×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
05-11-2019, S.P.Mani and Mohan, Section 41(1), 41(1)(a), 68, Tribunal Chennai
These cross appeals filed by assessee and Revenue are directed against appellate order dated 14.02.2018 passed by learned Commissioner of Income Tax(Appeals)-3, Coimbatore, (Hereinafter called “the CIT (A)”) in Appeal No. 293/16-17 for assessment year(ay) 2014-15, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 30.12.2016 passed by learned Assessing Officer (hereinafter called “ the AO”) u/s. 143(3) of the Income-tax Act, 1961 (hereinafter called “ the Act”) for ay: 2014-15. Both these appeals were heard together and are disposed off by this common order.
2. The grounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Chennai (hereinafter called “the tribunal”) in ITA No. 1321/Chny/2018 for ay: 2014-15, read as under:-
“01. The order of the Commissioner of Income Tax (Appeals) is against law, facts, and equity.
02. The order of the Commissioner of Income Tax (Appeals) in upholding the additions made on creditors, in respect of the details found at the time of survey to arrive at a conclusion that, the payments has to be made within 7 days as per his calculations and the creditors standing beyond 7 days were to be considered as the liability ceased. As the cessation of liability is the matter of the Assessee's policy and prudence and they are the better judges to take a decision on cessation of Liabilities, the addition made U/s 41(1)(a) on this account needs to be deleted.
03. The Commissioner of Income Tax (Appeals) ought to have appreciated the fact in respect of the all the additions made U/s 41(1) it is relied on the decision of the Honorable Delhi High court in the case of " CIT Vs. Hotline Electronics ltd" (2012) 205 Taxmann 245 (Delhi), where in it is held that unpaid liabilities cannot be added as the Assessee's income under Section 41(1) merely because they remained unpaid for a sufficiently long time and that it is required of the revenue authorities to show that the liability to pay the creditors has ceased or has been remitted by the creditors". In fact, without confirming from the creditors, the cessation of liability will not be possible.
04. The Commissioner of Income Tax (Appeals) ought to have appreciated the fact that a statement given at the time of survey U/s 133A cannot be a basis for making an addition as held by the Honorable Madras High court in the case of "CIT Vs. Kadar Khan son", which was affirmed by the Honorable Supreme Court.
05. The Commissioner of Income Tax (Appeals) ought to have understood that the both Chilling units were put in to commercial use during the course of the year and the disallowance of depreciation relating to one of the unit for want of evidence is not in order and hence the claim of both the units needs to be restored.
06. The Commissioner of Income Tax (Appeals) ought to have understood that the Chilling units were put in to commercial use during the course of the year and without considering the same, stating that the construction of the units were not completed during the year and hence the Interest on Loans taken for the same cannot be claimed and is to be capitalized is in error. The disallowance of interest on Loans relating to these units to the tune of Rs. 60, 82,257/-needs to be deleted.
07. For these and such other reasons that may be adduced at the time of hearing your appellant prays that the assessment may kindly be quashed and justice rendered.”
2.2 The grounds of appeal raised by Revenue in memo of appeal filed with the tribunal in ITA No. 1403/Chny/2018 for ay: 2014-15, read as under:-
“1. On the facts and in the circumstances of the case the learned C1T(A) erred by granting relief of Rs.2.63 crores without appreciating the fact that the addition under section 41(1)(a) was made after properly analysing the milk creditor accounts.
2. On the facts and in the circumstances of the case the learned CIT(A) granted the relief of Rs.2.63 crores on assumption basis and without rejecting or rebutting the findings mentioned in the assessment order.
3. On the facts and in the circumstances of the case the learned CIT(A) erred by deleting the addition made of Rs,29,97,542/- under section 68 without verify as to how in the audited books of accounts assessee gave effect to the deficit cash noticed during the course of survey.
4. The Hon'ble ITAT is requested to cancel the order of the learned CIT(A)-3 Coimbatore and uphold the order of the Assessing office on the above issues.
5. The Hon'ble ITAT is requested leave to add, amend or modify the grounds o appeal, if necessary, in future.”
3. The brief facts of the case are that the assessee is engaged in the business of Milk Dairy. A survey action u/s.133A of the 1961 Act was carried out by Revenue in the premises of assessee on 06.11.2013. During the course of survey operations conducted by Revenue u/s 133A of the 1961 Act, the assessee had declared additional income of Rs.2,05,98,000/- on account of waiver of milk creditors. The assessee in its return of income filed with Revenue, however, declared an additional income of Rs.2 Crores. The case was selected by Revenue for framing of scrutiny assessment u/s 143(3) of the 1961 Act and statutory notices u/s 143(2) and 142(1) of the 1961 Act were issued to the assessee by the AO. The AO during the course of assessment proceedings observed that sundry creditors on account of milk supplies were claimed by assessee to be Rs.13,71,68,433/- as on 31.03.2014, as against opening balance of Rs.10,05,12,485/- at the beginning of the year The AO observed that despite surrender of Rs.2 Crores on account of waiver of milk creditors, there was an increase in the closing balance. During the course of survey operations, it was noticed by Revenue that the assessee was not reporting actual state of its financial affairs. The AO observed that purchase figures were inflated and since these inflated purchases were not paid by the assessee, it led to accumulation into large outstanding under the head ‘sundry creditors’ for milk purchases. The AO observed that despite huge opening balance of sundry creditors for milk purchases to the tune of ` 10,05,12,485/- , the assessee had declared Rs.2 Crores as income from waiver of the milk creditors. On being asked as to how this figure of ` 2 crores is arrived at, the assessee came out with an explanation , as under:
“The waiver of sundry creditors to the extent of Rs.2,00,00,000/- during the year and declared as income. The said creditors list are enclosed herewith. The waiver of creditors are considered only on the basis of transaction with the assesses; for the past period and current year. We cannot waiver all the creditors in this dairy business. Sometimes like seasonal business at that time no. of suppliers are more sometimes (summer season) they are reducing number because milk input may reduce. So it is varying every year. There is no regular contract. Sometimes later date waiver customer may come to supply the milk voluntarily. This is nature prevailing this dairy industry so we cannot predict all the persons do not turn for the supply the milk. So selectively depending on the supplier, the assessee waived their payment. It is totally depends on the customer to customer."
3.2 The AO was not satisfied with the aforesaid generalized reply submitted by assessee and was of the view that assessee could not explain as to how it has arrived at a figure of ` 2 crores for write off despite other creditors which were outstanding for payment for a long time and thus, the AO was of the view that this write off of ` 2 crores towards sundry creditors is not a correct/reasonable amount. The AO observed that the assessee has around 1000 milk center creditors. The AO examined ledger accounts of these milk creditors and observed that in many cases, the sundry creditors outstanding for payment represent opening balance and continues to remain outstanding for payment throughout the year and the same were not written back as waived by creditors, by the assessee The AO observed that total of such creditors are to the tune of ` 32,70,589/- for which list was annexed by the AO along with the assessment order. The AO observed that the assessee has not given proper explanation for non inclusion of these sundry creditors for waiver/declaration of income. The AO observed that these milk suppliers were poor villagers who cannot wait for more than a year to receive their payments and hence AO was of the view that it is difficult to accept version of the assessee and AO was of the view that either the assessee had paid these sundry creditors out of unaccounted funds or else the liability has extinguished which attracts provisions of Section 41(1)(a)