Income Tax Appellate Tribunal - Jabalpur
Deputy Commissioner Of Income Tax vs Bhagwandas Shobhalal Jain on 9 August, 1996
Equivalent citations: [1997]60ITD118(JAB)
ORDER
P. Mohanarajan, J.M.
1. This appeal by the Revenue is directed against the order of CIT(A), Jabalpur, dt. 14th Sept., 1990.
2. The first ground in the appeal relates to the deletion of the disallowance of Rs. 1,82,000 on account of advertisement expenses. It appears that the assessee had introduced scheme of sales promotion. Under this scheme coupons to different denominations from Re. 1 to Rs. 100 were placed inside the beedi packets. The successful customers on getting any such coupon will collect the money from the selling agents. The accounting period for the relevant years extended to 17 months. The assessee also introduced another scheme by putting currency in the beedi packets itself on random basis. Lucky purchaser will get the prize money from the packet itself. These schemes were floated by the assessee during Diwali and in the stalls set up in Kartik Mela at Ujjain. The assessee pleaded that there was double expenses in view of the facts mentioned above, in the relevant assessment year. The AO had disallowed Rs. 1,82,900 on this account. The AO denied allowance on the ground that only two of the assessee's accountants by name Shri Ram Kumar Choubey and Niranjan Pachori were entrusted with the work of visiting branches and placing the currencies in the packet and the same was not verifiable. The AO observed that the coupon scheme was verifiable. According to the AO the only two statements of these two persons did not prove the case of the assessee beyond reasonable doubt. However, in the first appeal, learned CIT(A) accepted the case of the assessee. It is seen from record that the AO had not pointed out any error or defect in statements of the accountants, or the accounts produced. Placing currencies in the beedi packets under the scheme for promoting the sales ordinarily requires secrecy. Otherwise the scheme would have been a total failure which may result in loss to the assessee. However, what is required for establishing reality under tax law is a preponderance of possibility and not the one required by the AO, namely, proof beyond reasonable doubt. If the AO had any doubt about the putting of currencies in beedi packets by these employees, he could have called those employees and verified from them. This has not been done. Thus, there is no material to disbelieve the assessee's claim in this respect. We, therefore, are of the view that the learned CIT(A) is perfectly justified in deleting the addition under this head and we confirm the same.
3. The next ground relates to the deletion of Rs. 7,30,102. The assessee claimed this amount as expenses for promoting sales. The assessee claimed that certain items such as attachees, steel almirah, steel tanki and four scooters were given as reward to the dealers who achieved a particular target of sales. This scheme was known as inami scheme. The amount of the items purchased for giving such rewards as aforesaid exceeded Rs. 50. The AO disallowed the expenses applying the provisions of r. 6B r/w s. 37(3). In the opinion of the AO, this scheme was to promote the sales and form part of advertisement expenses. He further observed that the purpose behind r. 6B is that if an assessee attracts a customer by presenting articles the cost of which exceeding Rs. 50, such expenditure will not be allowed as deductions. Whatever may be the nomenclature, but in substance the articles which present to the customers who push up the sales and exceed a particular target.
4. A reading of the observation of the AO clearly shows that he had not applied his mind to the relevant issue before him. The correctness of the details shown by the assessee under this head was not disputed by the AO, but the AO proceeded to conclude on the basis that the articles were presented to customers. But in fact under this head the articles were given to the dealers as a reward for those who achieved certain particular targets in sales. The application of r. 6B r/w s. 37(3) is not sustainable. The expenditure incurred by the assessee is not forming part of advertisement expenses as viewed by the AO and this expenditure was not incurred in giving presents to the customers. We are, therefore, of the view that the learned CIT(A) is perfectly justified in deleting the addition under this ground and we confirm the same.
5. The Revenue is in appeal before us against the deletion of the addition of Rs. 69,46,154 under s. 41(1) of the Act.
6. In the balance sheet, it is shown that this amount was shown as Bidi Workers outstanding liabilities (old). This liability is the same amount as has been carried forward right from the asst. yr. 1980-81 till date of the end of relevant year. In the course of assessment proceedings for the relevant assessment year, the assessee was required to furnish the following details :
(i) How this liability was worked out.
(ii) List of the workers to whom it is payable and how much is payable so that it may tally with the total of the liability created.
(iii) For the following year similar type of information should be given shown the opening balance of the liability, further liability created for that year, payment made during the year, balance at the end of the year.
(iv) So far as the payments are concerned, if possible, furnish the details of the persons to whom the payments have been made.
(v) It is clear from the figures given above that the outstanding liability at the end of the year has been varying. This variation will be clear from the filing of the copies of the account. Please furnish the same.
(vi) Copies of accounts be given for all the years till this date to show as to what is the position today and how much of the liability has been paid right from the beginning till this date.
(vii) What is the possibility of discharging this liability because many of the workers for whom this liability was created may have disappeared/died. None of the workers may be aware of any such liability payable to them.
(viii) Has any of the workers ever filed any claim before any Court or authority and if so, what was the result ? In case the petition is filed by any of the workers in the Court or before any other authority, a copy of the same must be available with you which may also be produced or photostat copy thereof be filed.
7. The assessee had filed their reply but had not furnished any relevant details as required by the AO. The assessee relied on several decisions to support his stand that there is no cessation of liability and the provisions of s. 41(1) of the Act do not apply.
8. The AO considered the stand taken by the assessee in paras 23 and 24 as follows :
"23. The facts and circumstances of the case clearly show that the assessee mainly relied upon the judicial pronouncements as regards the applicability of s. 41(1) of the Act. However, on facts, none of the decisions can help the case of the assessee. 11 years have passed till date but nothing has been paid to any of the workers nor is there any possibility of being paid even in future because the workers to whom it is allegedly payable are not identifiable. The provision was made not on the basis of the worker but on the basis of total wages claimed as deduction in the respective years. The provision had to be allowed as deduction because it was apparently a statutory liability payable to the bidi workers. Now there is no doubt that this liability cannot be discharged because the workers to whom it was supposed to be payable are not identifiable and whether dead or alive.
24. In such a situation can it be said that the liability in fact survives. Legally, of course, there may appear to be sufficient force in the assessee's arguments, but here I am relying on facts and the case is being decided on facts. I have stated that the assessment proceedings for asst. yrs. 1984-85 and 1989-90 were simultaneously taken up so far as the question of invoking the provision of s. 41(1) is concerned and I am of the opinion that asst. yr. 1989-90 is the proper and appropriate year to apply the provision of s. 41(1). There must, at certain time, be limit when the facts may conclusively indicate a cessation and I think it has so indicated. The legal stand taken by the assessee has on facts no legs to stand. Law can only help the facts, but if the facts clearly indicate otherwise, it is difficult to take the assistance of judicial pronouncements."
Based on such consideration and discussions, he gave his finding in para 25 as follows :
"I hold that the liability on facts has ceased and the amount in the past allowed as deduction can be brought to tax under s. 41(1) of the Act. Accordingly, the same is treated as profit of business and charged to tax as income of the year relevant to asst. yr. 1989-90."
9. The assessee carried the matter to the first appellate authority. According to the learned CIT(A), there was no case for application of provision of s. 41(1) of the IT Act. In the instant case in para 28.2 of the order, it has been stated as follows :
"First of all, for the purpose of application of s. 41(1), following two aspects are to be looked into :
(a) An expenditure has been allowed in any earlier assessment year.
(b) There was cessation or remission and through that process there was a benefit to the assessee in the previous year relevant to assessment year when such cessation or remission took place.
So far as the first limb of s. 41(1) is concerned, it is an admitted fact that expenditure by way of additional wages were allowed in earlier assessment years. Before allowing expenditure in respective assessment years, the learned AO examined the propriety of the claim and allowed the same. As such, there was hardly any necessity to ask the assessee to again submit details as to the quantification of the assessee, name of the workers, and actual payments made, to determine the cessation of liability. The second limb of s. 41(1) clearly calls for the positive finding to indicate that there was a benefit to the assessee by way of cessation or remission of any expenditure allowed in any earlier assessment year. This indicates that the learned AO has to establish that there was a cessation of liability and has also to establish that such cessation took place during the previous year relevant to the assessment year. There is no scope for any unilateral inference by the learned AO to observe or to give finding that simply because there was a lapse of 11 years between the creation of liability and the completion of assessment, the liability ceased. The learned AO himself has noted that he considered the case on the basis of facts. The facts of the case, on the contrary, clearly indicate that there was no cessation of the said liability in the previous year corresponding to the present assessment year. First it has to be stated that the liability arose by the notification of Government of M. P. in accordance with ss. 26 and 27 of Beedi and Cigar Workers (Conditions of Employment) Act, 1966."
He relied on various decisions cited by the assessee.
10. The Revenue aggrieved with the order of CIT(A) is in appeal before us.
11. At the time of hearing before us, the learned Departmental Representative argued at length. In a nutshell, his argument was whether there was a cessation of liability or not is to be judged from totality of facts of the assessee's case. He submitted that liability was created during the accounting years Diwali 1973-74, 1974-75 and 1975-76. Payment for part of liability was made upto Diwali 1979. There is no payment at all after Diwali 1979. The year under appeal is accounting year March, 1989. Thus, from last ten years, no payment made. Added with this, there is no details of workers to whom payment is to be made and no claim of any worker is pending in dispute before any Court or Tribunal. Keeping these facts in view, the AO was fully justified in holding that there was cessation of liability.
12. Learned counsel for the assessee reiterated the same arguments as were advanced before the CIT(A). He submitted that there was no cessation of liability. The liability of wages does not become barred by limitation. The assessee has not denied its liability. The workmen have not waived their claims. In such circumstances, there is no cessation of liability either by operation of law or by act of parties. He further submitted that as per s. 41(1), the onus is upon Revenue to establish that there was cessation of liability that too during the accounting year under consideration. He argued that no evidence is brought on record by the Revenue to establish cessation of liability much less for cessation in the year under consideration. In support of his contention, he relied upon the following decisions :
(1) Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) (2) Kohinoor Mills Co. Ltd. vs. CIT (1963) 49 ITR 578 (Bom) (3) Gannon Dunkerley & Co. Ltd. vs. CIT (1976) 102 ITR 428 (Bom) (4) Liquidator, Mysore Agencies P. Ltd. vs. CIT (1978) 114 ITR 853 (Kar) (5) CIT vs. Sadabhakti Prakashan Printing Press (P) Ltd. (1980) 125 ITR 326 (Bom) (6) CIT vs. Sugauli Sugar Works P. Ltd. (1983) 140 ITR 286 (Cal) (7) CIT vs. Sadul Textiles Ltd. (1987) 167 ITR 634 (Raj) (8) CIT vs. Ratan Chand Samir Mal (1985) 154 ITR 399 (Raj) (9) J. K. Chemicals Ltd. vs. CIT (1966) 62 ITR 34 (Bom) (10) AIR 1964 SC 752 (11) G. Rajendran vs. ITO (1983) 16 TTJ (Mad) 259 (12) Laxmi & Co. (India) vs. ITO (1984) 20 TTJ (All) 239 On the basis of above, he submitted that the CIT(A) was perfectly justified in deleting the addition made under s. 41(1) by the AO.
13. We have carefully considered the arguments of both the sides and have perused the materials placed before us. Before going into the detailed facts of this case, we may mention that it is a well known principle that every debtor has a corresponding creditor and every liability has a corresponding claimant. Without a claimant or creditor in existence, there cannot be any liability. Now coming to the facts of this case, we find that the AO has stated that the assessee did not furnish the particulars of workmen to whom the amount is allegedly payable. The amount had been carried forward from year after year more than a decade. On the basis of these facts, the AO came to the conclusion that there was no existence of liability and the cessation of liability was in the previous year relevant to the assessment year under appeal.
14. The learned CIT(A) in his order did not accept the finding of the AO on the ground that the liability for wages was allowed in the earlier years after examination so as to propriety of the claim and there was no need to ask the assessee to submit the detail relating to this liability in the year under consideration. Secondly, according to s. 41(1), the AO has to establish that there was cessation of liability and he has also to establish that such cessation took place during the previous year relevant to assessment year. The learned CIT(A) finally came to the conclusion that there was no cessation of liability.
15. The learned CIT(A) had been carried away by looking into past history. It is basic principle of the IT law that every assessment is a separate proceeding and the AO was fully empowered to call for necessary details. In fact, there is a duty cast upon every AO to call for necessary details and to examine the same and draw the necessary inference after conducting proper enquiries. The details called for by him were relevant for determining the issue whether the liability has ceased or not and if so in which year. However, the assessee was unable to furnish the detail relating to workmen, quantum of the amount payable to them. The workmen are unidentifiable to whom the amount is allegedly payable. More than a decade nothing had been paid.
16. The learned counsel for the assessee reiterated the stand taken by them before the lower authorities and relied upon various decisions quoted earlier in this order. According to the assessee, there was no cessation of liability. The liability did not become barred by limitation. Obligation to pay the workmen remain in force. The assessee had not denied its liability, neither the workmen have waived their claim. Thus, there was no question of any cessation of liability. He had also submitted that the onus to prove that the liability has ceased is upon the Revenue and in this case, there is no positive finding by the AO by bringing any positive material on record that the liability ceased during the previous year relevant to the assessment year.
17. The creation of the liability and its payment was in the earlier years and details of which are given in para 2 of the assessment order, which reads as under :
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A/c year ending Asst. year Provision made Payments Balance
(Rs.) Rs. Rs.
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Diwali, 74 75-76 42,15,385 - 42,15,385 Diwali, 75 76-77 16,67,656 84,620 57,98,421 Diwali, 76 77-78 20,20,984 98,857 77,20,548 Diwali, 77 78-79 - 1,09,138 76,11,410 Diwali, 78 79-80 - 3,03,756 73,07,703 Diwali, 79 80-81 - 3,61,550 69,46,153
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18. From the above chart, it is clear that the liability was created during the years Diwali 1973-74 to 1975-76. Certain payments were made till Diwali 1979. The outstanding liability as on Diwali 1979, was Rs. 69,46,153. The liability claimed by the assessee as on 31st March, 1989, also remains the same i.e., Rs. 69,46,153. Thus, almost for a decade i.e., from Diwali 1979 to 31st March, 1989, there was not a payment of a single Rupee. In such circumstances, the AO called for the details relating to the amount of unclaimed liability. It is seen from the record that the assessee did not produce any details showing the particulars of the employees to whom the amount was payable by the assessee. The AO during the course of assessment proceedings insisted the assessee to produce several particulars relating to this matter. But nothing had been furnished except filing a bald reply dt. 19th March, 1990, with no material particulars alleging the existence of liability for the year under consideration. It is relevant to note that the AO had made certain specific queries apart from the others as follows :
"(vi) Copies of accounts be given for all the years till this date to show as to what is the position today and how much of the liability has been paid right from the beginning till this date.
(vii) What is the possibility of discharging this liability because many of the workers for whom this liability was created may have disappeared/died. None of the workers may be aware of any such liability payable to them.
(viii) Has any of the workers ever filed any claim before you or before any Court or authority and if so, what was the result. In case the petition is filed by any of the workers in the Court or before any other authority, a copy of the same must be available with you which may also be produced or photostat copy thereof be filed."
19. The assessee was unable to furnish the above details or documents. We agree with the submission of the learned counsel for the assessee that for applying s. 41(1), onus is upon the Revenue to establish that the liability has ceased during the year. However, at the same time, it is the duty of the assessee to furnish relevant information and particulars. The complete details of the liability is only in the special knowledge of the assessee and, therefore, it has to be furnished by him. On furnishing of such information only, the AO can examine whether these was cessation of liability or not. On account of non-furnishing of such particulars an adverse inference is to be drawn against the assessee. In the light of this background, we have to see whether the onus was discharged by the AO. We may mention that to discharge onus in income-tax proceedings, degree of proof required by the Revenue is only preponderance of probability as insisted upon in civil cases and not proof beyond doubt, which is insisted in criminal cases. We find that the AO has shown that the liability is coming from over a decade. The assessee has not made payment of even a single pie in discharge of so-called liability from Diwali 1979. The assessee did not have the details of name and addresses of workers to whom the so-called liability is payable. There is no evidence of any claim ever filed by any worker before any Court or authority claiming the payment of any amount against such liability. On the basis of totality of these facts, the AO has reached to the conclusion that the liability of unpaid wages amounting to Rs. 69.46 lakhs no more exists. Such a conclusion cannot be said to be without any basis or material on record. As we had stated earlier that for any liability, there has to be a claimant. Here in respect of the so-called liability of wages, there are no claimants in existence, at least it has not been proved to be in existence in the year under consideration. In view of these facts, we hold that the Revenue had discharged the burden to establish that the liability has ceased and s. 41(1) was applicable. We may also mention that the various decisions relied upon by the learned counsel for the assessee will not help the assessee. In all these cases, the principle laid down is, that for application of s. 41(1), the onus is upon the Revenue to establish that there was cessation of liability during the year under consideration. We have also applied the same principle. Now whether such onus is discharged or not would depend upon the facts and circumstances of each case. In these cases, the Hon'ble Courts, on the basis of facts of these cases, came to the conclusion that the onus was not discharged by the Revenue. Hence s. 41(1) was not applicable. However, in the case under appeal before us, we, after considering the totality of the facts of this case, as already discussed in detail earlier, came to the conclusion that onus was discharged by the Revenue.
20. Before we conclude, we may mention that the Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC), at page 545, (of ITR) observed as under :
"Taxing authorities were not required to put blinkers while looking at documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality. ....."
21. The ratio of this decision is squarely applicable to the case under consideration before us. The apex Court emphasized the above view in the case where documents were produced. But in the case in hand, there were no documents available, therefore, the AO was justified to look into the surrounding circumstances, to find out the reality and the same has been done by the AO.
22. We have also come across another decision of Hon'ble Supreme Court in the case of Biharilal Jaiswal vs. CIT (1996) 84 Taxman 236 (SC). In this case, a licence had been issued to the assessee for which there was a specific prohibition to enter into a partnership. In violation of such condition, the assessee entered into a partnership and applied for registration of the firm under s. 185 of the Act. The apex Court while rejecting the plea of the assessee observed as under :
"The grant of registration under the Act confers a substantial benefit upon the partnership firm and its members. There is no reason why such a benefit should be extended to person who have entered into a partnership agreement prohibited by law. One arm of law cannot be utilised to befit other arm of law. Doing so would be opposed to public policy and bring the law into ridicule.
23. In the present case, the assessee claimed continuation of liability by virtue of notification issued by Government of Madhya Pradesh without liquidating the liability to the workmen for a considerable length of time. This notification, is a beneficial piece of legislation intended for the benefit of workmen and to secure payment to them. The assessee is seeking protection under this notification without discharging liability to workmen. The ratio laid down by the apex Court is squarely applicable to the fact of this case. The assessee, in fact, ridiculed legal system by seeking support under the notification of the Government of MP i.e., at one hand claim the existence of huge liability payable to workman to the tune of Rs. 69.46 lakhs and at the other hand did not make the payment of a single rupee to any workman in last ten years. The beneficial notification for workmen is actually being utilized by the assessee for his benefit of claiming the continuation of liability in the name of workers, who are not proved to be in existence.
24. In view of the totality of the above facts and legal position, we set aside the order of the CIT(A) in this respect and restore the order of the AO making the addition of Rs. 69,46,154 under s. 41(1) of the IT Act, 1961. Ground No. 3 of the Revenue's appeal is allowed.
25. In the result the appeal is partly allowed.