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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri Aby.T Varke & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
Both appeal filed by the same assessee are directed against different orders of Commissioner of Income Tax (Appeals)-I, Kolkata dated 22.07.2013 & 23.07.2013. Different assessments were framed by DCIT, Central Circle-VII & IT(SS)A 91/Kol/2013 A.Y. 2004-05 Sushila Devi Bagla Vs. DCIT, CC-VII, Kol. Page 2 Kolkata u/s 143(3)/251/154/254/153A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his orders dated 13.12.2010 & 31.12.2010 for assessment year 2004-05. Smt. Nilima Joshi, Ld. Authorized Representative appeared on behalf of assessee and Shri Sallong Yoden, Ld. Senior Departmental Representative represented on behalf of Revenue. First we take up .
Facts in brief are that assessee in the present case is an individual and engaged in business of timber under its proprietary concern M/s R.K. Timber & Co. The assessee for the year under consideration filed her return of income dated 27.10.2004 showing total income of ₹39,300/- and subsequently case was selected for scrutiny and assessment was completed u/s 143(3) of the Act at a total of ₹50,52,750/- vide order dated 29.12.2006 after making certain additions / disallowances to the total income of assessee.
It was observed at the time of hearing that Ground No.1 to 7 is inter- connected. Therefore, they are clubbed together to pass a consolidate order for the sake of convenient. The issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance of ₹36,11,230/- u/s 41(1) of the Act on account of seizure of current liability. In the original assessment, AO in his order vide dated 29.12.206 held that the trading liability of ₹45,66,426.21 has ceased to exist. Therefore, AO treated the same as income of assessee under the provision of Sec. 41(1) of the Act. The matter was carried before Ld. CIT(A) who confirmed the order of Assessing Officer after giving relief in part.
Thereafter the appeal was filed by assessee before Tribunal where the matter was restored back to the file of AO for fresh adjudication. In the second proceedings of assessment in pursuance of Tribunal’s direction, assessee before AO submitted the breakup of trading liability along with year of payment as detailed below:- & IT(SS)A 91/Kol/2013 A.Y. 2004-05 Sushila Devi Bagla Vs. DCIT, CC-VII, Kol. Page 3 a) Paid in AY 2004-05 Rs.19,39,239.60 b) Paid in AY 2005-06 Rs.18,92,793.26 c) Paid in AY 2006-07 Rs. 7,34,393.43 Rs.45,66,426.29 As per the assessee, liability of ₹45,66,425/- was reflecting as on 31.03.2003 in the balance-sheet. A part of such liability was paid in the year under consideration for ₹19,39,239.60 and the balance was reflecting in the balance- sheet as on 31.03.2004. During the year, the liability of ₹1,86,236/- was paid through account payee cheque. Therefore, the liability of ₹17,53,003/- (1939239.60 – 1,86,236) at the most can attract the provisions of Sec. 41(1) of the Act. The balance trading liability was continued to be shown for ₹26,27,186.69 (45,66,425- 19,39,239.60) in the balance-sheet as on 31.03.2004. As such, the liability for the amount of ₹ 26,27,186/- has not ceased to exist in the books of account. Therefore, the question for making the addition u/s 41(1) of the Act does not arise.
Assessee further submitted that cheques were issued to specific parties which they got en-cashed from the bank by putting their stamp and signatures on the reverse side of the said cheque. Therefore, the allegation of AO that assessee herself has drawn the money from the bank in the name of such creditors are not tenable. There is also no report from the bank the suggesting that assessee herself has withdrawn the money from the bank. Further, assessee submitted that out of total trading liability of ₹ 45,46,425/- and payment of ₹9,55,194.98 was issued through account payee cheque only. Therefore, the disallowance of the entire amount made by AO is without the application of his mind. However, AO disregarded the plea of assessee by observing as under:- i) The cheques were issued to the parties based in North-Eastern region and how can they en-cash the cheque in Kolkata in one or two days from the date of issuing cheque. ii) The parties to whom the cheque payment was made are non-existent at the address given by assessee and letter issued to the parties for confirmation was returned unserved. & IT(SS)A 91/Kol/2013 A.Y. 2004-05 Sushila Devi Bagla Vs. DCIT, CC-VII, Kol. Page 4 iii) Assessee has shown the payment through bearer cheque failed to furnish the evidence in support her claim that the payment was made to those parties. iv) It is not disputed that the aforesaid amount represents the trading liability and reflecting in balance-sheet since AYs 1996-97. In view of above, AO opined that assessee herself has withdrawn the cash from bank and liability has ceased to exist in assessee’s book. Accordingly, AO invoked the provision of Sec. 41(1) of the Act and added the amount of ₹ 45,66,425/- to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas as submitted that bank officers in their reply has nowhere mention that the bearer cheque issued to the parties were used by assessee herself as cash withdrawn from the bank. The assessee also submitted that a sum of ₹ 9,55,195/- was paid to the parties through account payee drafts and in this regard necessary details were furnished before AO. The assessee also submitted that the creditors for ₹ 26,27,186/- were reflecting in the balance- sheet of the relevant assessment year. Therefore, the same cannot be held as ceased to exist. The payment to these creditors was paid in subsequent years also. After considering the submission of assessee, Ld. CIT(A) granted partly relief to assessee by observing as under:- “8. I have perused the relevant orders and the material on record. I have also considered the rival submissions. It is an admitted fact that sundry creditors of Rs.45.66,425/- are very old and even pertain to the period prior to the year 1996. The AO has mentioned in the assessment order that the creditors were not found at the given addresses as the notices u/s 133(6) could not be served on them. It was argued on behalf of the appellant that the creditors had possibly closed their business; and consequently, the returned un-served. But then, it is pertinent to note at this stage that the assessee failed to provide the current addresses of the creditors to the AO. It appears that the assessee 'was not even aware of the current addresses. It is also noted that no confirmation from the creditors was filed by the assessee. When the assessee was confronted with the fact that the notices u/s 133(6) were not served on the creditors at the given addresses, the onus was on the assessee to bring positive material on record to show that the creditors were actually in existence. The assessee has admitted that payments to the extent of & IT(SS)A 91/Kol/2013 A.Y. 2004-05 Sushila Devi Bagla Vs. DCIT, CC-VII, Kol. Page 5 Rs.36,11,230/- were made by bearer cheques. But, the assessee has failed to explain before the AO or even before me as to why the payments to the creditors were made by bearer cheques (which is also in contravention of the provisions of section 40A(3) of the Act). It is a matter of fact that the bearer cheques were encashed across the counter at Kolkata. I find merit in the argument of the AO that the creditors situated at remote places of the North-Eastern States could not encash the cheques on the same day or within 1 or 2 days from the date of the issue. The assessee has also failed to produce supporting evidence to prove that the payments made through the bearer cheques actually reached the creditors. In this factual background, I find merit in the finding of the AO that the assessee had failed to establish that the creditors were actually in existence. The AO was justified in concluding that the liability to the extent of Rs.36,11,230/- had ceased to exist; and consequently, the provisions of section 41(1) were attracted. However, I am not impressed with the addition of sundry creditors of Rs.9,55,195/- where the payments were made through account payee drafts. I find from the assessment orders of the AO that the assessee has consistently claimed to have made payments of Rs.9,55,195/- by account payee drafts. For, she had submitted in course of the original assessment proceedings that payment of Rs.41,415/- to Mahaveer Traders and Rs.1,44,821/- to Mahaveer Timbers during the relevant year was made by account payee draft; and further, that payment of Rs.3,17,902/- to M/s P Bocha and Rs.4,51,056/- to M/s Raiesh Timber was also made in the subsequent year by account payee draft (copy of the drafts was enclosed). These facts have been acknowledged by the AO at page 7 of his original assessment order. Again, the submission was reiterated in course of the subsequent assessment proceedings and all the relevant details were also produced which has been acknowledged by the AO at page 3 of his re- assessment order. But, the contention of the assessee has neither been disputed nor disproved by the AO. In fact, the AO has simply ignored the submissions of the assessee. In course of the appellate proceedings, the Ld AR reiterated that payments totalling to Rs.9,55,195/- were made to the creditors by account payee drafts. The relevant detail of drafts was submitted at page 108; and, the copy of drafts was placed at pages 109 to 114 of the paper- book. It was contended that the relevant material produced before the AO was neither considered nor discussed by him in his assessment order. My learned predecessor vide his letter dated 18-01- 2012 sent copy of the paper- book to the AO and directed him to verify the contentions of the assessee. As no report was received from the AO, a reminder was issued on 21-06-2013. The AO has eventually submitted his remand report on 12-07-2013 wherein he has simply stated that the issue has been discussed at pages 3. 4 and 5 of the assessment order. I have perused the assessment order. I find that the AO has neither disputed nor disproved the claim of the assessee that & IT(SS)A 91/Kol/2013 A.Y. 2004-05 Sushila Devi Bagla Vs. DCIT, CC-VII, Kol. Page 6 payments totaling to Rs.9,55,195/- were made to the creditors by account payee drafts though relevant detail was available before him. Even in course of the remand proceedings, the AO has failed to bring positive material on record to rebut the claim of the assessee. In this factual background, I am of the considered view that section 41(l) cannot be pressed into operation in so far as the sundry creditors of Rs.9,55,195/- are concerned. In view of the above, the addition u/s 41 (1) is restricted to Rs.36,11,230/-. The grounds raised in this regard are partly allowed. Ground no 10 and 11 relate to charging of interest u/s 234B and 220(2) which are consequential in nature.”
Aggrieved by this, assessee has come up in appeal before us on the following grounds .
7. Before us Ld. AR filed paper book which is running pages 1 to 164 and reiterated submission as made before Ld. CIT(A). He drew our attention on page 123 of the paper book and demonstrated that the trading liability of ₹26,27,186/- is still reflecting in the balance-sheet for the year under consideration. On the other hand, Ld. DR submitted that notice u/s 133(6) of the Act was issued returned back from the parties as un-served. He further submitted that the bearer cheques were issued to parties which are based in North-Eastern region and it is not possible for all of them to en-cash the same within one or two days from the date of issuance of cheque. Ld. DR was of the view that the liability has ceased to exist and therefore liability to be taxed u/s. 41(1) of the Act and he vehemently relied on the order of Authorities Below.
8. We have heard rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we find that liability was reflecting in the books of account of assessee which were not confirmed by the AO u/s 133(6) of the Act. Therefore, AO opined that the current liability has ceased to exist and liable for tax u/s 41(1) of the Act. The view taken by AO was subsequently confirmed by Ld. CIT(A) after giving partly relief to assessee. Now the issue before us arises whether the liability of assessee has ceased to exist in the books of account in the facts and circumstances of the case. At this juncture, it is important to produce the provision of Sec. 41(1) of the Act. & IT(SS)A 91/Kol/2013 A.Y. 2004-05 Sushila Devi Bagla Vs. DCIT, CC-VII, Kol. Page 7 (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 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; From a plain reading of above provision, we find that Sec. 41(1) of the Act can be invoked where the liability cease to exist in the books of account. In the instant case, admittedly the trading liability as shown by assessee is very old which has been duly accepted by Revenue in all the earlier years. In the case on hand, the liability has been shown in the balance-sheet for ₹26,27,186/-. Merely the notices issued under section 133(6) of the Act to the parties returned as un-served cannot be ground for the addition under section 41(1) of the Act as the liability has not ceased to exist. Therefore, it cannot be concluded that the liability has ceased to exist. It has not actually been written off in the books of account of assessee and the ld. DR has not brought anything on record suggesting that the trading liability has actually been written off in the books of account. In the instant case, the Authorities Below has presumed that the trading liability ceased to exist as the notice u/s 133(6) of the Act issued were not served. As such on examination of orders of Authorities Below, we find that the liability has not been written off in the books of account of assessee. In our considered view, liability cannot cease to exist until and unless it is written off in the books of account of assessee. In this view of the matter, we hold that the liability which has actually been written off can only be treated as income of assessee u/s 41(1) of the Act. Considering the facts and circumstances of the case, we partly allow assessee’s ground. AO is directed accordingly.
& IT(SS)A 91/Kol/2013 A.Y. 2004-05 Sushila Devi Bagla Vs. DCIT, CC-VII, Kol. Page 8 9. Next issue raised by assessee in ground No. 8 & 9 in this appeal is that Ld. CIT(A) was not justified in holding that the same was consequential in nature.
At the outset, we find that the levy of interest u/s 234B is consequential. Therefore, grounds No. 8 & 9 are liable to be dismissed and is accordingly dismissed.
In the result, assessee’s appeal partly allowed. Coming to IT(SS)A No.91/Kol/2013 for A.Y 04-05.
Ground No. 1 to 4 have challenged the assessment proceedings u/s 153A of the Act.
At the outset, it was noticed that Assessing Officer has made the addition in his assessment order u/s. 153A/143(3) of the Act on the basis of information which was available in the original assessment order. In fact the issue raised in the assessment framed under section 153A is the same issue as arising in the assessment framed under section 143(3) of the Act. The original assessment was completed dated 13.12.2010 and search was conducted at the premises of assessee on 13.12.2009. We have already adjudicated the issue arising out of the original assessment proceedings in terms of paragraph no. 8 of this order. In our considered view the addition for the same issue cannot be made two times in section 153A and 143(3) of the Act. Therefore, the addition u/s 153A is not sustainable for the same issue. Hence the appeal of assessee is allowed in terms of the paragraph no. 8 of this order.