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Income Tax Appellate Tribunal, “C”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM
आदेश / O R D E R PER R.C.SHARMA (A.M):
This is an appeal filed by the Revenue against the order of CIT(A)- 9, Mumbai dated 22/02/2016 for A.Y.2012-13 in the matter of order passed u/s.143(3) of the IT Act.
Following grounds have been taken by the Revenue:- (i) " on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 2,04,05,038/- made by the AO u/s. 41(1) of the Income Tax Act, without appreciating the fact that the assessee could not prove the genuineness of the liabilities. (ii) "on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 2,04,05,038/- made by the AO u/s. 41(1) of the Income Tax Act, without properly M/s. Saffron Fabrics (P) Ltd., considering the remand report of the AO wherein it has been established that the repayment ot the said creditors had been credited into the bank accounts of either M/s. Vardhman Textiles or M/s. Shankeshwar Enterprises and not into the account of any of the creditors." (iii) "on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 9,00,000/- made by the AO in respect of unexplained cash credit after considering the details filed by the assessee during the appellate proceedings and not giving the Assessing Officer an opportunity to verify the same." (iv) "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
Rival contentions have been heard and record perused.
Facts in brief are that assessee is engaged in business of trading in textiles. During the course of assessment, AO found that trade liability to the extent of Rs.2,04,05,038/- ceased to exist u/s.41(1) of the IT Act. Accordingly, same was added in the assessee’s income. 5. By the impugned order, CIT(A) deleted the addition after observing as under:- “2.3.4. I have further perused the stand of the AO in assessment order, submissions of the appellant, remand report of the AO as well as the appellant's comments thereupon. As regards addition of Rs.2,04,05,038/- on account of cessation of liability u/s. 41(1) of the IT Act is concerned, the Ld AR argued that the liability was existing as on the date of assessment and has been paid in subsequent assessment year. He vehemently argued that since the liability has not been written off in books of account how the same can be treated as cessation. For his contention he relied on various decisions mentioned in the written submission, I agree with the contention of the AR that none of the clauses of the provisions of section 41(1) or explanation there to is applicable to the facts of the appellant. Further it is undisputed fact that liabilities are existing and appellant has not written off in its books of accounts. In my considered view appellant has not claimed any deduction in respect of aforesaid liability or any deduction has been allowed to the appellant in any of the assessment year. Therefore the said liabilities cannot be said to be ceased within the meaning of section 41(1) of the Act. It is also a matter of fact that appellant has not received any refund or obtained any benefits thereof from.
M/s. Saffron Fabrics (P) Ltd., I have also perused the remand report also the reply of the assessee wherein the Ld. AR has submitted that the AO has accepted the sales as genuine and have not doubted the sundry creditors from whom goods have been purchased. The AO has doubted only the payments made to these creditors. In this regard the Ld AR brought to my notice that assessee has made the payments to the party from whom goods have been purchased. In this regard the Ld AR brought to my notice the decision of Jurisdictional Hon'ble ITAT in the case of M/s. Balaji Textiles Industries ltd v Third ITO 49 ITD 177 Mum 1994 wherein it is held as under : "We have examined the facts as brought on record by the appellant. We have taken into consideration the arguments advanced on behalf of both the parties. In our opinion, issuing printed bills for selling the textile goods to the appellant at Bhiwandi is not a conclusive proof but it is a prima facie proof to arrive to a correct conclusion that the appellant purchased certain goods from certain parties at Bhiwandi. The appellant sold those goods to M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd. and adjusted the sale proceeds against the loan taken by it from that party. The appellants books of account and the books of account of M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd. in which the entries of sale and adjustment are made cannot be discarded merely by saying that they are not genuine entries though neither the Assessing Officer nor the CIT(A) opined anything in respect of those entries. Further, in our opinion, the purchase of the goods in the month of March 1985 does not make any difference. The appellant might not have carried on any business activities prior to March 1985, but that does not mean that the appellant was not entitled to carry on the business activity in the month of March 1985. The appellant cannot be compelled to carry on the business activity throughout the year. There are no good reasons to disbelieve the sales made by the appellant to M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd. No sales were likely to be effected if there were no purchases. A sale can be made if the goods are available with the seller. From all these facts on record, a reasonable and convincing inference which can be drawn is that the appellant purchased the textile goods, sold them and adjusted the same towards the loan taken by it. Therefore, the assessee is entitled to get the entire deduction. Facts of the present assessee are similar to that of the above decision of Hon'ble High Court in the case of Balaji Textiles (supra), therefore, the ratio of decision is applicable to the present case also. The ratio of decision being from Hon'ble Jurisdiction Mumbai ITAT is binding. Therefore, the addition / disallowance majle by the AO cannot be sustained. Besides that, the appellant purchased goods from Bhiwandi (Maharashtra) and the weavers thereof are in unorganized sector and M/s. Saffron Fabrics (P) Ltd., that being the case the appellant cannot be forced to produce those parties. Further, the AO has not brought any material on record to demonstrate that the receipt side or the sales disclosed by the appellant is not genuine. No finding has been given by the AO that these were income from other sources and not sales proceeds. Once the sale has not been disputed, the purchases and payment thereof cannot be disputed. In addition to that, there is no dispute that payment has been made by the appellant t through banking channel and money has flown out of bank account of the appellant. The AO has not been able to prove that this money has once again come back to the appellant either in the same bank account or otherwise. Unless this circle is completed and proved by the AO, the payment cannot be disproved and what has not been disproved, no adverse inference can be drawn. Keeping in view, facts of the case and circumstance and nature of business of the appellant company and its transactions in un-organised sector, and the decision of Jurisdictional Hon'ble ITAT of Mumbai, the addition / disallowance made by the AO cannot be sustained. Accordingly, the AO is directed to delete the amount of Rs.2,04,05,038/-. In the result, the ground of appeal is allowed.”
6. Against the above order of CIT(A), Revenue is in further appeal before us.
7. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us in the context of factual matrix of the case. 8. From the record we found that the ld AO has made the addition u/s.41(1) in respect of amount payable to following parties:
M/s. Saffron Fabrics (P) Ltd., Sr No. Name of the Party Amt o/s in Rs 1 M/s. Laxmi Textiles 30,88,832/- 2 M/s. Minal Textiles 7,00,000/- 3 M/s. Namrata Textiles 7,99,950/- 4 M/s. Shree Textiles 11,49,126/- 5 M/s.Siddhi Textiles 10,61,433/- 6 M/s. Sidharth Textiles 51,05,973/- 7 M/s. Suzi Textiles 2,38,109/- 8 M/s. Vibha Textiles 8,84,249/- 9 M/s. Vinay Textiles 8,52,788/- 10 M/s. Wazid Textiles 50,99,396/- 11 14,25,182/- M/s. Ziya Textiles 2,04,05,038/-
As per our considered view for a liability to cease the following conditions needs to be fulfilled as stated in section 41(1) of the Act which are as under: "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 diargeable to income-fax 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 M/s. Saffron Fabrics (P) Ltd., b. the successor in business has obtained, whether in cash or in any oilier 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 tlie 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 subsection, 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 subsection, "successor in business" means - i. where there has been an amalgamation of a company with another company, the amalgamated company; 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."
It is clear from the above provision that for a liability to be treated as ceased any of the conditions mentioned in section 41(1) of the Act needs to be fulfilled. Since none of the conditions mentioned in the said section are attracted it cannot be said that liability has ceased. Therefore no addition can be made in view of the following further facts. a) Firstly there are no such remission or cessation of liability on the part of assessee. The assessee has not done any act by virtue of which it can M/s. Saffron Fabrics (P) Ltd., be said that the liability has ceased to exist. Here it is pertinent to mention that the impugned liability not only exists at the end of the assessment year but also as on date. Moreover the assessee is regularly making the payment against the said liability. b) Secondly the assessee has neither obtained a refund of such trading liability nor have obtained any benefit thereof. c) Lastly the assessee has not written off the said liability in the books of account in the impugned assessment year but have been showing the same as payable in the balance sheet of current year so as not to be treated as cessation as held in the following decision: Kapil Advertising v ITO (2011) 48 SOT 63 (Delhi) d) For applicability of section 41(1), the pre-requisite condition is that an allowance or deduction has been made in the assessment for any of the years in respect of an expenditure, loss or trading liability incurred by the assessee and subsequently during any previous year the assessee has received remission or obtained refund of the said amount, which is not so in appellant's case because there is neither remission nor appellant has received any refund. Therefore following the decision cited below the addition made by treating the existing liability as ceased needs to be deleted forthwith. a) CIT v Emkay Glass Works (2007) 288 ITR 582 (ALL). b) CIT v Travancore Chemical & Manufacturing Co Ltd (2006) 287 ITR 228 (Ker)
After considering the entire facts and circumstances, the CIT(A) recorded a finding to the fact that in the subsequent years said liability has been duly paid. The CIT(A) has also considered the remand report sent by the AO as well as rejoinder filed by the assessee. After M/s. Saffron Fabrics (P) Ltd., considering all the evidences, finding has been recorded by CIT(A) to the effect that payment has been made to these suppliers and suppliers have received the payment in the next year. Findings so recorded by CIT(A) are as per material on record and had not been controverted by the department by bringing any positive material on record. Accordingly we do not find any reason to interfere in the findings of CIT(A) to the effect that there was no cessation of liability during the year under consideration. Accordingly, we confirm the order of CIT(A) on this issue.
AO has made an addition of Rs.9 lakhs in respect of unexplained cash made. The addition so made was deleted by CIT(A) after observing as under:- “4.3. I have considered the stand of the AO as well as submission of the appellant. As regards third ground of appeal wherein the AO has made addition on account of non appearance of loan amount in annexure to 3CD report is concerned I have perused the order of the AO and the submission made by Ld AR. During the course of appellate proceedings the Ld AR brought to my notice that inadvertently due to typographical error the auditor reported the loan amt payable to M/s. Seven Days Fashion of Rs.1,77,857/- against the correct amount payable of Rs.8,50,000/-. He further brought to my notice that in the Balance sheet as well as schedules to the Balance Sheet an amt of Rs.8,50,000/- has been shown as payable. Further he produced copy of P&L A/C, Balance sheet, ROI, and Bank Statement etc to prove that in fact the amt mentioned in Financial Statement is correctly payable. In this respect, I have gone through the necessary papers/evidences filed alongwith submission and am of the considered view that this is merely a typographical error needs deletion. In this regard he brought to my notice the Hon'ble Apex Court decision in the case of Hon'ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. Vs. CIT (Appeal No.6924 -2012) wherein also the mistake has occurred due to inadvertence. The Hon'ble Apex Court in that case directed that no penalty can be levied following the same when there is an inadvertence typographical error no addition can be made unless there are financial data mismatch. In this case financial data's are true and correct.
M/s. Saffron Fabrics (P) Ltd., Hence I direct the AO to delete the addition of Rs.9,00,000/- after verification from record.”
Revenue is in further appeal before us.
We have considered rival contentions and carefully gone through the orders of the authorities below and found that during the course of assessment on verifying the details filed by the assessee with the Annexure 4 of Audit Report, it was found by AO that the o/s loans of Rs.8,50,000/- claimed to be received from SEVEN DAYS FASHION was not reported in the Audit Report. Vide SCN dtd 1.12.14 the assessee was asked to explain the discrepancy in “unsecured loans” as details above. The relevant portion of SCN is reproduced hereunder: Unsecured Loans'- As per BS as on 31.03.2014, an amt of Rs.20,83,460/- has been Claimed as o/s unsecured loans. You filed the details of unsecured loans as under: SRNO NAME O/S AMT 1 AVINASH PATEL 133253 2 BHIKABHAIPATEL 42519 3 KETAN PATEL 247041 4 KAILASHBEN PATEL 632790 5 SAFFRON INTERNATIONAL 177857 6 SEVEN DAYS FASHION 850000
AO further stated that perusal of Annexure 4 to Form 3CD shows a total o/s loan of Rs. 12,33,46O/- only. It also does not indicate any loans received from M/s. Seven Days Fashion. You are therefore M/s. Saffron Fabrics (P) Ltd., requested to explain as to why the amts received from M/s. Seven Days Fashion should not be added to your income being unexplained credit.
Being satisfied with the assessee’s reply, AO made the said addition. 17. From the record, we found that the ld AO has made the aforesaid addition on account of difference between amount shown in Annexure 4 to 3CD Report under the head details of unsecured loan to that of amount shown in Balance Sheet. In this regard we observe that merely because the said amount has not been reflected in the Audit Report cannot be the reason for making the said addition. The auditor by oversight has not typed the said amount payable to M/s. Seven Days Fashion in the Annexure to 3CD Report. What is to be seen is the actual liability payable as per Balance Sheet which gives true and correct picture of the financial status of the company and not the Annexure to 3CD Report. Moreover Annexure to 3CD Report gives details of loan squared up/ maximum amount outstanding & minimum amount outstanding. It does not give details of actual amount payable. In support of what actually payable assessee had filed confirmation which the Ld AO which he has mentioned in the assessment order, he has also mentioned about the loan amount. Therefore there should not have been any doubt about the loan amount. Had he any doubt he would have used the machinery available under law and rejected books of account which he did not but made the unwarranted addition. In the assessment order the Ld AO M/s. Saffron Fabrics (P) Ltd., himself is admitting that M/s. Seven Days Fashion has given loan of Rs. 5,00,000/- on 02/06/2011 and Rs. 4,00,000/- on 02/07/2011 totalling to Rs. 9,00,000/-. Out of the said Rs. 50,0000/- payable was opening balance which was to receive from M/s. Seven Days Fashion as on 01/04/2011. Therefore the net amount payable was Rs. 8,50,000/- which is duly reflected in the confirmatory letter and balance sheet of M/s. Seven .Days Fashion. To prove further they had submitted the copy of bank statement highlighting that M/s. Seven Days Fashion, has given loan on 02/06/2011 & 02/07/2011 of Rs. 5,00,000/- and Rs. 4,00,000/- respectively. Accordingly, we do not find any infirmity in the order of CIT(A) for deleting the impugned addition after recording detailed finding at para 4.3 which has not been controverted by the department by brining any positive material on record. 18. In the result, appeal of the Revenue is dismissed.