Case Law Details
Assam Tea Corporation Ltd Vs CIT(A) (ITAT Kolkata)
ITAT Kolkata held that disallowance of loss claimed by the assessee under section 41 of the Income Tax Act in a hypothetical way is unjustified and accordingly matter set aside for afresh examination.
Facts- The assessee company is an instrumentality of Assam State. It was engaged in tea plantation and manufacturing of tea. It had filed its return of income electronically on 30.09.2012 declaring total loss. The case of the assessee was selected for scrutiny and a notice u/s. 143(2) of the Act was issued and served upon the assessee. During the course of assessment proceedings, the Assessing Officer found that assessee had shown sundry creditors amounting to Rs. 141.38 Cr as on 31.03.2012. He perused the details of these and thereafter made the addition of the sundry creditors to the extent assessee has disclosed the losses.
Conclusion- Held that Section 41(1) of the Act had been incorporated in the Act to cover a particular fact situation. This Section applies where a trading liability was allowed as a deduction in earlier years in computing the business income of the assessee and the assessee had opted a benefit in respect of such trading liability in later year by way of remission or cessation of the liability.
The principle behind the Section was that a provision intended to ensure that the assessee would not get away with a double benefit namely once by way of a deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with the reference to the liability earlier allowed as a deduction.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The present two appeals are directed at the instance of the assessee against separate orders of Commissioner of Income Tax (Appeals)-2, Guwahati [in short ld. ‘CIT(A)’] dated 26.02.2019 for AY 2012-13. ITA No. 216/GTY/2019 arises out of a quantum appeal i.e. an assessment order was passed u/s 143(3) of the Income Tax Act, 1961 (in short the ‘Act’) on 17.03.2015 and in this order ld. CIT(A) has decided the appeal of the assessee u/s 250 of the Act on 26.02.2019. ITA No. 85/GTY/2020 is a penalty appeal which arose from a penalty proceeding initiated u/s 271(1)(c) of the Act.
2. First, we take ITA No. 216/GTY/2019. The assessee has raised the following grounds of appeal:
“1) On the facts and in the circumstances of appellant’s case the learned Commissioner of Income Tax (Appeals) [here in after referred to as ld. CIT(Appeals)] was not justified in confirming the additions/disallowances of Rs. 1,96,07,621/- and Rs.41,50,903/-made by the Assessing Officer (AO) in his Assessment Order and further enhancing the assessed income of the appellant by Rs142,83,99,477/-. The action of the Id. CIT(Appeals) being contrary to the provisions of law, it is prayed that the same should be quashed and the original additions/disallowances of Rs. 1,96,07,621/- and Rs. 41,50,903/- made by the A.O. and the enhancement of Rs. 142,83,99,477/- made by the Id. CIT (Appeals) all should be deleted in full.
2) On the facts and in the circumstances of the appellant’s case the Id. CIT (Appeals) was totally wrong in holding that the liabilities of Rs. 141,38,93,166/- claimed by way of Sundry Creditors as at 31/03/2012 has ceased to exist. His action is based merely on surmises, conjectures and suspicion ignoring the proofs and details of Sundry Creditors submitted in course of assessment and appeal proceedings.
3) On the facts and in the circumstances of the appellant’s case the Id. CIT (Appeals) was totally wrong in assuming that the purported shortage of processed Tea was bogs as because there was actually no such shortage and therefore his action of making an addition of Rs. 3,41,13,932/- for such alleged shortage was void ab-intio.
4) On the facts and in the circumstance of the appellant’s case the Id. CIT(Appeals) was not justified in giving direction to the A.O. to invoke his powers u/s 150(1) and u/s 150(2) of the Income Tax Act, 1961 for examination of Tea Shortage and Non compliances to TDS provisions regarding assessment years 2013-14 to 2018-19 His action being based merely on suspicion is bad under law and should be quashed.
5) The Appellant prays for leave to take any other ground/s of appeal or, amend, alter, vary the above grounds of appeal before or at the time of hearing of the appeal.”
3. All these grounds are interconnected with each other. Therefore, we take them together. The brief facts of the case are that the assessee company is an instrumentality of Assam State. It is engaged in tea plantation and manufacturing of tea. It has filed its return of income electronically on 30.09.2012 declaring total loss at Rs. 2,37,58,524/-. The case of the assessee was selected for scrutiny and a notice u/s 143(2) of the Act was issued and served upon the assessee. During the course of assessment proceedings, the Assessing Officer (in short ld. ‘AO’) found that assessee has shown sundry creditors amounting to Rs. 141.38 Cr as on 31.03.2012. He perused the details of these and thereafter made the addition of the sundry creditors to the extent assessee has disclosed the losses. The discussion made by ld. AO read as under:
“4. As per Note 9 of the audited accounts, assessee has shown sundry creditors as on 31.03.2012 at Rs. 141,38,93,166/- as against Rs. 136,01,89,749/- as on 31.03.2011, an increase of Rs. 5,37,03,417/-. The assessee was asked to furnish details vide questionnaire issued on 10.09.2014. The assessee has not furnished the required details of sundry creditors or supporting evidences to confirm the account balances. From perusal of assessment records, the amount of sundry creditors shown by assessee over the years is tabulates as follows:
| Sl. No. | Sundry Creditors as on | Amount |
| 1 | 31.03.2004 | 74,11,38,666 |
| 2 | 31.03.2005 | 91,34,49,657 |
| 3 | 31.03.2006 | 103,11,81,682 |
| 4 | 31.03.2007 | 105,93,25,728 |
| 5 | 31.03.2008 | 113,71,78,703 |
| 6 | 31.03.2009 | 124,10,35,109 |
| 7 | 31.03.2010 | 130,32,47,966 |
| 8 | 31.03.2011 | 136,01,89,749 |
| 9 | 31.03.2012 | 141,38,93,166 |
4.1 Despite showing high amount as sundry creditors in its Balance Sheet over the years, the assessee has not even furnished details of same. Even the garden-wise details of sundry creditors has not been furnished. No annexures or list of such creditors or major sundry creditors is also annexed to its audited accounts. From the above, it is evident that assessee has increased its liabilities in the form of sundry creditors but has failed to explain the same.
4.2 The onus is on the assessee to explain the nature and source of cash credits, whether they stand in the assessee’s account or in the account of a third party. The question of burden of proof cannot be made to depend exclusively upon the fact of a credit entry in the name of the assessee or in the name of a third party. It is well settled that in order to discharge the onus, the assessee must prove the following :
(i) The identity of the creditor
(ii) The capacity of the creditor to advance money or sell/supply; and
(iii) The genuineness of the transaction.
4.3 The mere furnishing of particulars or the mere fact of payment by an account payee cheque or mere identification of donor or creditor or the mere submission of confirmatory letter by the creditor is, by itself, not enough to shift the onus onto the department, although these facts may, along with other facts, be relevant in establishing the genuineness of the transaction. In the above cases, assessee has failed to even furnish the details of sundry creditors and basic confirmation of account balance as on 31.03.2012. The genuineness of the sundry creditor account balance has been, on facts, held to be proved by the income tax return of the creditor accepted by the assessing officer or by the statement or affidavit of the creditor or other contemporary documents. In the assessee’s case, the assessee has even failed to furnish the details and basic confirmation of accounts. The assessee has also not discharged the onus to prove the capacity of the creditor to advance money, explain the reason for balance payable lying in his accounts and also confirm the genuineness of the transactions. Assessee has failed to explain the genuineness and credit-worthiness of the above sundry creditors shown in its accounts. Assessee has also failed to explain for what reason and on which account it has incurred a liability to pay such amounts standing as balance as on 31.03.2012 to the above individuals and concerns. In the absence of confirmation of account balance and documentary evidences to show regarding the existence of such liabilities, the correctness and genuineness of the aforesaid liabilities cannot be confirmed. If the correctness and genuineness cannot be confirmed and explained, the same should be written off from the books.
4.4 In view of the above discussions, it is considered reasonable that the amount of sundry creditors at least to the extent of loss shown in the return or loss computed subsequently in assessment for the assessment year under consideration should be disallowed and added back to the total income, on account of cessation of liabilities appearing in its accounts as on 31.03.2012 or write off of sundry creditors. For furnishing inaccurate particulars of income or concealing particulars of income, penalty is hereby initiated u/s 271(l)(c) of the Income Tax Act, 1961. [Addition: Rs. 1,96,07,621/-]”
4. On appeal, ld. first Appellate Authority not only confirmed the view point of ld. AO rather enhanced the addition. Ld. CIT(A) confirmed the addition of total sundry creditors shown by the assessee on the ground that liability to pay ceased. In other words, with the aid of Section 41 of the Act addition has been confirmed.
5. Ld. Counsel for the assessee while impugning the orders of Revenue authorities drew our attention to page no. 90 of the paperbook wherein breakup of Rs. 141.38 Cr is available. He pointed out that these credits represent arrears of salary, ration dues, firewood compensation, medical reimbursement, leave travel concession etc. The breakup is attached herewith as Annexure-A:
Annexure-A
6. Ld. Counsel for the assessee, further, contended that Hon’ble Supreme Court is monitoring the allowances admissible to the employees which has not been paid by the various tea estates. He drew our attention towards the judgment of the Hon’ble Supreme Court in the case of International Union of Food Agr. & Ors. Vs. Union of India, Conmt. Pet. (C) No. 16/2012 in W.P. (C) No. 365/2006. Thereafter, he drew our attention towards the recent judgment of the Hon’ble Supreme Court dated 06.02.2023. On the strength of these two decisions, he contended that assessee has been making payment as and when it received donations. A substantial payment has been made out of the alleged amount which has been added for charging the income tax. This would suggest that the liability to pay was not ceased. Therefore, the finding of the Revenue authorities is not sustainable on this point.
7. Ld. D/R on the other hand, relied upon the orders of Revenue authorities.
8. We have considered the rival contentions and gone through the record carefully. Section 41(1) of the Act has been incorporated in the Act to cover a particular fact situation. This Section applies where a trading liability was allowed as a deduction in earlier years in computing the business income of the assessee and the assessee has opted a benefit in respect of such trading liability in later year by way of remission or cessation of the liability. In such a case, the Section says that whatever benefit has arisen to the assessee in the later year by way of remission of the liability will be brought to tax in that year. The principle behind the Section is that a provision intended to ensure that the assessee does not get away with a double benefit namely once by way of a deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with the reference to the liability earlier allowed as a deduction. In the present case, it is yet to be decided whether the assessee has taken the deduction of all these amounts in earlier year under the head ‘salary’ or ‘other’ as discernible in the breakup ‘Annexure-A’ but it is to be observed that under the directions of the Hon’ble Supreme Court these arrears of salary, medical reimbursement etc. are being paid to the claimants namely employees and, therefore, it is factually yet to be ascertained again whether any liability has ceased or not.
9. The development at the level of Hon’ble Supreme Court vide its order dated 06.02.2023 in the public interest litigation is subsequent to the decision of ld. CIT(A), therefore, in the given facts and circumstances, we deem it appropriate to set aside this issue to the file of ld. AO for re-adjudication after hearing the assessee afresh and re-examination of complete facts.
10. Apart from this major issue, there are two other small components also available in the grounds of appeal; one is about shortage of processed tea bags and the other one represents to payment of gratuity, cess on tea etc. As far as payment of gratuity and cess on tea are concerned, they are also to be examined afresh because these are to be visualized with the angle of payments made by the assessee subsequently. As far as the addition of Rs. 3,41,13,932/- is concerned, we find that ld. AO has not made any addition on this point. However, during the course of first appellate proceedings, ld. CIT(A) has observed that assessee has claimed shortage of processed tea approximately 10% of the total quantity manufactured. Ld. CIT(A) was of the view that being a Government organization, it is not justifiable at its end to loss of 2.70 lakh kilogram of stock of tea. Ld. CIT(A) estimated the value of this loss and made the addition to the income of the assessee.
11. With the assistance of ld. representatives, we have gone through the record carefully. It is observed that assessee is a loss-making entity. Arrears of salary is being paid with the help of donations received by the Government as discernible from the judgment of the Hon’ble Supreme Court. Ld. first Appellate Authority under a hypothetical way estimated the addition by making a disallowance of the loss claimed by the assessee. It is, further, observed that loss is dependent upon realization of the finished good from the green leaf assessee has plucked during the year. It is not a loss which has been carved out after getting the finished product. The complete details are not available in the order of ld. CIT(A) in this regard and since we have set aside one of the issued to the file of ld. AO, therefore, we deem it appropriate to set aside this aspect also for afresh examination at the end of ld. AO. More particularly, this was not examined by ld. AO originally. Hence this ground of appeal is also set aside.
12. As far as ground no. 4 is concerned, that ld. CIT(A) was not justified in giving direction to ld. AO to invoke his powers u/s 150(1) & 150(2) of the Act. From perusal of the order of ld. CIT(A) at page nos. 68 & 69, we are of the view that assessee failed to give complete details to ld. CIT(A) regarding shortage of finished product. Similarly, it failed to give details of TDS. Under these circumstances, ld. CIT(A) has rightly given direction to ld. AO to examine these aspects in other years also. We do not find any error in the finding of ld. CIT(A). This ground is rejected. It is also pertinent to observe that in this year, we have already remitted the issue back to the file of ld. AO for determination of excess loss, if any, claimed by the assessee out of the finished product. Thus, in the same line, if loss is being examined in other years as directed by ld. CIT(A), we do not find any error in it.
13. Ground no. 5 is a general ground of appeal which does not call for recording any finding.
14. In view of the above, the appeal of the assessee is allowed for statistical purposes.
Now, we take up I.T.A. No.: 85/GTY/2020.
15. The present appeal is a penalty appeal. The grievance of the assessee is that ld. CIT(A) has erred in initiating the penalty u/s 271(1)(c) of the Act. Sub-Section 3 of Section 271(1)(c) of the Act would contemplate that penalty is to be computed on the additions made to the total returned income of the assessee. It can be equivalent to the taxes sought to be evaded or three times of the taxes sought to be evaded on the additions made to the income. The income of the assessee is yet to be determined. Therefore, vesting the assessee with the penalty is premature because we have already set aside the issue to the file of ld. AO for redetermination of income. Accordingly, we set aside the penalty order also. Since we have relegated one of the issues in the quantum appeal to ld. AO namely addition on account of shortage of finished tea claimed by the assessee. This addition was not made by ld. AO but it was made by ld. CIT(A) while enhancing the income of the assessee. We have modified the finding of ld. CIT(A) and relegated this issue to the file of ld. AO for re-examination. Therefore, the penalty for all these issues is to be examined at the level of the Assessing Officer afresh after determination of the income of the assessee. It will be in the discretion of the Assessing Officer to initiate the penalty proceeding against the assessee u/s 271(1)(c) of the Act or not to initiate.
16. The observations made by us in the quantum appeal as well as in the penalty appeal will not impair or injure the case of the Assessing Officer and it will not cause any prejudice to the defence/explanation of the assessee qua all these issues. We have made observations only to bring the point at home for setting aside these issues to the file of ld. AO for afresh adjudication.
17. With the above observation, both the appeals are allowed for statistical purposes.
Kolkata, the 20th July, 2023
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