Gujarat High Court
The Principal Commissioner Of Income ... vs Ideal Data Electronic Application Ltd on 15 October, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/944/2024 ORDER DATED: 15/10/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 944 of 2024
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THE PRINCIPAL COMMISSIONER OF INCOME TAX 1, AHMEDABAD
Versus
IDEAL DATA ELECTRONIC APPLICATION LTD.
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Appearance:
MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1
MR B S SOPARKAR(6851) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 15/10/2024
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Standing Counsel Mr.Varun K. Patel for the appellant and learned advocate Mr.B.S.Soparkar for the respondent.
2. This Tax Appeal is filed under Section 260A of the Income Tax Act, 1961 (for short 'the Act') by the appellant-Revenue proposing the following substantial question of law arising out of the judgment and order dated Page 1 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined 09.04.2024 passed by the Income Tax Appellate Tribunal (for short 'the Tribunal') in ITA No.3056/Ahd/2015 for Assessment Year 2012-13 :
"(a) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the addition of Rs.11,23,64,705/- made u/s.41(1) r.w.s.28(iv) of the Income Tax Act, 1961?"
3.1. The brief facts of the case are that in the financial year 2001-02, the respondent-
assessee received a sum of Rs.11,23,64,705/-
from M/s. Marwar Hotels Private Limited which was classified as non-sundry creditors since financial year 2003-04. According to the assessee, the said amount was received against the project to be carried out but could not be implemented and the amount was not returned by the assessee due to financial constraints.Page 2 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024
NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined 3.2. The Assessing Officer for the Assessment Year 2012-13 sought to invoke provisions of Section 41(1) of the Act on the ground that there is no liability of the assessee to repay the amount and therefore, the assessee has been benefited by the advances received by it in the financial year 2001-02 and there was cessation of liability as the same has ceased to exist. In addition, the Assessing Officer also found that the amount of money received by the assessee from M/s. Marwar Hotels Private Limited was invested in acquiring the shares of the group company of the M/s. Marwar Hotels Private Limited and the assessee sold such shares to the group company at a loss, meaning thereby that the assessee has returned the money almost in the entirety to the said company.
3.3. The Assessing Officer therefore also Page 3 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined invoked provisions of Section 28(iv) of the Act to add the aforesaid amount as income of the respondent-assessee.
3.4. Feeling aggrieved by the addition made by the Assessing Officer under Section 41(1) read with Section 28(iv) of the Act, the assessee preferred an Appeal before the CIT (Appeals) who deleted the addition observing as under :
"2.12. In view of the above discussion it is apparent that the cessation of the liabilities cannot be held in the year under consideration more ot particularly when M/s. Manwar Hotels Limited had not waived their right to realize the dues from the appellant. On the contrary through the confirmation letter submitted to the AO, the liability of the appellant to M/s. Marwar Hotels Limited still stands. Moreover there is nothing on records to say that the Page 4 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined appellant has derived any benefit in respect of such trading liability by way of remission or cessation thereof. Thus on this ground also, no disallowance was called for. Therefore, on the facts ond submission of the appellant and also following the judgments of jurisdictional High Courts and other authorities as discussed above, the addition made made u/s. 41(1) of the I.T. Act by the A.O is not warranted, and hence, the same is deleted.
2.13. Further, the provisions of section 28(iv) of I.T. Act is also not applicable for the reason that the same comes into picture only when someone derives any benefit, whether convertible into money or not arising from the business. Since in appellant's case, the advances received from appellant were shown as payable in the balance sheet, and no benefit there-from has been derived by the appellant and hence, the provisions does not have any application over the same. The AO's reliance in the Page 5 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined judgment of T. V. Sundaram Iyengar is not significant as there is difference from the facts of the case, for the reason that in the quoted case, the appellant during the year under consideration had credited such income in the form of deposits from customers to the P & L Account meaning thereby that the lawful event for cessation liability had taken place during the year under consideration but no such event has taken place in appellant's case. In the cited case, although such income was offered in P & L Account, but the same was excluded from the computation of income but nothing sort of that has taken place in the case of appellant. Since there was a specific event during the year i.e. writing back such amount in P & L Account which relieved the appellant from acknowledging the said liabilly in future, the same was treated as income of the appellant by the Apex Court. But in the appellant's case no such action of witting off such liability in the P & Page 6 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined L Account for the year under consideration has taken place. On the contrary, the appellant as well as M/s. Manwar Hotels Limited has acknowledged the fact that the appellant was liable to pay such amount and was not relieved of such liability. In the case of appellant, no such event has token place during the year which relieved it from payment of such liability. Hence, the decision of Hon'ble Apex Court in the case of CIT Vs. T. V. Sundaram (supra) is not applicable on the facts of the case.
2.14. Even the provisions of section 28(iv) are not applicable on the facts of the present case in view of the decision of Hon'ble ITAT, Ahmedabad in the case of Anurag Chemicis Pvt. Ltd (supra) as discussed in preceding para.
The facts of the case of Anurag Chemicals Pvt. Ltd. are similar to the facts of the appellant's case. It is also worth here to mention that the case laws relied upon by the AO are on Page 7 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined different facts, hence, the same are of no relevance to the facts of the case.
2.15. In view of the above discussion, it is apparent that the aforesaid liability was continuingly admitted by the appellant in the balance sheet and that the appellant has not obtained any benefit either by of remission or cessation of liability, thus no addition u/s. 41(1) of the I.T. Act is warranted in the case of the appellant. Even otherwise also, on the basis of written off the amount by M/s. Marwar Hotels Limited in its books of account in A. Y. 2007-08, but no deduction claimed in the total income for the year under consideration, the same cannot be added as income of the appellant for the year under consideration. There is no event taken place in the year under consideration. Therefore, the addition made by the AO is found not correct, and thus, same is deleted."
3.5. The appellant-Revenue being aggrieved Page 8 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined preferred an Appeal before the Tribunal. The Tribunal by the impugned order confirmed the order passed by the CIT (Appeals) observing as under :
"9. We have heard the rival contentions of both the parties and perused the material available on record. From the preceding discussion, we note that the assessee has received an advance of Rs.11,23,64,705.00 against the project but the same has not seen light of the day and at the same time, the amount received by the assessee was not returned to the party. Thus, the issue arises whether the assessee has used colourable device in the transaction of the impugned projects against which the advance of Rs. 11,23,64,705 has been shown. Before we deal with the issue as discussed above, it is pertinent to note that as per the AO the advances received by the assessee from the party have been Page 9 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined returned almost in entirety to the same group. To this effect, the relevant finding of the AO is extracted below:
3.8 Another interesting feature of the assessee's transaction is that the assessee has made investment of Rs.9,28,78,500/- in the shares of group companies of Marwar Hotels Ltd. in the F.Y. 2001-02 relevant to A.Y. 2002-03.
Again in the F.Y. 2002-03 relevant to A.Y. 2003-04 the assessee further invested an amount of Rs. 1,61,19,105/- in the shares of group companies of Marwar Hotels Ltd. During the F.Y. 2005-06 relevant to A.Y. 2006-07 the assessee stated to have incurred a loss of Rs.(-) 10,32,06,696/- on sale of its shares of 10623050. The assessee has not given any working of loss of Rs. (-) 10,32,06,696/- incurred on sale of shares in the statement of income for A.Y. 2006-07. The assessee is claiming such c/f. capital loss from year to year. The assessee again in the A.Y. 2009-10 shown a long term capital loss of Rs. (-) 54,46,623/- from sale of Page 10 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined shares of group companies of Marwar Hotels Ltd. aggregating the total loss of Rs. (-) 10,86,53,319/- Again during the P.Y. relevant to A. Y. 2010-11 the assessee sold another lot of shares resulting into loss of Rs. (-) 2,38,87,943/-. In this way, the assessee has repaid more or less the same amount of Rs. 11,23,64,705/- received from Marwar Hotels Ltd. (as trade advance for certain project Lun of chares of group companies of Marwar Hotels Ltd.
9.1 From the above finding of the AO, it is transpired that even we assume that the assessee has adopted a colourable device for the transaction discussed above, but the question arises whether the assessee is the beneficiary of such a transaction. The answer stands in negative. It is because whatever amount received by the assessee as advance has gone back to the same party, In other words, the assessee did not enjoy the money that Page 11 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined it has received as advance. Therefore, the assessee cannot be alleged to have derived any benefit out of such transaction as admitted by the AO himself in the assessment order. At this juncture, it is equaly important to note that as per the AO the assesse on the sale of shares of the group company of the party has incurred losses but there is no discussion in the body of the assessment order whether such loss was admitted by the revenue. Accordingly, we stay away from this issue as the same does not arise from the order of the AO. Thus, we hold that even the colourable device. adopted by the assessee in the transactions discussed above, the assessee at the most can be alleged in such transaction is one of the conduits and not the party who allegedly derived benefit. Hence, no addition can be made in the hands of the assessee on the reasoning of colourable device as alleged by the AO.
Page 12 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined 9.2 Moving further, the next controversy arises whether the assessee is subject to the addition of such an advance in the manner provided under section 41(1) of the Act. In this regard, we note that the AO himself in his has order has recorded that the assessee has made investment in the shares of M/s Marwar Group which is a capital transaction in the hands of the assessee. Accordingly, we are of the view that such a transaction cannot be made subject to the addition under section 41(1) of the Act. Hence, the ground of appeal of the Revenue is hereby dismissed."
4. Thus, there are concurrent findings of fact arrived at by the CIT (Appeals) as well as the Tribunal to the effect that though the assessee has received the advance of Rs.11,23,64,705/- against the project which had never been implemented and the amount was Page 13 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined never returned by the assessee, the theory adopted by the Assessing Officer that it was a colourable devise was also not believed by the CIT (Appeals) as well as the by Tribunal. The CIT (Appeals) and Tribunal, on the contrary, found that the assessee never received any benefit or enjoyed the money that it has received as an advance and therefore, no benefit was derived out of the said transactions as admitted by the Assessing Officer in the Assessment Order by observing that the assessee has reinvested the amount received as advance in the shares of the group companies of the said M/s. Marwar Hotels Private Limited which was later on sold at loss and such capital loss was never claimed as a set-off by the assessee.
5. In view of the above findings of fact, we are of the opinion that the provisions of Page 14 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined Section 41(1) read with Section 28(iv) of the Act would not be applicable.
6. Learned Senior Standing Counsel Mr.Varun Patel for the appellant relied upon the decision of this Court in Gujtron Electronics Private Limited versus Income Tax Officer to submit that the facts of the said case are similar to the facts of the present case.
However, on perusal of the Judgment of this Court in the said case, it appears that the facts in the said case refers to the amount of Rs.500/- collected by the assessee from the customer by sale of coupons which was shown as advance as part of the scheme and the same was never returned to the customers. This Court in the facts of the said case held as under :
"10. As is bound to happen, in such a scheme requiring continuous chain reactions, the chain would break at Page 15 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined some stage. The amount of Rs. 7.87 crores represents the money deposited by those members. This amount remained with the company over the years without any change whatsoever. The Revenue authorities have found that there was no activity at the hands of the assessee company in connection with the scheme for past several years. Not a single customer had demanded the money back nor the assessee had made any attempt to repay the same. It was only when the Assessing Officer in the present assessment proceedings raised the issue, the assessee made correspondence with the customers.
This, the Commissioner (Appeals)
correctly categorized as an
afterthought. More importantly in all
invoices, the signatures of the member customers were missing. Their addresses were not sufficient. Over the years, the company had also invested such amount earning interest and used such interest for its purpose, of course, offering interest income to tax.Page 16 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024
NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined
11. In view of the concurrent findings of the Revenue authorities and the Tribunal through which the above established facts emerged, we have no reason to interfere. The decision of the Supreme Court in case of Sundaram Iyengar (supra) would apply. In the said case, the Court had held and observed as under: "In the present case, the money was received by the assessee in the course of carrying on his business. Although it was treated as deposit and was of capital nature at the point of time it was received, by efflux of time the money has become the assessee's own money. What remains after adjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. The assessee itself has treated the money as its own money and taken the amount to its profit and loss account. There is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was Page 17 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined somebody else's money. In fact, as Atkinson J. pointed out that what the assessee did was the commonsense way of dealing with the amounts."
12. It is true that unlike in case of Sundaram Iyengar (supra), the assessee has not taken such amount in its profit and loss account. Nevertheless, by all accounts, the assessee has treated such amount as its own. The scheme itself terminated many years back. Limitation of claiming amount back has also seized. There is absolutely no movement or correspondence between the assessee and its members with respect to the claim or with respect to the deposited amounts"
7. On perusal of the above findings, it is clear that in the facts of the case before the Court the amount was invested by the assessee earning interest and used such interest for his purpose. Thus, it was a matter of fact Page 18 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined that the assessee in the said case enjoyed the amount which remained credited in the books of accounts and was never intended to be returned to the customers from whom it was collected, whereas, in the facts of the present case, there is a concurrent findings of CIT (Appeals) and the Tribunal to the effect that the respondent-assessee never enjoyed the benefit of the advance which was received by it in the financial year 2001-02 and therefore, both the authorities have rightly held that there is no cessation of any liability. It was rightly observed by the Tribunal that at the most it can be alleged that the transaction is one of conduits and not the party who allegedly derived benefit.
8. On the other hand, learned advocate Mr.B.S.Soparkar for the respondent-assessee referred to and relied upon the decision of Page 19 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined this Court in case of The Principal Commissioner of Income Tax-3 Ahmedabad Versus M/s. Vishal Exports Overseas Ltd. rendered on 14.06.2024 wherein, in similar facts, while dealing with the provisions of Section 41(1) of the Act, it was held as under :
"[13] Thus, finding of fact arrived at by the Tribunal in respect of the five parties for addition of Rs.2,05,06,635/- after examining the relevant copy of ledger account placed on record, it was also found from the record that so far as addition of Rs.1,59,978/- is concerned, the same was on account of purchase difference being outstanding differential amount towards marine exports and with respect to addition of Rs.8,74,500/- of amount payable to Sonoma Exports Pvt. Ltd. Tirupur, it cannot be presumed that the liability has ceased to exist in absence of any evidence for the same. Similarly, addition of Rs.1,19,94,266/- with Page 20 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined respect to Allure Jewel, the Tribunal has examined complete ledger account purchased by the assessee to arrived at a finding of fact to make such payment exists in the assessee's books of account. So far as addition on account of FIRC is concerned, the Tribunal arrived at a finding that no expenditure has been incurred by the assessee as it is a case of export sales. With respect to addition of Rs.7,052/- in the case of Pest Mortem, the Tribunal has found that from the ledger account, it was a carry forward balance from earlier years. Therefore, considering the decisions of this Court in the case of Bhogilal Ramjibhai Atara (supra) and Dattatray Poultry Breeding Farm (P) Ltd (supra), the Tribunal has held that the provisions of Section 41(1) of the Act cannot be invoked where the existence of liability was doubted as such the addition could have been made in the year in which it was claimed or it could have been treated as unexplained cash credit in hands of the assessee under Page 21 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined Section 68 of the Act as there is nothing on record to suggest that there is remission or cessation for the year under consideration.
[14] In view of the above, we are of the opinion that the Tribunal has not committed any error in deleting the addition of Rs.2,05,06,635/- by arriving at a finding of fact that the said amount pertaining to five parties, there was nothing on record to suggest that there was remission or cessation of such liability of the respondent - assessee so as to invoke the provisions under Section 41(1) of the Act. Therefore, no question of law much less any substantial question of law arises from the impugned order of the Tribunal. The appeal is, accordingly, dismissed."
9. In view of the above facts and concurrent findings arrived at by both the authorities, we are of the opinion that no question of law much less any substantial question of law Page 22 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024 NEUTRAL CITATION C/TAXAP/944/2024 ORDER DATED: 15/10/2024 undefined would arise from the impugned order of the Tribunal. The Appeal therefore being devoid of any merit is accordingly dismissed.
(BHARGAV D. KARIA, J) (D.N.RAY,J) PALAK Page 23 of 23 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Oct 24 2024 Downloaded on : Sat Oct 26 22:42:39 IST 2024