High Court Of Karnataka
Pr. CIT, (Central), Bengaluru vs. Ramgopal Minerals
Section : 41(1)
Assessment year 2010-2011
Dr. Vineet Kothari And Sreenivas Harish Kumar, JJ.
IT Appeal No.100139 Of 2015
February 20, 2017
JUDGMENT
Dr. Vineet Kothari, J. – The Revenue has filed this appeal U/S. 260A of the Income Tax Act, 1961 (for Short, ‘the Act’) aggrieved by the order passed by the Income Tax Appellate Tribunal, whereby allowing the assessee’s appeal in ITA No. 399/PNJ/2014 for the Assessment Year 2010-11.
2. The issue involved in the present case according to the learned counsel appearing for the Revenue, Mr. Y.V. Raviraj, is that the learned Tribunal has wrongly deleted the addition made under Section 41(1) of the Act made in the hands of the assessee, on account of the remission/cessation of the liability of the various transporters, who transported the minerals for the assessee during the relevant period. He submitted that the assessee failed to produce these transporters/Trade creditors before the Assessing Authority, despite the summons issued to them under Sections 131 and 133(6) of the Act and since, the parties were not produced, the learned Assessing Authority was justified in treating the outstanding amount lying in credit in their ledger account by the cessation of the liability of the respondent/assessee and additions were not accordingly made in the declared Income of the Assessee under Section 41(1) of the Act. He relied upon the findings of the Assessing Authority in the impugned assessment order dated 26.03.2013.
3. The matter was taken by the assessee before first appellate authority, which partly allowed and in second appeal, the learned Tribunal completely set aside the addition giving the following findings in favour of the assessee at paras 8 and 9 of the impugned order, which are quoted below for our ready reference:—
(8) In respect of the Transport Creditors M/s. Vinayak Enterprise, M/s. Aniketh Enterprises, M/s. Hanuman Traders, M/s. Veerabhadreshwara Enterprises, we find from the paper book wherein the assessee has submitted the copies of the bank account wherein payment has been made to transport creditors through bank. The balance of small amount has been written off. The payment has been made through bank, confirmation letters and income tax returns in this regard have not been considered by the Ltd. CIT (A). Learned CIT (A) has disallowed the same on the ground that there was variation in signatures, confirmation letters and income-tax returns, therefore Ld. CIT (A) has disallowed the same. We have gone through the page Nos. 18 & 19 of the paper book which are the copies of the ledger account, wherein the amount has been debited by journal entry, which was made by RTGS to Vinayak Enterprises, which has also given confirmation letter. In respect of confirmation letter when the assessee paid this amount through banking channel, we are of the view that this party do exists at a relevant time. The Department has also accepted the written off for the same party. Therefore, in our opinion, no addition can be made u/S. 41(1) of the Act.
(9) In respect of Aniketh Enterprises, the assessee has produced copy of ledger account at page Nos. 20 and 21, which reveals that amount has been paid by the assessee through RTGS. The assessee has filed the confirmation letter of the said party and also filed copy of income tax return. Therefore in our opinion, no addition can be made in respect of Hanuman Traders & Veerabhadreshwara Enterprises, the assessee has submitted that these are the transport creditors and payment has been made to both the parties through RTGS. The parties do exist with the Income Tax Department and they have also filed the return of income. We find that the assessee has incurred the expenditure towards transportation and transport contractors received the bills in the month of March and payments were made through banking channel in 2010 and confirmation letters were obtained from them and closing account copy of the same was produced at the time of assessment proceedings. The Assessing Officer has issued notice u/S. 133(6) of the Act, which was returned back by the postal authorities. We find that the Assessing Officer should have insisted the assessee to produce these parties. The assessee has made the payment through RTGS, necessary information was given to the Assessing Officer and the Ld. CIT (A), therefore, in our opinion, no addition can be made. The assessee has also filed the acknowledgment of the copy of the return filed by those parties. If the transport contractor had left the residence and they were not traceable, it is proved from the record that they are transport contractors, therefore in our opinion, no addition is required, hence, we delete the same. We find that Sec. 41(1) of the Act which says 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 and subsequently during any previous year, persons 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 persons 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 as the income of that previous year. If any expenditure allowed as the deduction in any of the earlier years and if the amount claimed is recovered subsequently, it is chargeable to tax. The recovery of such expenditure, loss or liability is taxable on the precondition that it was allowed as a deduction in earlier years. Sec. 41(1) is a deeming fiction and burden to prove that a particular benefit or receipt falls within the four corners of the provisions of Sec. 41(1) lies upon the revenue. The Assessing Officer has to prove with the help of material or evidence that a deduction or allowance has been allowed to the assessee in earlier years and after such deduction or allowance having been allowed, the assessee has obtained any amount or benefit in respect of the same for which deduction or allowance has been allowed. The Assessing Officer has to prove that the benefit has been received by the assessee. In this case, the assessee has made the payment to transport creditors through banking channel and once the assessee discharged his onus, it is on the revenue. In this case, all the relevant details i.e. names of the creditors and their addresses, PAN was available with the Assessing Officer and it is duty of the Assessing Officer to prove that those creditors were fiction. Therefore, in our opinion, action of the Assessing Officer as well as Ld. CIT (A) is not justified, hence we allow the appeal.
In the result, the appeal of the assessee is allowed.
4. The learned counsel for the Revenue, Mr. Y.V. Raviraj submits that, these findings of the Tribunal cannot be sustained in view of non-production of the creditors before the Assessing Authority by the assessee.
5. On the other hand, the learned Counsel appearing for the respondent-assessee, Mrs. Jinita Chatterjee, relied upon the decision of the Division Bench of this Court in the case of CIT v. Alvares & Thomas [2016] 239 Taxman 456/69 taxmann.com 257 (Kar.). She has submitted before us that, the Division Bench of this Court, in turn relying upon the decision of the Delhi High Court, in the case of CIT v. Vardhman Overseas Ltd. [2012] 343 ITR 408/204 Taxman 524/[2011] 16 taxmann.com 350, has rightly set-aside the additions made in the hands of the respondent-assessee under Section 41(1) of the Act. As the assessee in the present case has produced ample documentary evidence in the form of ledger account and the payments made to the transporters through RTGS and others banking channel, therefore, their liability shown at the year end in the Balance Sheet of the assessee cannot be held to be the cessation/remission of the trading liability. Therefore, Section 41(1) of the Act was not attracted in the present case and the finding of the facts arrived at by the learned Tribunal, based on the relevant evidence cannot be said to be perverse or incorrect in any manner. Therefore, no substantial question of law arises for consideration in this appeal.
6. We have heard the learned counsels at length and perused the records.
7. The Division Bench of this Court in the case of Alvares & Thomas (supra), considering a similar situation, arrived at the following conclusion, about the applicability of the Section 41(1) of the Act in the following manner:—
“7. As in the above referred order of the Tribunal, the relevant portion of Section 41 is reproduced, we may not reproduce the same. But, the relevant aspect is that, there are two requirements for invoking the provision of section 41. The Sine Qua Non is the remission or cessation of the trading liability and the additional requirement is, some benefit in respect of such trade liability is taken by the Assessee. If the aforesaid conditions are satisfied, then only Section 41(1) could be invoked by the Assessing Officer.
8. Examining of the facts of the present case reveals that, it is not the case of the Department that, any benefit in respect of such trading liability was taken by the assessee but, the Revenue contends that since the burden was not discharged of existence of the liability, it be treated as cessation of the liability and therefore, Section 41(1) could be invoked. Further, stand of the Revenue is that, when in respect of debt in question, confirmation was called for, a letter was produced of the creditor with its address but, when the same was verified, the report was that, party could not be traced and therefore, it was not verifiable.
9. In our view, even if we accept the contention of the Revenue that the party could not be traced and therefore debt could not be verified then also, by no stretch of imagination can it be held that it would satisfy the requirement of cessation of liability. In legal parlance, merely because the creditor could not be traced on the date when the verification was made, same is not a ground to conclude that there was cessation of the liability. Cessation of the liability has to be cessation in law, of the debt to be paid by the assessee to the creditor. The debt is recoverable even if the creditor has expired, by the legal heirs of the deceased creditor. Under the circumstances, in the present case, it can hardly be said that the liability had ceased. If the liability had not ceased or the benefit was not taken by the assessee in respect of such trade liability, in our view, the conditions precedent were not satisfied for invoking Section 41(1) of the Act in the instant case.
10. The Tribunal has rightly relied upon the decision of Delhi High Court in the case of Vardhman Overseas Ltd., The discussion of the decision of Delhi High Court was relevant, for consideration of the facts of the case in order to find out as to under what circumstances it could be said that there is cessation of liability. Further, the decision of Delhi High Court is after considering the view taken by the Apex Court in case of CIT v. Sugauli Sugar Works (P.) Ltd., (1999) 236 ITR 518″.
8. We are satisfied that the judgment relied upon by the learned counsel for the respondent-assessee in the present case applies to the facts of the present case on all fours. We are further of the opinion that the burden lies upon the Revenue to establish, before applying Section 41(1) of the Act, to make additions or disallow the deduction under Section 41(1) of the Act to establish that the liability of the respondent-assessee towards such creditors has seized in law or so has been remitted by the creditors finally.
9. In the present case, we find that the Tribunal has clearly recorded the evidence and findings of facts in favour of the respondent-assessee that the assessee has produced the documentary evidence in the form of ledger accounts and proof of payments made through Bank channel and PAN numbers also. In our opinion that prima facie, ought to have satisfied the learned Assessing Authority, about the existences of the transporters and genuineness of the transaction undertaken by the respondent-assessee in the relevant period. The learned Tribunal has found that the summons issued by the Assessing Authority under Sections 131 and 133(6) of the Act could not be even served upon these transporters, for which the explanation given by the assessee was that the mining activity having reduced after the particular period, such transporters had left the place in question and therefore they were not traceable.
10. In our opinion, burden of the Revenue to summon such creditors or transporters for establishing that the liability has ceased could not be shifted upon the respondent- assessee. We do not find any material brought on record by the Assessing Authority to establish that such transporters could be actually brought before the Assessing Authority and upon their cross examination, their transactions were found to be fake or incorrect. On the contrary, the documentary evidence which was brought on record by the assessee perused the learned Tribunal, who had returned the aforesaid findings of facts in favour of the respondent-assessee.
11. In our opinion, these findings of the facts appear to be just and proper and correct. We do not see any perversity in the same so as to give rise to any substantial question of law arising in the present case, requiring our consideration under Section 260A of the Act.
12. Therefore, respectfully following the view expressed by the co-ordinate Bench of this Court in Alvares & Thomas (supra), we do not find any force in the present appeal of the Revenue and the same is liable to be dismissed.
13. Accordingly, the appeal of the Revenue is dismissed. No orders as to costs.
[Citation : 394 ITR 696]
