Pr. Commissioner Of Income Tax Delhi-1 v. Arvind Kumar Arora

$~8 *IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 241/2022 PR. COMMISSIONER OF INCOME TAX DELHI-1 ..... AppellantThrough:Mr.Zoheb Hossain, Sr.StandingCounsel for Revenue with Mr. VipulAgrawal & Mr. Parth Semwal, Jr.Standing Counsels for Revenue . versus ARVIND KUMAR ARORA ..... Respondent Through:Mr. Ved Kumar Jain & Mr. NishchayKantoor, Advocates. % Date of Decision: 01[st]September, 2022 CORAM: HON'BLE MR. JUSTICE MANMOHANHON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N T MANMEET PRITAM SINGH ARORA, J (ORAL): 1.Present appeal has been filed by Revenue challenging the order dated16[th]July, 2021, in ITA No. 1850/Del/2017, with respect to the AssessmentYear 2013-14 (‘AY’) whereby the appeal of the Revenue has been dismissedand in light of the said dismissal, the cross objections of the Assessee havealso been dismissed. The Assessee is an individual and proprietor of a firmnamed M/s Aroma Aromatics. ITA 241/2022 2.Learned counsel for the appellant states that the ITAT has erred indeleting the addition of Rs. 6,44,29,650/- made by the Assessing Officer(‘AO’) under Section 41(1) of the Income Tax Act, 1961 (‘the Act’). Hestates that the AO had made the said addition after relying upon the orderdated 29[th]July, 2010 passed by Commissioner, Central Excise & Customs,Meerut-II wherein the said Commissioner had held that purchases made bythe Assessee's firm from a sister concern M/s Ruchi Infotek Systems, werenon-genuine, bogus and there was no real production or movement of goods.The AO, further, took note that the said trade credit liability of M/s RuchiInfotek Systems appearing in the books of the Assessee's firm had beenconverted into a loan liability and was now shown as an unsecured loanfrom Mr. Suresh Chand Arora, proprietor of M/s Ruchi Infotek Systems.The AO concluded in the aforesaid facts and circumstances that byconverting the trading liability into an unsecured loan, the said liability hadceased to exist and she, therefore, added the said unsecured loan to the totalincome of the Assessee under Section 41(1) of the Act. 3.The Assessee filed an appeal against the order of the AO before theCommissioner of Income Tax (Appeals) [‘CIT(A)’] which allowed theappeal and deleted the said addition of the AO after returning the findingthat the books of accounts of the Assessee have not been rejected by the AO.The CIT(A) observed that the Assessee had filed details of purchases vis-a-vis sales, which figures of sales and purchase were not doubted by the AO.With respect to the order of the Commissioner, Central Excise & Customs,Meerut-II which was relied upon by the AO, the CIT(A) noted that the saidorder of the Commissioner had been stayed by Customs Excise and ServiceTax Appellate Tribunal (‘CESTAT’) and the said proceedings were pending. The CIT(A) also noted that the relevant documents pertaining to M/s RuchiInfotek Systems which duly evidenced its transactions with the Assesseeduly produced before the AO and a perusal of the documents evidence thatthe Assessee had been transacting with M/s Ruchi Infotek Systems since AY2006-07 and the parties were maintaining the running account. Thesummary of the yearly transactions is enlisted in the order. The CIT(A)noted that the amount payable by the Assessee’s firm to M/s Ruchi InfotekSystems was converted as a loan and this loan was admittedly repaid in thesubsequent Financial Years (FYs) in the following manner:- The CIT(A) noted that in this manner the amount payable to M/sRuchi Infotek Systems was reduced to nil. The CIT(A) also noted that the relevant documents pertaining to M/s RuchiInfotek Systems which duly evidenced its transactions with the Assesseeduly produced before the AO and a perusal of the documents evidence thatthe Assessee had been transacting with M/s Ruchi Infotek Systems since AY2006-07 and the parties were maintaining the running account. Thesummary of the yearly transactions is enlisted in the order. The CIT(A)noted that the amount payable by the Assessee’s firm to M/s Ruchi InfotekSystems was converted as a loan and this loan was admittedly repaid in thesubsequent Financial Years (FYs) in the following manner:- The CIT(A) noted that in this manner the amount payable to M/sRuchi Infotek Systems was reduced to nil. 4.The CIT(A) also noted that proprietary business carried on in thename of M/s Arora Aromatics by the Assessee was taken over by a companyM/s Arora Aromatics Private Limited which was incorporated on 01[st]April,2013, along with all the assets and liabilities of the proprietorship firm. Asper the agreement between the firm and the newly incorporated company thetrade liability of M/s Ruchi Infotek Systems was treated as a loan and thisaction of the party cannot be treated as a concession. After appreciating thesaid facts, the CIT(A) deleted the aforesaid addition and concluded that the liability shown by the Assessee was neither bogus nor was it remitted andhe, therefore, concluded that applying the provision of Section 41(1) of theAct was not justified. 5.The ITAT vide impugned order dismissed the appeal of the Revenueand held as follows: “7. Now coming to the observations of the learnedAssessing Officer that the assessee had converted the tradingcredit liability in the name of M/s Ruchi Infotech Systems intothe loan liability, and such liability also seized to exist, it couldbe seen that the outstanding liability existing as on 31/3/2013was paid subsequently as per the books of accounts of theassessee and the assessee demonstrated with reference to pageNos 329 2/3/1957 of the paperbook. Insofar as these entries areconcerned after verification of the account books, Ld. CIT(A)returned a factual finding that the accounts were not rejected bythe learned Assessing Officer nor any defect in such books wasfound and therefore, the details of purchase vis-à-vis salesproduced by the assessee which were not doubted by thelearned Assessing Officer, establish the case of the assessee.This finding of fact of the Ld. CIT(A) is not disputed by theRevenue. It, therefore, goes to establish that such liability aswas existing as on 31/3/2013 and was repaid subsequentlybetween 1/4/2013 and 31/3/2017, and such fact is wellevidenced by the books of accounts.” The ITAT held that the provisions of Section 41(1) of the Act are notapplicable to the facts of the case and in this regard relied upon the judgmentof this Court in CIT Vs Shri Vardhman Overseas reported in [2012] 343ITR 408 (Del). 6.Learned Senior Standing Counsel for the appellant has contended thatthe ITAT has erred in not considering that the credit balance standing in thebooks of the Assessee’s firm i.e., M/s Arora Aromatics to the account of M/sRuchiInfotekSystemswasabogustransactionasheldbythe ITA 241/2022 Commissioner, Central Excise & Customs, Meerut-II and it was this bogustransaction which was transferred to the loan account in AY 2013-14. Hecontended that this loan amount standing in the books of the Assessee as anunsecured loan from Mr. Suresh Chand Arora the proprietor of M/s RuchiInfotek Systems was, therefore, not genuine and was rightly added to theincome of the Assessee. 6.Learned Senior Standing Counsel for the appellant has contended thatthe ITAT has erred in not considering that the credit balance standing in thebooks of the Assessee’s firm i.e., M/s Arora Aromatics to the account of M/sRuchiInfotekSystemswasabogustransactionasheldbythe ITA 241/2022 Commissioner, Central Excise & Customs, Meerut-II and it was this bogustransaction which was transferred to the loan account in AY 2013-14. Hecontended that this loan amount standing in the books of the Assessee as anunsecured loan from Mr. Suresh Chand Arora the proprietor of M/s RuchiInfotek Systems was, therefore, not genuine and was rightly added to theincome of the Assessee. 7.Learned counsel for the respondent/Assessee who appears on advancenotice has submitted that the contention of the Revenue is incorrect and thereliance placed by Revenue on the order of the Commissioner, CentralExcise & Customs, Meerut-II, is also misplaced since the said order of theCommissioner has since been set aside by CESTAT vide its order dated 21[st]February, 2019. He stated that the said fact is duly noted by the ITAT in theimpugned order and, therefore, the ITAT rightly concluded that thetransactions between the Assessee and M/s Ruchi Infotek Systems weregenuine and did not merit any further enquiry. 8.Learned counsel for the appellant did not contest the aforesaidsubmissions of the respondent. 9.We have heard the learned counsel for the parties. In view of the factthat the entire basis of the AO for doubting the balance of Rs. 6,44,29,650/-was the order of the Commissioner, Central Excise & Customs, Meerut-II,and since the very said order has been set aside by the CESTAT and hasbecome final, there can be no doubt that the finding of the AO that thepurchases were bogus has no legs to stand on. The finding of the CIT(A) andITAT that the said liability which was converted into an unsecured loan andsubsequently stood repaid has not been challenged by the Revenue in thepresent appeal. Further, the reliance placed by the ITAT on the judgment of this Court in Shri Vardhman Overseas (supra) is also apposite wherein theCourt held as follows:- “20...If and when there is evidence in a particular later year toshow that the liability has ceased or has been remitted, the samecan be brought to tax as provided in Section 41(1). In thismanner the statute prescribes that a deduction for a tradingliability allowed earlier can be brought to tax on the ground thatthe liability to pay the same has been remitted or ceased.” In the facts of the present case as well as noted above the unsecuredloan had not been transferred to profit & loss account by the assessee and itwas infact repaid in the subsequent years. 10.The Revenue has also not challenged the findings of the CIT(A) thatthe two firms had been transacting for many years and had a runningaccount which are fact findings. In light of concurrent findings of factreturned by ITAT and CIT(A), this Court, in view of the aforesaid facts, donot find that any substantial question of law arises in the present appeal andthere is no infirmity in the order passed by the ITAT. 11.Accordingly, the present appeal is dismissed. MANMEET PRITAM SINGH ARORA, J SEPTEMBER 01, 2022/msh MANMOHAN, J