Case Law Details

Case Name : Income Tax Officer Vs. Shri Jagmohansingh G Dhiman (ITAT Ahmedabad)
Appeal Number : ITA No.1959/Ahd/2012
Date of Judgement/Order : 31/01/2013
Related Assessment Year : 2009-10
Courts : All ITAT (4213) ITAT Ahmedabad (321)

As per the provisions of section 41(1) addition can be made towards remission or cessation of liability, if the following conditions are fulfilled.

(i) In the assessment of an assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him

(ii) (a) Any amount is obtained in respect of such loss or expenditure, or

(b) Any benefit is obtained in respect of such trading liability by way of remission or cessation thereof

(iii) Such amount or benefit is obtained by the assessee; and

(iv) Such amount or benefit is obtained in a subsequent year.

3.3 Perusal of the assessment order reveals that the above mentioned conditions are not fulfilled in the instant case. The A.0. had not brought anything on record to prove that any amount or benefit had been obtained by the appellant during the year under consideration against liabilities which is allegedly ceased to exist. It is also an established proposition of law that onus is on the A. 0. to establish that any benefit has accrued to the appellant against alleged liabilities during the year under consideration.

The A. O had not discharged his onus.

In view of the fact that the enabling conditions of sec.41(1) are not fulfilled in this case, the A.0. had not brought any material on record to indicate that the appellant had obtained any benefit against the above said liabilities and these liabilities are still existing at the end of relevant assessment year in the books of accounts of the appellant, I am inclined to agree with the contentions of the Ld. A.R. Accordingly, addition of Rs. 1,36,76,461/- made by the A. 0. u/s 41(1) is ordered to be deleted.

ITAT AHMEDABAD “A” BENCH

Before: Shri D.K. Tyagi, Judicial Member and Shri A.K. Garodia, Accountant Member

ITA No.1959/Ahd/2012 – A.Y. 2009-10

Income Tax Officer Vs. Shri Jagmohansingh G Dhiman

Date of hearing : 31.01.2013

Date of pronouncement : 31.01.2013

ORDER

PER: D.K. TYAGI, JUDICIAL MEMBER

This is Revenue’s appeal against the order of ld. CIT(A)-XI, Ahmedabad dated 20.06.2012.

2. None appeared on behalf of assessee despite the fact that notice for today’s hearing was served upon the assessee. So, we proceeded to dispose of this appeal after hearing ld. D.R. only.

3. Revenue has taken following effective ground of appeal:-“The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,36,76,461/- in respect of unverifiable Sundry Creditors.”4. The A.O., while making this addition has observed as under:-

“4. Disallowance on account of sundry creditors:-

4.1 On verification of the transaction details as regards to the sundry creditors – schedule -C of the audited account, the assessee has shown sundry creditors of Rs. 1,93,56,797/-. The creditors to the tune of Rs.56,80,336/- are verified on the basis of confirmations/details furnished by the assessee, remaining amounts of Rs. 1,36,76,461/- remained unverified for which no valid confirmation/no any details to established the transactions are furnished by the assessee. Therefore remaining amount of creditors of Rs. 1,36,76,461/- remained unverified. This being a liability of the assessee same is required to be added u/s 41(1) of the IT. Act.

4.2. A show cause notice to the above effect, was issued to the assessee vide this office letter dated. 20.12.2011 fixing the hearing on 26.12.2011. The AR of the assessee attended on 27.12.2011 and furnished the reply/explanations. I have considered the reply of the assessee carefully but same is not acceptable. The assessee failed to furnish sufficient evidences in support of his claim, such as PAN and address of the assessee and most of the transactions are cash transactions no PAN and address are also furnished by the assessee. Therefore, the same is not acceptable.

4.3. Considering the above facts, the assessee failed to furnished the evidence as regards to the above persons/parties by way of furnishing identification, credit worthiness and PAN details of creditors. Therefore an amount of Rs.1,36,76,461/- is added to the total income of the assessee u/s 41(1) of the I. T. Act. The Penal action U/s 271 (1)(C) are initiated for concealment of income and furnishing inaccurate particulars of Income.”

5. Before ld. CIT(A) assessee relied on the following submissions:-

“Ground No. 3:

Sundry Creditors u/s 41(1) for want of confirmations Rs. 1,36,76,461. The learned AO had asked the appellant to furnish the confirmations from the sundry creditors. Some of the confirmations could be furnished and for want of time other confirmations could not be furnished in time. Out of total creditors of Rs. 1,93,56,797, the confirmations from the creditors to the tune of Rs.56,80,336 could be furnished. The learned AO has made the addition of the balance of Rs.1,36,76,461 to the total income of the appellant u/s 41 (1) of the Act.

Your appellant would like to submit as under:

Your appellant is subject to the Central Excise Regulations. Accordingly he is required to maintain detailed stock account of the raw materials purchased and consumed, and finished goods produced and sold. These records have been properly maintained. The sundry creditors most of them are for goods purchased. Some of the others are for statutory liabilities and for expenses. Your appellant had submitted month wise purchase and sales records to the learned AO. These records include quantity as well as value of the purchases and sales.

Your appellant is also required to get the accounts audited under section 44AB of the Income tax Act, 1961 and accordingly the audit has been carried out and the report obtained. As per the prescribed form 3CD, the audit report also contains the details of raw materials purchased and consumed and also the finished goods produced and sold. There is no adverse remark in the report of the auditor in relation to the quantitative accounts. Merely for want of confirmations, the addition made is, therefore, not called for and deserves to be deleted.

Section 41(1) reads as under:

41. 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 assesses (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 the profits and gains of business or profession and accordingly charged 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)………

[Explanation: For the purposes of this sub-section, the expression “loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.].

Your goodself will kindly appreciate that the appellant has not written off any liability in his accounts. In fact, the learned AO had been given the accounts of the parties for the subsequent year. The parties in whose accounts the balances were outstanding were paid in the subsequent year. The appellant also furnished the bank statement for the subsequent period in which the cheques for payments to these parties were debited by the bank.

Your appellant also furnishes a list of the parties who were outstanding as per the balance sheet under the head “Sundry Creditors”. Your goodself will kindly observe that the list includes VAT payable, Provident Fund dues, Electricity Charges payable, Wages payable also. The learned AO has added these dues also as part of the total addition of Rs. 1,36,76,461. There are several debit balances also in the list and the total of Rs.1,93,56,797 has been a net figure. The learned AO has not considered the debit balances and taken the gross amount for the purpose of addition but taken the net amount for the purpose of addition.

Your appellant therefore, submits that there is no case for invoking the provisions of section 41(1) of the Act and the addition made by the learned AO is made without proper application of mind and deserves to be deleted.

Your appellant also seeks reliance from the recent decision of Delhi High Court in the case of the CIT v. Shri Vardhman Overseas Ltd. delivered on 23rd December 2011. The judgment has also considered the decisions of the Supreme Court in the cases of CIT v. Sugauli Sugar Works P. Ltd. (1999) 236 ITR 518 and CIT v. Kesaria Tea Co. Ltd. (2002) 254 ITR 434. The Hon. High Court has dealt with in details the circumstances which should be present for the invoking of the section 41(1). Since the appellant has not written off the balances in the books of accounts, the question of invoking the provisions of section 41(1) does not arise and more so when the sundry creditors have been paid in the subsequent year and the necessary evidences furnished to the learned AO.

Your appellant also seeks reliance from the observations of the Hon. High court of Delhi in the case of Devsons (P) Ltd. vs. Commissioner of Income tax and Others 48 DTR 137. The extracts have been reproduced below.

“Adverting to the second issue, the finding recorded by the Tribunal is that there was no evidence regarding payment of Rs.36,1 7,986 by the assessee to the sub-contractors in connection with the execution of the garbage collection work and, as such, the deletion made by the CIT(A) of the aforesaid sum of Rs.36,1 7,980 was unsustainable. We are of the view that the Tribunal failed to take note of three very vital aspects of the matter. The first was the finding of the CIT(A) that the factum of rendering of services by the subcontractors was not in dispute as the appellant had meticulously maintained log books for each subcontract, which were duly verified and authenticated by the JMC. The Tribunal casually brushed this aside by stating that mere filing of a log book was not sufficient to discharge the onus laid upon the appellant. The log book was a contemporaneous document maintained by the assessee company on a day to day basis and it was on the basis of the said log book that the claims of the assessee­company were accepted and/or rejected by the JMC, whose officials were verifying and authenticating the log books.

The second was that the Tribunal altogether lost sight of the fact that the appellant had duly deducted tax at source in respect of the entire amount credited in the favour of these parties.

Your appellant in view of the above submits that in absence of the confirmations from the creditors also, there was adequate material on record to prove the genuineness of the sundry creditors and the same material was made available to the learned AO and was placed on the records. However, without referring to the same or without rejecting the same, the learned AO proceeded to make the addition.

Your appellant therefore, submits that the addition made to the total income of the assessee is uncalled for and deserves to be deleted. The same may kindly be held so and the addition made be kindly deleted.”

6. After taking into consideration these submissions of the assessee ld. CIT(A) deleted this addition of Rs.1,36,76,461/- made by the A.O. u/s 41(1) of the Act.

7. Aggrieved by the order of ld. CIT(A) now the Revenue is in appeal before us.
8. At the time of hearing ld. D.R. relied on the order of the A.O.

9. After hearing both the parties and perusing the record we find that ld. CIT(A) has given relief to the assessee by holding that no condition required to make addition towards remission or cessation of liability as per provisions of section 41(1) of the Act is fulfilled in this case, therefore the A.O. was not justified in making the addition by invoking the provisions of this section. The relevant portion of the order of ld. CIT(A), in this regard, reads as under:-

“3.2 I have carefully considered the rival submissions. Since the addition has been made u/s.41 (1) of IT. Act, accordingly it will be pertinent to discuss the provisions of section 41(1). As per the provisions of section 41(1) addition can be made towards remission or cessation of liability, if the following conditions are fulfilled.

(i) In the assessment of an assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him

(ii) (a) Any amount is obtained in respect of such loss or expenditure, or

(b) Any benefit is obtained in respect of such trading liability by way of remission or cessation thereof

(iii) Such amount or benefit is obtained by the assessee; and

(iv) Such amount or benefit is obtained in a subsequent year.

3.3 Perusal of the assessment order reveals that the above mentioned conditions are not fulfilled in the instant case. The A.0. had not brought anything on record to prove that any amount or benefit had been obtained by the appellant during the year under consideration against liabilities which is allegedly ceased to exist. It is also an established proposition of law that onus is on the A. 0. to establish that any benefit has accrued to the appellant against alleged liabilities during the year under consideration.

The A. O had not discharged his onus. I have also perused the case laws relied upon by the appellant and the ration of these case laws supports the case of the appellant.

3.4 Perusal of above facts reveals that the A.0. had not mentioned even the details of the liabilities which has ceased to exist. The A. 0. had taken balancing figure from the balance sheet and made the addition u/s.41(1) of the I. T. Act. The action of the A.0. does not confirm with the scheme of this section. For the application of this section the A. 0. has to work out specific trading liabilities which has ceased to exist. Perusal of the sundry creditors further reveals that the following liabilities disallowed by the A. 0. are not trading liabilities at all.

Sr. No. Description Amount Rs.
1. P.F. Payable 1,07,869/-
2. Unpaid wages 36,570/-
3. Vat A/c. 1,25,976/-

As discussed above, provisions of section 41(1) are not attracted against these liabilities as these are statutory liabilities and not the trading liability. The facts available on record further reveals that these are normal trading liabilities, which were paid generally through banking channels in the next year, in the regular course of business. Thus, these liabilities had neither ceased or remitted as required by the provision of section 41(1) of IT. Act, 1961.

3.5 In view of the fact that the enabling conditions of sec.41(1) are not fulfilled in this case, the A.0. had not brought any material on record to indicate that the appellant had obtained any benefit against the above said liabilities and these liabilities are still existing at the end of relevant assessment year in the books of accounts of the appellant, I am inclined to agree with the contentions of the Ld. A.R. Accordingly, addition of Rs. 1,36,76,461/- made by the A. 0. u/s 41(1) is ordered to be deleted. This ground of appeal is allowed.”

10. Since the above finding of ld. CIT(A) remained uncontroverted by the Revenue at the time of hearing before us, we feel no need to interfere with the order passed by him and the same is hereby upheld.

11. In the result, Revenue’s appeal is dismissed.

Order pronounced in open Court on 31.01.2013.

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Tags : ITAT Judgments (4392) Section 41 (23)

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