Income Tax Appellate Tribunal - Ahmedabad
Gujtron Electronics Pvt. Ltd., ... vs The Income Tax Officer, Ward-2(1)(1),, ... on 10 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "B" BENCH AHMEDABAD
BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER,
AND SHRI S. S. GODARA, JUDICIAL MEMBER.
ITA No.1145/Ahd/2016
(Assessment Year:2012-13)
Gujtron Electronics Pvt. Ltd.
Vartali Complex, Nr. Swastik
Cross Road, Navrangpura,
Ahmedabad 380009 Appellant
Vs.
Income Tax Officer,
Ward-2(1)(1), Ahmedabad Respondent
PAN: AAACG5610K
आवेदक क ओर से/By Assessee : Shri M. J. Shah, A.R.
राज व क ओर से/By Revenue : Shri Jagadish, Sr. D.R.
सन
ु वाई क तार ख/Date of Hearing : 10.01.2017
घोषणा क तार ख/Date of
Pronouncement : 10.01.2017
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
This assessee's appeal for assessment year 2012-13 arises against the CIT (A)-7, Ahmedabad's order dated 29.02.2016, in appeal no. CIT(A)- 7/443/15-16, upholding Assessing Officer's action making Section 41(1) ITA No. 1145/Ahd/2016 (Gujtron Electronics Pvt. Ltd. vs. ITO) A.Y. 2012-13 -2- addition of cessation of liability amounting to Rs.7,87,19,819/- in assessment order dated 06.02.2015, in proceedings u/s.143(3) of the Income Tax Act, 1961; in short "the Act".
2. This assessee is a company trading in electronic items. It filed its return on 30.09.2012 declaring nil income along with book profits of Rs.8,01,080/-. The Assessing Officer took up scrutiny. He noticed the assessee to have shown outstanding customer's advances in question of Rs.7,87,09,819/- in question. There does not appear to be any quarrel that the assessee had collected these advances from a well targeted section of lower income strata of the society wayback in the financial year 1986-87 wherein it had promoted sale of TV sets through a multi level marketing scheme. Learned counsel at the outset takes us to assessee's business model of introducing the abovestated scheme narrated in its statement of facts before the lower appellate authority as under:
"The company has started to promote the sales of its black & white T.V. for the middle class people who can afford to buy it and the price of the said T.V. set was fixed at Rs.2,125/-. In order to push up the sales of the same, persons are appointed and any person who is able to enroll four members, who willing to purchase coupons worth Rs.500/- are entitled to apply for the T.V. set. Thereafter, the coupons worth Rs.500/- are sent to each of the four persons and if they accept the V.P.P. by giving Rs.500/- each the person who has enrolled four members would be given the T.V. set. Thus, by this way, the assessee company, after receiving Rs.2,000/- gives a T.V. set to a person who had enrolled four members. The members enrolled also become entitled to get T.V. set if they in turn enroll four persons who may be willing to pay Rs.500/- and thereafter enrolls four persons who are willing to pay Rs.500/- and in fact pays Rs.500/- becomes entitled to receive T.V. set. In case, a person who has already paid Rs.500/- is unable to enroll four persons, the person who has paid Rs.500/- will not lose Rs. 500/- abut he will also be entitled to T.V. set if he pays Rs.2,125/- less Rs.500/- already paid i.e. he will have to pay Rs.1,625/- only. Therefore, under this scheme, no one has to lose any amount, provided he had decided to purchase a T.V. set. If he purchases coupons of Rs.500/-, Rs.1,000/- or Rs.1,500/- he will have to pay Rs.2,125/- less the value of the coupons already purchased by him. Thus, it clearly appears that this is a scheme for marketing the T.V. sets and the persons who help in marketing the T.V. set are being remunerated in the sense that they get T.V. set at a price which could be less than Rs.2,125/-."ITA No. 1145/Ahd/2016 (Gujtron Electronics Pvt. Ltd. vs. ITO)
A.Y. 2012-13 -3-
3. The Assessing Officer framed a regular assessment on 06.02.2015 treating the abovesaid outstanding customers' advances to be liable to be assessed as its income u/s.41(1) of the Act after concluding that the same had ceased to exist inter alia on the ground that it had not sold a single item nor received any amount at least since 2008-09 as tabulated in page 7 of the assessment order. All this resulted in the impugned addition being made. We further emphasize that the Assessing Officer issued 40 Section 133(6) notices on test check basis failing to get any satisfactory verification.
4. The CIT(A) upholds the impugned addition in the lower appellate order under challenge for the following reasons:
"3.3 I have considered the assessment order and the submissions made by the appellant. The AO made the impugned addition after a detailed discussion in the assessment order because he held that the amount of Rs.7,87,09,819/- reflected as outstanding liability in the balance sheet and received by the appellant as "customer advances" was brought forward from earlier years and had actually seized to exist. The appellant on the other hand stated that the conditions required for application of Section 41(1) of the Act were not satisfied in its case and that even the liability had not ceased to exist.
3.2.1 In this case, as seen from the submissions made by the appellant, the company had launched a sales promotion scheme in 1986-87 to promote sales of its Black & White TVs. The basic premise of the scheme was that the company appointed people to enroll members to the scheme. The person had to enroll four members who would agree to purchase coupons worth Rs.500/-each. Subsequently, these coupons were sent to the four persons and if they accepted the same by payment of Rs.500/-, the person who had enrolled these four persons would be entitled to a free TV set and the company would receive Rs.2,000/- (Rs.500/- x 4 persons). The persons who had paid Rs.500/- each would further become eligible for a free TV set if they themselves enrolled four members and so on. The amount of Rs.7,87,09,819/- lying as outstanding liability in the balance- sheet of the appellant reflects this amount received from customers since 1986-87, The submissions and evidences given by the appellant from time to time during the appellate proceedings have been perused and the; following observations are made:
(i) The advertisement which launched the said scheme to the public states the following - "
your enlistment payment is not refundable to you by cash or bank draft". It is also stated in this advertisement that "to become a proud recipient of a ITA No. 1145/Ahd/2016 (Gujtron Electronics Pvt. Ltd. vs. ITO) A.Y. 2012-13 -4- TV under this system the enlisted customer will have maximum time limit of 12 months period from the date of his enrollment as a customer. The validity of the proposal/discount form will automatically expire after the date, therefore, you must take full advantage of the value of the discount form before the expiry date." It is also stated that "on request, the validity date can extend".
(ii) The outstanding amount as on 31.3.2012 dates back nearly 12 to 15 years when the company was manufacturing Black & White TV sets. Since 1988-89, the company is no longer engaged in manufacturing and is now into trading of goods. A perusal of the sample forms submitted during appellant proceedings shows that these are more than 10 years old and are not verifiable either, since the addresses of the so-called customers only refer to their tehsils and districts. There are no signatures on these invoices.
(in) The courier or letters sent by post to the customers to establish that the appellant is still in correspondence with them and to establish that the liability still exists, have all been issued by the appellant after the commencement of assessment proceedings and after the AO raised a query in respect of the impugned addition. It has been submitted by the appellant itself in |its submission dated 29.05.2015 that documentary and paper evidences are not available with it.
(iv) During the appellate proceedings, the appellant was confronted with the fact that as per its own advertisement, the validity of the scheme was 12 months, unless extended on request. In spite of several opportunities, the appellant has not been able to furnish any document to show that it received requests from customers for extension of time period. The appellant has also not been able to give any communication in respect of extension of this scheme by the management. In any case, this scheme is 12 to 15 years old and there is no mention in the submissions made that there was a provision for indefinite extension of the scheme.
(v) The money collected under the scheme had already totaled Rs.7,87,35,157/- by F.Y.2006-07. Subsequently there has been no activity for activation of the scheme. There has been no contact with these customers since then. It has been stated by the appellant that customers are still making enquiries about the scheme through telephone calls and whatsapp, etc. but once again, none of these claims made by the appellant are verifiable, and can not and have not been substantiated by the appellant.
(v) The appellant has not been able to show even one instance where liability on account of these advances from customers lying with the appellant over the past so many years has been discharged. On the contrary, it is seen that the appellant company has used this amount as its own money over the years by giving advances out of the same to friends and relatives and has earned interest on such advances made by it. The appellant has also used this money to enter into transactions in properties and shares. This money has also been parked in the form of fixed deposits with banks and in other funds. It is seen from the submission made by the appellant that almost the entire money received by the appellant from the customers has been used by the appellant and has been "parked"( appellant's own words) as follows:
ITA No. 1145/Ahd/2016 (Gujtron Electronics Pvt. Ltd. vs. ITO)A.Y. 2012-13 -5- Fixed deposit with Bank of India - Rs.2,90,98,193/-;
Fixed deposit with State Bank of India - Rs.1,00,82,655/-; Fixed deposit with Sindh Mrc. Co. Op.Bank - Rs.l,00,000/-; IIFCL Tax Free Bonds - Rs.1,00,54,814/-;
National Housing Bank Bonds - Rs.1,00,25,371/-;
Advance to Private Parties - Rs.1,09,25,172/-, Other Deposits and Advances - Rs.25,22,468/-, etc.
(vii) The appellant has claimed that its customers have pledged their support to the appellant, till launch of the appellant's portal. Once again, these are lofty claims and remain as such, without anything to substantiate the same. No communication from the appellant to the customers or from its customers to the appellant have been submitted. Further, another pertinent point is that the appellant's customer base must be much larger than the 'customers' whose money is lying with the appellant. It is only these 'customers' that are relevant to the current proceedings and not the entire customer base of Gujtron Electronics which is being referred to time and again by the appellant.
(vii) The appellant has also claimed that it was in the process of launching its new portal and therefore could not follow up on the scheme with its customers. It is difficult to understand and accept that in this age of technology, the appellant's portal has been in the making for more than 5 years.
3.2.2 It is thus seen from the facts of the case and from the submissions made by the appellant that the liability shown to be existing by the appellant does not really exist since not only was the scheme of the appellant valid only for the period of 12 months and has hence lapsed many years back, but this amount is being treated by the appellant as its own money and it has been used as such by the appellant to make advances to friends and relatives, invest in FD's and bonds, deal in shares and properties, etc. Further, other than making self serving and righteous claims in the form of 'customer is king' and that they have 'pledged to be with the company through its highs and lows', no concrete evidence has been given to establish that the liability still exists.
3.2.3 The Hon Supreme Court in the case of CIT v. Sugauli Sugar Works (P) Ltd. [Appeal (civil) 2344 of 1992) had discussed the issue of cessation of liabilities u/s 41(1) in detail, and had decided the matter in favour of the assessee. The Hon Delhi High Court also in a recent judgement in the case of CIT vs Shri Vardhjnan Overseas Ltd. (ITA NO.774/2009), while deciding the matter in favour of the assessee, discussed the finding of the Supreme Court in in the case of CIT v. Sugauli Sugar Works (P) Ltd as under -
"In our opinion, the judgment of the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd. (supra) is a complete answer to the contention of the learned standing counsel. In the case before the Supreme Court for a period of almost 20 years the liability remained unpaid and this fact formed the basis of the contention of the revenue before the Supreme Court to the effect that having regard to the long lapse of time and in the absence ITA No. 1145/Ahd/2016 (Gujtron Electronics Pvt. Ltd. vs. ITO) A.Y. 2012-13 -6- of any steps taken by the creditors to recover the amount, it must be held that there was a cessation of the debts bringing the case within the scope of Section 41(1). In the case before us, the identical contention has been taken on behalf \of the revenue, though the period for which the amount remained unpaid to the creditors is much less. It was held by the Supreme Court that a unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only by the creditor and a cessation of the liability can only occur either by reason of operation of law or the debtor unequivocally declaring his intention not to honour his liability when payment is demanded by the creditor, or by a contract between the parties, or fay discharge of the debt."
The above cases , however, cannot apply to the present case. The facts of the instant case are similar to those in the case before the Hon Supreme Court referred to supra, in that the liability has remained unpaid for 10-15 years and having regard to the long lapse of time and in the absence of any steps taken by the creditors to recover the amount, it was sought to be held that there was a cessation of the debts bringing the case within the scope of Section 41(l). As can be seen from the para reproduced above, the Hon Supreme Court had held that a remission can be granted only by the creditor and a cessation of the liability can only occur either by reason of operation of law or the debtor unequivocally declaring his intention not to honour his liability when payment is demanded by the creditor, or by a contract between the parties, or by discharge of the debt. In this case, the above conditions can never be satisfied, since as far as the creditors are concerned, the scheme under which they had paid Rs.500/- each has ended long back; the debtor will not declare its intention not to honour its liability since the huge amount lying with it has been used by it to make investments and FD's and is very conveniently being used as its own money, while keeping its claim of "liability' alive ; and there is no contract between the parties because the entire amount has been received under a sales promotion scheme.
Thus in this case, the circumstances by which the huge amount of Rs. 7,87,19,819/- has come to be with the appellant is totally different and hence the facts in its case are clearly distinguishable from the facts in the cases which have been relied on by the appellant and which have been referred to above. The Hob'ble Supreme Court in the case of CIT Vs. Sundaram lyengar & Sons Ltd. 322 ITR 344 held that when the assesses itself has treated money as its own money and there is no explanation as to why it did so, common sense demands that the amount should be treated as income of the assessee. Thus, it is possible that an amount may have been received in the course of business or as a trading transaction but the amount would change its character when treated as the appellant's own money.
3.2.4 With all due respect to the judgements by the Hon'ble Apex Court, High Courts and Tribunals on section 41(1] and section 28(iv), I am of the view that there are situations where the facts and circumstances of an appellant's case cannot be compared to those which prevailed in the cases before the Hon'ble Courts and hence case-laws cannot be applied generally to every appellant. As has been discussed above, the situation in this case is peculiar since the customers have paid only Rs.500/- each to the appellant in pursuance of a scheme which has ITA No. 1145/Ahd/2016 (Gujtron Electronics Pvt. Ltd. vs. ITO) A.Y. 2012-13 -7- long lapsed. This amount of Rs.500/-collected from the customers all over the country has resulted in a corpus of over Rs.7 crores with the appellant which it has been using as its own money over the years to make various investments (discussed earlier in the order). The appellant has itself admitted that these customers are from very remote areas and a perusal of the sample vouchers and invoices presented by the appellant also shows that only vague addresses have been noted down. Thus, it is highly unlikely that after a period of 10-15 years, these customers would claim an amount of Rs.500/- from the appellant. The appellant however very conveniently is still showing these amounts as its liability though it itself is not clear as to whom it has to repay this money. Moreover, as quoted from the advertisement taken out by the appellant itself while launching this claim, it has been clearly stated in the same that the scheme would lapse in 12 months and that no refunds given. Thus, it is very clear from this advertisement itself that the customer would forgo the Rs.500/- coupon, if he or she did not claim the same within a year.
3.2.5 Not only this, the appellant has used the entire money as its own money over the years and as mentioned in para 3.2.1 (vi) above, has made substantial investments out of this money. It has received interest on the same and has also paid taxes on the same. Thus, it is very clear that this amount is being treated as its own income by the appellant. These circumstances and facts are very different from the facts in all the case-laws relied on by the appellant and therefore cannot be applied to the appellant's case. Thus looking at the totality of facts and the detailed discussion above, and considering: the view taken by the Hon Supreme Court in CIT Vs. Sundaram Iyengar & Sons Ltd., I am of the view that the addition was correctly made by the A.O. The addition of Rs.7,87,19,819/- made by the Assessing Officer is confirmed and the ground of appeal is dismissed."
5. Shri Manish Shah opens up assessee's argument assailing correctness of the abovestated addition. He first of all seeks to invite our attention to assessee's additional evidence petition comprising of a paper book running into 116 pages to rebut both the lower authorities conclusion that it had not performed its contractual obligations. Shri Shah states that this paper book contains sufficient material to indicate that the assessee has been honestly performing its obligations to give the specified electronic items to various coupon holders. We find the same to be nowhere relevant so far as the instant issue before us is concerned. The so-called voluminous evidence seeks to prove that the assessee has performed its contractual liability in question even in succeeding assessment years upto 2016. Shri Shah however fails to rebut the above extracted findings that the assessee has not performed its liability upto the impugned assessment year. We are therefore of the ITA No. 1145/Ahd/2016 (Gujtron Electronics Pvt. Ltd. vs. ITO) A.Y. 2012-13 -8- opinion that these subsequent documents forming part of assessee's additional evidence are not germane to the sole substantive issue before us pending for adjudication. This assessee's additional evidence petition is declined.
6. We now come to merits of the issue. There can hardly be any dispute that the assessee's so-called marketing scheme is very much in the nature of a ponzy one wherein it collected moneys by exploiting aspirations of the lower income strata of the society by issuing the investors in question some marketing coupons valid for a year. Shri Shah fails in proving assessee's bonafides since we find it very much and unjustifiable explanation that there was no coupon holder coming forward to encash the same in lieu of the specified electronic items between assessment years 2008-09 to 2013-14 including the impugned assessment year 2012-13. These facts constrain us to speak about the assessee's marketing scheme alike "the pied piper of Hamlin" type fleecing poor investors. We further wish to highlight the fact that there is no privity of contract/agreement between the assessee and the above investors since the coupon in question is valid for a clear-cut expressly stated time period of one year wherein the coupon holder is otherwise nowhere in picture. We deem it appropriate to reject assessee's argument that it has been entertaining its coupon holders' claims by quoting the classic case of Carlill vs. Carbolic Smoke Ball Co. Court of Appeal [1893] 1 QB 256; [1892] EWCA Civ 1 and conclude that the express terms indicated in the coupons in question could not be further given a wider meaning than the specified one.
7. Shri Shah at last quotes hon'ble jurisdictional high court's decision in [2012] 22 taxmann.com 59 (Guj.) CIT vs. Nitin S. Garg that the mere fact of these credits being very old not indicating any interest there upon are not to ITA No. 1145/Ahd/2016 (Gujtron Electronics Pvt. Ltd. vs. ITO) A.Y. 2012-13 -9- be added u/s.41(1) of the Act. We find the same to be not applicable in facts of the instant case wherein we have already concluded that assessee's liability in question in the nature of customers' advances were valid for a period of one year only as per the terms indicated in the relevant coupons.
8. Our detailed discussion hereinabove makes Shri Manish Shah to once again vehemently argue that the impugned liability; if at all is to be added u/s.41(1) of the Act, has not ceased to exist in the impugned assessment year as the period of one year after issuance of the relevant coupons has expired much earlier. We are afraid that this contention is also not liable to be accepted as section 153 of the Act prescribing time limit of completion of assessment very well deals with such an instance where the Assessing Officer concerned can reopen assessment in an assessee's case in consequence to this tribunal's findings. We notice that a co-ordinate bench in Mosbacher India Chennai vs. Addl.DIT ITA No.1085/CHNY/2015 decided on 29.11.2016 explains ambit of the above statutory provision in such a case wherein it can be clearly held that the amount in question in assesseble as income in earlier assessment year by concluding as follows:
"[33] We may at this stage take note of the provisions of Section 153 which deals with time limit for completion of assessment, reassessment and recomputation. Under section 153(6), as it stands now in its present form, the time limits set out for completion of assessments, reassessments and recomputations shall not apply in the cases "(i)where the assessment, reassessment or recomputation is made on the assessee or any person in consequence to, or to give effect to, any findings or direction contained in an order under section 250, section 254.........on or before twelve months from the end of the month in such order is received or passed by the Principal Commissioner or the Commissioner, as the case may be". Explanation 2 to Section 153 further provides that "where, by an order referred to in clause (i) of sub section (6), any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another assessment year, for the purpose of section 150 and this section, be deemed to be one made in consequence to or giving effect to any finding or direction contained in the said order". As to the nature of findings or directions which can be given in an appellate order, Hon'ble Supreme Court, in the case of Rajinder Nath Vs CIT [(1979) 120 ITR 14 (SC)], has, inter alia, observed as follows:ITA No. 1145/Ahd/2016 (Gujtron Electronics Pvt. Ltd. vs. ITO)
A.Y. 2012-13 - 10 -
7. The expressions "finding" and "direction" are limited in meaning. A finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case, that is to say, in respect of the particular assessee and in relation to the particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. It is possible in certain cases that in order to render a finding in respect of A, a finding in respect of B may be called for. For instance, where the facts show that the income can belong either to A or B and no one else, a finding that it belongs to B or does not belong to B would be determinative of the issue whether it can be taxed as A's income. A finding respecting B is intimately involved as a step in the process of reaching the ultimate finding respecting A. If, however, the finding as to A's liability can be directly arrived at without necessitating a finding in respect of B. then a finding made in respect of B is an incidental finding only. It is not a finding necessary for the disposal of the case pertaining to A. The same principles seem to apply when the question is whether the income under enquiry is taxable in the assessment year under consideration or any other assessment year.
[Emphasis, by underlining, supplied by us] Coming back to the facts of the case before us once again, we find that we have reached a categorical finding to the effect that the capital gain in question could only be taxed in the assessment year 2006-07 and it is for this reason that the said capital gain cannot be taxed in any other assessment year. This finding, in the light of the legal position set out above, prima facie constitutes legally sustainable basis for bringing the amount of Rs 14,52,08,040 as additional amount of capital gains in the assessment year 2006-
07. We, therefore, see no reasons to give our approval to learned counsel's generosity of offering this income to tax, as capital gain, in the present assessment year. Our giving in, if we may say so, to this bait could infact jeopardise legitimate interests of the revenue inasmuch as once this income is held to be taxable in assessment year 2010-11, this treatment of income could straightaway close the doors of taxability of this income in the assessment year 2006- 07 and resultant additional levies of interest, and, if applicable, penalties as well. In our considered view, this amount is required to be taxed in the assessment year 2006-07 and the Assessing Officer, in the light of the discussions above, is legally competent to do so even at this stage. It is only elementary that when a statutory authority has the power to do something under the statute, he has a corresponding duty to exercise these powers when circumstances so justify or warrant. The call, nevertheless, is to be taken by the Assessing Officer and it is for him to decide the correct legal position taking into account all the necessary inputs, including our observations above."
9. We accordingly observe that the assessee's abovestated last argument would increase its tax liability only. We however do not deem it appropriate in larger interest of justice to once again direct the Assessing Officer to assess the above outstanding liability in the respective year of ITA No. 1145/Ahd/2016 (Gujtron Electronics Pvt. Ltd. vs. ITO) A.Y. 2012-13 - 11 -
cessation falling after one year of the assessee's coupon terms in question. The assessee's sole substantive ground is therefore rejected.
10. This assessee's appeal is dismissed.
[Order already pronounced in open Court after conclusion of hearing on the 10th day of January, 2017.] Sd/- Sd/-
(PRAMOD KUMAR) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 14/03/2017
S.K.SINHA
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आयु!त / Concerned CIT
4. आयकर आय!
ु त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।