Om Parkash v. Commissioner Of Income Tax-1 Aayakar Bhawan, Jalandhar

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.338 of 2019 (O&M)Date of decision : 30.03.2022 Om Parkash Versus ....Appellant Commissioner of Income Tax-1 Aayakar Bhawan, Jalandhar ...Respondent CORAM:HON'BLE MR. JUSTICE TEJINDER SINGH DHINDSAHON'BLE MR. JUSTICE PANKAJ JAIN Present :Mr. S.K. Mukhi, Advocate for the appellant. PANKAJ JAIN, J. Assessee is in appeal challenging the order dated 31[st ]ofOctober, 2018, passed by Income Tax Appellate Tribunal, Amritsar Bench,Amritsar (SMC) in ITA No.756/ASR/2017 pertaining to the AssessmentYear 2014-2015. 2.Assessee's appeal against the order of the Commissioner ofIncome Tax (Appeals) whereby addition of Rs.4,60,581/- made by theAssessing Officer under Section 41(1) of the Income Tax Act, 1961 (forshort, 'the Act') was upheld, has been dismissed. 3.Assessee filed return declaring income of Rs.3,93,610/- on 2[nd] September, 2014 for the relevant year. As per Profit & Loss accountfurnished by the assessee during the assessment proceedings total sale ofRs.87,81,060/- was declared showing gross profit of Rs.12,03,004/- andNet Profit of Rs.3,53,950/-. During the course of assessment proceedings, vide questionnaire dated 13[th] June, 2016 the assessee was asked to furnishdetails of opening and closing stock (quantitative and in value) and producethe stock register, if maintained. The assessee could not furnish thequantitative details of the opening and closing stock and neither producedany stock register. It was further noticed that the GP rate for the yearsending 31[st] March, 2012, 31[st] March, 2013 and 31[st] March, 2014 wasconstant i.e. 13.70% and NP rate was shown at 4.36%, 4.03% and 4.03%respectively for these years. In view of above, the books of accounts wererejected under Section 145(3) of the Act. The Assessee vide letter dated16[th] November, 2016 filed through the Ld. Counsel, submitted that theassessment be completed by calculating NP rate of 8% of gross turnoversince the turnover of the firm is below Rs.1.00 Crore as provided u/s 44ADof the Act. Net profit rate of 8% was accordingly applied on the grossreceipts of Rs.87,81,060/- and net profit of Rs.7,02,485/- was calculated.The assessee had declared net profit of Rs.3,53,950/-. Addition ofRs.2,48,535/- (702485-353950) was made to the total income of theassessee. 4.During the course of assessment proceedings, the assessee wasasked to furnish confirmed copies of account of sundry creditors namely (i)M/s Bansal Iron Traders, Tanda Road Jalandhar (ii) Sanjeev Tweezers Amit,143 Basti Sheikh Near Post Office Jalandhar (iii) M/s Satish SurgicalWorks (Soniya) Basti Seikh. Information u/s 133(6) was also called from these parties. The letters addressed to M/s Satish Surgical Works andSanjeev Tweezers were received back undelivered with the postal remarks'no such' person at this address. No reply was received from M/s BansalIron Traders, Jalandhar. As per the copies of account furnished by theassessee, there were following closing balances in the account of theseparties : (i) Sanjeev Tweezer, Jalandhar01.04.2013 Opening balance B/F2,91,722.00 Cr.01.04.2013 Opening balance B/F2,91,722.00 Cr.(ii)Satish Surgincal Works01.04.2013 Opening balance B/F1,68,859,00 Cr.Total4,60,581.00 Cr.01.04.2013 Opening balance B/F1,68,859,00 Cr.Total4,60,581.00 Cr. 5.In the absence of any confirmation from the above parties, itwas held that the trading liability amounting to Rs.4,60,581/- had ceased toexist as per provisions of Section 41(1) of the Income Tax Act, 1961 andaddition of Rs.4,60,581/- was made to the total income of the assessee apartfrom other additions. (i) Sanjeev Tweezer, Jalandhar01.04.2013 Opening balance B/F2,91,722.00 Cr.01.04.2013 Opening balance B/F2,91,722.00 Cr.(ii)Satish Surgincal Works01.04.2013 Opening balance B/F1,68,859,00 Cr.Total4,60,581.00 Cr.01.04.2013 Opening balance B/F1,68,859,00 Cr.Total4,60,581.00 Cr. 5.In the absence of any confirmation from the above parties, itwas held that the trading liability amounting to Rs.4,60,581/- had ceased toexist as per provisions of Section 41(1) of the Income Tax Act, 1961 andaddition of Rs.4,60,581/- was made to the total income of the assessee apartfrom other additions. 6.The assessee preferred an appeal before the CIT (Appeals). Thesame was partly allowed. Addition of aforesaid amount of Rs.4,60,581/-was upheld and the rest of the addition was ordered to be deleted.Aggrieved of the same, the appellant preferred an appeal before theTribunal which has been dismissed vide impugned order holding that - “To conclude, all that stands clarified per this order is that abenefit arising on account of remission or cessation of atrading liability, attracting section 41(1)(a), need not necessarily be reflected in the assessee's account; it beingotherwise trite law that the accounting entries are notconclusive or determinative of the matter and are subject toverification and/or being proved. In the facts of the instantcase, the assessee's accounts are admittedly not reliable, sothat they cannot even otherwise be regarded as representing atrue and fair view of its affairs, i.e., generally. Speaking inthe context of the impugned liabilities, the facts andcircumstances stand examined to find the assessee's claim ofbeing liable qua the impugned sums being wholly unproved, ifnot disproved (refer paras 3.3 & 3.4 of this order). It is thesubstance of the transaction that is relevant. The same, apartfrom representing settled law, stands also explained in MotilalAmbaidas v. CIT [1977] 108 ITR 136 (Guj) in the context of asec. 41(1) addition, wherein no entries in respect of sale-taxcollected (from customers) and paid to the Government weremade by the assessee in his books of account, contending thattherefore no deduction qua sales-tax paid had been claimedby him for section 41(1) to apply on the refund of the sales-taxfrom the Government. The contention was not accepted bythe Hon'ble Court, further explaining that the provision is amachinery provision. In fact, as explained in CIT v. BalabuxBirla & Co. [1986] 157 ITR 759 (P&H), the method ofaccounting, cash or mercantile, adopted by the assessee isalso irrelevant as far as section 41(1) is concerned, so that assoon as the assessee is found to have benefited from theremission or cessation of a trading liability, allowed in anearlier year, the provision would get attracted in the facts andcircumstances of the case. The said condition, in view of theforegoing, stands satisfied, so that in my view section 41(1)(a)stands rightly invoked by the Revenue in the instant case quathe impugned liabilities.” 7.Assailing the aforesaid finding, counsel for the appellant statesthat following substantial questions of law arise in the present appeal :- “A)“Whether the Income Tax Appellate Tribunal and theauthorities below are justified in making addition of Rs4,60,581/- u/s 41(1) of Income Tax Act, 1961 due to non-confirmation of credit by the creditors which is against thefacts and circumstances, legal provisions, judicialpronouncements and evidences on record ?” B)“That without prejudice to above, the appellantdisputes the findings of ITAT on the above said issue beingperverse.” 8.We have heard counsel for the appellant and have carefullygone through the record of the case. 7.Assailing the aforesaid finding, counsel for the appellant statesthat following substantial questions of law arise in the present appeal :- “A)“Whether the Income Tax Appellate Tribunal and theauthorities below are justified in making addition of Rs4,60,581/- u/s 41(1) of Income Tax Act, 1961 due to non-confirmation of credit by the creditors which is against thefacts and circumstances, legal provisions, judicialpronouncements and evidences on record ?” B)“That without prejudice to above, the appellantdisputes the findings of ITAT on the above said issue beingperverse.” 8.We have heard counsel for the appellant and have carefullygone through the record of the case. 9.It goes uncontroverted that the appellant has not been able tolead any evidence to prove the existence of liability. The creditors couldnot verify the liability of the appellant as projected by him. The existenceof liability is purely a matter of fact. Proposition of law is well settled thatwhere a party is expected to be in possession of evidence but fails toproduce the same, an adverse inference has to be drawn. Reference can bemade to the law laid down in case of Commissioner of Income Tax,Madras vs. R. Venkata Swamy Naidu (1956) 29 ITR 529 (SC), whereinApex Court held that - “10. The assessee was solely responsible for the paucity ofthese materials inasmuch as it did not furnish any materials to the Income-tax Officer in spite of the latter having given it anadjournment for the purpose. Counsel for the assessee, as anultimate resort, appealed to us that we should send back thecase to the High Court for calling a further statement of casefrom the Income-tax Appellate Tribunal but we declined toentertain the application at that late stage, the assesseehaving not availed itself of the opportunity given by theIncome-tax Officer to it in the earlier stages of the enquiryand having rested merely on the position in law as emergingfrom the judgment of Roberts, C.J. in Commissioner ofIncome-tax, Burma v. Kokine Dairy, Rangoon.” Moreover, questions framed sought to be projected assubstantial question of law, are pure questions of fact. 10.In view of the aforesaid discussion, we find no substantialquestion of law arises in the present appeal. The same is thus dismissed. (TEJINDER SINGH DHINDSA)JUDGE (PANKAJ JAIN) JUDGE March 30, 2022 Dpr