Income Tax Appellate Tribunal - Cochin
M/S.S.N. Spices, Cherthala vs Assessee on 12 December, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI N.R.S.GANESAN, JM and CHANDRA POOJARI, AM
I.T.A. No.364 /Coch/2014
Assessment Year : 2008-09
M/s. S.N. Spices, Vs. The Income Tax Officer,
S.L. Puram, Ward-4, Alleppey.
Cherthala,
Alappuzha-688 001.
[PAN: ABBFS 3133N]
(Assessee-Appellant) (Revenue-Respondent)
Assessee by Shri R.Sreenivasan, CA
Revenue by Shri K.K. John, Sr. DR
Date of hearing 04/12/2014
Date of pronouncement 12/12/2014
ORDER
Per CHANDRA POOJARI, Accountant Member:
This appeal filed by the assessee is directed against the order dated 20-02-2014 passed by the CIT(A)-IV, Kochi, for the assessment year 2008-09.
2. The first issue raised in this appeal is with regard to addition on account of cash credit of Rs.1,20,000/- which is a cash loan.
3. The brief facts of the issue are that in the original return outstanding liability of outside loan included in sundry creditors was 2 I.T.A. No.364/Coch/2014 Rs.5,52,231/- and the assessee has filed ledger account copy of outside loan for the assessment year 2009-10. The assessee has availed loan on various dates and repaid during the succeeding year in cash on various dates. As per the confirmation letter furnished by the assessee, the loan was received from Shri Raju Joseph, brother of Shri Biju Joseph, NRI. The explanation given by the assessee was that cash has been withdrawn by Shri Raju Joseph from the account of Shri Biju Joseph and given to Shri Vijayakumar, now partner of the firm. The loan has been credited in the cash book in the respective days. The Canara Bank NRI account copy of Shri Biju Joseph for the period 01/04/2006 to 17/11/2009 was filed alongwith the confirmation letter. There were withdrawals on the following dates.
Date in Description Cheque No. Amount
bank a/c
22/12/2007 Self 940425UPLO 2,00,000/-
08/01/2008 Biju 940427UPLO 7,50,000
Joseph
29/01/2008 Biju 940428UPLO 3,75,00/-
Joseph
13,25,000/-
The amounts has been credited in cash in the assessee's account in the head outside loan from Biju Joseph. The assessee has received Rs.1,20,000/- as outside loan in cash on 15/12/2007 but this amount was not seen withdrawn from the bank account and the assessee has not produced any evidence or 3 I.T.A. No.364/Coch/2014 explanation for this amount. Therefore Rs.1,20,000/- was treated as unexplained cash credit and addition was made u/s. 69 of the I.T. Act.
4. Before the CIT(A), the assessee submitted that Rs.1,20,000/- has been added back as unexplained cash credits stated to have been received from Shri Biju Joseph, a NRI. The date of withdrawal of the cash and the date of credit are different. At the same time, the assessee explained that the assessee has also obtained loan from one of the partner's wife, Sudha, which has not been taken into consideration.
5. However, the CIT(A) observed that the assessee has not submitted any evidence for substantiating its claim, and the entire explanation was in the form of argument. According to the CIT(A), even during the course of appellate proceedings, the assessee had not submitted any statement or document and has relied upon the statement of facts and the grounds of appeal. In view of this, the CIT(A) found that the assessee has nothing to counteract against the detailed findings of the Assessing officer. Accordingly, the CIT(A) upheld the addition made by the Assessing officer and he dismissed this ground of appeal. Against this, the assessee is in appeal before us. 4 I.T.A. No.364/Coch/2014
6. We have heard both the parties and perused the record. In this case, an amount of Rs.1,20,000/- was received from Shri Biju Joseph and the assessee filed a copy of bank account Shri Biju Joseph alongwith the confirmation letter. The Assessing officer doubted this loan as this amount was received in cash on 15-12-2007. According to the Assessing officer, this amount was not reflected in the bank account of Shri Biju Joseph. In our opinion, as evidenced from the bank account of Shri Biju Joseph, he is having enough balances in his account and he is having means to advance a sum of Rs.1,20,000/- to the assessee. The assessee has proved the identity of the parties and the creditworthiness of Shri Biju Joseph to lend Rs.1,20,000/- to the assessee. Being so, in our opinion, it is not proper to make addition u/s. 68 of the Act on this count. Accordingly, we direct the Assessing officer to delete the addition made u/s. 68 of the I.T. Act. Accordingly, this ground of the assessee is allowed.
7. The next issue is with regard to addition of Rs.22,10,051/- which is credited to the capital account.
5 I.T.A. No.364/Coch/2014
8. The brief facts of the case are that a sum of Rs.50,68,767/- as on 31/03/2008 was owed by the firm to the various creditors. However a part of this sundry creditors have been transferred to the capital account of the partners to boost their capital figure. The outstanding sundry creditors as per the original return was Rs.50,68,767/- which has been shown at Rs.14,20,781/- in the revised return. The Assessing officer observed that once certain amount has been classified as liability under the head 'Sundry Creditors', the same is an outstanding liability which is supposed to be paid to the trade creditors. However, it was noticed by the Assessing officer that by revising the return, the assessee has swapped the sundry creditors with the credit to the partners capital as well as to the current account. It has been observed by the Assessing officer that in the revised return of income, the assessee has brought in addition to capital of Rs.12,00,000/- and addition to current account of partners, Rs.19,41,379/-. The outstanding amounts in the sundry creditors as on 31-03-2008 was Rs.50,68,767/- not claimed in the sundry creditors and advance and deposits from partners and relatives in the revised return was (5,52,231 + 379096) = Rs. 9,31,327/-). The source for the credit in the capital was explained by the assessee as the transfer of outstanding credit to partner's capital account. Credit for Rs.9,31,327/- is given to the assessee on this ground. The balance figure (Rs.12,00,000 +Rs.19,41,379-Rs.9,31,327) Rs.22,10,052/- was 6 I.T.A. No.364/Coch/2014 treated as unexplained credit to the capital account. Therefore, Rs.22,10,052/- was treated as unexplained cash credit and addition was was made u/s. 68 of the I.T. Act.
9. Before the CIT(A), it was submitted that the assessee originally filed the return of income under electronic mode, showing a business loss of Rs.14,09,447/- which was revised subsequently and income and income returned at Rs.73,957/- after claiming the interest on capital and remuneration to partners. The Balance of the original return showed the total amount of sundry creditors at Rs.50,68,767/- and in the revised return, a major portion of this sundry creditors balance was either transferred to the partner's capital account or current account and thus, the figure remain reduced to Rs.14,20,789/-, i.e., to say an amount of R.36,47,986/- was transferred to either capital account or current account in a round sum. It was submitted that during the course of assessment, the Assessing officer asked the assessee to prove the genuineness of the sundry creditors and accordingly, the entire sundry creditors of Rs.50,68,767/- was proved either by way of filing of confirmation or by way of proving the subsequent payment details in statement of the account.
7 I.T.A. No.364/Coch/2014
10. However, the CIT(A) found that the assessee has submitted the entire sundry creditors of Rs.50,68,767/- was proved by way of filing of confirmations or by way of proving the subsequent payment details in the statement of account. However, the CIT(A) observed that the Assessing officer has not noted any such confirmations filed by the assessee in the assessment order. According to the CIT(A), the assessee has also failed to bring any evidence or documents supporting their claims during the course of appeal proceedings. The onus to explain the nature and source of such sum found credited to the satisfaction of the Assessing officer lies with the assessee and the onus includes filing of confirmations to establish the identity of the creditors in respect of each of such transactions. The CIT(A) was of the opinion that if the Assessing officer records that the sundry credits were not explained, and confirmations in respect of such credits not produced during the course of assessment proceedings, it would be inferred that the assessee has failed to discharge his onus for establishing the genuineness of the credits. Moreover, according to the CIT(A), the assessee has failed to file such confirmation or evidences supporting their claims even during the course of appeal. The CIT(A) observed that no contrary view can be taken to that of the Assessing office's as there are no new facts to form a different opinion and mere logic and argument could not suffice to satisfy the answer to the question of fact. 8 I.T.A. No.364/Coch/2014 In view of this, the CIT(A) held that the Assessing officer has rightly considered the amount of Rs.22,10,052/- as unexplained cash credits, and added to the total income u/s. 68 of the I.T. Act. Against this, the assessee is in appeal before us.
11. The Ld. AR reiterated the submissions made before the CIT(A). According to the Ld. AR, the sundry creditors have transferred the capital to the partners account only to boost up the capital and the lenders have not waived the liability and this is only unilateral transaction which does not warrant any addition. Moreover, the section 68 cannot be applied to the sundry credits which does not come into existence in the assessment year under consideration and it is only carry forward balances.
12. On the other hand, the Ld. DR relied on the order of the lower authorities.
13. We have heard both the parties and perused the record. Admittedly, the these credits continue to be carried forward year after year and the assessee transferred these credits to the capital and current account in the assessment year under consideration. On account of this, there was a doubt in the mind of the Assessing officer 9 I.T.A. No.364/Coch/2014 regarding these credits. In the normal course, nobody would ordinarily not claim his dues and usually they take steps to recover the dues if it is a genuine liability. In this case, the liability remains to be recovered after the assessee transferred these amounts to the capital and current account. For invoking the provisions of sec. 68 of the I.T. Act, if any sum is found credited in the books of account of the assessee maintained in the previous year, then only it could be possible to make addition u/s. 68 of the I.T. Act. In the case of carry forward credit which is from earlier year, provisions of sec. 68 cannot be applied. However, in the case of the assessee, the liability is outstanding in the books of account of the assessee for the assessment year under consideration. As per the recent judgment of the Delhi High Court in the case of CIT vs. Chipsoft Technology (P.) Ltd. [2012] 210 Taxman 173 (Del),, the provisions of sec. 41(1) could be applied in this type of credts.
14. The hon'ble Delhi high court as per its recent decision in the case of CIT vs. Chipsoft Technology (P.) Ltd. [2012] 210 Taxman 173 (Del), examining the legal aspect of the matter, has clarified that the view that merely because a liability outstands in books, and that lapse of time bars the remedy but does not efface the liability, is an abstract and theoretical one which does not ground itself in reality. The interpretation 10 I.T.A. No.364/Coch/2014 of law, particularly fiscal and commercial legislation, is to be based on pragmatic realities. It would be indeed paradoxical, if not illogical, to allow the assessee-debtor to, while avoiding a liability on the basis that it is no longer enforceable in law, yet claim his status as a debtor, so that he was indeed liable for the amount reflected as a liability in accounts.
15. Further, Explanation 1 to the provision to sec. 41(1) inserted by Finance (No.2) Act, 1996 w.e.f. 01.04.1997 proscribes an assessee to claim an indebted status while writing back the amount in books, even if unilaterally, in its respect. The word employed in the said Explanation is 'include' and not 'means', so that it is not to be read in a restrictive manner. The tribunal explained the scope of the said Explanation in the case of Kalyani Maan Singh vs. ITO (in ITA No. 6500/Mum(A)/2011 dated 14.11.2013) to mean that the assessee, even as accounts are not sacrosanct, cannot assume a stand contrary to his own accounts. Explanation 1, accordingly, could not be interpreted to conclude that there is or could be no remission or cessation of liability unless the same is written off in accounts. The argument that there was no period of limitation in respect of a liability being disputed under the Industrial Disputes Act was also repelled by the hon'ble court in Chipsoft Technology (P.) Ltd. (supra) on the basis of the decision by the apex 11 I.T.A. No.364/Coch/2014 court in The Nedungadi Bank Ltd. vs. K. P. Madhavankutty Air 2000 SC 839, holding that a stale dispute ousts itself from being entertained and adjudicated. As would be seen, the hon'ble court has sought to read the provision consistent with the facts of the case, and not on the basis of a theoretical construct alone, divorced from the facts of the case. Reference was made both by the hon'ble court as well as the tribunal in the afore-referred decisions to the decision in the case of Kesoram Industries & Cotton Mills Ltd. vs. CIT [1992] 196 ITR 845 (Cal.) to the effect that the non-discharge of a liability over a long period of time, coupled with absence of any dispute and/or of legal recourse, would lead to a firm basis to infer remission or cessation of liability. The said decision by the hon'ble court stands followed and adopted by the tribunal, as in ITO vs. Shailesh D. Shah (in and Yusuf R. Tanwar vs. ITO (in I.T. Act No.8408/Mum/2010 dated 28.02.2013). Accordingly, an omission to pay could give rise to the legal inference of cessation of liability. True, an amount may continue to outstand in accounts, so that the assessee is prima facie liable in its respect. However, it is the veracity or the truth of those very accounts, constituting the assessee's evidence, that the assessee is required to establish. The matter would, therefore, have to be decided in light of the conspectus of the facts of each case.
12 I.T.A. No.364/Coch/2014
As per the recent judgment of the Delhi High Court, cited supra, the provisions of sec. 41(1) could be applied rather than sec. 68 of the I.T. Act. Section 68 of the Act is not applicable to the cash credits recorded in the books of account of the assessee in the earlier previous year not relevant to the assessment year under consideration. When the cash credits pertain to the earlier previous year, no addition can be made u/s. 68 of the I.T. Act in this assessment year. In this background, the applicability of sec. 41(1) is to be considered. The Tribunal, being final fact finding authority, and all the necessary material was not brought on record by either party, in our opinion, it is appropriate to remit the issue back to the file of the Assessing officer to find out whether the liability actually ceased to exist and if there is no possibility of revival of the liability, then only the Assessing officer has to apply the provisions of sec. 41(1) of the I.T. Act. With this observation, we are inclined to remit this issue back to the file of the Assessing officer for fresh consideration.
13 I.T.A. No.364/Coch/2014
16. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Pronounced in the open court on 12-12-2014
sd/- sd/-
(N.R.S.GANESAN) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Place: Kochi
Dated: 12th December, 2014
GJ
Copy to:
1. M/s. S.N. Spices, S.L. Puram, Cherthala, Alappuzha-688 001.
2. The Income Tax Officer, Ward-4, Alleppey.
3. The Commissioner of Income-tax(Appeals)-IV, Kochi.
4. The Commissioner of Income-tax, Kottayam.
5. D.R., I.T.A.T., Cochin Bench, Cochin.
6. Guard File.
By Order (ASSISTANT REGISTRAR) I.T.A.T., Cochin