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Before: SHRI SANDEEP GOSAIN & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
The appeal by the revenue and the cross objection by the assessee are directed against the order of the Commissioner of Income Tax M/s Alliance Finstock Ltd. CO No. 53/Mum/2018 (Appeals)-52, Mumbai [in short ‘CIT(A)’] and arise out of the assessment order passed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal
s filed by the revenue read as under: i. On the facts and circumstances of the case and in law, the Ld. CIT(A), was justified in deleting the disallowance u/s 41(1) wherein assessee failed to prove the identity and creditworthiness of the creditors as well as genuineness of the transaction. ii. On the facts and circumstances of the case and in law, the Ld. CIT(A), was justified in deleting the disallowance u/s 41(1) wherein opportunity has not been to the AO regarding submission of new evidences i.e. certificate of the Chartered Accountant etc. during the appellate proceedings on the admissibility of new evidence under Rule 46A.
3. The cross-objection raised by the assessee is as under: On the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have deleted the addition u/s 41(1) of Rs.1,00,00,000/- of alleged remission/cessation of trade liability since the assessee had not written back the liability and had acknowledged the liability in its audited books of accounts; On the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have deleted the addition u/s 41(1) since the alleged remission or cessation of alleged trade liability is not made during impugned year.
4. The assessee is engaged in the business of broking and trading of shares and securities. It filed its return of income for the assessment year (AY) 2013-14 on 28.09.2013 declaring a total income of Rs. Nil. On examination of the books of accounts, the AO observed that the assessee has shown total trade payables to the tune of Rs.1,41,11,482/-. In M/s Alliance Finstock Ltd. CO No. 53/Mum/2018 response to a query raised by the AO to file details of creditors pending in the books of accounts for more than three years, the assessee provided details of two creditors namely Dosti Corporation and Paras Corporate Services (P) Ltd. having an outstanding balance of Rs.50,00,000/- each totalling to Rs.1,00,00,000/-. The AO noted that earlier the assessee treated it as sundry creditors and after a query is raised, it termed it as old loans. Moreover, no confirmation was filed from the said parties. The AO further observed that in all its previous years, the assessee had continuously shown these two outstanding amounts under the head trade payable as ‘sundry creditors’. In response to a query raised by the AO to explain why the above amount should not be added in hands of the assessee as liability no longer exists, the assessee failed to file any explanation. Thus, considering the facts the AO made an addition of Rs.1,00,00,000/- u/s 41(1) of the Act.
5. Aggrieved by the order of the AO the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) observed that these amounts of Rs.50,00,000/- each were received from M/s Paras Corporate Service Pvt. Ltd. and M/s Dosti Corporation during FY 2006-07 and 2007-08, details of which are as under:
Name, Address & PAN of the Date of receipt of Bank & Mode of Amount (Rs.) party amount by receipt assessee M/s Paras Corporate Service 27/08/2007 HDFC Bank-DD No. 10,00,000 Pvt. Ltd., 6/2 Vijay Aprts., Bajaj 622718 dt. Road, Vile Parle (W), Mumbai- 25/08/2007 400056 (PAN: AACCP1517A)
27/08/2007 HDFC Bank – DD 10,00,000 No. 622719 dt.
M/s Alliance Finstock Ltd. CO No. 53/Mum/2018 25/08/2007 27/08/2007 HDFC Bank – DD 10,00,000 No. 622720 dt. 25/08/2007 27/08/2007 HDFC Bank – DD 10,00,000 No. 622721 dt. 25/08/2007 27/08/2007 HDFC Bank – DD 10,00,000 No. 622722 dt. 25/08/2007 M/s Dosti Corporation 17/04/2006 Canara Bank 50,00,000 Cheque No.579760 The Ld. CIT(A) observed that (i) these amounts have not been received during the year, but in earlier years and have been brought forward since them, year after year, (ii) these amounts have been duly credited in the bank account of the assessee maintained with HDFC Bank, (iii) these companies are being assessed to tax in Mumbai itself- M/s Paras Corporate Service Pvt. Ltd. with ITO, Ward-10(3)(3), Mumbai and M/s Dosti Corporation with ITO, Ward-20(1)(4), Mumbai, (iv) the auditor has given a certificate that an amount of Rs.50,00,000/- in case of M/s Paras Corporate Service Pvt. Ltd. has been outstanding since 27.08.2007 and it was not in the nature of a trade liability and has not been charged to the P&L account, (v) a similar certificate has been given in respect of M/s Dosti Corporation that this amount has been outstanding since 17.04.2006 and was not in the nature of trade liability, (vi) the scrutiny assessment has been done in the case of the assessee M/s Alliance Finstock Ltd. CO No. 53/Mum/2018 for AY 2007-08 and AY 2008-09, but the AO has not taken any action in respect of these creditors in those years. In view of the above facts, the Ld. CIT(A) held that the assessee has proved the identity, genuineness of the transaction and further these amounts were received during AYs 2007-08 and 2008-09 and therefore, the same cannot be treated as unexplained in the hands of the assessee during the year.
Before us, the Ld. DR submits that as per provisions of Rule 46A, the Ld. CIT(A) should have given an opportunity to the AO to examine the evidence filed before him i.e. the certification of the chartered accountant, bank account etc. It is submitted that the AO was not in a position to examine the same as those details were not filed before him.
On the other hand, the Ld. counsel of the assessee files a Paper Book (P/B) containing (i) party-wise details of lenders, (ii) ledger account of AY 2008-09 to AY 2013-14, Bank book of AY 2008-09, PAN details, and CA Certificate in respect of Paras Corporate Services Pvt. Ltd. and (iii) ledger account of AY 2008-09 to AY 2013-14, Bank book of AY 2008-09, PAN details, CA certificate, I.T. Ack receipt, computation and balance sheet in respect of Dosti Corporation and (iv) submission before Ld. CIT(A). Further, the Ld. counsel files another P/B containing decision in CIT v. Shri Vardhman Overseas Ltd. 343 ITR 408 (Delhi-HC), CIT v. Jain Exports Pvt. Ltd. 89 DTR 0265 (Delhi-HC), CIT v. Smt. Sita Devi Juneja 325 ITR 0593 (P & H-HC), CIT v. Chase Bright Steel Ltd. 177 ITR 0128 M/s Alliance Finstock Ltd. CO No. 53/Mum/2018 (Bombay-HC), CIT v. Enam Securities Pvt. Ltd. 345 ITR 0064 (Bombay- HC) and CIT v. Bhogilal Ramjibhai Atara 222 Taxman 313 (Gujarat-HC).
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. It would be relevant to discuss here section 41(1). It says that where an allowance or deduction has been made in the assessment for any year in respect of (i) loss, (ii) expenditure, or (iii) trading liability incurred by the assessee and subsequently, during any previous year, he (the same assessee) has obtained, whether in cash or in any other manner, whatsoever: (i) any amount in respect of such loss or expenditure; or (ii) some benefit in respect of such trading liability by way of remission or cessation thereof, then, the amount obtained by the assessee or the amount of the liability which is extinguished shall be deemed to be profit and gains of business or profession and accordingly chargeable to income tax as income of that previous year. 8.1 In the instant case, the bone of contention is whether the new evidence in the shape of certificate of the chartered accountant was produced by the assessee before the AO or not. To extend it further, whether the above evidence was filed before the Ld. CIT(A) for the first time. The AO has mentioned in his assessment order dated 26.02.2016 that the assessee failed to file confirmation from the two parties.
M/s Alliance Finstock Ltd. CO No. 53/Mum/2018 It is found from the written submission dated 24.06.2016 filed by the assessee before the Ld. CIT(A) that at para 2.1 (page 46-47 of P/B), the AR of the assessee has stated the following: “In support of the fact that the outstanding balance of such parties relate to unsecured loans and does not pertain to trade liability, the understated documents are relied upon :- a. Ledger account of M/s Paras Corporate Services Pvt. Ltd. and M/s Dosti Corporation from FY 2006-07 till impugned year; b. Bank book disclosing the receipt of money from such 2 parties during FY 2006-07 and FY 2007-08; c. C.A. certificate issued by K.N. Shah & Co. Chartered Accountants certifying that such outstanding balance does not pertain to trade liability and has not been charged to P&L A/c in any earlier years; d. Assessment order u/s 143(3) of earlier years wherein such liability has been accepted as genuine in all assessment;” A perusal of the assessment order passed by the AO, the written submission filed by the assessee before the Ld. CIT(A), the order of the Ld. CIT(A) and the P/B filed before us shows that there is no evidence that above documents were filed before the AO. Once these were filed before the Ld. CIT(A), he should have allowed the AO to have his say. Rule 46A(3) enjoins upon the first appellate authority, if he thinks it proper to admit additional or fresh evidence, to allow and afford a reasonable opportunity to the AO- (i) to examine the evidence or document so produced by the assessee appellant; M/s Alliance Finstock Ltd. CO No. 53/Mum/2018 (ii) to cross-examine any evidence so produced; and (iii) to produce any evidence or document or any witness in rebuttal of the additional evidence so produced. Unless such an opportunity has been allowed to the AO, the fresh evidence so produced cannot be taken into account by the first appellate authority. In view of the above facts, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make an order afresh after giving reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant documents/evidence before the AO. As the matter has been restored to the file of the AO, we are not adverting to the case-laws relied on by the Ld. counsel.
Thus, the appeal filed by the revenue is allowed for statistical purposes. Consequently, the cross-objection raised by the assessee becomes in fructuous. Order pronounced in the open Court on 18/07/2018. Sd/- Sd/- (SANDEEP GOSAIN) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 18/07/2018 Rahul Sharma, Sr. P.S.