TRANS IMPEX P.LTD,MUMBAI vs. CIT 2, MUMBAI

आवेदक क� ओर से / By Assessee : Shri Madhur Agarwal & Mr. Y. K. Wadia, A.R. राज�व क� ओर से/By Revenue : Mr. Manjunath Swamy, D.R. सुनवाई क� तार�ख/Date of Hearing : 23.06.2016 घोषणा क� तार�ख/Date of Pronouncement : 20.07.2016 ORDER PER SHAILENDRA KUMAR YADAV, J.M: These two appeals have been filed by assesse against the orders of Commissioner of Income Tax-2, Mumbai, dated 27.03.2012 for both A.Ys. 2007-08 & 2009-10. Since, these & 3568/Mum/12 A.Ys. 07-08 & 09-10 [M/s. Trans Impex Pvt, Ltd. vs. CIT] Page 2 appeals pertain to same assessee and on almost similar issue, so they are being disposed of by common order for the sake of convenience.

2. In for A.Y.2007-08, assessee has filed the appeal on the following grounds:

“This appeal is against the order dated 27/03/2012 under section 263 of the Income tax Act, 1961 (hereinafter referred to as “the Act”) passed by the Commissioner of Income Tax 2, Mumbai (hereinafter referred to as the CIT). The under mentioned Grounds of Appeal are without prejudice to one another:

1. The CIT erred in wrongly assuming jurisdiction and in framing order dated 27/03/2012 under section 263 of the Act.”

“(i) There has been no error in the assessment framed by the Assessing Officer because the assessment was framed after detailed and minute enquiries and investigations, extending for about a year and the total income was assessed at Rs.2,58,80,490/- against the total income returned by the assessee at Rs.17,48,170/-. The details asked for were duly submitted.

(ii) The balance of Rs.96,02,367/- due to M/s.TOSAPL featuring in the balance sheet has been correctly shown. The said amount was received somewhere in the late 1990’s and the amount is still due and payable to that party. Further, no transaction of funds as received or taken has taken place during the financial year under consideration that would go to establish that a sum of Rs.96,02,367/- has been received from M/s. TOSAPL in this period.

(iii) Even otherwise, the amount in question cannot be taxed u/s.68 as there is nothing on record to show that the amount has been received during the year.

(iv) Viewing the situation from the point of view of remission of liability, the assessee continues to acknowledge its liability to pay M/s. TOSAPL. By writing off of the amount receivable, M/s. TOSAPL has not forgone its claim with respect to this amount.

(v) The balance sheet of M/s. TOSAPL is not a record of the assessee company and hence cannot be a ground for invoking section 263.

(vi) In view of the ratios of the following cases, there is no case for action u/s.263:- (a) Bismillah trading Co. vs. Intelligence Officer, Squad No.II, Agricultural Income Tax and Sales Tax & Others (2001) 248 ITR 292 (Ker.) (b) (b) Venkatakrishna rice Company vs. CIT (1987) 163 ITR 129 (Mad.)

& 3568/Mum/12 A.Ys. 07-08 & 09-10 [M/s. Trans Impex Pvt, Ltd. vs. CIT] Page 4 (c) Thalibai F. Jain and others vs. ITO Assessment 4, Hubli and Another (1975) 101 ITR 1 (Karn.)

3.1 Ld. Authorized Representative submitted other submissions which are reproduced as under:

“Meanwhile, after making these submissions, but and before any order u/s.263 could be passed by your honour, the assessee company’s Assessing Officer Income Tax Officer 2(3)(3), Aayakar Bhavan, Mumbai has added the amount of Rs.96,02,367/- as remission of liability u/s.41(1) of the Act vide the assessment order dated 30.12.2011. A copy of the said assessment order is enclosed herewith for your ready reference and records. As the assessee company’s assessment order for A.Y.2007- 08 was sought to be revised by your Honour on account of / for indentical amount, and identical reason, we humbly submit that no revision of the assessment order for A.Y.2007-08 can now be made as the very same item has been brought to tax by the Assessing Officer in A.Y.2009- 10.” 3.2 Regarding argument of assessee that assessment has been framed after due diligence and detailed scrutiny was not found correct by CIT. He observed that there is a difference in the balance sheet of assessee company and its sister concern as far as the money dues from assessee is concerned. Whereas, no amount appears receivable from assessee in the balance sheet of M/s.TOSAPL in assessee’s books, the amount of Rs.96,02,367/- appeared very regularly. According to CIT, this issue was not looked at all by Assessing Officer. Regarding assertion that assessee still admitted that amount in question is a liability, while other party has written it off, CIT observed that Assessing Officer had not made some sensible enquiries and cross verification. Books of accounts of both parties have not been verified, statements have not been recorded, records & 3568/Mum/12 A.Ys. 07-08 & 09-10 [M/s. Trans Impex Pvt, Ltd. vs. CIT] Page 5 with other Government agencies have not been cross verified. Since, two companies were related by common Directors, it was necessary for the Assessing Officer to pierce the vial of arrangement and then only form an opinion as to whether this was in any way a measure to defraud the Revenue or not. According to CIT, Assessing Officer has not taken any step in this regard which was expected of him to protect the interest of Revenue. CIT further observed that the information contained in assessee’s record was a misrepresentation. Since, Assessing Officer has not cross verified the details, so, invoking provisions of Section 263 of the Act was held justified by CIT.

3.3 Regarding information furnished vide assessee’s letter dated 21.02.2012 about the completion of assessment for A.Y.2009-10, CIT observed that Authorized Representative’s stand can be faulted on a number of issues. CIT observed that Assessing Officer in completing the assessment for A.Y. 2009- 10, there was already a notice u/s.263 of the Act on record, had acted erroneously. To cure this ill-directed action, a separate notice u/s.263 of the Act was issued to assessee and said assessment was also set aside for detailed reason given in that order. Hence, the action of Assessing Officer for A.Y. 2009-10 cannot be a deterrent to the present proceedings observed by the CIT. Summing up the situation, CIT observed that assessment order dated 15.12.2009 is erroneous as the Assessing Officer has not made any scrutiny and cross verification before completing the assessment and therefore not made the desired additions u/s.41(1) of the Act. Since, the & 3568/Mum/12 A.Ys. 07-08 & 09-10 [M/s. Trans Impex Pvt, Ltd. vs. CIT] Page 6 amount involved is Rs.96,02,367/-, obviously inaction by Assessing Officer is prejudicial to the interest of Revenue. Therefore, invoking of provisions of Section 263 of the Act, assessment order dated 15.12.2009 was set aside to the limited extent of considering assessee’s loan transaction of Rs.96,02,367/-.

4. Same has been opposed before us on behalf of assessee. Ld. Authorized Representative drew our attention to page nos.15 & 16 of paper book, which was its reply dated 27.08.2010 in response to notice u/s.263 of the Act. The special attention was drawn to para (d) of para 3 which reads as under:

“(d) We submit that there is no event that has arisen or taken place during the F.Y.31.03.2007 that would go to establish that a sum of Rs.96,02,367/- was received by Trans Impex Pvt. Ltd. From Trans Ocean Shipping Agency during F.Y. 2006-07. We therefore submit that the amount of Rs.96,02,367/- due to Trans Ocean Shipping Agency Pvt. Ltd. Remains unchanged over the years. Our client submits that the balance sheet of Trans Impex Pvt. Ltd. And the annexures thereto for the year ended 31.03.2006 shows that there has been no change in the balance of Rs.96,02,367/- due to Trans Ocean Shipping Agency Pvt. Ltd. From the balance due to them as on 31.03.2006. We enclose herewith the Balance Sheet and Profit and Loss A/c of the assessee company as on 31.03.2006 which is already on record of the A.O. and which clearly shows that the balance due to Trans Ocean shipping Agency Pvt. Ltd. has not changed since 1st April, 2006.”

Our attention was also drawn to page nos.1 & 2, which is notice from Deputy Commissioner dated 04.12.2009, wherein Deputy Commissioner as Assessing Officer has asked the & 3568/Mum/12 A.Ys. 07-08 & 09-10 [M/s. Trans Impex Pvt, Ltd. vs. CIT] Page 7 details of transactions with the parties. Same was replied by assessee vide letter dated 09.12.2009 inter alia submitting as under:

“2. Name and complete address of the parties to whom sum of Rs.2,04,00,198.20 was due under the sub-head Current Liabilities under the head Current Liabilities & Provisions. We bring to your kind attention here that the notice dated 04/12/09 sent by your office asking us to furnish information for the same has mentioned an amount of Rs.10,05,69,281.69 which is incorrect. Details for the same have been provided for the sum of Rs.2,04,00,198.20 for your ready reference and records as this is the sum which appears in the Balance Sheet. Further the sum of Rs.2,04,00,198.20 is in the form of trade debits and not loans, hence the question of deemed dividend does not arise.” In this connection, ld. Authorized Representative drew our attention to page no.47 of paper book which reflects the said amount in assessee’s books account. It was also submitted that in earlier year similar amount was shown in balance sheet as on 31.03.2006. Ld. Authorized Representative also drew our attention to page no.63 which is schedule for dues to companies wherein amount in question was reflected. According to ld. Authorized Representative, there is no discussion but it was on the record of Assessing Officer and he without discussing the same has taken view on the point. In this regard, our attention was also drawn to page no.179 which is letter from Trans Ocean Shipping Agency Ltd. to Income Tax Officer which reads as under: “ We confirm that an amount of Rs.96,02,367/42 is receivable by us from Trans Impex P. Ltd. however before 1997-98, the same was erroneously written off by us. We state that as and when Trans Impex P. Ltd. pays us the & 3568/Mum/12 A.Ys. 07-08 & 09-10 [M/s. Trans Impex Pvt, Ltd. vs. CIT] Page 8 same we shall offer it for the Taxation and pay tax if any in that year.”

To show that other parties have erroneously left but now acknowledging the same to be receivable. In support of letter at page 179, affidavit of Mr. Tushad Behram Dubash was filed which is placed at page no.175 of paper book reads as under:

“I, Mr. Tushad Behram Dubash, Indian Inhabitant, Director of M/s Transocean Shipping Agency Limited having address at Darabshaw House, Ballard Estate, Mumbai – 400001 do hereby solemnly swear and state on oath as under:

3. Transocean Shipping Agency Limited has submitted confirmation stating that the said amount is recoverable from Trans Impex Private Limited for A.Y. 2009-10 and will be offered to tax in the year in which the amount will be recovered.

4.1 In this background, ld. Authorized Representative placed reliance on the decision of Hon’ble Gujarat High Court in case of CIT vs. Bhogilal Ramjibhai Atara [2014] 43 taxmann.com 55 (Gujarat), wherein on the point remission or cessation of trading liability, assessee had shown a certain amount by way of his debts. He supplied details of 27 different creditors. Assessing Officer undertook exercise to verify records of so & 3568/Mum/12 A.Ys. 07-08 & 09-10 [M/s. Trans Impex Pvt, Ltd. vs. CIT] Page 9 called creditors and found that creditors had not dealing with assessee. Assessing Officer further having found that debts were outstanding since several years applied section 41(1) of the Act and added income as assessee’s income. There was nothing on record to suggest that there was remission or cessation of liability that too during previous year relevant assessment year. It was also pointed by ld. Authorized Representative that Hon’ble Gujarat High Court in case of Principal CIT vs. Matruprasad C. Pandey [2015] 377 ITR 363 (Guj), wherein on the point of remission of liability, amounts were shown for several years as due to sundry creditors. Amounts not written off during relevant previous years. Genuineness of credits not doubted. Amount was not assessable u/s.41of the Act. In these circumstances, the amount in question should not be added back to the income of assessee as deemed income u/s.41(1) of the Act was not deductible in the year under consideration by creditor.

5.1 On the other hand, ld. Departmental Representative supported the order of CIT and strongly submitted that assessment order dated 15.12.2009 is erroneous as not made any scrutiny or cross verification before completing the assessment and therefore not made the desired additions u/s.41(1) of the Act. Since, the amount involved is Rs.96,02,367/-, obviously inaction by Assessing Officer is prejudicial to the interest of Revenue. Therefore, CIT rightly set aside the order in question. ld. Departmental Representative placed reliance on following decisions:

ITA Nos.3567 & 3568/Mum/12 A.Ys. 07-08 & 09-10 [M/s. Trans Impex Pvt, Ltd. vs. CIT] Page 10 i. Arvee International vs. Addl.CIT [2006] 101 ITD 495 (Mumbai) ii. Horizon Investment Co. Ltd. vs. CIT in for A.Y.2008-09 etc.

6.1 Moreover, Mr. Tushad Behram Dubash as Director of M/s. TOSAPL has deposed on oath that the said amount is still receivable from assessee. Contents of affidavit should normally & 3568/Mum/12 A.Ys. 07-08 & 09-10 [M/s. Trans Impex Pvt, Ltd. vs. CIT] Page 11 not be rejected without confronting contents of same to the assessee.

6.2 We also find that assessee has been showing this amount as liability to M/s. TOSAPL for several year which was not doubted in earlier year. No cause of action arose in this year for invoking provisions of Section 263 of the Act. So, action u/s.263 of the Act on this account is not justified as held in Bhogilal Ramjibhai Atara (supra) i.e. in absence of any cause of action in the year under consideration, so, action under provisions of Section 263 of the Act is not justified.

6.3 Reliance was placed by ld. Departmental Representative on the decision of Hon’ble Bombay High Court in Solid Containers Ltd. vs. Deputy CIT (2009) 308 ITR 417 (Bom.) does not apply to case before us because in Solid Containers Ltd. (supra), there was in fact remission of liability which evident from fact that by consent between parties liability came to an end. While in case before us is liability still exist and no cause of action arose in the year under consideration for invoking provisions of Section 263 of the Act on account of remission of liability. Regarding reliance of ld. Departmental Representative on decision of Hon’ble Delhi High Court in case of Rollatainers Ltd. vs. CIT [2011] 15 taxmann.com 111 (Delhi), wherein partial waiver by banker in BIFR action was on record to establish remission of liability so invoking action u/s.41(1) was justified to that extent but in case before there is nothing on & 3568/Mum/12 A.Ys. 07-08 & 09-10 [M/s. Trans Impex Pvt, Ltd. vs. CIT] Page 12 record to suggest there was partial or complete remission of liability in the year under consideration.

6.4 In any manner, invoking provisions of Section 263 of the Act on account of alleged remission of liability is not justified. So, the order of CIT is set aside.

“This appeal is against the order dated 27/03/2012 under section 263 of the Income tax Act, 1961 (hereinafter referred to as “the Act”) passed by the Commissioner of Income Tax 2, Mumbai (hereinafter referred to as the CIT). The under mentioned Grounds of Appeal are without prejudice to one another:

1. The CIT erred in wrongly assuming jurisdiction and in framing order dated 27/03/2012 under section 263 of the Act.”

8.1 We find that CIT has invoked action u/s.263 of the Act by observing as under:

“15. Hence in my view, it would be incorrect to say that Assessing Officer had formed a certain view as distinct from what had been stated in the notice u/s.263 and even if the said view was formed, the said view was not an informed view because, he hardly made any enquiries to support and vindicate his view. It is now an established judicial opinion that lack of enquiries leads to an erroneous order. The order in the present case is not of inadequate enquiries, but instead, of sheer lack of enquiries and scrutiny.

(i) To make enquiries and incorporate the finding of enquiries as suggested in the body of the present order in coming to the conclusion for application of section 41(1).

(ii) To treat the addition made u/s. 41(1) on protective basis but only after having made the addition in A.Y. 2007-08, on similar ground on substantive basis.

Needless to add, the assessee shall be given due opportunities before drawing any adverse conclusion.

& 3568/Mum/12 A.Ys. 07-08 & 09-10 [M/s. Trans Impex Pvt, Ltd. vs. CIT] Page 14 8.2 In the background of set aside of order of Assessing Officer in A.Y. 2007-08 u/s.263 of the Act action was taken u/s.263 of the Act in the year under consideration. Practically CIT has invoked action u/s.263 of the Act to avoid unnecessary litigation and expense of time with direction as discussed above. We have discussed and decided issue of action u/s.263 of the Act in A.Y. 2007-08 whereby we have quashed the order of CIT u/s.263 of the Act. In said background, any action u/s.263 of the Act is not justified in the year under consideration as well. Moreover, over this avoidance of alleged unnecessary litigation and expenses of time is not justified to invoke the provisions of Section 263 of the Act. Same is set aside in A.Y. 2009-10 as well.

Pronounced in the open Court on this the 20th day of July, 2016.