Income Tax Appellate Tribunal - Amritsar
Shri Om Parkash Legal Heiar Smt Pushpa ... vs Income Tax Officer Ward-1(3), ... on 31 October, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH, AMRITSAR (SMC)
BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER
I.T.A. No. 756/Asr/2017
Assessment Year: 2014-15
Om Parkash L/H of Smt. Pushpa Vs. Income Tax Officer,
Verma Plot No. 02, Ward-1(3), Jalandhar
Village Waryana, Sangal Sohal
Road, Jalandhar
[PAN: AAHPV 0008Q]
(Appellant) (Respondent)
Appellant by : Sh. Ashray Sarna (C.A.)
Respondent by: Sh. Charan Dass (D.R.)
Date of Hearing: 20.09.2018
Date of Pronouncement: 31.10.2018
ORDER
Per Sanjay Arora, AM:
This is an Appeal by the Assessee agitating the Order by the Commissioner of Income Tax (Appeals)-1, Jalandhar ('CIT(A)' for short) dated 19.10.2017, partly allowing the assessee's appeal contesting his assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) dated 18.11.2016 for the Assessment Year (AY) 2014-15.
2.1 The appeal, apparently time barred by 109 days, was explained by the ld. counsel for the assessee, Sh. Ashray Sarna, to be in fact not so, as it was preferred in time, on 08/12/2017, by depositing an appeal fee at Rs.8600, genuinely believing it to be the correct amount, albeit short by Rs.1400, which was duly deposited on 29/3/2018 upon being so communicated by the Registry of the 2 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO Tribunal. The facts are not in dispute and, in fact, borne out by the record, with the impugned order being served on the assessee on 19/10/2017. The appeal was, accordingly, admitted, and the hearing in the matter proceeded with. Further, the same being filed by a representative assessee, it was explained by Sh. Sarna that all the assets of the since deceased assessee had devolved on the appellant as her spouse and, in fact, the successor of her business and, thus, he only is competent to file the appeal. The requirement of bringing other legal heirs, if any, on record, was accordingly dispensed with.
2.2 On merits, Sh. Sarna would argue that the sole issue is the maintainability of the addition qua two sums, aggregating to Rs.4.61 lacs, outstanding in favour of two trade creditors, as under, u/s. 41(1)(a) of the Act:
(i) Sanjeev Tweezzers, Jalandhar: Rs.2,91,722/-
(ii) Satish Surgical Works, Jalandhar: Rs.1,68,859/-
Total: Rs.4,60,581/-
The assessee's accounts, having been rejected and his income determined by estimating the same, no further addition u/s. 41(1), he would submit, could be made, for which reliance was placed by him on ITO v. S. L. Road Construction Co. (in ITA No. 425/Asr/2017, dated 22/02/2018). Without prejudice, no addition u/s. 41(1) could be made in-as-much as the liability continues to be reflected in the assessee's accounts, as explained by the Hon'ble Court in CIT v. Jain Exports Pvt. Ltd. [2013] 89 DTR 265 (Del). In fact, the liability in both accounts stood discharged in the following year, i.e., f.y. 2014-15. The fact that the said discharge is in cash, a fact found relevant by the ld. CIT(A), is immaterial. The impugned order, he would continue, is even otherwise inconsistent as the first appellate authority has deleted another addition for Rs.9,99,438/-, qua another trade credit, 3 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO also added u/s. 41(1) in assessment, on the ground that the assessee's accounts stood rejected u/s. 145(3) of the Act. The same ratio ought to have been applied by him for the impugned additions also. Further, observing, upon a reading of the impugned order during hearing, that the ld. CIT(A) justifies the impugned addition u/s. 41(1) in case of rejection of accounts, as being in contradistinction to an addition u/s. 68, it was considered proper by the Bench to, and the assessee, accordingly, confronted with the decision in CIT v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194 (SC). The ld. counsel, after seeking time, which was allowed, would respond by relying on the decision in CIT v. Aggarwal Engineering Co. [2008] 302 ITR 246 (P&H), to the effect that once the net profit rate is applied for estimating income, no separate addition on account of cash credit, or for payment of purchases, could be made. He, however, fairly conceded that the said decision stands rendered without considering the decision in Devi Prasad Vishwanath Prasad (supra), so that if and to the extent it is contrary thereto, it shall not hold.
2.3 The ld. Departmental Representative (DR) would submit that in-as-much as the credit/s under reference pertains to an earlier year, the same has no bearing on the rejection of the assessee's accounts for the current year. The assessee's argument, he would continue, is neither here nor there. Why, the liability being brought forward from an earlier year, also continues to be carry forward to the subsequent year. Rather, where accounts are not rejected, the assessee could, again, plead of no addition u/s. 41(1) being liable to be made in-as-much as his accounts, on which he places reliance, have been accepted and not rejected. On merits, he would, placing reliance on the decision in CIT v. Chipsoft Technology Pvt. Ltd. [2012] 80 DTR 250 (Del), submit that the fact of the matter is that the 'fact' of payment during f.y. 2014-15 was not disclosed by the assessee to the Assessing 4 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO Officer (AO) during the assessment proceedings, which were on both during f.y. 2014-15 as well as part of f.y. 2015-16. In any case, the payment is in cash and, more importantly, not confirmed. Sh. Sarna would, in rejoinder, state that the said decision is distinguishable on facts as in that case the liability under reference was to the assessee's employees, finding the assessee's argument that no time limitation had been provided for payment of the employees' dues under the Industrial Dispute Act as insubstantial and unpersuasive.
3. I have heard the parties, and perused the material on record. 3.1 Section 41(1) of the Act, in its relevant part, reads as under:
Profits chargeable to tax.
(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 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 profits and gains of business or profession and accordingly chargeable to income-tax as the income of the 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) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-
mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.
Explanation 1.--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.
5 ITA No. 756/Asr/2017 (AY 2014-15)Om Parkash v. ITO 3.2 The first question that arises for consideration is whether a trading liability, which the impugned amount/s represents, could be added u/s. 41(1)(a), subject of course to the conditions in its respect being satisfied, where the purchase (of goods), to which the said liability/s relates, is not doubted for its genuineness or its genuineness otherwise not in dispute. There is nothing in the clear mandate of the provision to so suggest, as sought to be canvassed by Sh. Sarna with reference to the decision in Jain Exports Pvt. Ltd. (supra). Why, the very fact that the liability under reference stands allowed as a deduction, a condition precedent for the applicability of section 41(1), in an earlier year, itself implies that the genuineness of the transaction/s of purchase, giving rise to the liability, is not under question. Rather, where so, the same would disqualify the relevant amount/s for being allowed as a deduction for the year in which it arose, i.e., under the relevant provision, as under section 37(1) qua a purchase transaction, even as explained in Jain Exports (P.)Ltd. (supra). As such, nothing turns on the assertion that the relevant purchase/s stands not doubted by the Revenue; the very basis of sec. 41(1)(a) being the allowance of deduction qua the liability under reference earlier.
3.3 The next question is whether the relevant condition/s for the applicability of the provision, i.e., the benefit to the trade debtor by way of remission or cessation of the trade liability, is satisfied in the instant case. The same is clearly a matter of fact, to be determined considering and taking into account all the relevant facts and circumstances of the case. Without doubt, the initial onus for the same is on the Revenue. The question, therefore, to begin with, is if the said onus stands discharged, and which would, again, depend on the facts and circumstances of the case. For example, where the assessee has written back the liability in his accounts or otherwise admits the 'liability' as not payable (as at the relevant year-end), there is nothing more for the Revenue to prove. This would be so even if, in the latter 6 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO case, the liability continues to be reflected as such in the assessee's accounts, i.e., as an outstanding; it being trite that the entries in the books of account are not conclusive or determinative of the matter (viz. Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC); Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC)). Why, if that be so, section 68 of the Act could not be countenanced; the credit in the assessee's books of account may reflect the same as a liability, or as a receipt from another, or, for that matter, even by way of accretion to capital, i.e., as on capital account. Rather, the section becomes applicable only on account of the said credit appearing in the books of account, which therefore the assessee is required to prove as not being, nevertheless, his income. In other words, prove the truth of his accounts or the entries therein. Though the law in the matter is legion; the Hon'ble Apex Court explaining the scope of the matter threadbare per its several decisions going back to as far back as late 1950s or early 1960s, i.e., even before the enactment of the Act [refer: Govinda Rajulu Mudaliar v. CIT (1958) 34 ITR 807 (SC); Kalekhan Mohammed Hanif v. CIT (1963) 50 ITR 1 (affirming the landmark decision [1958] 34 ITR 669 (MP))], reference, particularly in the context of the present case, which is qua section 41(1), be made to the decision in CIT v. S. Kamaraja Pandian [1984] 150 ITR 703 (Mad), clarifying that the assessee shall, inspite of entries to that effect in his accounts, have to establish the identity of the creditor; his capacity to advance; as well as the genuineness of the loan.
Section 41(1), sure, casts no such obligation on the assessee as does sec. 68, i.e., to explain the nature and source of the credit. The question therefore is if the initial onus on the Revenue to show the remission or cessation of a trading liability, for it to invoke the provision, is satisfied in the facts and circumstances of the case; the matter, as afore-noted, being essentially and primarily factual. This is as, clearly, where not so, the onus cannot, in turn, shift to the assessee, i.e., to prove it as not so. The credit/s being in relation to the creditors' sale (to the assessee) and, 7 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO thus, forming part of his trade debt and, thus, working capital, the same would ordinarily stand to be paid in the normal course of business within the credit period as per the terms of the sale or as generally allowed by the debtor or, in any case, as per the trade norms. In the present case, the credit of Sanjeev Tweezers relates to f.y. 2012-13, which remains unpaid even by 31/03/2014, i.e., after an average period of 1½ years, reckoned so by spreading the purchases (from which the credit emanates) evenly over f.y. 2012-13, i.e., in the absence of the account statement. Why? The assessee is not under any financial stress in-as-much as he continues to pay the other creditors; there being no indication of it being not so. There is no explanation as to the goods bought being defective, or any other reason for the debt, which should in the normal course get liquidated within a period of a few weeks, to continue to outstand for so long. In other words, there is no explanation for this seeming abnormality. Couple this with the fact that the assessee's books - reflecting the sum as a liability, are not reliable, as inferable from the same being rejected, as well as the fact that the notice u/s. 133(6) to the creditor gets returned back with the postal remark 'no such person at this address'. What value, then, of the impugned sum being reflected as a trade liability in the assessee's books? The onus, under the circumstances, thus, shifts to the assessee to show that the liability to the said trade creditor indeed subsists as on 31/03/2014, i.e., the year-end. That is, to show the truth of his accounts. All that the assessee was required to do was to obtain a confirmation from the said trade creditor, i.e., of the debt in the assessee's favour outstanding as on 31/03/2014. He fails to do so. This is particularly surprising as the creditor, who is local, is claimed to have been paid during f.y. 2014-15, i.e., the following year, during which and, in fact, even subsequent thereto, the assessment proceedings were on, so that the same could, and indeed would, be divulged during the assessment proceedings itself, which was inexplicably not done. The 'payment' to the trade creditor would indicate that the 8 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO two share a normal relationship and are in contact with each other. Rather, the 'payment' would impel one to infer that there should have been no hesitation on the part of the creditor in giving the confirmation. In fact, the creditor would not hesitate to issue the confirmation of the debt even where the same is not, as claimed, paid subsequently, as it, agreeing with the assessee's - who would be asked by the creditor to confirm the same, books, amounts to an acknowledgement of the debt, giving it a fresh lease of life for enforcement under the limitation law. There is thus no reason for the assessee not producing the confirmation of the payment or, alternatively, of the outstanding as on 31/3/2014, nor furnishes any explanation for not producing the same. Why, the assessee, claiming to have since paid the debt, does not furnish the creditors' correct address for the Revenue to confirm from him independently? Further, the 'payments', being in cash, would only be so against receipts issued by the recipient, which are again conspicuous by their absence. There is also no other material substantiating the said payment. How, then, one may ask, could assessee be regarded as having established the existence of the liability to the said person? No circumstance leading to the withholding of the amount, and its release - assuming so, after about two years, after the transaction/s was made, is issued. The assessee's claim of the trade liability as subsisting as at the relevant year-end is wholly unproved, with, rather, all the indica pointing to the contrary. In other words, the assessee's case completely fails completely on facts. The facts and circumstances of the second trade credit under reference, i.e., favouring Satish Surgical Works, Jalandhar, are the same, the balance outstanding relating to an even earlier year, i.e., f.y. 2011-12, making the situation all the more grotesque.
3.4 The question that next arises is if section 41(1)(a) could be invoked by the Revenue where the assessee completely fails or is unable to prove the existence of 9 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO the trade liability as at the end of the relevant year, deduction in respect of which stands claimed and allowed to him in an earlier year, i.e., even where the liability continues to be reflected in the accounts. There is, apart from the absence of any positive material toward existence of the liability (as at the year-end), as afore- noted, no explanation by the assessee as to why the said evidence, which arises in the regular course of business, is absent or stands not produced. Why, to begin with, a credit, which should ordinarily stand liquidated within a maximum of a few weeks, the credit period that normally obtains, remains unpaid for years? Why, the assessee is unable to furnish the correct address/es? Why did he choose to pay in cash and, further, without obtaining receipts? Why is no confirmation for the payment in the subsequent year, as claimed - without even furnishing a copy of account in the assessee's books for that year, from the trade creditor/s, a local business house, adduced? This confirmation, even otherwise incumbent, even assuming it being not obtained in the first instance, could be procured by the assessee on it being required to establish the existence of the liability as at the relevant year-end, particularly as the subsequent payment indicates a normal relation between the two. In fact, the receipt of payment by the creditor in the subsequent year, as claimed, where shown, would itself prove the credit amount under reference as a subsisting liability as at 31.03.2014, the year-end, precluding s. 41(1)(a). All this is inexplicable. All these facts are in the special knowledge of the assessee, who is even otherwise obliged by law to prove his return, including the books of account on which it is based, and the claims preferred thereby (CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC); CIT v. R. Venkata Swamy Naidu [1956] 29 ITR 529 (SC)). An absence of it leading evidence, which it has or is expected to be in possession of, or otherwise accessible to it, would lead to an adverse inference. This is well-settle. Apart from being part of the evidence law, stands clarified by the Hon'ble Courts as in Union of India v. Rai Deb Singh Bist 10 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO [1973] 82 ITR 200 (SC)). Add to this the fact/s that the assessee's books - which even otherwise cannot be regarded as sacrosanct, are admittedly not reliable and, further, that the assessee did not disclose the 'fact' of payment to the creditor/s during f.y. 2014-15 during the assessment proceedings, even as his books of accounts would itself reflect the same. The reason for asking the questions afore- referred, and highlighting the related aspects, is only for the reason that without doubt a satisfaction as to either remission or cessation of liability is a must for the application of section 41(1).
The existence or otherwise of a liability is a matter of fact, to be arrived at by drawing from all the relevant facts and circumstances. An inferential fact is again only a finding of fact. The assessee, on whom the burden to prove his return and his accounts lies, has, under the circumstances, completely failed to do so. It cannot, therefore, but be said that the impugned liability/s does not outstand as at the relevant year-end, whatever may have been the position for the earlier year/s. Why, the assessee also claiming so, both per his books of account and otherwise, there is nothing to suggest that the said liability/s was not outstanding as at the end of the immediately preceding year. And which, therefore, leads to the inference of the liability not subsisting during the relevant year, either by way of its remission or cessation. The provision of section 41(1), thus, becomes imminently applicable in the facts and circumstances of the case.
3.5 The assessee's arguments, in-as-much as it has been found that the impugned liability/s does not exist as at the relevant year-end, would be to no avail; the matter being principally factual. The fact that the assessee's accounts are admittedly not verifiable does not support his case as to the existence of the liability/s, i.e., on the basis of it being reflected therein. The liability/s being brought forward from an earlier year/s, the existence of the same as at the 11 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO beginning of the relevant year is, rather, proved, or otherwise not in dispute and, at best - from the assessee's standpoint, has nothing to do with accounts for the relevant year, found as not reliable. Even otherwise, rejection of accounts does not imply that each and every entry/transaction as recorded therein is being doubted or stands rejected. Why, the turnover on which the profit is usually estimated in most cases, as indeed in the present case, is as per that recorded in the books of account, so that the same is as reflected in accounts. That is, not in doubt or dispute and, therefore, accepted. Again, where it is a direct cost of material and/or labour that is suspect, the assessing authority may estimate the gross profit (trading margin), while allowing the indirect costs either as such, or by making specific disallowances qua the same. It is for this reason that the Apex Court in Devi Prasad Vishwanath Prasad (supra) explained that an addition under section 68 - which is also qua sums credited in accounts, could be made where the accounts stand rejected, and there is nothing in law to suggest or to hold that it cannot be where the accounts stand rejected. It was though, it clarified, open for the assessee to show that the impugned credit represents the assessee's undisclosed income, brought in books by way of the said credit/s. The credit/s under reference is brought forward from an earlier year, and is sought to be subject to section 41(1)(a) on the basis of it being, from all available accounts, not payable as at the relevant year-end, i.e., as not representing a subsisting liability thereat. And, which gets supported, rather than defeated, by the fact of the assessee's accounts for the year being also found as not reliable, and his income for the year, i.e., of his trading business, being accordingly estimated. The assessee's argument of section 41(1)(a) being not sustainable in view of the rejection of his accounts, thus, would be of little assistance to him.
The assessee's reliance on the decision in Aggarwal Engineering Co. (supra) is, again, misplaced. The purchase/s, not liable to be separately disallowed, as held 12 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO by the Hon'ble jurisdictional High Court therein, following the decision in CIT vs. Banwarilal Banshidhar [1998] 229 ITR 229 (All), is on a different footing than an addition qua the liability in respect of the said purchase/s on account of any benefit by way of remission or cessation thereof arising to the assessee - a matter of fact, in the subsequent year. As afore-explained, it is only where the purchase is genuine or its genuineness not in doubt and, accordingly, allowed as a deduction, so that the liability in its respect/arising there-from represents a genuine liability, that the same is liable to be added u/s. 41(1)(a) where in the facts and circumstances of the case a benefit qua the said liability arises to the assessee subsequently. The two, i.e., the allowance of a purchase and an addition u/s. 41(1)(a) are separate, with in fact an addition under section 41(1)(a) arising, where so, only in respect of an actual liability, or one considered as so. That is, are consistent, rather than contrary. Could, one may ask, a purchase possibly be allowed as a deduction where the same does not result, simultaneously, in a liability there-against, to be met either in cash or in kind, whether due for payment immediately or later? Clearly, not? A liability, which is not a genuine liability, or even one found as not genuine subsequently, could not be added u/s. 41(1)(a) in-as-much as the same could only be disallowed in the year in which it arose. This is as the same would stand to be disallowed as an expenditure for the year in which it is incurred, contracting a 'liability' in its respect and, even otherwise, the 'benefit' in its respect arising in that year itself, even as explained in Jain Exports (P.) Ltd. (supra). In fact, in the facts of the present case, the ld. CIT(A) has, in view of the assessee having regular transactions with a creditor during the relevant year, making purchases for Rs.36.16 lacs during the year, of which Rs. 26.61 lacs stands paid, already deleted an addition u/s. 41(1) for Rs.9.99 lacs qua another trade credit favouring Bansal Iron Traders. The second component of the addition in Aggarwal Engineering Co. (supra) is in respect of cash introduced in accounts, unexplained 13 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO as to its nature and source and, therefore, added u/s. 68. The operative part of the decision, upholding the tribunal's order, reads as under:
'6. We have also perused the law laid down by the honorable Allahabad High Court in CIT v. Banwarilal Banshidhar (supra), wherein, it was observed:
"..... When the gross profit is applied, that would take care of everything and there is no need for the AO to make scrutiny of the amount incurred on the purchases by the assessee."
7. No contrary view has been shown or relied upon in the memo of appeal. We are of the view that CIT(A) and the Tribunal was justified in holding that once net profit rate was applied, no further addition was called for in respect of purchases and introduction of cash in the facts and circumstances of the case. No substantial question of law arises. The appeal is dismissed.' The Hon'ble Court, firstly, clarifies that no contrary decision; it relying on the decision in Banwarilal Banshidhar (supra), stands brought to its' notice. In fact, the Hon'ble Court goes on to add that it is not making any statement of law in-as- much as, in its' opinion, no substantial question of law arises for being answered in the facts and circumstances of the case. The purview of a High Court u/s. 260A of the Act; the assessment under reference being dated 28/02/2002, is the admission and answering substantial question/s of law arising out of the order of the Appellate Tribunal. In fact, the tribunal deleted the addition u/s. 68 not on principle, as sought to be made out by the ld. counsel during hearing, but on facts; the relevant part of the tribunal's order, reproduced by the Hon'ble Court at para 5 of its' decision, reading as under:
"As is observed above, the addition on account of cash credits even if the net profit rate is applicable could be made but it depends upon the facts of each case. This is a case before us, which clearly shows that the addition on account of cash credits would be unjustified. We, accordingly, do not find any merit in the submissions of the ld. Departmental Representative with regard to the making separate edition on account of cash credit of Rs.12,28,600/-. Similarly, the addition of Rs.1,75,766/-, was rightly deleted by the CIT(A) as it was part of the payment of purchases,...."
(emphasis, supplied) On principle, therefore, the tribunal, whose order is upheld by the Hon'ble Court, opines against the assessee, clearly stating that an addition on account of cash 14 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO credit/s could be made even if the net profit rate is adopted. Finally, the decision, in any case, is without considering the decision by the Apex Court in Devi Prasad Vishwanath Prasad (supra), which explains the law in the matter thus:
'There is nothing in law which prevents the Income-tax Officer in an appropriate case in taxing both the cash credit, the nature and source of which is not satisfactorily explained, and the business income estimated by him under section 13 of the Indian Income-tax Act, 1922, after rejecting the books of account of the assessee as unreliable.' (pg. 196) 'Where there is an unexplained credit, it is open to the Income-tax Officer to hold that it is income of the assessee, and no further burden lies on the Income-tax Officer to show that that income is from any particular source. It is for the assessee to prove that, even if the cash credit represents income, it is income from a source which has already been taxed.'(pg. 197) [emphasis, supplied] The decision in S. L. Road Construction Co. (supra) is, again, on a different footing. The assessee's income having been estimated, the tribunal held that any income by way of suppressed receipt could not be separately added. The suppressed receipt, so declared only on the basis of evidence, is surely one of the factors for regarding the accounts as not reliable, liable for rejection. Where, therefore, the same is taken into account in estimating the assessee's income - the suppressed contract receipt being liable to be regarded as a part of the assessee's turnover for the year, on which the income is estimated, no separate addition for the same would obtain. The same has no correspondence with the facts and circumstances of the instant case.
Next, i may consider the decision in S. I .Group India Ltd. [2015] 379 ITR 326 (SC), a decision relied upon by the ld. counsel through his written note in response to the decision in Chipsoft Technology Pvt. Ltd. (supra), relied upon by the Revenue. It may though, at the outset, be clarified, that the attempt to distinguish the latter decision on facts - the liability in that case, though outstanding in books, could not similarly be proved as subsisting by the assessee and, accordingly, confirmed by the Hon'ble Court for being added u/s. 41(1)(a), is misconceived. The question is not if the liability is to 'A' or 'B', or if it arises 15 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO against supply of goods or services, but whether the same is proved. As explained by the Bench during hearing, drawing a parallel with section 68, could an addition there-under qua a cash credit, where the same is proved by the assessee to be a liability, be made? The answer thereto is clearly in the negative. And it is precisely for this reason/s that reference in this order stands made to section 68. Again, the period for which the liability had remained unpaid, i.e., as at the end of the relevant year, etc., are all matters of fact, again, emphasizing, if one was still necessary, that the matter as to whether a liability subsists as at the year-end or not is essentially factual, even as clarified in several decisions that have travelled to the Hon'ble higher courts of law (refer, inter alia, CIT v. Autopins India [1991] 191 ITR 161 (Del); CIT v. Jaipur Oil Products Pvt. Ltd. [1994] 206 ITR 90 (Raj); CIT v. Sea Pearl Industries [1995] 211 ITR 508 (Ker)). Further on, as a reading of the decision in S. I. Group India Ltd. (supra) shows, alluding thereto, whether, as is made out by Sh. Sarna, in response to the reliance on Chipsoft Technology Pvt.
Ltd. (supra), or otherwise, is misplaced. In the facts of that case, the assessment years involved are AYs. 2000-01 and 2001-02. The assessee, by virtue of having set up a unit in a notified area, was entitled to an incentive scheme whereby the payment of the sales-tax (collected from the customers) to the State Government was deferred, and was required to be made in five equal instalments from April 20, 2010. How, one wonders, could that be regarded as a cessation of liability (of sales-tax) to the State Government, the payment being, under an incentive scheme, deferred by it to a later date? In fact, the deduction denied to the assessee in that case is for the sales tax-liability, while section 41(1)(a) comes into play only once a deduction qua a trade liability stands already allowed, and not otherwise. Further still, the assessee, in fact, claimed to have paid the sales-tax dues on making payment to State Industrial and Investment Corporation of Maharashtra Ltd. (SICOM), which was not accepted by the Sales Tax Tribunal, which upheld the 16 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO denial of the credit by the assessing authorities under the sales-tax law for the payments made to SICOM. It was for these reasons that the apex court affirmed the decision by the Hon'ble High Court that no benefit qua the sales-tax had arisen to the assessee for section 41(1) to be apply in its case.
3.6 Finally, before parting, one may consider if the matter needs to travel back to the file of the AO to allow the assessee an opportunity to show if the addition under section 41(1) could be telescoped against the profit assessed over and above that disclosed per his accounts, as explained by the Apex Court in Devi Prasad Vishwanath Prasad (supra) in relation to a sec. 68 addition. The contention, though not canvassed, is considered by way of abundant caution and, needless to add, in the interest of justice. To, however, find the same as not applicable in the instant case. The profit estimated is on the current year's operations, estimating the net profit at 8% on the declared turnover of Rs. 87.81 lacs, i.e., as against the declared net profit, yielding a rate of 4.03%. The same, clearly, has nothing to do with the liability/s pertaining to the purchases of an earlier year, which stands added, and confirmed for being so, on account of the assessee failing to prove it as a subsisting liability, i.e., as at the relevant year-end, even as it admittedly is so at the beginning of the year. The same being no longer payable as at the year-end and, further, confirmed by the tribunal as so having regard to all the relevant facts and circumstances, a benefit by way of remission or cessation thereof, irrespective of no accounting entry/s in its' respect being made or appearing in his accounts, even otherwise not reliable, stands accrued to the assessee during the year. There is, therefore, nothing in common between the excess profits earned by the assessee during the year, and the benefit that enures to the assessee on account of remission or cessation of the said liability/s arising during an earlier year, during the current year. It would though be a different matter where the assessee had contended a 17 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO payment of the said liability/s during the current year, adducing some evidence toward the same, as, for example, the copy of his account in the books of the creditor reflecting payment/s thereto from the assessee during the current year. Even as it therefore continues to outstand and reflected as a liability in the assessee's accounts (for the current year), it would confirm its' status as a liability qua which no benefit has arisen to the assessee, much less during the current year, precluding section 41(1)(a). An addition in such a case would though arise u/s. 69A; the payment being not reflected in the assessee's accounts, and which (addition) may stand to be telescoped against the addition on account of the additional profit, not disclosed in accounts. It would, however, be wholly presumptuous to, in the absence of any such claim/s, restore the matter back conjuring such a situation, toward which there is nothing to indicate or suggest. There is, accordingly, no basis for a restoration back to the file of the AO to consider the aspect of the telescoping in the facts and circumstances of the case. Rather, as apparent, the scope for telescoping arises only where the amount added as profit (arising during the year), being outside books, is exhibited which some corroborative or circumstantial evidence to be so applied, i.e., outside books. The addition u/s. 41(1)(a), on the other hand, arises on account of a liability arising earlier in view of a benefit arising to the assessee on account of its' remission or cessation during the year.
3.7 To conclude, all that stands clarified per this order is that a benefit arising on account of remission or cessation of a trading liability, attracting section 41(1)(a), need not necessarily be reflected in the assessee's accounts; it being otherwise trite law that the accounting entries are not conclusive or determinative of the matter and are subject to verification and/or being proved. In the facts of the instant case, the assessee's accounts are admittedly not reliable, so that they cannot even 18 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO otherwise be regarded as representing a true and fair view of its affairs, i.e., generally. Speaking in the context of the impugned liabilities, the facts and circumstances stand examined to find the assessee's claim of being liable qua the impugned sums being wholly unproved, if not disproved (refer paras 3.3 & 3.4 of this order). It is the substance of the transaction that is relevant. The same, apart from representing settled law, stands also explained in Motilal Ambaidas v. CIT [1977] 108 ITR 136 (Guj) in the context of a sec. 41(1) addition, wherein no entries in respect of sale-tax collected (from customers) and paid to the Government were made by the assessee in his books of account, contending that therefore no deduction qua sales-tax paid had been claimed by him for section 41(1) to apply on the refund of the sales-tax from the Government. The contention was not accepted by the Hon'ble Court, further explaining that the provision is a machinery provision. In fact, as explained in CIT v. Balabux Birla & Co. [1986] 157 ITR 759 (P&H), the method of accounting, cash or mercantile, adopted by the assessee is also irrelevant as far as section 41(1) is concerned, so that as soon as the assessee is found to have benefited from the remission or cessation of a trading liability, allowed in an earlier year, the provision would get attracted in the facts and circumstances of the case. The said condition, in view of the foregoing, stands satisfied, so that in my view section 41(1)(a) stands rightly invoked by the Revenue in the instant case qua the impugned liabilities. No case for telescoping, also considered, also obtains.
I decide accordingly, declining interference.
4. In the result, the assessee's appeal is dismissed.
Order pronounced in the open court on October 31, 2018 Sd/-
(Sanjay Arora) Accountant Member Date: 31.10.2018 19 ITA No. 756/Asr/2017 (AY 2014-15) Om Parkash v. ITO /GP/Sr. Ps.
Copy of the order forwarded to:
(1) The Appellant: Om Parkash L/H of Smt. Pushpa Verma Plot No. 02, Village Waryana, Sangal Sohal Road, Jalandhar (2) The Respondent: Income Tax Officer, Ward-1(3), Jalandhar (3) The CIT(Appeals)-1, Jalandhar (4) The CIT concerned (5) The Sr. DR, I.T.A.T True Copy By Order