Income Tax Appellate Tribunal - Jaipur
Shanti Lal Bhandari, Jaipur vs Ito, Jaipur on 17 April, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES (SMC), JAIPUR
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BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER
vk;dj vihy la-@ITA No. 73/JP/2016
fu/kZkj.k o"kZ@Assessment Year : 2012-13
Shanti Lal Bhandari, cuke Income Tax Officer,
80, Usha Colony, Malviya Vs. Ward-6(1),
Nagar, Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAYPB 1171 F
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri B.P. Moondra (CA)
jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl.CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 05/04/2017
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 17/04/2017
vkns'k@ ORDER
PER: BHAGCHAND, A.M. This is an appeal filed by the assessee emanates the order dated 26/11/2015 passed by the ld. CIT(A)-2, Jaipur for the A.Y. 2012-13, wherein the assessee has raised following grounds of appeal:-
"1. In the facts & circumstances of the case, the Ld. CIT (A) has erred in sustaining the addition of Rs.
36,76,180/- u/s 41(1) of the Income Tax Act,1961 by holding to be cessation of liability in form of sundry creditors.
2. In the facts & circumstances of the case, the Ld. CIT(A) has erred up holding the action of the Ld A.O. in 2 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO rejecting the books of accounts u/s 145(3) of the Income Tax act, 1961.
3. In the facts & circumstances of the case, the Ld. CIT (A) has erred by applying G.P. Rate @ 12% instead of G.P. rate 10.39% which was better than past history of the assessee.
4. Ld. CIT Appeal errors in confirming disallowance of interest of Rs. 36720/-which is bad in Law & facts.
5. Ld. CIT Appeal errors in confirming by restricted disallowance @ 10% on depreciation of Rs. 98480/-as the depreciation is statutory allowance and therefore bad in law & facts."
2. The assessee is engaged in the business of manufacturing and export of garments from past many years in the name and style of M/s Pas Home Textiles. During the year, the assessee declared gross profit of Rs.
1374755/- on the turnover of Rs. 13230025/- giving GP rate of 10.39%.
The gross profit comparatively better than immediate past two years wherein the gross profit was10.36% and 10.34% for the assessment year 2011-12 and 2010-11 respectively. The Assessing Officer noticed certain discrepancies and invoked the provisions of Section 145(3) of the Income Tax Act, 1961 (hereinafter referred as the Act). The Assessing Officer rejected the books of account and estimated the turnover at Rs.
13500000/- by applying GP rate @ 14%.
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3. Firstly, I am deciding ground Nos. 2 and 3 of the appeal wherein books of account of the assessee has been rejected and the gross profit rate was sustained @ 12% instead of 10.39% declared by the assessee.
4. The ld. CIT(A) upheld the rejection of books of account. However, he found that the gross profit @ 12% will be reasonable at the turnover declared by the assessee at Rs. 1,32,30,025/-. The relevant portion of the order of the ld. CIT(A) is reproduced hereunder:-
"4.3.1 I have perused the facts of the case, the assessment order and the submissions of the appellant. The Assessing Officer observed the following defects in the books of accounts while verifying the accounts.
"1. The assessee has not shown the opening stock of raw material, work in progress and of finished goods separately. Similar is the case of closing stock.
2. The assessee has not maintained day to day stock register of the raw material, consumption of raw material and production of garments. In the absence of the day to day stock register, it is not possible to verify the consumption of raw material shown by the assessee.
3. In absence of the stock register, the assessee does not have inventory of the opening stock and closing stock of raw material, finished goods and of work in progress. Hence the valuation of the opening stock, closing stock is 4 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO done on estimate by the assessee, and it is not subject to verification.
4. In absence of the, production register it is not possible to verify the raw material consumed for production of the items and find valuation of the items in opening stock and closing stock. Hence the valuation offered by the assessee in the trading account is on estimate basis and the pretext is that the valuation is on the net realizable value.
5. The assessee has also not produced the register or job card for the goods issued for job work like printing, dyeing, washing, embroidery etc. hence the veracity of the job work expenses cannot be verified.
6. The attendance register of the workers in the workshop had also not been produced, in absence of which the actual wages payment could not be verified.
7. For the expenses debited in the profit and loss account, under the head conveyance, office & general expenses, printing & stationery, repairs and maintenance, staff welfare expenses, the supporting bills are not there and the expenses have been credited through self made vouchers.
8. The assessee has not shown the wastages and the receipts from sale of wastages in his books of accounts.
9. No details of shrinkage of cloth on washing and dyeing has been maintained.
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10. The assessee had shown sundry creditors of Rs. 12244358/-, on verification the creditors were found to be false."
The Authorized Representative stated that the inventory of stock had been submitted and that is as certified by the proprietor. In view of the defects as pointed out by the Assessing Officer, rejection of books of accounts u/s 145(3) is upheld.
4.3.2 As regards estimation of gross profit the Assessing Officer has pointed out that the same is better than the previous year and estimated the same at 14% on a turnover of Rs. 1,35,00,000/- as against a turnover of Rs. 13,20,00,025/- returned by the assessee. While it is true that in the relevant year, the gross profit is better than the last two years but these years were not subjected to scrutiny of accounts. Further, the Assessing Officer has clearly found defects in the books and hence books results cannot be accepted. However, the enhancement of total turnover without any specific reason for doing so, is not accepted. It will be reasonable to takes the GP at 12% on the amount of turnover as returned by the assessee (Rs. 13,20,00,25) The ground of appeal is partly allowed."
5. I have heard both the sides on the issue of rejection of books of account for invoking the provisions of Section 145(3) of the Act and also on estimating the gross profit rate @ 12% sustained by the ld. CIT(A). It 6 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO is noted that the assessee has not shown the opening stock of raw material work in progress and finished goods separately and similar facts were with regard to the closing stock. The assessee was not maintaining day to day stock register, consumption of raw material register and the production of garments. In absence of such vital information, the valuation of opening stock, closing stock is done on estimate by the assessee, which cannot be subjected to verification. In absence of production register, input output ratio can also not be worked out. The Assessing Officer has also noted that the assessee has not produced job work like printing, dyeing, washing, embroidery etc. The details of wastage were also not shown and was also not maintained and in view of these defects, the ld.
CIT(A) had sustained the rejection of books of account. Therefore, I agree with the findings of the ld. CIT(A) in respect of rejection of books of account. As far as estimation of the gross profit rate is concerned, the ld.
CIT(A) has reduced it from 14% to 12% and the gross turnover of the assessee was accepted. It is pertinent to note that the comparative G.P. for the year under consideration was better than the earlier year. However, to cover the leakage of revenue on account of various defects noted in the books of account, I hold that estimating lump sum addition of Rs. 80,000/- shall be reasonable and sufficient. Hence, 7 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO ground No. 2 of the assessee's appeal is dismissed and ground No. 3 of the appeal is partly allowed.
6. In the ground No. 1, the issue involved is against sustaining the addition of Rs. 36,76,180/- by invoking the provisions of Section 41(1) of the Act by holding that there was a cessation of liability in the form of sundry creditors. On this issue, the ld AR has submitted as under:-
a) Your honour amount payable in respect of above creditors, the assessee purchased Raw materials from the these creditors during preceding previous years on credit. Due to quality variations and later on severe cancer to the assessee the assessee could not paid to these creditors and therefore are appearing as outstanding due to the creditors in the assessee's successive Balance sheets. Ld. AO has verified and approved the credit appearing in assessee's book. The assessee has not obtained in cash or in any other manner any amount or any benefit etc. from any person regarding the purchases made by the company. It is neither the case that the assessee has written off the outstanding dues in its books of accounts by crediting the amount to profit & loss account nor has the assessee at any time refused to the creditors that it is not willing to make payment. In the ongoing disputes, the creditor company has never agreed nor even hinted to the assessee about the waiver of the outstanding Amount. In such circumstances the undisputed facts that emerge are assessee purchased goods in previous financial years from the creditor's. The assessee has not made any payment to the creditor and the amount is outstanding till date due to disputes. The assessee has not received any communication regarding any write off by the creditor company nor has received any credit note regarding the same. As few creditors have in its books of accounts removed the outstanding towards the assessee, it is clearly a unilateral act of the creditor which might have been in some previous year (clearly not in F.Y. 2012-13).
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b) Out of 127 sundry creditors letters for confirmations of the sundry credits were sent in 15 cases where it was thought by the Ld. AO that the address might be complete and it was found that 8 letters were returned by postal authorities unserved In 4 cases the negative reply was received and in 3 cases no reply has been received though the letter has been served. Your honour the Ld. AO had not given any explanation that how the Ld. AO thought that the address of 15 might be complete. The reply of 4 sundry creditors were given to the AR of the assessee. The assessee furnished the reply appearing at page no. 20 of the AO order. Your honour can see that in the case of first creditor Janki Lal Radheyshyam kindly see at the page no. 16 of the AO order. Your honour the CA of the Janki Lal Radheyshyam stated that there is no dealing for Ay 2012-13 and no amount is outstanding towards the assessee in this AY out of any previous year as any enumerated in the letter of the Ld. AO. Your honour can verify that through page no. 20 sub point no. 1.b wherein the assessee request that he is suffering from severe cancer and is now not in position to pay much time to the business. Accountant of the assessee is also on part sick as he is more than 60 years old. Kindly see page no.20 sub point no. 1.c where in the assessee request to call M/s Janki Lal Radheyshyam u/s 131/133(6) along with books so that so that proper checking may be possible and cross verification may be possible. Kindly note that in sub clause (c) of the same letter the assessee request that the Ld. AO issued Notice u/s 133(6) and generally parties is in fear with income tax notice and there is every chance that the party may refuse to avoid to appear before income Tax office. So the assessee requested to the Ld. AO to call M/s Jankilal Radheyshyam u/s 131 or 133(6 ) alongwith accounts books so that proper checking may be possible and cross verification may be possible. The Ld. AO had not called inspite of request of the assessee. Your honour kind attention is invited to remaining 3 creditors to whom the Ld. AO issued notice u/s 133(6). The same is appearing at the Ld. AO order page no.20 sub point no. 2 and 3. Your honour can verify that the facts are similar to M/s Janki Lal Radheyshyam. In conclusion the Ld. AO issued notice only to 15 sundry creditors (The addition is made for 37 creditors kindly see the Ld. AO order page no. 7 and 8 wherein the table is appearing.) and out of them could got the confirmation from 4 creditors. Inspite of request to call all 15 sundry creditors u/s 131/133(6) along with books so that so that proper 9 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO checking may be possible and cross verification may be possible. The assessee furnished complete name and addresses of all 127 creditors. Also there is genuine reason with the assessee regarding requesting that the assessee is suffering from severe cancer and is now not in position to pay much time to the business. Accountant of the assessee is also on part sick as he is more than 60 years old. Your honour after giving name and addresses the onus shifted to the revenue and the revenue failed to prove that the there is a cessation of trade liabilities.
c) Derivation: - Your honour, the creditor has no dealing with the appellant company. The opening balance as well as closing balance were NIL for Financial Year 01.04.2011 to 31.03.2012. As the opening balance in creditor Books as on 01.04.2011 was nil it implies that there has been no remission or cessation of liability in Previous Year 2011-12, it can be reasonably inferred that the creditors might have suo-motto credited the account of the assessee (from it's own sources) and/or might have squared off/written off the balance due by the assessee in previous year itself. In such suo- motto action of creditor, section 41(1) does not apply as for no amounts remission has been obtain by the appellants in F.Y. 2011-12. This fact does not mean that the appellant has received any benefit by remission or cessation of liability in Previous year 2011-12 which leads to deeming income under section 41(1). Thus no Income becomes taxable in A.Y. 2012-
13.
d) The AR relied on decision held in SHREE PADMAVATI MARBLES PVT. LTD.
vs. INCOME TAX OFFICER Hon'ble JAIPUR TRIBUNAL in ITA No. 596/JP/13 on Aug 22, 2016 reported in (2016) 47 CCH 0764 JaipurTrib. Further in various judicial pronouncements, it has been repeatedly held that unless it is proved that an allowance or deduction has been made in the assessment in any previous year, it is not open to the Revenue to invoke section 41(1). Reliance is placed on the decision in case of Tirunelveli Motor Bus Service Co. Pvt. Ltd. vs. CIT (1970) 78 ITR 55 (SC). Further, in steel and General Mills Co. Ltd vs. CIT (1974) 96 ITR 438 (Delhi) it has been held that burden lies upon the department to prove that an allowance or deduction had been given for this amount to the assessee in the earlier Assessment Years.
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e) Your honour the Ld. AO mention the case law of Commissioner Of Income Tax, ... vs M/S, T.V. Sundaram Iyengar & Sons ... on 11 September, 1996 222 ITR 344. (Kindly refer page no. 1 to 6). This case law is not applicable on the assessee as the circumstances are entirely different. In this case the Income Tax Officer found that the assessee had transferred an amount of Rs. 17,381/- to the profit and loss account of the company during the accounting period ended on 31st March, 1982 (assessment year 1982-83), and an amount of Rs. 38,975/- (assessment year 1983-84), But these amounts were not included in the total income of the assessee. Our case is entirely different. In the case of the assessee the Sundry creditors are appearing as liabilities and had not been transferred to Profit & Loss A/c.
f) Further reliance was placed on the decision of the Honorable Bombay High Court in the case of the Commissioner of Income Tax v/s Benneit Colemon & co Ltd (201 ITR 1021(Bom) where in it has been held that When the liability is time barred it amount to cessation of liability u/s 41(1) unless extraordinary circumstances shown to the authorities to prove the point. Your honour Income Tax Appellate Tribunal - Ahmedabad Narendrasingh C.Saini, Bharuch vs Department Of Income Tax on 8 November, 2012 held as under:-
"Having heard the submissions of both the sides, we are of the considered view that in the absence of any cogent evidence to believe that the liabilities in question have actually ceased to exist, it was unjustifiable on the part of the AO to assume on his own that the same have become barred by limitation being appearing in the books of accounts for more than three years. Rather, in the case of CIT vs. Silver Cotton Mills Company 125 Taxman 741(Guj.), the Hon'ble Court has held that the liabilities if appearing in the books of accounts should subsist although it might not be enforceable on account of some provisions of law of limitation unless and until it was legally held so. We therefore hold that unpaid liability cannot be added in the total income of the assessee by invoking section 41(1) of IT Act merely because the liability remained unpaid for few years unless and until there is an evidence to show that either by operation of law or the creditor had remitted the debt. Considering the facts of the case, we hereby approve the view taken by the ld.CIT(A) and dismiss this ground of the Revenue."
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g) The Ld. AO further placed reliance on the decision of Commissioner of Income Tax v/s General Industrial Society Ltd (207 ITR, 169(col)) where it has been held that assessee's intention to disown obligation to pay such liabilities thus being clear from these facts, amount are taxable u/s 4l(1). In the case the amount has been written back by the company and yet not offered to taxation, here in case of assessee the intention to disown the liability is clear and hence the amount is being written back for the purpose of taxability. Your honour the case discussed by the Ld. AO is not applicable in our case as the assessee had not written back the liabilities.
h) The Hon'ble Delhi high court as per its recent decision in the case of CIT vs. Chipsoft Technology (P.) Ltd. [2012] 210 Taxman 173 (Del), examining the legal aspect of the matter, has clarified that the view that merely because a liability outstands in books, and that lapse of time bars the remedy but does not efface the liability, is an abstract and theoretical one which does not ground itself in reality. The interpretation of law, particularly fiscal and commercial legislation, is to be based on pragmatic realities. It would be indeed paradoxical, if not illogical, to allow the assessee-debtor to, while avoiding a liability on the basis that it is no longer enforceable in law, yet claim his status as a debtor, so that he was indeed liable for the amount reflected as a liability in accounts.
i) The Ld. CIT appeal confirmed the addition made by the Ld. AO. The ld. CIT Appeal relied the decision held in NATURAL GAS COMPANY (P) LTD. vs.DEPUTY COMMISSIONER OF INCOME TAX 61 Taxman.com 297 (Mumbai- Trib. Your honour in that case it was also held that The onus to establish that the conditions of taxability stand satisfied is always on the Revenue.
j) Your honour, therefore, the assessee prayed to delete the addition.
Further the case laws referred by the ld. Assessing Officer and ld CIT(A) are distinguishable fully as in all these cases. Your honour, principle laid down in case of TV Sundaram Iyengar & Sons Ltd. is not applicable in the case of the assessee.
k) Your honour, the provisions of Section 41(1)(a) which states as under:
Sec. 41 Profits chargeable to tax:
12 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO (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 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.
l) Your honour the AR relied the decision held in Brothers Pharma P Ltd., Jaipur vs Assessee on 21 October, 2015 IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR reported in 54 TW 163 wherein it was held that it is undisputed fact that the assessee had not written off any liability on account of trade creditor during the year under consideration. Further the assessee had furnished required details before the Assessing Officer as well as ld CIT(A). In one of the case the inquiry letter U/s 133(6) has been returned back to the Assessing Officer. It is fact that these amounts were very old, it is possible that the creditor has closed or shifted the business from the given address. The assessee had produced copy of balance sheet and it is claimed by the assessee that to the tune of Rs. 18,05,000/- are unsecured loan from earlier years, which has not been claimed as deduction or allowances in earlier year by the assessee. The lower authorities also had not able to establish their case that the assessee had deducted or allowed these advances as deduction in earlier years. As the case laws referred by the assessee including Hon'ble Supreme Court and Hon'ble Jurisdictional High Court held that burden is on the revenue to prove that the assessee has taken deduction in earlier year and there is a write-off bilateral. In assessee's case, even unilateral written off has not been claimed by the assessee. The revenue has not brought on record any adversary evidence to establish that liability was not inexistence or not paid 13 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO in the subsequent year. Further remaining amount, the assessee filed confirmation and the ld Assessing Officer had not made any inquiry and established the case that liability is not inexistence. It was further held that the case laws relied upon by the assessee are squarely applicable particular Hon'ble Supreme Court decision in the case of Chief CIT Vs. Kesaria Tea Co. Ltd. (supra) and the case laws referred by the ld CIT(A) are squarely distinguishable on the ground that there was a written off either by the assessee or bilaterally. And therefore the Hon'ble ITAT held that after careful consideration of all the facts and circumstances of the case and written submissions made by the ld AR on Section 41(1) of the Act, the Hon'ble ITAT do not find any reason to confirm the order of the ld CIT(A). Accordingly, the addition confirmed by the ld CIT(A) was deleted.
m) Your honour it is undisputed finding that the expenditure has been claimed in the earlier year and hence, the first condition of invoking section 41(1)(a) is satisfied. The second condition talks about the year of taxability of such amount and states that during any previous year, the assessee has obtained some benefit in respect of such trading liability by way of remission or cessation thereof, the value of benefit accruing to him shall be deemed to be profits and gains of business and chargeable to tax as income of that previous year. What is therefore relevant is to determine the year of obtaining the benefit as the benefit can be brought to tax in that year itself and not in any other year. In the instant case, four sundry creditors has confirmed that there are no transactions during the previous year under consideration as well as the fact that there is no opening balance in the account of the creditors maintained in their books of accounts for the year under consideration. It is therefore clear that the unilateral action on the part of these creditors in remitting the subject amount has not happened in the previous year under consideration. In light of the same, even where the assessee has obtained the benefit by way of remission of its trade liability, the same cannot be brought to tax during the year under consideration as the event of remission has not happened during the year. Hence, the addition of Rs 36,76,180/- under section 41(1)(a) is bad in law and facts.
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7. On the other hand, the ld. Sr.DR has relied on the orders of the authorities below.
8. I have heard both the sides on this issue. The revenue has not doubted the purchase of raw material from these creditors. The genuineness of creditors is not in doubt. Now the onus to establish that provisions of Section 41(1) of the Act are applicable and conditions to taxability are satisfied is on revenue. The assessee was suffering from severe cancer during the relevant period. There was also quality variations. In view of these facts, the assessee claims that the amount remained outstanding. There is nothing on record, which could suggest that the assessee has obtained any cash or any other benefit in lieu of these credits. The assessee has not written off these outstanding dues in its books of account. There is also nothing on record that the assessee at any time refused to pay the amount back to the creditors and not willing to make the payments. It is also clear from the facts that the assessee had never received any communication regarding writing off these balances by the creditors. In the books of account there were 127 sundry creditors, however, Assessing Officer sent letters to only 15 persons. Eight letters were not served by the postal authorities. No reply was received in three cases. Only four creditors replied. It is pertinent to note that four sundry creditors, who gave the reply, one of them was Shri Janki Lal 15 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO Radheyshyam and the C.A. of Shri Janki Lal Radheyshyam stated that there was no dealing during the assessment year 2012-13 and no amount was outstanding towards the assessee. In this case, the assessee has also requested to the Assessing Officer that the sundry creditor may be summoned by issuing summons U/s 131 of the Act. The AR of the assessee has heavily relied on the decision of the ITAT, Jaipur Benches in the case of Shree Padmavati Marbles Pvt. Ltd. Vs ITO (supra) wherein the ITAT has held that unless it is proved that an allowance or deduction has been made in the assessment in any previous year, it is not open to the revenue to invoke Section 41(1) of the Act. In this case, the Assessing Officer has failed to establish the fact that the amount outstanding against creditors have been claimed by the assessee as deduction or allowances.
The ld AR also distinguished the facts of CIT Vs. M/s T.V. Sundaram Iyengar & Sons which has been relied by the Assessing Officer by stating that it was having entirely different facts. Reliance was placed by the ld AR on the decision of the Coordinate Bench in the case of Brothers Pharma (P) Ltd. Vs ITO in ITA No. 635/JP/2012 wherein the ITAT has held as under:-
"24. We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that the assessee had not written off any liability on account of loan creditor, trade creditor or security creditor during the year
16 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO under consideration. The assessee had furnished required details before the Assessing Officer as well as ld CIT(A). In one of the case the inquiry letter U/s 133(6) has been returned back to the Assessing Officer. It is fact that these amounts were very old, it is possible that the creditor has closed or shifted the business from the given address. The assessee had produced copy of balance sheet and it is claimed by the assessee that to the tune of Rs. 18,05,000/- are unsecured loan from earlier years, which has not been claimed as deduction or allowances in earlier year by the assessee.
The lower authorities also had not able to establish their case that the assessee had deducted or allowed these advances as deduction in earlier years. As the case laws referred by the assessee including Hon'ble Supreme Court and Hon'ble Jurisdictional High Court held that burden is on the revenue to prove that the assessee has taken deduction in earlier year and there is a write-off bilateral. In assessee's case, even unilateral written off has not been claimed by the company. The other creditors were advance received from the customer to the tune of Rs. 9,41,354/-, which was paid of in later years. The AR of the assessee filed relevant evidences for repayment in subsequent year, which proved that the assessee's liability was in existence. The revenue has not brought on record any adversary evidence to establish that liability was not inexistence or not paid in the subsequent year. The assessee has shown Rs. 3.60 lacs as security deposit out of this Rs. 2.10 lacs were added by the Assessing Officer in A.Y. 1996-97, which has been deleted by the ld CIT(A). No appeal had been filed by the revenue before the ITAT, therefore, issue is settled. Further remaining amount, the assessee filed confirmation and the ld Assessing Officer had not made any inquiry and established the 17 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO case that liability is not inexistence. The case laws relied upon by the assessee are squarely applicable particular Hon'ble Supreme Court decision in the case of Chief CIT Vs. Kesaria Tea Co. Ltd. (supra). The case laws referred by the ld CIT(A) are squarely distinguishable on the ground that there was a written off either by the assessee or bilaterally. After careful consideration of all the facts and circumstances of the case and written submissions made by the ld AR on Section 41(1) of the Act, we do not find any reason to confirm the order of the ld CIT(A). Accordingly, the addition confirmed by the ld CIT(A) is deleted. This ground of assessee's appeal is allowed.
The ld AR also placed reliance on the decision of the Coordinate Bench in the case of Shree Padmavati Marbles Pvt. Ltd. Vs ITO in ITA No. 596/JP/2013 (2016) 47 CCH 0764 Jaipur Trib wherein the Coordinate Bench has held as under:-
"5.8 Regarding amount payable in respect of M/s Kay Jay Marbles Ceramics Pvt. Ltd, the amount is very old relating to the year 2003, there has been no correspondence for recovery and also there has been no response from M/s Kay Jay Marbles Ceramics u/s 133(6) of the Act. All these facts lead the Assessing officer to treat the amount as taxable under section 41(1)(a) of the Act. There is however no evidence to support the proposition that there is a unilateral action on the part of the creditor in terms of remission of liability unlike the case of M/s Tirupati Balaji Minerals Pvt. ltd. Further, the assessee continues to show the liability in its books of accounts and has also not done any unilateral write off in its books of accounts. In such situation, merely because the amount is outstanding since 2003, it cannot be inferred that the liability has ceased
18 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO to exist and the assessee has obtained any benefit by way of remission or cessation of its trading liability. There has to be some positive evidence or action on the part of the assessee or the creditor to support the theory of remission or cessation which is apparently not present in the instant case. Having said that, the necessity is not felt to examine the contention of the assessee that since the purchases are included in the closing stock, there has been no deduction that has been claimed by the appellant. We leave this contention open. Hence, in light of above, the position adopted by the Revenue is not agreed that it is case which falls within the four corners of section 41(1)(a) of the Act. Hence, the addition of Rs 1,81,251 under section 41(1)(a) is hereby deleted. The ground no. 3 is accordingly allowed in favour of the assessee."
8.1 After considering the facts of the case and the case laws relied upon, I am of the view that the assessee has not written of the amount in its books of account. The assessee has also not denied the payment of these amounts to these creditors. The genuineness of these creditors were not in doubt. Notices issued U/s 133(6) of the Act were not served on some creditors and some of them did not respond. Only four person responded negatively. The assessee requested the Assessing Officer to issue the summons U/s 131 of the Act, which he has not done. Heavy onus is on the revenue to establish that the liability shown in the books of account has been extinguished. The sickness of the assessee as well as dispute regarding the quality variation is also not in doubt. Considering all 19 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO these aspects, I direct to sustain the addition only in respect of four creditors, the details of this is as under:-
(i) M/s Jankilal Radheshyam Rs. 1,32,000/-
(ii) M/s Moolchand Madan Gopal Rs. 1,48,400/-
(iii) M/s Arihant Agency Rs. 1,27,900/- and
(iv) Amar Collection Rs. 1,47,050/-
Total Rs. 5,55,350/-
Therefore, I direct to delete the balance of the amount as the revenue has failed to establish the liability in respect of these creditors.
9. Ground No. 4 of the appeal is against confirming the disallowance of interest of Rs. 36,720/-. The Assessing Officer has disallowed Rs.
1,50,216/- and added in the income of the assessee on the ground that the assessee had been paying interest and on the other hand had forwarded interest free loans, the interest on Rs. 29,61,000/- @ 12% being more than the interest paid.
10. The ld. CIT(A) has restricted the addition of Rs. 36,720/- instead of Rs. 1,50,216/- by holding as under:-
"5.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The Assessing Officer noticed that certain amounts had been advanced by the assessee as loans and no interest was being charged while the assessee was paying interest at 12% on loans it had taken. A disallowance of excess interest paid was made of an amount of Rs. 1,50,216/- The Authorized Representative pointed out that a loan of 20 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO Rs.26,65,000/- related to Shantilal Bhandari (loan accounts). The AR stated that the assessee is maintaining two accounts of capital one is capital account as shown in liabilities in the balance sheet and another account under the head Shantilal Bhandari Loan account of Rs.26,65,000/-. Further, pleaded that since both account belong to the assessee, interest cannot be charged to itself. This issue was forwarded to the Assessing Officer for verification and his comments. In the remand report, the Assessing Officer has stated that the purpose of advance and business expediency were not clear, hence the disallowance of interest was justified. However, as per the facts above, since interest on assessee's own account cannot be charged and disallowed on notional basis, this amount is excluded from the total amount on which the interest payment is to be disallowed. Thus, addition under this head shall come to Rs.36,720/-."
11. The ld AR of the assessee has reiterated the arguments as made in the written submissions. On the contrary, the ld DR has supported the orders of the authorities below.
12. After hearing both the sides on this issue. From perusal of the records, it transpires that the assessee is having sufficient capital balance of Rs. 57,63,821.14/- to give loan of Rs. 3,06,000/-. The assessee's own non-interest bearing funds were far in excess of the interest free advances given. Deduction claimed U/s 36(1)(iii) in respect of interest on its borrowings could not be declined. The Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. 313 ITR 340 (Bom) has held 21 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO that the presumption would arise that investment would be at of the interest free funds generated or available with assessee. The findings of the Hon'ble Bombay High Court has held as under:-
"If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion, the Supreme Court in East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. [1982] 134 ITR 219 where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcombers of India Ltd.' s case [1982] 134 ITR 219 the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the over draft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle, therefore, would be that if there are funds available both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments."
Considering all these facts and circumstances of the case, I direct the Assessing Officer to delete the addition. This ground of the assessee's appeal is allowed.
13. The 5th ground of the appeal is against confirming the restricted disallowance @ 10% on depreciation of Rs. 98,480/-. The Assessing Officer has disallowed 20% of the expenses in respect of conveyance and 22 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO depreciation. The ld CIT(A) has restricted the disallowance @ 10% by holding that the Assessing Officer has made a disallowance of 20% on the expenditure and depreciation for no production of complete vouchers and element of personal use. The addition made by the Assessing Officer is found to be excessive and restricted to 10%.
14. After considering both the sides on this issue, I hold that once the books of account have been rejected then no such ad hoc disallowance is called for. Further the Assessing Officer had not given any finding of personal use of conveyance, therefore, the personal use is not established.
In view thereof, the ad hoc addition @ 10% sustain by the ld. CIT(A) is hereby deleted and this ground of appeal is allowed.
15. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 17/04/2017.
Sd/-
¼Hkkxpan½ (BHAGCHAND) ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 17th April, 2017 *Ranjan vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Shanti Lal Bhandari, Jaipur.
2. izR;FkhZ@ The Respondent- The ITO, Ward-6(1), Jaipur.
3. vk;dj vk;qDr@ CIT 23 ITA 73/JP/2016_ Shanti Lal Bahndari Vs ITO
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 73/JP/2016) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar