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Income Tax Appellate Tribunal, “D” BENCH,MUMBAI
Before: SHRI B.R BASKARAN, AM & SHRI RAVISH SOOD,JM
आदेश / O R D E R
PER RAVISH SOOD,JM:
The present appeal filed by the assessee company arises out of the order passed by the CIT(A)-13, Mumbai, dated 01.01.2014, which in itself arises from the order passed by the A.O u/s. 143(3) of the Income Tax Act 1961 (for short ‘Act’), dated 14.01.2013. The assessee company assailing the order of the CIT(A) had carried the matter in the appeal before us, therein raising the following grounds of appeal:-
“1. Ground No. 1
(i) The learned Commissioner of Income Tax (Appeal) [hereinafter referred to as CIT(A)] erred in confirming the addition of a sum of Rs.2,18,34,299/- u/s. 41(1) of the Income Tax Act 1961. (ii) She failed to appreciate that such liability towards ex- employees was not either remitted or ceased during the year and therefore such amount could not be brought to tax u/s.41(1) of the Act. (iii) She further failed to not take into account additional details provided to her during assessment proceedings and making an adhoc addition of total liability u/s.41(1) of the Act. (iv) The appellant prays that the confirmation of addition of Rs.2,18,34,299/- as made by the AO is totally unjustifiable and ought to be disallowed.
The appellant craves leave to add, to amend, vary or alter including by substitution any of the grounds of appeal as they or their representatives may think fit”
2. Briefly stated, the facts of the case are that the assessee company which is engaged in the business of providing manpower supply and business support services to its customers had e-filed its return of income on 26.09.2010 declaring total loss of Rs.55,39,230/-,which was processed as such u/s. 143(1) of the ‘Act’. The case of the assessee company was thereafter taken up for scrutiny proceedings u/s.143(2). That during the course of the assessment proceedings the A.O observing that ‘Salary payable’ of Rs.2,18,34,299/- stood reflected in the balance sheet of the assessee company as on 31.03.2010, therefore called upon the assessee to furnish evidence in support of the subsequent payment of the aforesaid outstanding liability. The assessee in compliance to the aforesaid query so raised by the A.O therein submitted that it had during the period relevant to A.Y. 2010-11 provided payroll related services to around 450 individual franchisees and other group companies which had somewhere around 9000 employees. It was submitted by the assessee that during the F.Y.2007-08 the total salary debited was Rs.24.14 Crores, and as such considering the number of employees on payroll, the assessee company had during the year made a provision for salaries and other statutory dues payable to employees amounting to Rs.2,18,34,299/-, which included provision for exgratia, i.e diwali bonus which was payable to an employee after his completion of a year of service. It was however submitted by the assessee that as the retail business sector in which its clients were operating was struggling due to slow business, which in itself was prompted by global melt down and deflation /depression in Indian markets, therefore many employees left the company before being eligible to claim the bonus and other dues, as a fallout of which the provision made in the accounts as on 31/03/2008 for bonus and other dues payable to the employees remained unpaid in the books of accounts. The A.O after deliberating on the aforesaid reply of the assessee, in order to verify the genuineness and veracity of the facts projected before him, therefore called upon the assessee to place on record the confirmations from the employees to whom salary was shown as payable. The assessee however failed to place on record the requisite confirmations of the employees, which thus led the A.O to conclude that the aforesaid liability of Rs. 2,18,34,299/- had ceased to exist u/s. 41(1) of the ‘Act’, and a consequential addition of the aforesaid amount to the income of the assessee. The A.O thereafter deliberating on certain other issues assessed the income of the assessee company at Rs.1,62,95,070/-
3. The assessee being aggrieved with the assessment order therein assailed the matter in appeal before the CIT(A)-13, Mumbai. The CIT(A) after perusing the facts of the case in the light of the contentions of the assessee, therein holding a conviction that as the amount under consideration was not a trading liability, and then if these liabilities were genuine then the assessee was duly entitled to show them as such in its ‘books of accounts’, which they finally have written back, thus observed that the same had not caused any loss to the department. The CIT(A) further being of the view that the claim of the assessee that as majority of the employees had left their respective jobs therefore the confirmations could not be obtained, carried substantial force and could not be summarily scrapped. The CIT(A) after deliberating on the issue under consideration, though deleted the addition made by the A.O on account of cessation of liability u/s.41(1), but thereafter in order to verify the genuineness and veracity of the said outstanding liability of Rs.2,18,34,299/-(supra), therein called upon the assessee to furnish the documentary evidence in support thereof, viz. the statement of Professional tax (PT) and ESIC paid in earlier period in respect of those very employees for whom the provision of Rs.2,18,34,299/- was made. That on the failure of the assessee to place on record the requisite documents, the CIT(A) being of the view that despite the fact the assessee was specifically directed to place on record the statements of PT and ESIC, had however evaded to place on record the said requisite documents, therefore concluded that the said liabilities were not payable at all at any point of time. The CIT(A) thus being of the view that the assessee had failed to substantiate the genuineness and veracity of the aforesaid provision of Rs.2,18,34,299/- by not only failing to place on record the requisite confirmations from the respective employees, but had also failed to comply with his directions and evaded furnishing of the mandatory documents, which in case the said salary expenses would have been genuine must have been filed before the government authorities, therefore concluded that the said respective liabilities were never in existence, and therein upheld the addition of Rs.2,18,34,299/-by characterizing the same as bogus and unproved liabilities.
That during the course of the hearing of the appeal the Ld. Authorized Representative (for short ‘A.R’) at the very outset of the hearing of the appeal therein submitted that the Grounds of appeal
no.
1. (i) to (iii) were not being pressed. Thus in light of the aforesaid concession on the part of the ld. A.R, the aforesaid grounds of appeal are dismissed as not pressed. The ld. A.R thereafter adverting to the Ground of appeal no. 1(iv), therein assailed the addition of Rs.2,18,34,299/- which had been confirmed by the CIT(A) by concluding that the same were not payable at all at any point of time, and hence could safely be characterized as bogus liabilities. It was submitted by the ld. A.R that the provision of Rs.2,18,34,299/-pertaining to salary and statutory dues payable were reduced to Nil by 31.03.2013, and in support thereof he drew our attention to Page 42 of his ‘Paper book’ (for short ‘APB’). It was further submitted by the ld. A.R that the assessee company had carried out a reversal of the aforesaid provision amounting to Rs.60 lac and Rs.1,09,17,273/- in the period relevant to assessment year 2012-13 and assessment year 2013-14, respectively, and the assessments of the assessee for the said respective years had been framed by the department u/s. 143(3) of the ‘Act’. Thus in the backdrop of the aforesaid facts it was averred by the ld. A.R that the CIT(A) had most arbitrarily held the provisions of Rs.2,18,34,299/- as a bogus liability. It was further submitted by the ld. A.R that pursuant to the reversal of the provisions by the assessee in the succeeding years, the same had thus been brought to tax in the said respective years, which had been scrutinized and accepted by the department u/s. 143(3). It was averred by the Ld. A.R that if the observations of the CIT(A) and the consequential addition of the aforesaid amount of Rs. 2,18,34,299/- was allowed to perpetuate and therein sustained, as such, then the same would lead to double taxation in the hands of the assessee company. It was further submitted by the ld. A.R that without prejudice to his contention that the liability aggregating to Rs.2,18,24,299/- was genuine and had wrongly been held by the CIT(A) as being bogus in nature, even if the version of the CIT(A) was to be acted upon, then also no adverse inferences leading to an addition of the aforesaid amount of Rs.2,18,34,299/- was called for in the hands of the assessee for the year under consideration. That on the other hand the ld. Departmental Representative (for short ‘D.R’) strongly supported the order of the lower authorities and therein submitted that in the backdrop of the fact that the assessee had neither placed on record the confirmations from the respective employees, as well as evaded furnishing of the mandatory documents which in case the said liabilities would have been genuine would have been filed with the government authorities, therefore the CIT(A) had rightly sustained the addition of Rs.2,18,34,299/- in the hands of the assessee by treating the same as a bogus and unproved liability.
We have heard the Ld. Representative of both the parties, perused the orders of the lower authorities and the material produced before us. We have given a thoughtful consideration to the facts of the case and therein find that the sole issue that survives for consideration before us is as to whether the addition of Rs.2,18,34,299/- pertaining to provision for salary and statutory dues payable, as stood reflected in the balance sheet of the assessee company for the year under consideration, in the backdrop of the aforesaid factual matrix can be held as bogus and unproved liabilities and added to the income of the assessee company for the year under consideration. We have given a thoughtful consideration to the facts of the case and are of the considered view that now when the assessee had reversed the aforesaid provisions of Rs.2,18,34,299/- in the succeeding years, and had resultantly reduced the same to Rs. Nil as on 31.03.2013 (Page 42 of APB), which factual position had thereafter been scrutinized and accepted by the department in the course of regular assessments framed u/s 143(3) in the hands of the assessee company for A.Y 2012-13 and A.Y 2013-14, which respective years had witnessed a reversal of provision of Rs.60 lac and Rs.1,09,17,273/-, therefore we are of the considered view that in the backdrop of the aforesaid facts no adverse inferences as regards the genuineness of the aforesaid provision for salary and statutory dues payable of Rs.2,18,34,299/- is liable to drawn in the hands of the assessee company. We are persuaded to be in agreement with the Ld. A.R that if the findings of the CIT(A) leading to a consequential addition of Rs. 2,18,34,299/-(supra) is allowed to perpetuate and sustained as such, then the same in light of the fact that the aforesaid provision had been reversed by the assessee in the succeeding years, would inescapably lead to double taxation in the hands of the assessee company. We are further of the considered view that even if the view of the CIT(A) that the aforesaid liabilities of Rs.2,18,34,299/-(supra) were bogus and unproved liabilities is not dislodged and is accepted as such, even then no adverse inference, much the less an addition of the said amount would be called for in the hands of the assessee during year under consideration, for the reason that even if the said liabilities were found to be bogus, the same could only be assessed as an unexplained credit in the hands of the assessee in the year of its genesis, viz. the year in which the same were found to be generated as a credit in the books of accounts of the assessee, and thus could not be whimsically related to and added as the income of the assessee for the year under consideration in which the same had only figured as a B/forward balance. Thus in light of our aforesaid observations, now when we are of the considered view that the aforesaid liabilities can neither be characterized as bogus liabilities, nor any adverse inferences as regards the same are liable to be drawn in the hands of the assessee company during the year under consideration, therefore we are unable to persuade ourselves to subscribe to the view taken by the CIT(A). Thus the addition of Rs. 2,18,34,299/- confirmed by the CIT(A) in the backdrop of his observations recorded in the appellate order is deleted and the Ground of appeal no. 1(iv) raised by the assessee before us is allowed. That as the Ld. A.R had not raised any averment in context of Ground of appeal no. 2, the same is therefore dismissed as not pressed. The order of the CIT(A) is set aside in light of our aforesaid observations.
The appeal of the assessee is allowed.
Order pronounced in the open court on 24/02/2017.