Sanjay Garg, Judicial Member - The present appeal has been preferred by the assessee against the order dated 24.06.2011 of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] relevant to assessment year 2007-08.
2. The assessee has taken the following grounds of appeal:
"1. The learned CIT (A) erred in law in upholding the validity of the Assessment Order though the same was passed in pursuance of an unsigned thus invalid notice u/s. 142(1).
2. The learned CIT (A) erred in law in coming to the conclusion that not serving a signed and valid notice u/s. 142 (1) is only a technical/procedural defect/omission and hence the same would not invalidate the assessment proceedings in view of the provisions of Sec. 292B.
3. The learned CIT (A) erred in law in coming to the conclusion that service of an unsigned assessment order is only an inadvertent mistake and the same being only a technical or venial defect would not make the assessment invalid in view of the provisions of Sec. 292B.
4. On the facts and in the circumstances of the case, the learned CIT (A) erred in law in not only upholding an addition of Rs. 18,98,831/- made by the learned Assessing Officer, but also enhancing the amount to Rs. 94,94,157/-.on the ground that the liability to two creditors for purchases ceased to exist and hence the said amount is liable to tax u/s. 41(1).
5. The action of the learned CIT (A) is contrary to the express provisions of Sec. 41(1) as the appellant has not credited the impugned amount to its Profit and Loss Account nor in any way treated the same as its income. The impugned amount, in fact, continues to be its liability and shown as such in its Balance Sheet.
6. The learned CIT (A) erred in coming to the conclusion that the liability has ceased for reasons, which are legally not tenable:
The Appellant prays that the order of the learned CIT (A) upholding the addition made by the Assessing Officer and enhancing the same be quashed.
The appellant craves leave to add, alter, amend, modify, amplify or withdraw any of the grounds of appeal."
3. The Ld. AR of the assessee, at the outset, has stated at bar that as per the instructions, he does not press Ground Nos. 1 to 3 of the appeal. Grounds No. 1 to 3 are therefore dismissed being not pressed.
4. The only issue now left for adjudication by us is in relation to additions made by the lower authorities u/s 41(1) of the Income Tax Act on account of cessation of liability. The facts, in brief, are that the assessee is engaged in trading of cut and polished diamonds. The Assessing Officer (hereinafter referred to as the AO) noted that the assessee had shown sundry creditors of Rs 1,29,15,933 as on 31/3/2007. The assessee was asked to furnish the details and confirmations of all the sundry creditors. The assessee submitted the confirmation of some of the sundry creditors and could not furnish the confirmations/details of remaining creditors totaling to Rs 94,94,157/.- The AO, therefore, in the absence of material evidence, assumed that the liability of the assessee to the extent of 20% of the above amount has ceased to exist and accordingly he added 20% of Rs. 94,94,157/-, which was worked out at Rs. 18,98,831/-, into the income of the assessee.
5. Before the Ld. CIT(A) it was contended that the sum of Rs. 94,94,157/- was the outstanding liability in respect of the following parties from whom the purchases were made in FY 2000-01 as under:
|
M/s Deepali exports |
Rs. 44,82,512/- |
|
M/s Vijaybhav |
Rs. 50,11,645/- |
|
|
------------------ |
|
|
Rs. 94,94,157/- |
5.1 It was further contended by the assessee that these balances had been brought forward in books and that there is no write off or unilateral transfer of the credit balances to the P&L a/c and no benefit had been obtained by the assessee in any manner whatsoever. Hence there was no cessation of liability. There was no waiver by the creditor also in favour of the assessee and these liabilities were payable as and when to be demanded by the creditor. The Ld. CIT(A) however required the assessee to produce the copy of ledger account, confirmations and complete present addresses, the copies of the bills of the above two parties from whom the assessee claimed to have made purchases in F.Y. 2000-01 and details of payments made to those parties, if any till date. In response to this the assessee vide letter dated 8/3/2011 submitted the copies of the ledger account for AY 2006-07 and the bills issued by the above two creditors for 94,94,157/-. The assessee, however, could not furnish the confirmations from the above stated parties stating that that those parties had left the address given on the bills and ceased to reside there. The assessee also could not furnish the current whereabouts or the addresses of the above two parties. It was also stated that the assessee had not made any payment, whatsoever, from FY 2000-01 till date to above two parties. The assessee could not furnish any correspondence/evidence etc. to suggest that the said parties had ever demanded the money from the assessee in the last 10 years.
6. The Ld. CIT(A) also made further enquiries through the AO u/s 250(4). The ITI deputed by the AO in his report dated 29/4/2011 forwarded by ITO ward 21(1)(1) vide his letter dated 2/5/2011 has stated that he visited the last known business addresses of both the persons as mentioned in the bills/PAN data but these persons were not found existing on these addresses. Enquiries from the present occupants of the given addresses could not reveal any other addresses where these persons could have shifted. The residential addresses of both persons as per the PAN data base is same i.e. 407 Vishaldeep, Khadilkar Road, Kandawadi Girgaon Mumbai-400004 but these persons had not been found ever residing there also. From spot enquiries it was further gathered that some police enquiries were being conducted against these two persons some 10 years back in relation to some fraud/crime and since then they had never been seen at those addresses. The Ld. CIT(A) further noticed that though the letter head of the bill mentioned the above parties as diamond manufacturers and exporters and diamond being such a costly item, the turnover should have been running in crores of rupees, but on enquiries conducted from the AO having jurisdiction over the PAN of those two persons, it revealed that the said two persons though obtained the PAN for the first time only in FY 2000-01 i.e. the year in which the alleged purchases were made by the assessee from them, but they had never filed any return of income for any years till date. Despite such large amounts pending for so many years, even the creditors never contacted the assessee or asked the assessee to pay the bill partly or fully. The Ld. CIT(A) further observed that the assessee, could not be allowed to take advantage by merely keeping the said liability in books in perpetuity, when all other facts prove that actually there was no liability to pay as the same had ceased to exist. He further observed that the case of the assessee had not been scrutinized u/s 143(3) ever in the past and hence it could not be said that the liability had been accepted by the AO in earlier years. In view of the above factual position, the Ld. CIT(A) concluded that there was no evidence to show that the liability of the assessee was still existent. He therefore held that once the liability of Rs. 94,94,157/- was found to be ceased or nonexistent, then it was the total amount of liability of Rs. 94,94,157/- being shown in the name of two parties which was required to be added u/s 41(1) and not to the extent of only 20% of the said amount, as done by the AO in the assessment order. He, after giving the opportunity to the assessee to explain in this respect, added the amount of Rs. 94,94,157/- to the total income of the assessee.
7. Aggrieved by the order of the Ld. CIT(A), the assessee has come in appeal before us. The Ld. AR of the assessee has reiterated his contentions as were made before the Ld. CIT(A). He has further submitted that there had been a dispute of the assessee with the above stated two parties regarding the quality of the diamonds supplied by them, hence, their payment was withheld by the assessee. Now the dispute has been resolved and the assessee has offered the said amount as income for taxation during the A.Y.2014-15.
The Ld. D.R. on the other hand, has contended that the liability was pertaining to the year 2001-02. The assessment/addition was made by the AO in the year 2009. Now after so many years, merely because the assessee has now offered the income for taxation, does not prove that the liability had not ceased in the year 2009 itself. He has further relied upon the findings of the Ld. CIT(A).
8. We have considered the rival submissions. The Ld. CIT(A) has discussed in detail that in this case the alleged creditors, in the light of elaborate inquiries and evidence collected and also in the absence of any evidence produced by the assessee to the contrary, it had been well proved that the alleged creditors were non existent. It is not a case where the CIT(A), in the absence or because of the failure of the assessee to provide addresses, confirmations etc. from the alleged creditors, has assumed that the liability has ceased to exist, but he himself made further enquiries to find out the alleged creditors through the official machinery. When he had satisfied himself that neither in the last so many years those parties had ever been seen by anybody, nor any known address of them was available, there was never any demand of payment by any of the above named parties from the assessee for the last more than 10 years, no income tax returns had been filed by them, only then he concluded that the liability of the assessee, in fact, had ceased to exist. In our view, merely because the assessee now has offered the said amount as income, that itself, does not support the case of the assessee that the liability had not ceased to exist in the year under consideration, rather, this fact supports, the case of the Revenue that even after passing of further 5 years from the date of assessment, the assessee could not trace his creditors. We, therefore, do not find any infirmity in the well-reasoned order of the Ld. CIT(A) in this respect. There being no merit in the appeal of the assessee, the same is accordingly dismissed. The assessee, however, if so advised, will be at liberty to claim the refund/adjustment of the taxes paid subsequently, in relation to the additions made/confirmed during the year under consideration to avoid double taxation, in accordance with the provisions of the law.
9. In the result, the appeal of the assessee is dismissed.