Asian Petroproduct & Exports Limited, ... vs Assessee

अपीलाथ!/ (Appellant) "#यथ!/ (Respondent) Assessee(s) by : Shri M.K. Patel Revenue by : Shri B.L. Yadav, Sr.DR

सन ु वाई क तार ख/ Dateof Hearing : 11/03/2015 घोषणा क तार ख / Date of Pronouncement: 13/03/2015 आदे श/O R D E R

PER N.S. SAINI, ACCOUNTANT MEMBER: This an appeal filed by

the assessee against order of the CIT(A)-I, Baroda dated 17/11/2009 for Asstt.Year 2004-05.

2. The first issue involved in this appeal is that the ld.CIT(A) erred in confirming the addition made u/s.41(1) of the Act by the AO to the extent of Rs.40,000/-.

3. Brief facts of the case are that the AO found that as on 31.3.2004 Rs.40,000/- was outstanding as payable to Ahmedabad Stock Exchange. In reply to the show cause notice, the assessee submitted that the assessee-company was facing a huge financial crisis, as it had incurred huge loss for past several years, and therefore, the assessee was unable to pay the amount. It was also submitted that there was no cessation of liability and there was no remission granted to the assessee and the company intended to honour the liability. However, the AO held that there was cessation of liability and made addition of Rs.40,000/- under section 41(1) of the Act.

ITA No.512/Ahd/2010 2 4. On appeal, the CIT(A) observed that the amount was outstanding to Ahmedabad Stock Exchange from financial year 31-3-2001 till 31-3- 2009. This shows that the assessee had no intention of making the payment. The expenditure was claimed in the earlier years. No dispute with regard to the liability to make the payment was outstanding. The assessee was willfully withholding the payment for many years. This clearly shows that it had no intention of making payment in future also and confirmed the addition made by the AO.

5. The AR of the assessee submitted that there was no cession of liability and the amount must have been paid by this time by the assessee, but the evidence of the same are not readily available with him, and therefore, requested that the matter should be restored back to the file of AO for verification of the same.

6. On the other hand, DR supported the orders of the lower authorities.

7. We have heard rival submissions and perused the material available on record. The AO noticed from the balance sheet of the assessee that a sum of Rs.40,000/- has been shown as outstanding payable to Ahmedabad Stock Exchange. He also observed that the amount was outstanding since 2001 till 2009. Therefore, the AO was of the view that there was cession of liability and by invoking the provision of section 41(1) of the Act made addition of the same to the income of the assessee.

8. On appeal, the CIT(A) confirmed the action of the AO on the ground that the assessee did not have the intention to pay liability.

9. We find that the Revenue has not brought any material on record to show that the assessee was allowed deduction in respect of liability in question, and if it was allowed then in which year. Further, it is observed that the Revenue has admitted that the amount in question ITA No.512/Ahd/2010 3

was shown as liability by the assessee in its balance sheet of the year under consideration. We find that no material has been brought on record to show that the liability in question ceased to exist during the year under consideration or any benefit was derived by the assessee in respect of the liability in question during the year under consideration. The Hon'ble Gujarat High Court in the case of CIT Vs. Ravjibhai Becharbhai Dhameliya, (2013) 354 ITR 533 (Guj) has held that in the absence of material to show that there was a remission or cessation of liability as contemplated under section 41(1) of the Act as well as in the absence of material to indicate deriving of any benefit in cash or otherwise by the assessee section 41 is not applicable. In the above facts of the case, in our considered view, the addition made by invoking the provision of section 41(1) of the Act is not sustainable. We, therefore, delete the addition of Rs.40,000/- and allow this ground of appeal of the assessee.

11. The second issue is involved in this appeal is that the CIT(A) erred in confirming the addition made u/s.68 of the Act of Rs.10,20,000/-.

12. The facts of the case are that the AO observed that the assessee has claimed to have received share application money amounting to Rs.15,40,000/- in cash. From the details furnished by the assessee, the AO observed that the assessee could not submit PAN etc. in respect of share applicants for Rs.10,20,000/-. Therefore, the AO held that the identity, credit-worthiness and genuineness of the transaction has not been established and made addition for Rs.10,20,000/- under section 68 of the Act.

13. Before the CIT(A), the assessee submitted that the PAN was available in respect of share applicants for Rs.6,75,000/-, and therefore, atleast this much should be allowed.

14. The CIT(A) after considering submissions observed that all the shareholders who had made application for shares in cash for the ITA No.512/Ahd/2010 4

aggregate amount of Rs.10,20,000/- were relatives of the Managing Director. In every case, the payment has been made in cash. In the case of the share applicants, not a single one was without a bank account. It was, therefore, surprising that despite maintaining bank account, each one of the share applicants chose to pay the application money by way of cash. Further, copies of bank account could not be furnished in spite of specific requests for doing so, and therefore, he was of the opinion that the identity and financial capacity of the applicants may not be in doubt, but the onus cast upon the assessee to establish the genuineness of the transaction has not been discharged. He, therefore, confirmed the addition of Rs.10,20,000/-.

15. Before us, the AR of the assessee submitted that share application money of Rs.10,20,000/- was received from ten persons. Name, address and confirmation of all ten persons were filed before the AO as well as before the CIT(A). The lower authorities, merely on the basis of surmises and conjectures and doubt, rejected the explanation of the assessee, and have brought no material to show that the receipt of share application was not genuine. He also filed affidavits of all ten persons before us, and prayed that, as the same goes to the root of the matter, additional evidence be admitted.

16. On the other hand, DR supported the orders of the lower authorities.

17. We find that it is not in dispute that the name, address and confirmation of all ten persons in question were filed before the lower authorities. The lower authorities have not accepted the claim of the assessee on the ground that the PAN of the tax-payers in question were not furnished, the amount was received in cash in spite of bank account being maintained by these ten persons. Further, it was also observed by the CIT(A) that ten persons in question were relatives of the Managing Director of the assessee-company. Thus, we find that the ITA No.512/Ahd/2010 5

identities of the share applicants are not in doubt. The Revenue has brought no material, after proper verification, to show that the share applicants in question were not genuine. Before us, the AR of the assessee filed additional evidence in the form of affidavits of ten persons. Before these additional evidences are accepted, in our considered view, it is in the interest of justice that the AO examine the same. The AR of the assessee submitted that the issue, therefore, be restored to the file of AO for examination of additional evidences now filed by the assessee. In the circumstances, it shall be in the interest of justice to restore the issue back to the file of the AO for adjudication afresh after proper verification. The assessee is also directed to cooperate with the AO and file all the materials, which it wishes to rely upon before the AO, as and when called upon by the AO. We order accordingly. Thus, this ground of appeal of the assessee is allowed for statistical purpose.

18. In the result, the appeal of the assessee is partly allowed for statistical purpose.

Order pronounced in the Court on Friday, the 13th March, 2015 at Ahmedabad.

Sd/- Sd/-

(SHAILENDRA KUMAR YADAV) ( N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER