Ita/401/2006 Of (O&M) Adarsh Sood v. Commissioner Of Income Tax

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.401 of 2006 (O&M)Date of decision:08.05.2014 Mrs. Adarsh Sood ....-- Appe Vs, The Commissioner of Income Tax, Faridabad ..... Respond CORAM: HON’?BLE MR. JUSTICEK AJAY KUMAR MITTHON BLE MR. JUSTICE JASPAL SINGH Present:Mr.Sanjay Bansal, Sr. Advocate withMs. Rajni Paul, Advocate for the appellant. Mr. Teyinder K.Joshi, Advocate for the respondent. Ajay Kumar Mittal,J, inThis appeal been preferred by the revenue under Section 260Aof the Income Tax Act, 1961 (in short, “the Act’) against the order dated24.2.2006, Annexure P-I passed by the Income Tax Appellate Tribunal,“SMC”, Delhi (in short, “the Tribunal”), proposing to raise followingsubstantial questions of law for determination of this Court:- “1) Whether the Tribunal has acted within its jurisdiction inholding that the amount aggregating to |“a1,03,648/- wasassessable as business income of the assessee for theassessment year 1993-94 that too by making out a new case infavour of the Department/revenue? 11) Whether the amount of |“a1,03,648/- representing theadvance money found credited in the books of accounts of theassessee was liable to be taxed as ‘income from business’ underthe Income Tax Act, 1961 during the assessment year 1993-94even when the provisions of section 41(1) or section 68 werenot attracted to the case of the assessee-appellant? li1) Whether on the facts and in the circumstances of the case,the Tribunal was legally correct 1n arriving at the conclusionthat the amount of LT1,03,648/- was assessable as income of theassessee under the head ‘income from business’ during theassessment year 1993-94? 1v) Whether the amount of<a1,03,648/- was chargeable to taxas business income in the assessment year 1993-94 by virtue ofSection 41(1) of the Act even when the Department/Revenuefailed to bring material on record to show that the lability ofthe assessee appellant had ceased or remitted during theassessment year 1993-94 and therefore, the amount in questionwas liable to be taxed as business income during the saidassessment year? v) Whether in the absence of any finding with regard to theyear 1n which the liability had ceased to exist or having beenremitted, even when the transaction pertained to the financialyear 1986-87, was the Tribunal right in law in concluding thatthe amount oTTL1,03,648/- was still assessable as income of theassessee under the head ‘income from business’ during theassessment year 1993-94? v1) Whether the Tribunal misdirected itself in law as well as onfacts in wrongly applying the decision rendered by the Hon’bleSupreme Court in the case of —Commissioner ofIncome Tax y.TV.Sundaram [yengar and Sons Limited(1996) 222 ITR 344(SC)? v) Whether in the absence of any finding with regard to theyear 1n which the liability had ceased to exist or having beenremitted, even when the transaction pertained to the financialyear 1986-87, was the Tribunal right in law in concluding thatthe amount oTTL1,03,648/- was still assessable as income of theassessee under the head ‘income from business’ during theassessment year 1993-94? v1) Whether the Tribunal misdirected itself in law as well as onfacts in wrongly applying the decision rendered by the Hon’bleSupreme Court in the case of —Commissioner ofIncome Tax y.TV.Sundaram [yengar and Sons Limited(1996) 222 ITR 344(SC)? ).Briefly, the facts necessary tor adjudication of the controversyinvolved, as available on record, may be noticed. Return declaring totalincome of =a2,97,879/- was filed by the assessee on 31.12.1993. Theassessment under Section 143(3) of the Act was made on 14.3.1996 at anincome for=a4,49,490/-. Against the assessment order, the assessee went inappeal before the Commissioner of Income Tax (Appeals) [CIT(A)] whodismissed the same. The assessee filed further appeal before the Tribunaland vide order dated 19.8.2002, the Tribunal set aside the issue regardinghabilities claimed towards M/s Aman Sales Pvt. Limited (a60,000/-), M/sASK Steel (-13,650/-), M/s Technological Corporation (an29,998/-) andM/s Guest Keen Williams Limited (a13,731/-) and remitted the same to thefile of the Assessing Officer to decide as per law. In compliance to thedirections of the Tribunal, notices under Sections 143(2) and 142(1) of theAct were issued requiring the assessee to file necessary evidence 1n supportot the claim that these liabilities were allowable. The assessee vide letterdated 16.2.2005 submitted that all the details including copy of account ofthe creditors had already been submitted during the original assessmentproceedings. It was further submitted that balances in the names of theseparties were appearing since 1984 to 1987 and since the above liabilitieswere quite old and the addition made during the assessment year 1993-94 onthe ground that liabilities had ceased to exist during the assessment year1993-94 was not correct and there was no material/evidence to show thatthe liabilities ceased to exist during the year 1993-94, no addition on thisaccount could be made. After considering the reply submitted by theassessee and the evidence on record, the Assessing Officer passed theassessment order dated 16.2.2005, Annexure P.3, making taxable income at zy4,49,492/-. The appeal filed by the assessee was also dismissed by the CIT(A) vide order dated 9.9.2005, Annexure P.2. Still not satisfied, theappellant filed appeal before the Tribunal. Vide order dated 24.2.2006,Annexure P.1, the Tribunal dismissed the appeal holding that the aforesaidamounts aggregating to=a1,03,648/- were assessable as income of theassessee under the head income from business and not as unexplainedcredits under Section 68 of the Act. Hence the present appeal by theaSsessee. 3]Learned counsel for the appellant submitted that neither theprovisions of Section 68 of the Act were attracted nor provisions of section41(1) of the Act were applicable. It was urged that it was under bonafidebelief that three entries in the books of account of the assessee amounting toL1,03,648/- which had been treated to be income by the Assessing Officerwere not income of the assessee. It was also argued that the judgment of theApex Court 1n IV. Sundaram Iyengar and Sons Limited, (1996) 222 ITR344 was not applicable and was distinguishable as 1n that case, the assesseehad carried the amount to the profit and loss account and in such asituation, the amount was treated to be income of the assessee. 4 On the other hand, learned counsel for the respondent-revenuesupported the order passed by the Tribunal. 45 The primary issue that arises for consideration in this appeal 1swhether the amount ofv1,03,648/- representing the advance money foundcredited in the books of account of the assessee was assessable as income ofthe appellant, 4 On the other hand, learned counsel for the respondent-revenuesupported the order passed by the Tribunal. 45 The primary issue that arises for consideration in this appeal 1swhether the amount ofv1,03,648/- representing the advance money foundcredited in the books of account of the assessee was assessable as income ofthe appellant, 6.After hearing learned counsel for the parties and perusing the record, we do not find any merit in the appeal. TdThe Tribunal vide order dated 19.8.2002 when the appeal wasfiled at the instance of the assessee in the first round of litigation hadremanded the case to the Assessing Officer and held that the provisions ofsection 41(1) of the Act were not applicable. The revenue had neverchallenged the said finding recorded by the Tribunal. The Tribunal whiledeciding the appeal had concluded that the income of the assessee could notbe brought to tax by application of section 68 of the Act. However, theTribunal recorded as under:- "8. | have heard the parties and perused the material on record.M/s Aman Sales (P) Limited and M/s ASK Steel Limited havedenied to have any amount payable to them by the assessee.The credit in the account of the third party, namelyTechnological Corporation, was not fund genuine. No materialhad been adduced on record to show that these findingsreached by learned CII(A) are perverse on facts. The firstamount of “a60,000/- from Aman Sales (P) Limited wasreceived for supply of goods in the year 1987. The other twoamounts at credit in the account of M/s ASK Steel Limited andM/s Technological Corporation were also received 1n the earlieryears. All these credits are raised for the trading activity carriedby the appellant. In other words, the moneys had arisen out ofordinary trading transactions. After the creditors denied of anyclaim over these moneys and in the case of the third party, thecredit being non genuine, it can be held that these moneys didnot remain money of its customers and suppliers respectivelysince the liability to pay back ceased to exist. These amountsthereafter had become moneys of the appellant and character ofreceipts too changed to the income of the appellant, eventhough the same could not be brought to tax by application of section 68 of the Act. The settled principle is that 1f an amountis received in the course of trading transaction, even though itis not taxable in the year of receipt as being of revenuecharacter, the amount changes its character, when the amountbecomes the assessee’s own money because of limitation or byany other statutory or contractual right. When such a thinghappens, the commonsense demands that the amount should betreated as income of the assessee. A useful reference to thisprinciple may be had to the judgment in the case of|Morley v.Tattersall(1939) 7 ITR 316 (CA). This principle has also beenexplained in the judgment in the case ofCIT v. TV.SundaramIyengar and Sons Limited, 222 ITR 344 (SC) In the overallconspectus of the case, it has to be held that the aforesaidamount aggregating to <a1,03,648/- was assessable as incomeoft the assessee under the head ‘income from business’ and noas unexplained credits under section 68 of the Act. I, thereforeuphold the action of learned CIT(A) to bring to tax all thesecredits.’ |A perusal of the aforesaid order and the facts would show thatthe entries which had been shown in the books of account of the assesseewere not treated to be income under Sections 41(1) or 68 of the Act. TheTribunal had applied the principles enunciated by the Apex Court inLV.Sundaram Iyengar and Sons*s case (supra) where the amount whichwas initially of capital nature but had changed its character to be of revenuenature, 1t was treated to be taxable income of the assessee. Thus, the amountof |1,03,648/- found credited in the books of account of the assessee, thehability to pay back the same had ceased to exist and, therefore, theTribunal had rightly treated it to be assessee's taxable income. It may benoticed that the submission of learned counsel for the appellant that the |A perusal of the aforesaid order and the facts would show thatthe entries which had been shown in the books of account of the assesseewere not treated to be income under Sections 41(1) or 68 of the Act. TheTribunal had applied the principles enunciated by the Apex Court inLV.Sundaram Iyengar and Sons*s case (supra) where the amount whichwas initially of capital nature but had changed its character to be of revenuenature, 1t was treated to be taxable income of the assessee. Thus, the amountof |1,03,648/- found credited in the books of account of the assessee, thehability to pay back the same had ceased to exist and, therefore, theTribunal had rightly treated it to be assessee's taxable income. It may benoticed that the submission of learned counsel for the appellant that the non-declaration of|LC1,03,648/- as the income of the assessee was due tobonatide belief that it was not exigible to tax, appears to be plausible. Q In view of the above, we do not find any merit 1n the appeal.The substantial questions of law are answered accordingly. The appealstands dismissed. (Ajay Kumar Mittal)Judge May 08, 2014<;%5 (Jaspal Singh)Judge|