo the assessment by affording the assessee sufficient opportunity of being heard including summoning the creditors and allowing the assessee to cross-examine them. Thereafter, he pointed out that as per the assessment order in the second round, in para no. 8(ii) on page no. 10 of the assessment order, the AO states that the assessee has claimed that the payments were not received during the previous year relevant to the present Assessment Year and the Page 4 of 9 assessee has furnished copy of Balance Sheet for Assessment Year 1997- 98 enclosing therewith a schedule of ‘property advance received’ and claiming that the amount of Rs. 50.50 Lakhs received from M/s. Technoart Constructions Pvt. Ltd. on account of M/s. RMV Clusters is wrongly shown as ‘property advance received’. Thereafter he pointed out that after noting this submission of assessee, the AO says that it may be stated here that the assessee had not raised any such issue during the course of original assessment. Thereafter the AO further says that the issue here is the liability ceasing to exist during the Assessment Year under consideration, and not the receipt of the sum, and hence, the year of receipt is of no consequence here. He submitted that the submission of the assessee before CIT (A) in first round is available on pages 26 to 30 of paper book and in particular, our attention was drawn to para no. 4 of the same on page no. 28 of the paper book and it was pointed out that it was submitted before CIT(A) in first round that these credits were not the credits obtained during the previous year relevant to the Assessment Year under appeal and were all opening balances and all these monies received from these parties and credited to them were through account payee cheques and the credits were genuine. He further submitted that these submissions were also reproduced by CIT (A) in his order in the first round copy of which is available on pages 42 to 47 of paper book and our attention was drawn to para no. 2.2 of this order of CIT (A) available on pages 43 and 44 of paper book. He submitted that therefore, this is not correct on the part of the AO to say that this claim was not raised in the first round that the impugned receipts are not the receipts in the present year. He also submitted that once it is accepted that the receipts are not the receipts in the present year, section 68 is not applicable for making any addition in respect of those receipts which were not received in the present year. Thereafter he submitted that in para no. 8.2 of the assessment order on page no. 12, the AO has said that the assessee has received the amount on settlement of his account with M/s. RMV Clusters and hence, the question of existence of any liability does not arise and he made the addition in the present year on this basis that there was no such liability of the assessee to M/s. Technoart Page 5 of 9 Constructions Pvt. Ltd. and the liability shown by the assessee is non existent and on this basis, he made addition of Rs. 50.50 Lakhs. He submitted that the addition made by the AO and confirmed by CIT(A) is not justified and hence the same should be deleted. The ld. DR of revenue supported the orders of authorities below. The ld. AR of assessee placed reliance on the following judicial pronouncements. A) CIT Vs. Prameshwar Bohra, 301 ITR 404(Raj) B) CIT Vs. Usha Stud Agricultural Farms Ltd., 301 ITR 384 (Delhi) C) CIT Vs. Sugauli Sugar Works (P.) Ltd., 236 ITR 518 (SC) 6. The ld. DR of revenue placed reliance on the judgement of Hon’ble Apex Court rendered in the case of CIT Vs. T. V. Sundaram Iyengar and Sons Ltd. (1996) 222 ITR 344 (SC).
We have considered the rival submissions and perused the material on record and gone through the judgements cited by both sides. First of all, we reproduce para nos. 8 (ii) and 8.2 from page nos. 10 and 12 respectively of the assessment order. The same are as under. “8 (ii) The assessee claims that the payments were not received during the previous year relevant to this assessment year. The assessee has furnished a copy of balance-sheet for the AY 1997-98 enclosing therewith a schedule of `property advance received' and claiming that the amount of Rs.50,50,000/-received from M/s. Technoart Constructions Pvt. Ltd. on account of M/s. RMV Clusters is wrongly shown as 'property advance received'. It may be stated here that the assessee had not raised any such issue during the course of original assessment. Further, the issue here is the liability ceasing to exist during the assessment year under consideration, and not the receipt of the sum. Hence, the year of receipt is of no consequence here.” “8.2As already discussed above, the issue here is the Liability ceasing to existduring the year under consideration. Further as discussed above, the assessee has received the amount on settlement of his account with M/s RMV Clusters, Hence, the question of existence of any Liability does not arise. Therefore, it is found that during the year under consideration there was no such liability of the assessee to M/s. Technoart Constructions Pvt. Ltd. The liability shown by the assessee is non existent. The amount of Rs.50,50,000/- is therefore added as income.”
From the above paras reproduced from the assessment order, it comes out that on page no. 10 of the assessment order, it is seen that this is the case of the assessee before the AO that this amount was not received in the Page 6 of 9 present year and we find that in para no. 8(ii) of the assessment order, the AO has stated that the year of receipt is of no consequence because as per the AO, the issue is regarding liability ceasing to exist during the present year. Hence it is clear that the impugned addition cannot be made u/s. 68 because the AO also accepts that the amount in question was not received in the present year. Now the second question is whether the addition made by the AO on this basis that there is no liability is justified. Such addition can be made u/s. 41(1) of IT Act. For ready reference we reproduce section 41(1) of IT Act. The same is as under. “41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first- mentioned person) and subsequently 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 remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous 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 (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1.—For the purposes of this sub-section, the expression "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 a unilateral act by the first- mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. Explanation 2.—For the purposes of this sub-section, "successor in business" means,— (i) where there has been an amalgamation of a company with another company, the amalgamated company; Page 7 of 9 (ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person; (iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm; (iv) where there has been a demerger, the resulting company.”
From the above provisions of section 41(1) of IT Act, it comes out that the addition can be made on remission or cessation of any liability which has arisen on account of loss or expenditure claimed and allowed to the assessee in an earlier year. In the present case, this is not the case of the AO that any deduction was allowed to assessee for this amount of Rs. 50.50 Lakhs in an earlier year. In fact, this is the case and claim of the assessee that amount in question was received from a firm of which the assessee was a partner i.e. M/s. RMV Clusters although the payment was made by M/s. Technoart Constructions Pvt. Ltd. and such receipt of amount was wrongly accounted for by the assessee as ‘property advance received’. In our considered opinion, if the AO wanted to make any addition on this basis that there is cessation or remission of liability then the AO should have established that some benefit was allowed to the assessee in respect of such amount in an earlier year and only then section 41(1) can be invoked to make addition for cessation or remission of such liability. This judgement of Hon’ble Apex Court which is cited by ld. DR of revenue having been rendered in the case of CIT Vs. T. V. Sundaram Iyengar and Sons Ltd. (supra) is in favour of the revenue but in the facts of present case, even this judgment is not rending any help to revenue in this case because as per the facts of this judgment, money was received from customers by the assessee in that case and as per the facts noted in this case, it was found that in Assessment Year 1982-83 and 1983-84, the assessee transferred two amounts to P&L account but this amount was not included in the total income of the assessee and this was claimed that these amounts were credit balances standing in favour of the customers of the company and since these balances were not claimed by the customers, the amounts were transferred by assessee to P&L account. Under these facts, it was held by Hon’ble Apex Court that the claim of the customers have become barred by limitation and the assessee himself has treated this money as own money Page 8 of 9 and taken it to its P&L account and under these facts, it was held that if an amount is received in course of trading transaction, even though it is not taxable in the year of receipt as being not of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. In the present case, this is not the case made out by the AO that in the present year, the liability has become time barred or there is any event because of which, this liability is ceased to exist in the present year and this is also not the case of the AO that the amount in question was received in course of trade transactions. The assessee has also not credited the amount in question to P&L account. Because of these differences in facts, this judgment of Hon’ble Apex Court does not help the revenue in the present case. In our considered opinion, the addition made by the AO is not justified because the requirements of section 41(1) are not specified and section 68 cannot be invoked in the facts of present case and there is no other section under which the addition can be made in the facts of present case on account of cessation or remission of liability or non-existence of liability particularly when the assessee has given the explanation that the receipt in question was wrongly accounted for as advance against property although the same was received on account of refund of capital contribution in a firm in which the assessee has taken retirement. Hence we decide the issue in favour of the assessee.
Regarding ground no. 6 ld. AR of assessee made various arguments but we are of the considered opinion that this issue regarding chargeability of interest is consequential and hence, no separate adjudication is called for.
In the result, the appeal filed by the assessee stands partly allowed in the terms indicated above. Order pronounced in the open court on the date mentioned on the caption page.