Ita/160/2010 Of Shri Suresh Kumar T Jain v. The Income-Tax Officer

IN THE HIGH COURT OF KARNATAKA AT BENGALURU|ON THE 27 DAY OF NOVEMBER, 2018 BEFORE THE HON'BLE MR. JUSTICE RAVI MALIMATH| AND| THE HON BLE MR. JUSTICE K. NATARAJAN INCOME TAXK APPEAL NO.1L600 OF 2 BEIWEEN: | SHRI SURESH KUMAR T. JAIN.AGED ABOUT 55 YEARS,SON OF SRI TARACHANDSJI,PROP. M/S. NINZA ELECTRONICS, 115/5, LEELA GOPAL COMPLEX,PR LANE, SP ROAD,BENGALURU. APPELLANT| (BY SMT. JINITA CHATTERJEE, ADVOCATE, FORSRI S. PARTHASARATHI, ADVOCATE) |SRI S. PARTHASARATHI, ADVOCATE) | AND: THE INCOME-TAX OFFICER| WARD 2 (1),ROOM NO.59, HMT BUILDING,VI FLOOR, BELLARY ROAD,|BENGALURU. ~., RESPONDENT (BY SRI K.V. ARAVIND, ADVOCATE). THIS INCOME TAX APPEAL [IS FILED UNDERSECTION 260-A OF THE INCOME TAX ACT, 1961,|PRAYING|TO.FORMULATETHE.SUBSTANTIALQUESTIONS OF LAW STATED THEREIN AND ALLOW|THE APPEAL AND SET ASIDE THE ORDER OF THE.INCOME.TAX.APPELLATETRIBUNALIN|TTA.NO.66/7/BANG/2009DATED 6-1L-2ZOLVIDE.ANNEXURE-A,. THIS INCOME TAK APPEAL COMING ON FORHEARING THIS DAY, RAVI MALIMATH, J., DELIVERED|THE FOLLOWING: JUDGMENT The assessee is an individual dealing in telepnoneinstruments, mobile accessories and electronic goods.On 31-3-2006, he filed his return of income for the)assessment year 2005-06 declaring a total income of Rs.6,06,780/-. The said return was processed under.Section 143(1) of the Income Tax Act, 1961, (for short,‘the Act’). On 12-3-200/7, a survey under Section |133-A of tne Act was conducted in the bpusinesspremises. During tne course of survey, the assesseewas asked to produce the books of accounts for theassessment years 2005-06 and 2006-07. He did not produce the same at the time of survey. The books|produced were pertaining only to purchasers and that|too partly. There was no Sales Register, Stock|Register, Cash Book, etc. He stated that the Dooks:are in the Auditor’s Office and would be submitted|later. A physical stock was taken at the time of.survey. In spite of issuing several reminders and.Opportunities, neither the books of accounts nor any|material were produced by the assessee. Notice under|Section 148 of the Act was served on the assessee. In|response to the notice, the assessee filed a letter dated30-8-2007, wherein ne has stated that ne nas already|filed his return of income on 31-3-2006, wnhicn is to beconsidered as a return filed in response to the notice.Tne assessee was neard. ~ 2. During the course of assessment proceedings, |the assessee was asked to produce the details of sundrycreditorswitncompleteadaresses ana confirmation letters from the creditors. He furnished|the list of creditors with addresses in 39 cases and in| letter was filed by the assessee, in spite of several reminders, except in 2 cases. Thereafter,|letters were addressed to the sunary creditors as per)the addresses given by the assessee. In response to |these letters, 23 creditors nave furnished tne details|called for. On considering the same, it is found that|the return of income did not tally with the figures|confirmed by the sundry creditors. The details of |outstanding balances as confirmed by 23. sundrycreditors amountedtORs.24,5/9/-as|againstRs.35,57,868/- shown by the assessee for the same 23.creditors.Thediscrepancy.amountedTO.Rs.35,33,289/-. (Rs.35,57,868 minus Rs.24,5/79/-).—Out of the balance 26 creditors, in 4 cases, the credit|balance were confirmed as nil. In 10 cases, the.assessee did not furnish the addresses. In balance of | 12 creditors, notice were returned unserved on the.grounds of ‘insufficient address’, ‘no such person’, etc. —and the total of sucn amount was worked out to’Rs.29,/75,621/-. In view of such discrepancies, the)assessee was given a show-cause letter to furnish his|explanation as to wny the said discrepancies in the)Sunary creditors balances should not be added back tothe income. In response, a reply was furnisned,whereintneaSSeSSeCenastaken|tnefollowingobjections: 12 creditors, notice were returned unserved on the.grounds of ‘insufficient address’, ‘no such person’, etc. —and the total of sucn amount was worked out to’Rs.29,/75,621/-. In view of such discrepancies, the)assessee was given a show-cause letter to furnish his|explanation as to wny the said discrepancies in the)Sunary creditors balances should not be added back tothe income. In response, a reply was furnisned,whereintneaSSeSSeCenastaken|tnefollowingobjections: adTo qualify for inclusion or addition of anyincome, investments or credit, such|income, investment or credit should|accrue or arise during the period from |1-04-04 to 31-3-27005.income, investments or credit, such|income, investment or credit should|accrue or arise during the period from |1-04-04 to 31-3-27005. b.A/itnougpthe|businessincomeIS|considered Uu/s.28, certain special itemof Income or Investment or credit are|brought to tax under specified section ofthe Act. It is not clear as to Under whicfconsidered Uu/s.28, certain special itemof Income or Investment or credit are|brought to tax under specified section ofthe Act. It is not clear as to Under whicf neadad the impugnead amount would brought to tax.brought to tax. C,The sundry creditors are only trade|creditors” and not °ocasn - creditors”“Trage_ creaitors” represents personswho nave supplied goods and to whom,the assessee has not paid purcnase|consideration at the end of the relevant|assessment years.creditors” and not °ocasn - creditors”“Trage_ creaitors” represents personswho nave supplied goods and to whom,the assessee has not paid purcnase|consideration at the end of the relevant|assessment years. d.If at all the said amount t[s to beassessed it snould be assessed U/S.68 Ofthe I[.T. Act.assessed it snould be assessed U/S.68 Ofthe I[.T. Act. E.By applying tne provision of Sec. 68, theso called “Credit” snould pertain to ‘that|previous year’ /.e. previous year endedon 31-3-2005 and hence any credit|pertaining to any otner ‘previous year’|cannot be charged to tax for the.previous year ended on 31-3-2006, i.e.A.Y.7005-06. so called “Credit” snould pertain to ‘that|previous year’ /.e. previous year endedon 31-3-2005 and hence any credit|pertaining to any otner ‘previous year’|cannot be charged to tax for the.previous year ended on 31-3-2006, i.e.A.Y.7005-06. The assessee nas a/so furnished details|ofSUCN|amounts whichtotalstoofSUCN|amounts whichtotalsto Rs.32,39,713/- in tne said fetter. The|assessee contended further that out ofRs.35,33,289/- proposed by me. foraddition on unexplained credit, a sum ofRs.32,39,713/- does not pertain to tne|previous year ended on 31-3-2005 andprovision of Section 68 does not apply. f.The assesssee a/so submitted thet out oftotalcreditorsamounting Of|Rs.29,75,621/- snown in annexure-II, asum of Rs.17,69,486/- was old balance|brought forward from 31-3-2004 and.does not pertain to the accounting year|ended on 31-3-2005 and therefore, this|amount of Rs.17,69,686/- also cannot|be added for the A.Y. 2005-06. Thus,|the difference as detailed below wes|worked out by the assessee.” 3. With regard to the creditors, wnose addresseswere not furnished, the assessee submitted that,balanceOT totalcreditorsasarrivedat.WaS Rs.32,39,713/- in tne said fetter. The|assessee contended further that out ofRs.35,33,289/- proposed by me. foraddition on unexplained credit, a sum ofRs.32,39,713/- does not pertain to tne|previous year ended on 31-3-2005 andprovision of Section 68 does not apply. f.The assesssee a/so submitted thet out oftotalcreditorsamounting Of|Rs.29,75,621/- snown in annexure-II, asum of Rs.17,69,486/- was old balance|brought forward from 31-3-2004 and.does not pertain to the accounting year|ended on 31-3-2005 and therefore, this|amount of Rs.17,69,686/- also cannot|be added for the A.Y. 2005-06. Thus,|the difference as detailed below wes|worked out by the assessee.” 3. With regard to the creditors, wnose addresseswere not furnished, the assessee submitted that,balanceOT totalcreditorsasarrivedat.WaS Rs.29,/75,621 and reducing the Dalance as pertaining tothe period ended 31-3-2004 of Rs.32,39,713/-. The’difference was Rs.12,06,135/-. It was argued thatsome of tnem have closed tneir business or nave.shifted to other towns. However, the assessee|undertook to produce proper and cogent evidences in|Support of the purcnasers made by those creditors.The assessee requested for the copies of the sworn)statement recorded and the confirmation § letterobtained by the Department from the creditors. The|Same was furnished to him. Thereafter, the assessee|Nas not raised any objections regarding the additions|proposed. TInereafter, the Assessing Officer came to/the conclusion that the amount brought forward|balances of creditors of Rs.50,09,199/- is proven to be|no longer liable and as the trading liability ceased to exist, it was added back to the returned income ascessation of liability and the balance amount of|Rs.14,99,711/- was also proven to be not a genuine and this, too, was added back to the returned income|as unexplained credits. Questioning the same, the)assessee preferred an appeal before the Commissioner|of Income Tax (Appeals), which was dismissed. The}Same was challenged before the Tribunal, which was|also dismissed. Hence, the present appeal. 4. By the order dated 13-6-2011, the appeal was.admitted to consider the following substantial questionof law: IWhetherthefindingOf|theTribunalupnoiding the impugned addition made by|applying the provisions of Section 41(1) and68WNICDNWeETEMadeDy frieraccepting the statements of the creditors|who had not Deen examined and without|giving opportunity for cross-examination|and upholding the application of Section 68|in respect of trade credits outstanding at|the end of the year on_ account. opurchases, wnen the purchases have not| been aisputed and the trading results nave|been|fullyacceptedISPETVETSsSandarbitrary?” 5. Smt. Jinita Chatterjee, the learned counsel|appearing|fortneappellant,contendsthattneprovisions of Sections 41(1) and 68 of the Act could not|nave been invoked by the Revenue. _ It is contended|tnat the list of creditors having been furnisned, thereis |cessation of liability and therefore, the _ findingrecorded by the Assessing Officer and as confirmed by the Tribunal is incorrect. She relies on the judgment of |this Court dated 24-3-2016 passed in Income Tax)Appeal No.658 of 2015 with reference to paragrapn|No.9, wherein it was held that in legal parlance, merelybecause tne creditor could not be traced on tne adatewhen the verification was made, the same is not a.ground to conclude that there was cessation ofliability. Cessation of 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 deceased creditor. —Under the circumstances, in the present case, it can|nardly 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, the|conditions precedent were not satisfied for invoking|Section 41(1) of the Act in tne instant case. creditor. The debt is recoverable even if the creditor|has expired, by the legal heirs of deceased creditor. —Under the circumstances, in the present case, it can|nardly 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, the|conditions precedent were not satisfied for invoking|Section 41(1) of the Act in tne instant case. 6. Tne same is disputed by Sri K.V. Aravind, tne|learned counsel for the respondent. He contends that|the judgment is not applicable to the facts andcircumstances of the case on hand. In the said.judgment, the creditors could not be traced on the datewhen the verification was made. However, in the.instant case, i.e. the creditors have replied and heplaces reliance on paragraph No.5.1 of the order of theAssessing Officer. He pleads that details of theoutstanding balances as confirmed by 23. sundry creditorsamounts|tO|Rs.24,579/-asagainstRs.35,57,868/- shown by the assessee for the verySame 23 creditors. In paragrapn No.5.2, it is indicatedthat out of the balance 26 creditors, in 4 cases, the)credit balance confirmed as nil and in 10 cases, the)assessee has not furnished the addresses of the.creditors and in 12 cases, the notice are returned as)unserved for ‘insufficient address, ‘no sucn person’,|etc. and the total of such amounts worked out to.Rs.29,/5,621/-. Therefore, this is not a case, where|the creditors could not be traced on tne date when tne.verification was made as in the aforesaid judgment|relied upon.Here is a case, where the creditors nave.confirmed the balance and provided the details as'called for. JTherefore, on considering the contentions,|we are of the view tnat the judgment would not come|to the aid of the appellant, as the facts narrated are| different to the facts of the present case. Therefore,|the said judgment would not be applicable to the case|on nana. 8. It Is further contended that there was no|}Opportunity granted to the appellant for crossexamination of the creditors. The appellant's counsel|relies on the judgment of the Hon’ble Supreme Court inthe case of M/S. ANDAMAN TIMBERS INDUSTRIESv. |COMMISSIONER OF CENTRAL EXCISE, KOLKATA-II,|(Civil Appeal No.4228 of 2006), disposed off on |2-9-2015, wherein it was held that even when the|assessee disputed the correctness of the statements|andwantedtOcross-examine, the.AdjudicatingAutnority did not grant the opportunity to the assessee.Therefore, on failure to grant such opportunity, the|impugned orders become untenable. Therefore, by|placing reliance on the said judgment, she pleads that|an opportunity to cross-examine may be granted. 9. The same is disputed by the learned counselfor the respondent. These are not statements made onoath. Tnese are replies given by the creditors.Therefore, the question of enabling the assessee to|cross-examine them is misplaced. He further contends|that there was no request made by the assessee to)cross-examine these persons. 10..The reply furnished by the assessee has)been extracted at paragraph No.7 of the assessment|order therein. Tnere is no request made by the.assessee seeking to cross-examine any of the persons.No material is Drought on record to indicate that such a.request was made. 11.)In the aforesaid judgment of the Hon’ble|Supreme Court, the statements made by the creditors|were disputed. Further, the assessee made a request|to cross-examine tne creditors. Sucn request was not) 9. The same is disputed by the learned counselfor the respondent. These are not statements made onoath. Tnese are replies given by the creditors.Therefore, the question of enabling the assessee to|cross-examine them is misplaced. He further contends|that there was no request made by the assessee to)cross-examine these persons. 10..The reply furnished by the assessee has)been extracted at paragraph No.7 of the assessment|order therein. Tnere is no request made by the.assessee seeking to cross-examine any of the persons.No material is Drought on record to indicate that such a.request was made. 11.)In the aforesaid judgment of the Hon’ble|Supreme Court, the statements made by the creditors|were disputed. Further, the assessee made a request|to cross-examine tne creditors. Sucn request was not) acceded by the Assessing Officer. Therefore, the|Hon’‘ble Supreme Court was of the view that the failureto grant an opportunity to cross-examine the creditors|would render the impugned order as bad in law.However, in the facts of this case, no such request was.made to cross-examine tne creditors. In the absence.of any request being made, the question of granting anOpportunity would not arise for consideration. In fact,the assessee requested for copies of the sworn'statement and the confirmation letters obtained by the|Department from the creditors. All of them werefurnished to him. No objections were raised by him. —Thereafter, the Assessing Officer passed the impugnedorder. 12. Under these circumstances, the plea of the|assessee that accepting the statement of the creditors|without granting an opportunity to the assessee to/cross-examine is incorrect. Therefore, we are of the) view that the Tribunal was justified in upholding the|impugned additions by applying the provisions of Section 41(1) and Section 68 of the Act. Tnat the’statement of the creditors were accepted, aftergranting substantial opportunity to the assessee,|wherein tne assessee has not made any request to.cross-examine the witnesses and therefore, cannot)contend that no opportunity was given to _ crosexamine the creditors. Consequently, the substantial|question of law is answered in favour of the Revenue|and against the assessee. In these circumstances, the appeal is dismissed. — SD/-JUDGE| SD/-|JUDGE kKVK