Sahadeb Kundu, Kolkata vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA [Before Shri P. K. Bansal & Shri Mahavir Singh, JM]

I.T.A No.1345/Kol/2011 Assessment Year: 2008-09 Shri Sahadeb Kundu Vs. Assistant Commissioner of Income-tax, (PAN:AGBPK8212B) Bankura Circle, Bankura (Appellant) (Respondent) & I.T.A No.1446/Kol/2011 Assessment Year: 2008-09 Deputy Commissioner of Income-tax, Vs. Shri Sahadeb Kundu Bankura Circle, Bankura (Appellant) (Respondent)

Date of hearing: 05.05.2015 Date of pronouncement: 07.05.2015

For the Appellant: Shri S. Jhajharia, FCA For the Respondent: Shri K. L. Kanak, JCIT, Sr. DR

ORDER

Per Mahavir Singh, JM

Both these cross appeals, by assessee and revenue, are arising out of common order of CIT(A), Durgapur in Appeal No. 100/CIT(A)/DGP/2010-11 dated 22.07.2011. Assessment was framed by ACIT, Bankura Circle, Bankura u/s. 143(3) of the Income- tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2008-09 vide his order dated 30.12.2010.

2. At the outset, it is noticed that the revenue's appeal in ITA No.1446/Kol/2011 for AY 2008-09 is barred by limitation by 17 days. Revenue has filed Condonation petition supported by affidavit in which certain reasons are given. On query from the Bench, Ld. Counsel for the assessee has not opposed the Condonation rather he conceded that delay can be condoned. In view of the above reasons given in the Condonation petition and concession given by Ld. Counsel for the assessee, we condone the delay and admit the appeal.

2 ITA Nos.1345/K/2011 & 1446/K/2011 Shri Sahadeb Kundu AY 2008-09

3. The only common issue in these cross appeals of revenue and assessee is as regards to the order of CIT(A) restricting the addition of Rs.10,04,557/- out of total addition made by AO at Rs.54,43,228/- of cessation of liability in respect to trade creditors. For this, assessee as well as revenue raised their respective sole ground, which reads as under:

Assessee's ground:

"1. That on the facts and on the circumstances of the case, the Ld. CIT(A) had grossly erred in confirming the addition of Rs.10,04,557/- in respect of eight (8) Sundry Creditors out of the total of thirty three (33) Sundry Creditors as made by the AO, by wrongly and illegally, invoking the provisions of section 41(1) of the Act. Even otherwise and without prejudice to the above, the disallowance/addition so made is highly excessive and unreasonable,"

Revenue's ground:

1. That on the facts and circumstances of the case the Ld. CIT(A), Durgapur erred both in law as well as in fact to delete the addition without citing legal comments."

4. We have heard rival submissions and gone through facts and circumstances of the case. Briefly stated facts are that the assessee filed a list of sundry creditors amounting to Rs.54,43,228/- pertaining to 33 creditors before the AO during the course of assessment proceedings. The AO noted from the list of such persons that sum of the opening balances of all the 33 creditors is Rs.59,76,442/- as on 31.03.2007. According to AO, during FY 2007-08 i.e. from the relevant AY 2008-09, the assessee made payment of Rs.5,33,214/- to the four creditors out of 33 creditors. Accordingly, the balance payable as on 31.03.2008 was at Rs.54,43,228/-. According to AO, this credit balance of Rs.54,43,228/- pertaining to 33 creditors did not appear in the Balance Sheet of the assessee's proprietary concern M/s. S. Kundu rather it appears in the personal Balance Sheet of the assessee. The AO required the assessee as to why this should not be disallowed under the provisions of section 41(1) of the Act. The AO deputed his Inspector to make enquiries in respect to these creditors but according to the Inspector's report these creditors are fake and for this, Inspector has reported to the AO, which is reproduced in the assessment order as under:

"The Inspector visited Jhantipahari to enquire into the transaction with Gobinda Rakshit. He enquired a few persons at Jhantipahari dealing in lottery about Gobinda Rakshit. But none of the persons, whom the Inspector enquired had heard the name of Sri Rakshit. Hence no such creditor ever existed apparently the credit amount is fake. At Jhantipahari the Inspector was referred to the name of Sri Dilip Tantubay who had once been an employee of the assessee and presently dealing in lottery at Chatna. Dilip Tantubay's name does not appear as a creditor. However, he stated that Smt.Nilima 3 ITA Nos.1345/K/2011 & 1446/K/2011 Shri Sahadeb Kundu AY 2008-09

Tantubay is his spouse but she never had any business whether that of lottery or anything else. Sri Tantubay informed the ITI that there appear names of some of his near relatives in the list. Thus Sri Arvind is the name of his father-in-law who hails from Bansol which happens the address of M/s Arvind Agency. Thus Ms. Anima is his sister-in-law and address of M/s Anima Agency is Bansol. In this regard Sri Tantubay stated that the assessee knew the names of his family members and the assessee seems to have planted their names. He categoricallv denied having any activities of lottery business in the names of the above three named persons, i.e. Nilima- his spouse, Arvind- his father-in-law or Ms. Anima, his sister in law. He further informed that there is no such business concern named as Nilima Agency at Chatna this was also corroborated by some locals at market place at Chhatna.

At Junbedia the ITI found only two lottery shops, but one of the two was by the name as Kar Agency. Both the concerns denied having any transaction with Sri Kundu, i.e. the assessee.

The ITI, in his report has stated that the following three persons happen to be the namesakes of the relatives of the assessee:

\ i. Abhay Lottery Agency Abhay is assessee's nephew (sister's son) ii. Rindu Kundu Assessee's sister in law.

iii. Bishwnath Pal Brother in law

Addresses of all the persons happen to be the same as mentioned in the list of the creditors as furnished by the assessee and none of the above named three persons were said to have ever dealt in lottery."

Accordingly, the AO treated the trade creditors as bogus and added to the returned income of the assessee amounting to Rs.54,43,228/-. Aggrieved, assessee preferred appeal before CIT(A), who restricted the addition at Rs.10,04,557/- in respect of eight sundry creditors out of the total 33 sundry creditors. Aggrieved, both the assessee and revenue came in appeal before Tribunal.

5. We find from the above facts that these are trade creditors admittedly coming from earlier years being opening balance. We also find from the record that the assessee has not written-off the liability or liability has not ceased or remitted. In such circumstances, now we have to go to the provisions of section 41(1) of the Act and see the legal possession. Section 41 (1) would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year 2007-08 relevant to the assessment year 2008-09 which was the year 4 ITA Nos.1345/K/2011 & 1446/K/2011 Shri Sahadeb Kundu AY 2008-09

under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The AO undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that, therefore, the amount in question cannot be added back as a deemed income under section 41(1) of the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Hence, we have no alternative except to confirm the findings of CIT(A) in respect of deletion but reverse qua the confirmation of addition.

6. In the result, appeal of revenue is dismissed and that of assessee is allowed.

7. Order is pronounced in the open court on 07.05.2015 Sd/- Sd/-

(P. K. Bansal) (Mahavir Singh) Accountant Member Judicial Member

Dated : May, 2015

Jd.(Sr.P.S.) Copy of the order forwarded to:

1. APPELLANT - Shri Sahadeb Kundu, C/o Salarpuria Jajodia & Co., 7, C. R. Avenue, Kolkata-700 072.

2 Respondent - ACIT, Bankura Circle, Bankura .

3. The CIT(A), Durgapur

4. CIT

5. DR, Kolkata Benches, Kolkata

/True Copy, By order, Asstt. Registrar.