M/S.SHIMMER TEXTILES(P)LTD,KOLKATA vs. ITO, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH KOLKATA BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI RAKESH MISHRA, ACCOUNTANT MEMBER ITA No. 786/KOL/2023 Assessment Year: 2013-14

M/s Shimmer Textiles Private Income Tax Officer Limited, Ward 12(3), Kolkata, C/o Rajesh Mohan & Aayakar Bhawan, P-7, Associates, Unit No. 18, 5th Vs Chowringhee Square, Floor, Bagati House, Kolkata - 700069 34, Ganesh Chandra Avenue, Kolkata - 700013 [PAN: AADCS8026J] (Appellant) (Respondent)

Present for: Appellant by : Shri Sunil Surana, AR Respondent by : Shri Arup Chatterjee, Addl. CIT Date of Hearing : 01.07.2024 Date of Pronouncement : 25.09.2024

ORDER Per Rakesh Mishra, Accountant Member:

This appeal filed by the assessee pertaining to the Assessment Year (in short ‘AY’) 2013-14 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) by the Ld. Commissioner of Income-tax (Appeals)-4, Kolkata (in short “the Ld. CIT(A)”) dated 14.01.2020 arising out of the Assessment Order dated 28.03.2016, passed under Section 143(1) of the Act by the ITO-Ward 12(3), Kolkata (in short “the Ld. AO"). 2. The Assessee has raised the following grounds of appeal:

I.T.A. No. 786/Kol/2023 M/s Shimmer Textiles (P) Ltd. AY 2013-14 “1. For that the assessment order passed by the Ld. AO as confirmed by the Ld. CIT(A) is bad in law as well as on facts. 2. For that the Ld. C.I.T(A) erred in deciding the appeal exparte without allowing the appellant any proper and reasonable opportunity of being heard. 3. For that the order passed by the Ld. C.I.T(A) is bad in law since the Id. C.I.T(A) has not decided the issues ground wise in respect of the grounds raised by the appellant in the Memo of Appeal. 4. For that the Ld. C.I.T(A) is bad in law since the order passed is not any speaking order nor the C.I.T(A) has looked into the assessment records and relevant materials to conclude that the order of the Ld. AO cannot be interfered with. 5. For that the Ld. AO erred in assessing Loan Rs. 25,92,171/- payable to various parties in spite of the fact that the above loan consist of principal amount which never claimed as expenses. 6. For that even otherwise, the Ld. AO erred in assessing the Loan u/s 41(1) of the Act in spite of the fact that the said loan was taken by the assessee for purchases of capital assets/repayment of loans taken in earlier years taken for the purposes of capital assets. 7. For that Ld. CIT(A) erred in confirming the action of Assessing Officer in assessing the Rs. 25,92,171/- u/s 41(1) merely for the reason of Non compliance to Notice u/s 133(6) of the IT Act, 1961. However the above fact never intimated to the assessee. 8. For that the Ld. CIT(A) erred in confirming the order passed by Ld. AO on wrong appreciation of the fact that the said loan of Rs. 25,92,171/- was a liability that ceases to exist, 9. For that even otherwise, the loan written off is not assessable u/s 41(1) of the Act 10. For that the Ld. AO erred in confirming the action of Ld. AO in disallowing maintenance charge of Rs. 1,60,686,/- without appreciating the fact that same being reimbursement, No TDS was applicable. 11. For that even otherwise, only 30% of expenses could have been disallowed. 12. For that under the facts and circumstances of the case, the addition made by the Ld. AO is liable to be deleted. 13. For that the appellant be given relief as prayed for. 14. For that the appellant craves leave to add, alter or withdraw any ground/s of appeal on or before hearing of the appeal.”

I.T.A. No. 786/Kol/2023 M/s Shimmer Textiles (P) Ltd. AY 2013-14 application for condonation of delay along with the copy of affidavit as under:

“In the present case, the appellate order was passed on 14.01.2020. However, the said order was never served upon the appellant either through post or email. The appellant had no knowledge whatsoever about the said order. The assessee while logging to the e-filing portal in connection with appellate order passed for the Assessment Year 2011-12 which was passed on 08.06.2023 noticed that its appeal for the Assessment Year 2013-14 has been dismissed ex- parte for the reason of non-compliance to the notices issued for hearing of the case. Whereas in fact only one notice was issued to the appellant against which the appellant had sought adjournment. No other notices were ever served upon the appellant company. It is further submitted that the assessee company has been passing through severe financial crisis and facing litigation in respect of its registered office whereby the registered office of the company has been sealed by the KMC which matter is pending before the Hon'ble Calcutta High Court. It is also submitted that Mrs. Kusum Jain, Director looks after the day to day affairs of the appellant company whereby she has constantly been suffering from various medical issues since spread of COVID-19 Pandemic. She was down with COVID-19 several times and also suffered heart attack and underwent treatment for the same too. Moreover, due to several family issues and personal financial crisis over the period she is not in proper state of mind. Under the facts and circumstances of the case, the delay in filing the appeal may kindly be condoned. For this act of kindness, your appellant as in duty bound shall ever pray.” 4. Along with the petition for condonation of delay in filing the appeal, the assessee has also filed an affidavit and documents relating to the illness. In view of the facts mentioned, there is sufficient cause for the delay and the delay in filing the appeal is hereby condoned and the appeal is admitted for adjudication.

I.T.A. No. 786/Kol/2023 M/s Shimmer Textiles (P) Ltd. AY 2013-14 relevant details. During the financial year 2012-13, the assessee was engaged in the business of investment & trading and also earned income from rent and service & facility charges. 6. During the course of the assessment proceeding, the Ld. AO noticed that the assessee company had furnished the details of long term borrowings in response to notice u/s 142(1). The assessee admitted that there were neither confirmations nor PANs were available in respect of the following parties: Yukan Merchandise (P)Ltd. : Rs. 2,25,025/- Advin Fiscal Services Pvt. Ltd. : Rs. 8,76,156/- Jagmag Comm & Credit (P)Ltd. : Rs. 5,39,686/- Car Commodities Pvt. Ltd : Rs. 26,13,757/- Sulton Vyapaar (P)Ltd. : Rs. 9,43,554/- 7. The Ld. AO observed that the liabilities were no longer required, hence the assessee was required to explain as to why the same should not be added to the total income of the assessee u/s 41(1) of the Act amounting to Rs 25,92,171/- [Rs 52,05,928/- (-) Rs.26,13,757/-, being the amount already added in the assessment year 2011-12]. 8. The assessee’s reply was not found to be acceptable to the Ld. AO. Further, in the case of one party i.e. Gulab Devi Jain, the assessee admitted that there was no confirmation, address, PAN etc. Accordingly, a sum of Rs. 25,92,171/- was added besides other amount of Rs. 1,60,686/- as TDS was not deducted. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who dismissed the appeal. Aggrieved with the appeal order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal. 9. Rival contentions were heard and the submissions made were examined.

I.T.A. No. 786/Kol/2023 M/s Shimmer Textiles (P) Ltd. AY 2013-14 10. Ground Nos. 1, 12, 13 and 14 are general in nature and do not require any separate adjudication. 11. Ground Nos. 2, 3 and 4 are against the appeal being decided ex parte without allowing the assessee any reasonable opportunity of being heard and not deciding the appeal ground wise. Since proper submission was not made before the Ld. CIT(A), hence the appeal was decided ex parte and these grounds of appeal are of academic interest only and do not require separate adjudication in view of our finding in subsequent paras. 12. Ground Nos. 5, 6, 7, 8 and 9 are against the addition of Rs. 25,92,171/- made u/s 41(1) of the Act, which addition has been confirmed by the Ld. CIT(A). In the course of appeal before us, it was submitted that the Ld. Assessing Officer issued notices to the creditors and since the replies were not received in response to the notice u/s 133(6) of the Act therefore, the amount outstanding in respect of the four parties were added on account of cessation of trading liabilities. It was submitted that the confirmation in this regard were filed before the Ld. AO. It was submitted that the loans were received in the earlier years and the balance was outstanding since 2001-2002 onwards. The four companies were active on the stock exchange and the amount had been received by cheque on various dates and the confirmation from the all the four parties were filed. It was submitted that in AY 2011-12, similar issue arose and the statement of accounts of Yuken Merchandise Pvt. Ltd., Advin Fiscal Services Pvt. Ltd., Jagmag Comm. & Credit Co. (P) Ltd. and Shulton Vyapaar Pvt. Ltd. were filed before the Ld. AO. There was another party Lahar Commodities Pvt. Ltd., the amount outstanding against which was added in AY 2011-12 by the Ld. AO but in the appeal before the Tribunal, only interest component was upheld to be disallowed and the principal amount was deleted since the same did not pertain to the trading liabilities. A copy of the order of the coordinate Bench of the Tribunal in ITA No. 773/Kol/2023, AY 2011-12, dated 22.09.2023 has been filed. It 5

I.T.A. No. 786/Kol/2023 M/s Shimmer Textiles (P) Ltd. AY 2013-14 was submitted that all the four remaining companies were still active and were MCA compliant. The Ld. DR relied on the page 2 of the assessment order and requested that the additions may be confirmed.

“That we had taken loans from M/s. Yuken Merchandise (P) Ltd, M/s. Alvin Fiscal Pvt Ltd, M/s. Jagmag Commercial & Credit (P) Ltd and M,'s. Shulton Vyapaar Pvt Ltd long back. There were no transaction during the year with these parties. As such since no amount has been received during the year, there does not arise any question of treating the above loans as undisclosed income of the assessment year 2013-14 for which the assessment proceedings are pending. Without prejudice to above we do hereby state that all the four companies are duly registered with the Registrar of Companies since more than 20 years. Copies of master data of all the companies are enclosed herewith. Also find below the details of fund received along with bank statement duly highlighting the transactions and loan confirmations upto the year ended 31.03.2002 duly mentioning the page nos. attached. Name of Party Date of loan Amount Page No. Yuken 13.03.01 100000 1 to 4 Merchandise (P) 15.03.01 100000 Ltd. Advin Fiscal 16.04.99 650000 5 to 9 Services (P) Ltd. Jagmag Comm. & 12.04.99 400000 10 to 14 Credit (P) Ltd. Shulton Vyapar 16.04.99 700000 15 to 19 Pvt. Ltd. Hope that we have been able to explain the queries raised by your honour to your entire satisfaction. 14. In the appeal for AY 2011-12, the coordinate Bench of the Tribunal has held as under:

“7. We have heard rival contentions and perused the records placed before us and have also gone through the detailed paperbook filed by the assessee running into 112 pages and also the decisions referred and relied. We notice that the addition u/s 41(1) of the Act towards cessation of trading liability at Rs. 26,13,757/- is in challenge before us. We notice that the assessee took unsecured loan of Rs. 24.50 Lakh from M/s. Lahar Commodities Pvt. Ltd. during FY 2001-02. During FY 2001- 02 the interest of Rs. 2,05,725/- was debited and on which TDS of Rs. 41,960/- was deducted and the net credit balance stood at Rs. 26,13,757/- and the same was being carried forward year to year. During the course of assessment proceedings for AY 2011-12, in compliance to the order of this Tribunal u/s 254 of the Act dated 06.12.2017 ld. AO noticed that the alleged sum of Rs. 26,13,757/- has remained unpaid from FY 2001-02 onwards till AY 2011-12. Ld. AO 6

I.T.A. No. 786/Kol/2023 M/s Shimmer Textiles (P) Ltd. AY 2013-14 accordingly invoked the provisions of Section 41(1) of the Act and added the same to the income of the assessee. Section 41(1) of the Act reads as follows: "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." 8. From perusal of the above Section, we notice that the same refers to a trading liability. For instance, the assessee purchases goods and the sundry creditor is appearing in the balance sheet and the same has remained unpaid for a long time and the M/s. Shimmer Textiles Pvt. Ltd. assessee fails to prove that such liability is existing/live then in such cases Section 41(1) of the Act can be invoked. So far as the case before us is concerned the alleged sum of Rs. 26,13,757/- is the balance of outstanding loan. The assessee took loan of Rs. 24.50 Lakh but the same has remained outstanding in the balance sheet only and it has never been claimed as a trading liability. Only the interest paid on such sum at Rs. 2,04,725/- has been claimed as an expenditure. Even the assessee has also claimed that the loan liability was live as on the closing date of the year under appeal and this company was struck off at a later stage. 9. Considering these facts and circumstances, we are of the considered view that only the interest expenditure of Rs. 2,05,725/- claimed by the assessee during FY 2001-02 needs to be added back to the income of the assessee but so far as the remaining amount is concerned it being not in the nature of trading liability, cannot be added in the hands of the assessee u/s 41(1) of the Act. Thus, the grounds raised by the assessee are partly allowed. 10. In the result, the appeal filed by the assessee is partly allowed.” 15. Since the facts are identical in the impugned AY and the assessee submitted that the interest paid in the earlier years was claimed and allowed in earlier years and no interest expenses were claimed after 2001- 02, hence, following the decision of the coordinate Bench for AY 2011-12, the addition of Rs 25,84,421/- made is hereby deleted as the Ld. AO has 7

I.T.A. No. 786/Kol/2023 M/s Shimmer Textiles (P) Ltd. AY 2013-14 not established that the same were trading liabilities for which deduction was claimed in the earlier years. The amount in the name of Gulab Devi Jain is upheld as there was neither any confirmation, address, PAN filed before the Ld. AO. Hence, these grounds of appeal are partly allowed. 16. Ground Nos. 10 and 11 relate to the addition of Rs. 1,60,686/- made on account of non-deduction of TDS. The Ld. AO noted that the assessee had debited in the Profit & Loss Account a sum of Rs. 2,80,201/- towards maintenance charges and required the assessee to furnish the details. He further noticed that the assessee had made payment of Rs. 1,60,686/- to M/s Ideal Plaza Services Pvt. Ltd. The nature of payment was contractual and no TDS was deducted hence the claim was disallowed as in response to the show cause notice issued the reply was filed without any supporting evidences. The sum of Rs. 1,60,686/- was disallowed u/s 40(a)(ia) of the Act. Before the Ld. CIT(A) the assessee did not produce any material to controvert the finding of the Ld. AO, which was confirmed. Before us as well, no further evidence other than what was filed before the Ld. AO has been filed. However, it is noticed that in the alternate submission, the assessee has submitted that only 30% of the disallowance was liable to be made. In this respect, it is pertinent to reproduce the provisions of section 40(a)(ia) which for the AY 2013-14 is as under: “40(a)(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or submission-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work)” 17. Thus, the amount payable to the contractor on which TDS was liable to be deducted but had not been deducted was to be disallowed u/s 40(a)(ia) of the Act and from the AY 2015-16 onward, the disallowance was restricted to 30%. The assessee has not been able to demonstrate as to how TDS was not liable to be deducted and how the payment was in the nature of reimbursement of expenses. During the course of appeal before us, the Ld. AR also submitted that these grounds were not being pressed.

I.T.A. No. 786/Kol/2023 M/s Shimmer Textiles (P) Ltd. AY 2013-14 Hence, Ground Nos. 9 and 10 are dismissed in the absence of any evidence to counter the finding of the Ld. AO and also for the reason that the same were not pressed before us. 18. In the result, the appeal of the assessee is partly allowed. Kolkata, the 25th September, 2024.

Sd/- Sd/- [Sanjay Garg] [Rakesh Mishra] Judicial Member Accountant Member Dated: 25.09.2024. AK, PS

I.T.A. No. 786/Kol/2023 M/s Shimmer Textiles (P) Ltd. AY 2013-14 Copy to: 1. The Appellant: 2. The Respondent. 3. CIT(A) 4. The CIT, 5. DR, ITAT, Kolkata Bench, Kolkata //True Copy// By Order

Assistant Registrar ITAT, Kolkata Benches, Kolkata