1/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] IN HIGH COURT OF JUDICATURE AT MADRAS DATED :: 05-09-2019 CORAM HON'BLE DR.JUSTICE VINEET KOTHARI AND HON'BLE MR.JUSTICE C.SARAVANAN T.C.A.No.1772 OF 2008 V.R.Swaminathan ... Appellant -vs- Income Tax Officer, Ward IX (4), 611, Anna Salai Chennai- 600006. Respondent Appeal under Section 260A of Income Tax Act,1961, against order of Income Tax Appellate Tribunal, Chennai 'C' Bench, dated 30.06.2008, passed in ITA No.2048/Mds/2006. For Appellant : Mr.M.P.Senthilkumar, for Mr.N.Muthukumar. For Respondent : Mr.M.Swaminathan, Senior Standing Counsel, assisted by Mrs.S.Premalatha, Junior Standing Counsel. http://www.judis.nic.in 2/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] JUDGMENT (By Dr.Vineet Kothari,J.) Assessee has filed this appeal aggrieved by order, dated 30.06.2008, passed by learned Income Tax Appellate Tribunal, Chennai 'C' Bench, allowing Revenue's appeal for Assessment Year 2001-2002 and upholding additions made in assessment of assessee under Section 41 (1) of Income Tax Act,1961, in short, ''the Act''. 2. relevant findings of learned Tribunal in Para 7 of its order are quoted below for ready reference : 7. We find that Hon'ble Apex Court in case of CIT Vs. T.V.Sundaram Iyengar and Sons Ltd. 222 ITR 344 (SC) had propounded that, 'If amount is received in course of trading transaction, even though it is not taxable in year of receipt as being of revenue character, amount changes its character when amount becomes assessee's own money because of limitation or by any other statutory or contractual right. When such thing happens, common sense demands that amount should be treated as income of assessee.' In background of aforesaid discussion and precedent, we find that even if said purchases were http://www.judis.nic.in 3/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] genuine, amount due to creditors has remained unclaimed is taxable u/s 41 (1) inasmuch as assessee is not even aware of address of creditors. Hence, we are inclined to set aside order of learned Commissioner of Income Tax (Appeals) and decide issue in favour of Revenue. 8. In result, this appeal by Revenue is allowed. 3. Assessing Authority, in present case, in Assessment Order, dated 30th March,2004, had made following additions : ''During course of hearing, letters were issued calling for confirmation to some of Sundry Creditors. Letter issued to following Sundry Creditors returned unserved : 1.Yes Em Traders, Villupuram 2.DCW Home Products Ltd., Vijayawada 3.Parameshwara & Co., Tirupur 4.Chandra & Co., Visakapatnam 5.Velmuruga Corpn., Arcot 6.Sivaraj & Co., Ranipet http://www.judis.nic.in 4/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] In this connection, assessee was requested to furnish correct address of above persons and furnish account copy of above persons. Assessee in his letter dated 28.02.2004 and 07.03.2004 furnished address of five Sundry Creditors except address of M/s.Velmuruga Corpon., Arcot. He has also not furnished details of transaction with above concerns. In above circumstances, it is held that sum of Rs.2,41,000/- shown as Trade Creditor is not actually due. assessee has not furnished address of following Sundry Creditors. 1. Shankar Trading : Rs.1,80,000 2. Sunil : Rs.1,62,000 Assessee was asked to furnish address of above two Sundry Creditors by this office letters dated 26.12.2003, 23.01.2004 and 23.02.2004. Assessee has not furnished even address of above persons for verification. In above circumstances, it is held that there is no Sundry Creditors by name Shankar Trading and Sunil for amounts Rs.1,80,000/- and Rs.1,62,000/- respectively. On verification with Sundry Creditors, it was found that no amount was due to M/s.Hari Traders, 18, Managappan Street, Chennai-79 as per their confirmation letter dated 14.01.2004. Whereas, assessee has shown them http://www.judis.nic.in 5/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] as Sundry Creditors for Rs.1,35,332/-. Assessee was requested to clarify this vide this office letter dated 23.02.2004. There was no reply from assessee in this regard. Hence, sum of Rs.1,35,332/- show as Sundry Credit is added to total income.'' 4. First Appeal, filed by assessee, however, came to be allowed by learned Commissioner of Income Tax (Appeals) - CIT(A) on 25.05.2006, with following observations : ''3. Briefly facts. appellant, proprietor of Sathya Sai Engineering Company filed its return of income for assessment year 2001-02 which was scrutinized by A.O. and additions were preferred on account of sundry creditors in books of appellant which were not verifiable. reasons based on which additions were made are as under : (i) M/s.Vel Muruga Corporation Rs.2,11,000 as address of creditor was not provided. (ii) M/s.Shankar Trading Rs.1,80,000] -do- (iii) M/s.Sunil Trading Rs.1,62,000] (iv) M/s.Hari Trader Rs.1,36,332 as amount not being due Rs.6,88,332 http://www.judis.nic.in 6/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] 4. appellant vehemently assailing action of A.O. has pleaded that impugned additions be deleted as they are unsustainable on facts and as in law. It has also been pleaded that balances payable to sundry creditors was wrongly construed as income in hands of appellant against provisions of Act. Several lines of argument were advanced by appellant which inter alia include following. (i) That all creditors are genuine. In support invoice copies relating to creditors for supplies made were enclosed. (ii) balance on these creditors and not credit of year under consideration and were brought forward credits. (iii) purchases made were for assessment year relating to 1998-99 and 1999-2000 as vouched by purchase register. (iv) purchases filed for sales tax authorities confirm transactions. (v) that all purchases and sales were recorded and appellant had paid taxes on same. (vi) that all relevant details relating to creditor were produced during assessment proceedings. books of account and invoices produced were self- explanatory. (vii) As regards Shankar Trading, amount outstanding related to purchases made during assessment year 2002-03 and 2003-04 of Rs.38,000/- and Rs.1,42,000/- respectively. (viii) As regards Sunil Electricals and Electronics, amount outstanding related to purchases made in http://www.judis.nic.in 7/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] assessment year 1997-98 and 1998-99 for which payments were made in assessment year 2003-04. (ix) as regards M/s.Velmuruga Corporation amounts outstanding relates to purchases made for assessment year 1997-98 and 1998-99. payments for above transactions made were settled in assessment year 2002-03 but for sum of Rs.1,13,000/- which was adjusted against payment receivable from M/s.Sri Ganesh Electricals in 2003-04. (x) That returns for assessment year 2002-03 and 2003-04 were filed on 31.10.2002 and 28.11.2003 take into account all above details. (xi) That all credits are genuine and do not pertain to year under consideration and therefore do not warrant to be added back as income. Further, payments have all been made to those creditors in subsequent year. (xii) As regards M/s. Hari Traders additions were based on fact that confirmation letter received did not reflect outstanding amount. However, this could not be basis for addition as it could be unilateral action of party. 5. It was further pleaded that appellant has not been having dealings with parties presently and current addresses are not available. In support of contentions made appellant placed on record books of account and copies of creditors appearing in books along with vouchers which relate to transaction. These materials were also placed before A.O. perusal of same shows http://www.judis.nic.in 8/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] items of purchase relate to items of electrical goods small in number in moderate price range. purchase register similarly evidences transactions in all cases. As pleaded by appellant transactions do not relate to year under consideration but represent carried forward balances of preceding years relevant to assessment year 1998-99 onwards. assessment order from Commercial Taxes Department dated 29.12.98 for A.Y.97-98, 1998-99 placed on record does not report any finding adverse to appellant. Apparently assessment orders were finalised after production in support of returns of day book, ledger purchase and sales bill etc. 6. non furnishing of address appears to be major reason based on which disallowances were preferred by A.O. A.O. also further observed in his report that appellant is wholesaler and retailer of electrical goods and filed its return of income for assessment year 1998-99, 1999-2000 admitting income u/s 44AF. A.O. further observed that profit and loss account, balance sheet and other particulars like list of sundry creditors, debtors etc. were not filed along with return of income. 7. In response thereto appellant filed necessary clarifications which were considered. In its support appellant argued that returns of income filed for assessment years 1997-98, 1998-99 and 1999-2000 had been accepted. credits appearing in these aforesaid returns could not be rejected now http://www.judis.nic.in 9/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] without any basis. In support copies of documents were once again filed for perusal. It is also stated that books of accounts in respect of its business were produced before A.O. and were subject to verification and copies of accounts of such creditors for earlier and subsequent period were not called for. 8. On careful consideration of facts in issue, I find that in instant case appellant had complied with notices issued which culminated in order u/s 143 (3). A.O. has himself acknowledged in order that books of accounts were produced which were examined. It was only conformations to some of creditors could not be furnished. This matter was not pursued further by A.O. who summarily concluded that outstanding credits represented income and proceeded to finalise assessment. A.O. ought to have proceeded to establish infirmities and consequently rejected books which was not done. Accordingly there appears to be little material facts based on which disallowances made by A.O. can be upheld. This is so that appellant has discharged onus placed on it in establishing transactions as being made genuinely and purely in consideration of conduct of business in its case. Accordingly keeping sum totality of facts before me, detailed submissions made by appellant as discussed in foregoing and having regard to books of accounts maintained copies of which have also been filed, I hold http://www.judis.nic.in 10/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] view that disallowances made by A.O. cannot be sustained on facts and in law. This ground of appeal is ALLOWED.'' 5. As stated above, Revenue's appeal, however, came to be allowed by restoring additions and aggrieved by same, assessee has filed present appeal before this Court under Section 260-A of Income Tax Act,1961. 6. following Substantial Question of Law was framed by co-ordinate Bench of this Court while admitting appeal on 06.11.2008 : ''Whether on facts and in circumstances of case Income Tax Appellate Tribunal is right in allowing department's appeal and holding that amount of Rs.6,88,332/- is taxable under provisions of Sec.41 (1) of Income Tax Act ?'' 7. Mr.M.P.Senthil Kumar, learned counsel for appellant- assessee has urged before this Court that payments to Sundry Trade Creditors, from whom supplies of goods were taken in ordinary course of business, were made in subsequent Assessment Year and, therefore, there was no 'cessation of liability' towards said creditors and, http://www.judis.nic.in 11/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] as such, additions could not have been made by Assessing Authority in impugned order. Hence, according to learned counsel, learned CIT(A) has rightly set aside additions, but learned Tribunal has erred in allowing appeal of Revenue. 8. Per contra, Mr.M.Swaminathan, learned Senior Standing Counsel, appearing for respondent-Revenue, has vehemently submitted that Assessing Authority had made due inquiry regarding Trade Creditors shown in Balance Sheet, but assessee failed to supply even details of Sundry Creditors shown in Balance Sheet and, upon verification of two Sundry Creditors, whose addresses were supplied, it was found that those Creditors did not confirm any claim against assessee, and upon assessee being confronted with such averment made by Sundry Trade Creditors, he did not even respond to same and, therefore, Assessing Authority was justified in assuming that liability of assessee had ceased in terms of Section 41 (1) of Act and additions were, therefore, justified. 9. Mr.Swaminathan would submit that learned CIT(A) has wrongly allowed appeal of assessee believing submissions of assessee that payments to these Sundry Trade Creditors were made later on http://www.judis.nic.in 12/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] in year Assessment Year 2002-2003. He also submitted that if such payments were made, then, proof of same could have been produced by assessee before learned Tribunal, but, nothing of this sort was done and, therefore, on account of failure of assessee to discharge his burden of proof during course of assessment proceedings as well as before learned CIT (A), learned CIT (A) has erred in setting aside those additions made under Section 41(1) of Act. He relied upon decision of this Court in case of West Asia Exports & Imports (P) Ltd. v. Assistant Commissioner of Income Tax, delivered on 11.03.2019, since reported in (2019) 412 ITR 208 (Mad). 10. Having heard learned counsel for parties, we are satisfied that this matter requires re-adjudication at hands of Assessing Authority. Apparently, we find that Assessing Authority had made due inquiry from Sundry Creditors whose addresses and details were supplied by assessee during course of assessment proceedings and communications thereon from assessee. However, assessee failed to rebut adverse material with regard to Creditors viz., Hari Traders and another M/s.Sunil, who had apparently confirmed that they did not make any claim of amount of unpaid amount due to them. It was http://www.judis.nic.in 13/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] thus for assessee to rebut that material by either producing relevant documentary evidence or Sundry Creditors to show that liability had not ceased in eye of law so as to attract Section 41 (1) of Act. Now, on fact finding exercise undertaken by learned Appellate Authority also, except making averments to effect that these Sundry Creditors were paid, no documentary proof thereof has been produced by assessee and, therefore, learned Tribunal, in our opinion, has rightly held that said averments of assessee could not be believed on their face value. However, we feel that matter requires further investigation and inquiry at hands of Assessing Authority and, learned Tribunal, instead of reversing order of learned CIT (A), ought to have remanded matter back to Assessing Authority in such facts and circumstances of case to ascertain whether trade liability towards Sundry Creditors shown in Balance Sheet had ceased in eye of law or whether such trade liability genuinely continued or not. 11. Therefore, we are inclined to dispose of this appeal with remand of case to Assessing Authority without answering Substantial Question of law, framed above. 12. Accordingly, present Appeal of assessee is disposed http://www.judis.nic.in 14/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] of, setting aside orders passed by all three authorities below, and matter stands restored back to Assessing Authority for Assessment Year 2001-2002 to make fresh assessment, after giving due and reasonable opportunity of hearing to assessee to adduce reasonable evidence in this regard. No costs. 13. Since considerable time has elapsed, fresh assessment should be made by Assessing Authority within period of one year from today. Without any further notice, assessee may appear before Assessing Authority and adduce relevant evidence in course of such fresh assessment proceedings. first appearance may be made by assessee on 23rd October,2019. Index : Yes/No (V.K.,J.) (C.S.N.,J.) Internet : Yes/No 05-09-2019 Speaking / Non-Speaking Order dixit To 1.The Income Tax Officer, Ward IX (4), http://www.judis.nic.in 15/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] 611, Anna Salai Chennai- 600 006. 2. Income Tax Appellate Tribunal, Chennai 'C' Bench, Chennai. http://www.judis.nic.in 16/16 Judgment dt.05.09.2019 in TCA No.1772/2008 [V.R.Swaminathan v. Income Tax Officer] DR.VINEET KOTHARI, J. and C.SARAVANAN, J. dixit T.C.A.No.1772 OF 2008 05-09-2019 http://www.judis.nic.in V.R.Swaminathan v. Income-tax Officer, Ward IX (4), Chennai