MANOJ SINGH,KOLKATA vs. DCIT, CIR-51, KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “D”, BENCH KOLKATA BEFORE SHRI S.S.VISWANETHRA RAVI, JM & DR. A.L.SAINI, AM आयकर अपील सं./ITA No.455/Kol/2015 (�नधा�रण वष� /Assessment Year:2007-2008) Manoj Singh, Vs. DCIT, Cir-51/Kol, 47, B.T.Road, Uttarapan, Kolkata-700054 Khardah, 24 Pgs (N), Kolkata-700116 �थायी लेखा सं./जीआइआर सं./PAN/GIR No.: ALTPS 9206 J .. (अपीलाथ� /Appellant) (��यथ� / Respondent) Assessee by : Shri V.N.Purohit, Advocate Revenue by : Shri Arvindam Bhattacharya, JCIT सुनवाई क� तार�ख / Date of Hearing : 03/01/2017 घोषणा क� तार�ख/Date of Pronouncement 20/01/2017 आदेश / O R D E R Per Dr. Arjun Lal Saini, AM: The captioned appeal filed by the Assessee, pertaining to the Assessment Year 2007-08, is directed against the order passed by ld. Commissioner of Income Tax (Appeals)-15, Kolkata, in Appeal No.252/CIT(A)-15/14-15/Cir-51/Kol, dated 23.02.2015, which in turn arises out of an order passed by the Assessing Officer (AO) Under Section 143(3) of the Income Tax Act 1961, (in short the ‘Act’), dated 29.12.2009. 2. Brief facts of the case qua the assessee are that the assessee filed its return of income on 31.10.2007 declaring total income of Rs.8,97,213/- Asessee’s case was selected for scrutiny u/s.143(3) and the AO has completed the assessment u/s.143(3) of the Act by making the addition on account of remission of liability u/s.41(1) at Rs.9,00,690/-. The assessee runs a transport business under the name M/s Ma Kali

2 ITA No.455/15 Manoj Singh

Transport Corporation and a trading business of automobile parts under

the name M/s Ma Kali Automobile. While making the assessment

u/s.143(3) of the Act, the AO made an addition of Rs.9,00,690/- observing

the followings :-

“Assessee claimed to have paid Rs.9,00,690/- during the relevant previous year. The A/ R. of the assessee was asked to file the details of the payments to the outstanding Sundry Creditors made during the year. The A.R. of the assessee filed during the course of hearing a copy of ledger A/c under the head Vehicle operating expenses which shows payments in cash during the period from 10.04.2006 to 30.03.2007. When the assessee was asked to produce the evidences of those payments, the A.R of the assessee produced some self made vouchers showing payments to some persons who are claimed to be the drivers to whom the amount was payable in earlier years. The liabilities to those drivers were brought forward 'as claimed by the assessee' from the F.Y 2004-05. The assessee failed to furnish the names & addresses of the persons to whom payments were made. The assessee claimed that the payments were outstanding to the Drivers who transported the goods to different places in the F.Y.2004-05 and the amount were payable to them. The nature of payments were show that the payments were made in cash and most of the payments are within Rs. 5000/-. It is against the human probability that the drivers who live on their petty income waited more than one year to receive their remuneration and the payments during the relevant previous years in number of installments to same persons. In reply to the show cause letter dated 16.12.09 the assessee stated that the amount consisted of remuneration of drivers and it included lorry hire charges payable to lorry owners through their drivers and the payments delayed more than one year due financial stringency. But the assessee failed to give the names and addressed of those persons who were the stated to be the owners of the vehicles. The assessee also failed to specify whether any T.D.S was made against the those payments. Under the circumstances I am of the opinion that the assessee failed to justify that there was any genuine liability and the payments were actually paid to any persons. This is actually a unilateral remission of trading liability which never existed. It therefore attracts provision under section 41(1) of the IT. Act 1961. I therefore, treat an amount of Rs.9,00,690/- as the profit of business of the assessee of the relevant F.Y.and add to the total income.”

3 ITA No.455/15 Manoj Singh

before the CIT(A), who dismissed the appeal filed by the assessee

observing the followings :-

In this ground the assessee has challenged the addition of Rs. 9,00,690/- U/S 41(1) of the Act. The assessee had an opening balance of Sundry Creditors at Rs. 28,99,544/- and out of the same the assessee had claimed to have paid out Rs. 9,00,6901- during the year to its creditors in cash below Rs. 5000/- at a time. The AO has held only this sum of Rs.9,00,690/- as cessation of liability out of the total opening sundry creditors balance of Rs.21,55,581/- The A.O. disputed the possibility of the Sundry Credits as having been discharged and the A.O. held that the assessee is unable to produce the names and addresses of the vehicle owners who were so paid off. The claim of the assessee that it can draw support from the Supreme Court decision of Sugauli Sugar Works (P) Ltd 236 ITR 518 (SC) is misplaced. It is no doubt true that it was held by the Hon'ble Supreme Court in the aforesaid case that obtaining benefit by the assessee by virtue of remission or cession of liability is a condition precedent for the application of section 41 (1) and the mere fact that assessee has made an entry of transferring its accounts unilaterally will not enable the department to say that section 41 (1) would apply. Supreme Court was 1965-66 and Explanation 1 to section 41 (1) inserted by the Finance Act No. 2, 1996 with effect from 1-4-1997 was not applicable. However when the assessee claims to have paid the Sundry Creditors and when the A.O. has raised specific queries about the same, it was incumbent on the assessee to adduce evidence and to present the details before the A.O. It is all the more necessary to verify the details, when the assessee claims to have liquidated the liability in cash. In the absence of any verifiable record, the A.O. had no option but to disbelieve the claim. The A.O. held that it is not possible to believe that the petty drivers and lorry owners would have waited for their dues for so long and it is not possible to accept that the liability of over Rs. 9 lakhs was liquidated by way of cash payment all below Rs. 5000/- in each case with no names or addresses available with the assessee. In the appellate proceedings also the assessee is unable to produce any evidence. Therefore the addition of Rs. 9,00,690/- is confirmed and the assessee's ground of appeal no. 2 is dismissed.”

appeal before us and has taken the following grounds of appeal :-

4 ITA No.455/15 Manoj Singh 1. The orders passed by the lower authorities are arbitrary, unreasoned, invalid and erroneous to the extent to which they are against the interests of the appellant. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in directing the AO to make an enhancement in the matter of depreciation allowance without giving any proper notice to the appellant. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the addition of Rs.9,00,690/- made by the AO u/s.41(1) of the Income Tax Act, 1961.

4.1 In this appeal, the assessee has raised three grounds of appeal,

but at the time of hearing the main grievance of the assessee has

been confined to ground No.3 only and other grounds were not

pressed. The main grievance of the assessee in this appeal, is

addition made by the AO at Rs.9,00,690/- treating the remission of

trading liability u/s.41(1) of the I.T.Act.

4.2. Ld. AR for the assessee has submitted before us that the AO

himself has discussed at paragraph 4 of the assessment order that the

amount of Rs.9,00,690/- under consideration was brought forward in the

list of Sundry Creditors from last year. This is not a new credit in this year.

The A.O. also has discussed that as per the accounts, this amount was

paid by the assessee, to the creditors during the year under

consideration. There are evidences in that regard, like entries in the Cash

Book, vouchers etc. The A.O. has disbelieved the payment on the ground

that the names and addresses of the payees could not be furnished and

that the payments were in 'cash' and evidenced by self-made vouchers

only. The appellant has already explained before the A.O. that the

creditors were mostly drivers of trucks whose payments remained

5 ITA No.455/15 Manoj Singh withheld in past on account of fund crunch. However, the A.O. held that

there was actually unilateral remission of trading liability which never

existed. That is why he added back the amount u/s 41(1) of the Act. In

this connection, it has got to be argued that the learned A.O. is of the view

that the liability to the extent of Rs.9,00,690/- never existed. Since these

represent credit entries, he should have disallowed them u/s 68 of the Act

in the year in which these liabilities first came into the books. It is an

admitted fact that these liabilities have been brought forward from the

earlier years. Hence, they cannot be added back as' 'bogus credit entries'

in this year; If, according to the learned A.O., the liabilities never existed,

then there is no question' of remission of the said liability. Section 41 (1)

of the Act applies only when there is a cessation or remission of an

existing liability, which was allowed as deduction in this or in any earlier

year and the assessee derived benefit to that extent. It is for the A.O. to

establish all these points for the purpose of applicability of Section 41(1)

of the Act. In this particular case, the learned A. O. himself says that there

was no existing liability but he contradicts himself saying that there was

cessation of the liability, which are contradictory arguments. It is further

being submitted that 'payment' is not 'cessation' of the liability.

Furthermore, the appellant (appellant's business) did not derive any

benefit out of the alleged cessation/ remission of the liability in as much as

neither the amount under consideration has been brought to the books by

way of writing back of the liability nor as cash introduced. Hence, all the

requirements for application of Section 41 (1) of the Act, are not fulfilled

6 ITA No.455/15 Manoj Singh in this case and hence, the addition u/s 41 (1) of the Act is surely

unwarranted and illegal.

Furthermore, ld. AR submitted that as per the A.O. this is actually a

unilateral remission of trading liability. In this connection, reliance is being

placed on the judgment of the Supreme Court in the case of Sugauli

Sugar Works (P) Ltd. [236 ITR 518], in which case it has been held that

any unilateral action on the part of the assessee Like writing back the

liability amount in his books does not amount to cessation or remission of

the liability. Hence, there cannot at all, be any case of cessation or

remission of liability in this case and hence, the provisions of Section 41

(1) of the Act, would not be applicable. Here, according to the books of

accounts of the appellant, there were payments to the creditors. There are

also evidences in that regard like cash vouchers. Simply on the basis of

the fact that the assessee could not immediately furnish the names and

addresses of the payees, the A.O. has come to the conclusion that there

was no actual payment. There is no positive evidence in support of his

supposition in this regard. The Supreme Court has held in the case of

Daulat Ram Rawatmull [87 ITR 349] that the onus to prove that the

apparent is not real is on the party who claims it to be so. Here, the

learned A. O. has acted on the basis of his supposition only without

proving his contention although the onus in that regard was with him to do

so. Furthermore, the entire addition is based on the surmise or conjecture

that there was no actual payment of the amounts. The Supreme Court

7 ITA No.455/15 Manoj Singh has further held in the case of Dhakeswari Cotton Mills Ltd. [26 ITR 775]

that an income tax assessment cannot be based on any conjecture or

surmise.

4.3. On the other hand, ld. DR for the revenue has reiterated the stand

taken by the AO, which we have already noted in our earlier para and is

not being repeated for the sake of brevity.

4.4. Having heard the rival submissions, perused the material on record,

we are of the view that there is merit in the submissions of ld. AR for the

assessee. As the proposition canvassed by ld. AR for the assessee are

supported by the facts narrated by him above. As ld. AR submitted before

us that the assessee had old liability in his balance sheet and in the year

under consideration he paid to the creditors. The payment had been

made by the assessee below Rs.20,000/-, therefore, TDS provision do not

apply to the assessee. Ld. AR pointed out that liability already incurred by

the assessee and it was giving in the books of account as an opening

balance and the assessee has paid these liability during the year under

consideration. The AO did not reject the books of accounts of the

assessee also and the AO treated Rs.9,00,690/- as a cessation of liability

as per Section 41(1) of the Act, which is entirely wrong. Ld. AR also

argued that since these liability were there in the books of account and

have been brought from the earlier year, therefore, the assessee cannot

added back as bogus credit entries in the year under consideration. If

according to the AO, the liabilities never existed then there is no question

of remission of liability. Section 41(1) of the Act applies only when there is

8 ITA No.455/15 Manoj Singh a cessation or remission of an existing liability, which were allowed as deduction in this or in any earlier year and the assessee derived benefit to that extent. The assessee made payment to the creditors and there are evidence in this regard like cash vouchers duly signed by the recipient. Therefore, considering the factual position and the precedent cited by ld. AR for the assessee, we are of the view that the addition made by the AO and confirmed by the ld. CIT(A), needs to be deleted. Accordingly, we delete the addition. 4.5. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on this 20/01/2017. Sd/- Sd/- (S.S.VISWANETHRA RAVI) (DR. A.L.SAINI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक Dated 20/01/2017 �काश �म�ा/Prakash Mishra,�न.स/ PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant-Manoj Singh 2. ��यथ� / The Respondent.-DCIT, Cir.51, Kolkata 3. आयकर आयु�त(अपील) / The CIT(A), Kolkata. 4. आयकर आयु�त / CIT आदेशानुसार/ BY ORDER, �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. 6. गाड� फाईल / Guard file. स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Asstt. Registrar) आयकर अपील�य अ�धकरण, कोलकाता / ITAT, कोलकाता