Ita/100139/2015 Of The Principal Commissioner Of Income Tax v. M/S. Ramgopal Minerals

IN THE HIGH COURT OF KARNATAKADHARWAD BENCH DATED THIS THE 20 DAY OF FEBRUARY 2017 R PRESENT THE HON’BLE DR. JUSTICE VINEET KOTHARI AND THE HON’BLE MR. JUSTICE SREENIVAS HARISH KUMAR INCOME TAX APPEAL NO.100139/2015 BETWEEN: 1.THE PRINCIPAL COMMISSIONER OF INCOME TAX,(CENTRAL) C R BUILDING,QUEENS ROAD,BENGALURU.(CENTRAL) C R BUILDING,QUEENS ROAD,BENGALURU. 2.ACIT, CENTRAL CIRCLE -1 BELGAUM. BELGAUM. (BY SRI. Y V RAVIRAJ, ADV.) ... APPELLANTS AND: 1.M/S. RAMGOPAL MINERALS,C/O. M/S. VYSHNAVI MINERALS,COLLEGE ROAD, PEARL PLAZA,2ND FLOOR, HOSPET.PAN NO. AJFR 9407 P. (BY SMT. JINITA CHATTERJEE, ADV.) ... RESPONDENT THIS APPEAL IS FILED UNDER SECTION 260A OF THEINCOME–TAX ACT 1961, PRAYING TO (A) FORMULATE THESUBSTENTIAL QUESTION OF LAW STATED ABOVE. (B) ALLOW THEAPPEAL AND SET ASIE THE ORDERS PASED BY THE INCOME-TAXAPPELLATE TRIBUNAL, PANAJI BENCH, PANAJI, IN ITA NO.399/PNJ/2014, DATED: 09.02.2015 FOR THE ASSESSMENT YEAR2010-2011 AND CONFIRM THE ORDER PASSED BY THECOMMISSIONER OF INCOME TAX APPEALS, BELGAUM. Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 3/14 THIS APPEAL COMING ON FOR ADMISSION THIS DAY,DR.VINEET KOTHARI. J, DELIVERED THE FOLLOWING: J U D G M E N T Mr. Y V Raviraj, Adv. for the appellants.Mrs. Jinita Chatterjee, Adv. for respondent. 1.The Revenue has filed this appeal U/S. 260A ofthe Income Tax Act, 1961 (for Short, ‘the Act’) aggrieved by theorder passed by the Income Tax Appellate Tribunal, wherebyallowing the assessee’s appeal in ITA No. 399 /PNJ/2014 forthe Assessment Year 2010-11. 2.The issue involved in the present case according tothe learned counsel appearing for the Revenue, Mr. Y.V.Raviraj, is that the learned Tribunal has wrongly deleted theaddition made under Section 41(1) of the Act made in thehands of the assessee, on account of the remission/cessationof the liability of the various transporters, who transported theminerals for the assessee during the relevant period. Hesubmitted that the assessee failed to produce thesetransporters/Trade creditors before the Assessing Authority,despite the summons issued to them under Sections 131 and133(6) of the Act and since, the parties were not produced, the Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 4/14 learned Assessing Authority was justified in treating theoutstanding amount lying in credit in their ledger account bythe cessation of the liability of the respondent/assessee andadditions were not accordingly made in the declared Income ofthe Assessee under Section 41(1) of the Act. He relied uponthe findings of the Assessing Authority in the impugnedassessment order dated 26.03.2013. 3.The matter was taken by the assessee before firstappellate authority, which partly allowed and in secondappeal, the learned Tribunal completely set aside the additiongiving the following findings in favour of the assessee at paras8 and 9 of the impugned order, which are quoted below for ourready reference: 4/14 learned Assessing Authority was justified in treating theoutstanding amount lying in credit in their ledger account bythe cessation of the liability of the respondent/assessee andadditions were not accordingly made in the declared Income ofthe Assessee under Section 41(1) of the Act. He relied uponthe findings of the Assessing Authority in the impugnedassessment order dated 26.03.2013. 3.The matter was taken by the assessee before firstappellate authority, which partly allowed and in secondappeal, the learned Tribunal completely set aside the additiongiving the following findings in favour of the assessee at paras8 and 9 of the impugned order, which are quoted below for ourready reference: 8)In respect of the Transport Creditors M/s. VinayakEnterprise, M/s. Aniketh Enterprises, M/s. HanumanTraders, M/s. Veerabhadreshwara Enterprises, wefind from the paper book wherein the assessee hassubmitted the copies of the bank account whereinpayment has been made to transport creditors throughbank. The balance of small amount has been writtenoff. The payment has been made through bank,confirmation letters and income tax returns in thisEnterprise, M/s. Aniketh Enterprises, M/s. HanumanTraders, M/s. Veerabhadreshwara Enterprises, wefind from the paper book wherein the assessee hassubmitted the copies of the bank account whereinpayment has been made to transport creditors throughbank. The balance of small amount has been writtenoff. The payment has been made through bank,confirmation letters and income tax returns in this Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 5/14 regard have not been considered by the Ltd. CIT(A).Learned CIT(A) has disallowed the same on theground that there was variation in signatures,confirmation letters and income-tax returns, thereforeLd. CIT(A) has disallowed the same. We have gonethrough the page Nos. 18 & 19 of the paper bookwhich are the copies of the ledger account, whereinthe amount has been debited by journal entry, whichwas made by RTGS to Vinayak Enterprises, whichhas also given confirmation letter. In respect ofconfirmation letter when the assessee paid thisamount through banking channel, we are of the viewthat this party do exists at a relevant time. TheDepartment has also accepted the written off for thesame party. Therefore, in our opinion, no addition canbe made u/S. 41(1) of the Act. 9)In respect of Aniketh Enterprises, the assessee hasproduced copy of ledger account at page Nos. 20 and21, which reveals that amount has been paid by theassessee through RTGS. The assessee has filed theconfirmation letter of the said party and also filed copyof income tax return. Therefore in our opinion, noaddition can be made in respect of Hanuman Traders& Veerabhadreshwara Enterprises, the assessee hassubmitted that these are the transport creditors andpayment has been made to both the parties through Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 6/14 9)In respect of Aniketh Enterprises, the assessee hasproduced copy of ledger account at page Nos. 20 and21, which reveals that amount has been paid by theassessee through RTGS. The assessee has filed theconfirmation letter of the said party and also filed copyof income tax return. Therefore in our opinion, noaddition can be made in respect of Hanuman Traders& Veerabhadreshwara Enterprises, the assessee hassubmitted that these are the transport creditors andpayment has been made to both the parties through Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 6/14 RTGS. The parties do exist with the Income TaxDepartment and they have also filed the return ofincome. We find that the assessee has incurred theexpenditure towards transportation and transportcontractors received the bills in the month of Marchand payments were made through banking channel in2010 and confirmation letters were obtained fromthem and closing account copy of the same wasproduced at the time of assessment proceedings. TheAssessing Officer has issued notice u/S. 133(6) of theAct, which was returned back by the postalauthorities. We find that the Assessing Officer shouldhave insisted the assessee to produce these parties.The assessee has made the payment through RTGS,necessary information was given to the AssessingOfficer and the Ld. CIT(A), therefore, in our opinion, noaddition can be made. The assessee has also filed theacknowledgment of the copy of the return filed bythose parties. If the transport contractor had left theresidence and they were not traceable, it is provedfrom 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 Actwhich says where an allowance or deduction hasbeen made in the assessment for any year in respectof loss, expenditure or trading liability incurred by theassessee and subsequently during any previous year, Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals persons has obtained whether in cash or in any othermanner whatsoever any amount in respect of suchloss or expenditure or some benefit in respect of suchtrading liability by way of remission or cessationthereof, the amount obtained by such persons or thevalue of benefit accruing to him shall be deemed to beprofits and gains of business or profession andaccordingly chargeable to income as the income of thatprevious year. If any expenditure allowed as thededuction in any of the earlier years and if the amountclaimed is recovered subsequently, it is chargeable totax. The recovery of such expenditure, loss or liabilityis taxable on the precondition that it was allowed as adeduction in earlier years. Sec. 41(1) is a deemingfiction and burden to prove that a particular benefit orreceipt falls within the four corners of the provisions ofSec. 41(1) lies upon the revenue. The AssessingOfficer has to prove with the help of material orevidence that a deduction or allowance has beenallowed to the assessee in earlier years and after suchdeduction or allowance having been allowed, theassessee has obtained any amount or benefit inrespect of the same for which deduction or allowancehas been allowed. The Assessing Officer has to provethat the benefit has been received by the assessee. Inthis case, the assessee has made the payment totransport creditors through banking channel and once Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 8/14 Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 8/14 the assessee discharged his onus, it is on the revenue.In this case, all the relevant details i.e. names of thecreditors and their addresses, PAN was available withthe Assessing Officer and it is duty of the AssessingOfficer to prove that those creditors were fiction.Therefore, in our opinion, action of the AssessingOfficer as well as Ld.CIT(A) is not justified, hence weallow 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 creditorsbefore the Assessing Authority by the assessee. 5.On the other hand, the learned Counsel appearingfor the respondent-assessee, Mrs. Jinita Chatterjee, reliedupon the decision of the DivisionBench of this Court in thecase of The Commissioner of Income Tax and Others V/s.M/s. Alvares & Thomas (ITA No. 658/2015), decided on24.03.2016. She has submitted before us that, the DivisionBench of this Court, in turn relying upon the decision of theDelhi High Court, in the case of The Commissioner of Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 9/14 Income Tax-III V/s. Shri. Vardhman Overseas Ltd. reportedin (2012) 343 ITR 408 (Delhi),has rightly set-aside theadditions made in the hands of the respondent-assessee underSection 41(1) of the Act. As the assessee in the present casehas produced ample documentary evidence in the form ofledger account and the payments made to the transportersthrough RTGS and others banking channel, therefore, theirliability shown at the year end in the Balance Sheet of theassessee cannot be held to be the cessation/remission of thetrading liability. Therefore, Section 41(1) of the Act was notattracted in the present case and the finding of the factsarrived at by the learned Tribunal, based on the relevantevidence cannot be said to be perverse or incorrect in anymanner. Therefore, no substantial question of law arises forconsideration in this appeal. 6.We have heard the learned counsels at length andperused the records. 7.The Division Benchof this Court in the case of The Commissioner of Income Tax and others V/s. M/s. Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 10/14 Alvares and Thomas (supra), considering a similar situation,arrived at the following conclusion, about the applicability ofthe Section 41(1) of the Act in the following manner. 7.As in the above referred order of the Tribunal, therelevant portion of Section 41 is reproduced, wemay not reproduce the same. But, the relevantaspect is that, there are two requirements forinvoking the provision of section 41. The Sine QuaNon is the remission or cessation of the tradingliability and the additional requirement is, somebenefit in respect of such trade liability is taken bythe Assessee. If the aforesaid conditions aresatisfied, then only Section 41(1) could be invokedby the Assessing Officer. Examining of the factsof the present case revealsthat, it is not the case of the Department that, anybenefit in respect of such trading liability was takenby the assessee but, the Revenue contends thatsince the burden was not discharged of existence ofthe liability, it be treated as cessation of the liabilityand therefore, Section 41(1) could be invoked.Further, stand of the Revenue is that, when inrespect of debt in question, confirmation was calledfor, a letter was produced of the creditor with itsaddress but, when the same was verified, the Date of Judgment 20.02.2017 in ITA No.100139/2015Minerals The Prl. Commissioner of Income Tax and another V/s. Ramgopal 11/14 report was that, party could not be traced andtherefore, it was not verifiable. 9. Examining of the factsof the present case revealsthat, it is not the case of the Department that, anybenefit in respect of such trading liability was takenby the assessee but, the Revenue contends thatsince the burden was not discharged of existence ofthe liability, it be treated as cessation of the liabilityand therefore, Section 41(1) could be invoked.Further, stand of the Revenue is that, when inrespect of debt in question, confirmation was calledfor, a letter was produced of the creditor with itsaddress but, when the same was verified, the Date of Judgment 20.02.2017 in ITA No.100139/2015Minerals The Prl. Commissioner of Income Tax and another V/s. Ramgopal 11/14 report was that, party could not be traced andtherefore, it was not verifiable. 9. In our view, even if we accept the contention of theRevenue that the party could not be traced andtherefore debt could not be verified then also, by nostretch of imagination can it be held that it wouldsatisfy the requirement of cessation of liability. Inlegal parlance, merely because the creditor couldnot be traced on the date when the verification wasmade, same is not a ground to conclude that therewas cessation of the liability. Cessation of theliability has to be cessation in law, of the debt to be paid by the assessee to the creditor. Thedebt is recoverable even if the creditor has expired,by the legal heirs of the deceased creditor. Underthe circumstances, in the present case, it canhardly be said that the liability had ceased. If theliability had not ceased or the benefit was nottaken by the assessee in respect of such tradeliability, in our view, the conditions precedent werenot satisfied for invoking Section 41(1) of the Act inthe instant case. 10. The Tribunal has rightly relied upon the decision ofDelhi High Court in the case of Vardhman OverseasLtd., The discussion of the decision of Delhi HighCourt was relevant, for consideration of the facts of Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 12/14 the case in order to find out as to under whatcircumstances it could be said that there iscessation of liability. Further, the decision of DelhiHigh Court is after considering the view taken bythe Apex Court in case of CIT V/s. Sugauli SugarWorks P Ltd., (1999) 236 ITR 518(SC). 8.We are satisfied that the judgment relied upon bythe learned counsel for the respondent-assessee in the presentcase applies to the facts of the present case on all fours. Weare further of the opinion that the burden lies upon theRevenue to establish, before applying Section 41(1) of the Act,to make additions or disallow the deduction under Section41(1) of the Act to establish that the liability of therespondent-assessee towards such creditors has seized in lawor 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 ofthe respondent-assessee that the assessee has produced thedocumentary evidence in the form of ledger accounts andproof of payments made through Bank channel and PANnumbers also. In our opinion that prima facie, ought to have Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 13/14 satisfied the learned Assessing Authority, about the existencesof the transporters and genuineness of the transactionundertaken by the respondent-assessee in the relevant period.The learned Tribunal has found that the summons issued bythe Assessing Authority under Sections 131 and 133(6) of theAct could not be even served upon these transporters, forwhich the explanation given by the assessee was that themining activity having reduced after the particular period,such transporters had left the place in question and thereforethey were not traceable. Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 13/14 satisfied the learned Assessing Authority, about the existencesof the transporters and genuineness of the transactionundertaken by the respondent-assessee in the relevant period.The learned Tribunal has found that the summons issued bythe Assessing Authority under Sections 131 and 133(6) of theAct could not be even served upon these transporters, forwhich the explanation given by the assessee was that themining activity having reduced after the particular period,such transporters had left the place in question and thereforethey were not traceable. 10. In our opinion, burden of the Revenue to summonsuch creditors or transporters for establishing that the liabilityhas ceased could not be shifted upon the respondent-assessee. We do not find any material brought on record bythe Assessing Authority to establish that such transporterscould be actually brought before the Assessing Authority andupon their cross examination, their transactions were found tobe fake or incorrect. On the contrary, the documentaryevidence which was brought on record by the assessee Date of Judgment 20.02.2017 in ITA No.100139/2015 The Prl. Commissioner of Income Tax and another V/s. RamgopalMinerals 14/14 perused the learned Tribunal, who had returned the aforesaidfindings of facts in favour of the respondent-assessee. 11.In our opinion, these findings of the facts appearto be just and proper and correct. We do not see anyperversity in the same so as to give rise to any substantialquestion of law arising in the present case, requiring ourconsideration under Section 260A of the Act. 12.Therefore, respectfully following the viewexpressed by the co-ordinate Bench of this Court in TheCommissioner of Income Tax and others V/s. M/s. Alvaresand Thomas (supra), we do not find any force in the presentappeal of the Revenue and the same is liable to be dismissed. 13.Accordingly, the appeal of the Revenue isdismissed. No orders as to costs. Sd/-JUDGE VB/- Sd/- JUDGE