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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
Date of Hearing – 23.05.2018 Date of Order – 25.05.2018 2 Azofen Pvt. Ltd. O R D E R PER SAKTIJIT DEY, J.M.
This bunch of three appeals consists of a set of cross appeal for assessment year 2004–05 and appeal by the Revenue for assessment year 2005–06. These appeals arise out of two separate orders passed by the learned Commissioner (Appeals)–16, Mumbai, dated 18th March 2010 and 19th March 2010, respectively for the assessment years 2004–05 and 2005–06.
When the appeals were called for hearing, neither anyone was present for the assessee nor there are applications seeking adjournment. On scanning through the record, it is seen, there is repeated non–appearance by the assessee on different occasions when the appeals were fixed for hearing in spite of service of hearing notice on the assessee issued through registered post, which is evident from the postal acknowledgment kept in the record. Thus, it is evident, the assessee is neither diligent nor interested in pursuing these appeals. Since, these appeals are pretty old and pending for the last eight years, we proceed to dispose off them ex–parte qua the assessee after hearing learned Departmental Representative and on the basis of material on record.
3 Azofen Pvt. Ltd.
./2010 Assessee’s Appeal – A.Y. 2004–05
In ground no.1, assessee has challenged addition of ` 56,56,887 on account of excessive cost of construction of flats sold.
Brief facts are, during the assessment proceedings, while verifying the Profit & Loss account of the assessee the Assessing Officer found that an amount of ` 10,93,99,883, was debited towards cost of sale of flats. The Assessing Officer, therefore, called upon the assessee to explain why average cost of flat sold should not be taken at ` 1,006 per sq.ft. In response to the query raised by the Assessing Officer, assessee furnished the details of the total area sold and also submitted that the cost debited to the Profit & Loss account should be allowed. After considering the submissions of the assessee and verifying the material on record, the Assessing Officer observed that the assessee is following ‘on–cost’ method of valuing the work–in– progress. The assessee has two on–going projects, out of which it has completed 99% on one project and income from the said project has been shown in the year under consideration. From the details submitted, he found that the assessee has apportioned the entire finance cost, selling cost and administrative cost against this project, though, the assessee has incurred substantial amount of ` 3,57,67,201 against the other project. The Assessing Officer was of the view that 4 Azofen Pvt. Ltd.
since the assessee was following on–cost method it has to apportion the finance cost on proportionate basis in respect of both the projects. He also found that the assessee has not apportioned the administrative and selling expenses towards the other project. Accordingly, the Assessing Officer worked out the expenses in respect of both the projects which resulted in a difference of ` 56,56,887 between the expenditure claimed by the assessee and as worked out by the Assessing Officer. Thus, the Assessing Officer added the amount to the income of the assessee.
The assessee challenged the addition before the first appellate authority. However, the learned Commissioner (Appeals) sustained the addition.
Heard the learned Departmental Representative and perused materials on record. As could be seen from the impugned orders of the Departmental Authorities, on the basis of materials on record it was found that, though, the assessee had two projects, however, he has apportioned all the cost to a single project with an intention to reduce the profit therefrom. Thus, on the basis of details furnished before him, the Assessing Officer re–worked out the allocation of cost to the two projects which resulted in the disputed difference of ` 56,56,887. The learned Commissioner (Appeals) also concurred with the aforesaid
5 Azofen Pvt. Ltd. view of the Assessing Officer. The assessee has neither come forward to rebut the aforesaid finding of the Departmental Authorities by making any substantive argument before us nor it has brought on record any material to enable us to take a different view. In the aforesaid facts and circumstances, we do not find any infirmity in the order of the learned Commissioner (Appeals) in sustaining the addition made by the Assessing Officer. Ground raised is dismissed.
Ground no.2, is of general nature, hence, dismissed.
In ground no.3, assessee has challenged the assessment of interest on fixed deposit amounting to ` 8,581 as income from other sources.
Briefly the facts are, during the assessment proceedings the Assessing Officer noticing that the assessee has offered interest on fixed deposit as business income called upon the assessee to justify the same and ultimately assessed it as income from other sources.
Assessee challenged the aforesaid decision of the Assessing Officer before the learned Commissioner (Appeals). However, the learned Commissioner (Appeals) upheld the decision of the Assessing Officer.
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Heard the learned Departmental Representative and perused the material on record. It is evident, though, the assessee has claimed the interest on fixed deposit as business income, however, he has failed to establish how the earning of interest income has a nexus with its business activity. That being the case, assessee’s claim cannot be accepted. Ground raised is dismissed.
In the result, assessee’s appeal is dismissed. ./2010 Revenue’s Appeal – A.Y. 2004–05
The only dispute in this appeal is relating to allowance of assessee’s claim of expenditure amounting to ` 20,86,202.
Brief facts are, during the assessment proceedings, on the basis of material on record, the Assessing Officer found that in a survey operation under section 133A of the Income Tax Act, 1961 (for short “the Act”) carried out in case of one Yakindra Arora, proprietor of Appu Goods Transport, Kalyan it was found that he was only providing accommodation entries to the assessee and its other group concerns towards transportation bills. The Assessing Officer observed, after receipt of the survey report by him the assessee filed a revised return of income on 20th January 2006 offering an amount of ` 13,49,604, towards cost of sales instead of work–in–progress. The Assessing
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Officer referring to the statement of Yakindra Arora concluded that assessee being a beneficiary of the accommodation entry provided towards transportation bill of ` 20,86,202, it has to be treated as bogus expenditure and cannot be allowed. The assessee challenged the disallowance before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record, allowed the deduction claimed by the assessee.
The learned Departmental Representative submitted that the Assessing Officer has made the addition on the basis of cogent material on record including the statement of the person who provided the accommodation entry to the assessee. Therefore, learned Commissioner (Appeals) was not justified in deleting the addition.
We have considered the submissions of the learned Departmental Representative and perused the material on record. As could be seen from the observations of the learned Commissioner (Appeals) contained in Para–1.4 to 1.6 of the impugned order, the name of the assessee does not appear in the statement of Yakindra Arora on the basis of which the Assessing Officer has made the addition. Even though, in remand, the learned Commissioner (Appeals) directed the Assessing Officer to summon Yakindra Arora for cross–examination by 8 Azofen Pvt. Ltd.
the assessee, however, the Assessing Officer was unable to locate Yakindra Arora and offer him for cross–examination by the assessee. Further, learned Commissioner (Appeals) has recorded a finding of fact, though, the Assessing Officer rejected the revised return filed by the assessee, however, in the assessment order, he computed the business income as per the revised return of income. The learned Commissioner (Appeals) observed, when the assessee in the revised return of income has already offered to tax an amount of ` 13,49,604, any further addition on account of transportation bill would amount to double taxation of the same income. He has also observed that apart from the statement of Yakindra Arora, there are no other evidence in possession of the Assessing Officer to establish the fact that assessee has availed accommodation entries. Thus, it is evident from the aforesaid facts, except, the statement of Yakindra Arora no other evidence was available with the Assessing Officer for concluding that the transportation expenditure claimed by the assessee is not genuine. The Assessing Officer even failed to summon Yakindra Arora for cross– examination of the assessee, though, solely relying upon his statement the addition was made. In the aforesaid facts and circumstances, in our considered opinion, learned Commissioner (Appeals) was justified in deleting the addition. Ground raised is dismissed.
In the result, Revenue’s appeal is dismissed.
9 Azofen Pvt. Ltd.
./2010 Revenue’s Appeal – A.Y. 2005–06
In ground no.1, Revenue has challenged allowance of assessee’s claim of transportation expenditure amounting to ` 3,71,827.
This ground is identical to ground no.1 raised by the Revenue in its appeal being ITA no.4424/Mum./2010. Facts being identical, following our decision therein we dismiss the ground raised by the Revenue.
In ground no.2, the Revenue has challenged deletion of addition of ` 83,36,938, made by the Assessing Officer u/s 41(1) of the Act.
Brief facts are, during the assessment proceedings, the Assessing Officer called upon the assessee to furnish the details of liabilities of ` 3,30,46,051, shown in the Balance Sheet. In response to the query raised, the assessee furnished the details of the liabilities along with the list of sundry creditors. From the details furnished by the assessee, the Assessing Officer found that the creditors are on account of supply of materials. Further, he found that sundry creditors amounting ` 50,83,881, is appearing prior to 1st April 2001. Similarly, sundry credit in respect of contractors amounting to ` 32,53,057, has been created prior to 1st April 2001. The Assessing Officer, therefore, called upon
10 Azofen Pvt. Ltd. the assessee to furnish confirmations from the creditors along with the present status of the sundry creditors. In response, it was submitted by the assessee that it is not possible to obtain the confirmations after lapse of so much of time. The Assessing Officer did not find merit in the submission of the assessee. He observed, some of the creditors are outstanding from the year 1994–95 onwards. Accordingly, invoking the provisions of section 41(1) of the Act he held that sundry creditors amounting to ` 83,36,938, has to be treated as income of the assessee for the impugned assessment year on account of remission or cessation of liability. Being aggrieved with the addition made, assessee preferred appeal before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record and applying the ratio laid down in certain judicial precedents, including the decision of the Hon'ble Supreme Court in CIT v/s Sugauli Sugar Works Pvt. Ltd., 102 taxman 703, held that there is no cessation of liability in terms of section 41(1) of the Act and deleted the addition.
The learned Departmental Representative strongly relying upon the observations of the Assessing Officer submitted, when the assessee was unable to prove the genuineness of the creditors by 11 Azofen Pvt. Ltd.
furnishing confirmations and the liability was shown for such a long time, it has to be treated as cessation of liability under section 41(1) of the Act.
Heard the learned Departmental Representative and perused the material on record. As could be seen from the assessment order, the Assessing Officer has treated the outstanding sundry creditors as income under section 41(1) of the Act on account of cessation of liability primarily for three reasons. Firstly, such liabilities are continuing for a long period of time; secondly, assessee failed to furnish confirmation to prove the genuineness of the credit and thirdly, the assessee failed to produce any evidence that the creditors are not paid due to some dispute regarding the quality of material, etc. Before we proceed to decide the acceptability or otherwise of the aforesaid reasoning of the Assessing Officer, it is necessary to deal with the provisions contained under section 41(1) of the Act. A careful reading of the aforesaid provision makes it clear that before coming to the conclusion that there is cessation of liability three conditions are to be fulfilled. Firstly, it must be a trading liability; secondly, the persons showing such liability has obtained some benefit either in cash or in any other manner in respect of such liability and thirdly, such benefit by way of cessation of the liability has accrued to the assessee in the relevant financial year. It is also clear from the aforesaid provision, the 12 Azofen Pvt. Ltd.
burden is on the Assessing Officer to demonstrate that the conditions of section 41(1) of the Act are fulfilled. Keeping in view the aforesaid legal principle, if we examine the facts of the present case, in Assessing Officer’s own admission the sundry creditors were appearing in the books of the assessee prior to the year 2001 and in some cases from the year 1994–95. Thus, the sundry creditors are continuing for past several years. Therefore, when the Department has not doubted or questioned the genuineness of the sundry creditors in the years wherein they appeared for the first time in the books of the assessee, it cannot call upon the assessee to prove the genuineness after so many years by furnishing confirmation from the concerned creditors. As regards the allegation of the department that the sundry creditors were continuing for the past so many years, that by itself cannot be a reason to hold that there is a cessation of liability in the impugned assessment year in respect of those creditors. The Assessing Officer is duty bound to establish on record that the assessee has obtained a benefit either in cash or in some other form in respect of such sundry creditors and that benefit has accrued to the assessee in the impugned assessment year. When in Assessing Officer’s own version the outstanding liability on account of sundry creditors are continuing from the year 1994–95 onwards, what prompted him to conclude that it has ceased to exist in the impugned assessment year has not been 13 Azofen Pvt. Ltd. reasonably explained in the assessment order. Further, it is evident from the impugned order of the learned Commissioner (Appeals) that on verification of material on record he has found that in subsequent years periodical payments have been made to the creditors and balances are reduced. This fact has not been controverted by the Department. Moreover, when the sundry creditors are appearing in the Balance Sheet of the assessee and have not been written–off by the assessee it cannot be said that the liabilities on account of sundry creditors have ceased to exist. Even, the Assessing Officer has not recorded any categorical finding whether the sundry creditors have written off these amounts in their books. In these circumstances, the ratio laid down by the Hon'ble Supreme Court in case of Sugauli Sugar Works Pvt. Ltd. (supra) squarely applies to the facts of the present case. In view of the aforesaid, we do not find any infirmity in the order of the learned Commissioner (Appeals) in deleting the addition. Ground raised is dismissed.
In the result, Revenue’s appeal is dismissed.
To sum up, all the appeals are dismissed. Order pronounced in the open Court on 25th May 2018