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Viresh D. Sheth 228/9, Parekh Building, Sion (E), Mumbai-400 022 Vs. ITO-21(2)(3), Pratyaksha Kar Bhavan, Bandra Kurla Road, Bandra (E), Mumbai
December, 01st 2014

         ,                                     ,                                     

                     ./I.T.A. No. 1287/Mum/2011
                    (   / Assessment Year: 2006-07)
Viresh D. Sheth                                     ITO-21(2)(3),
228/9, Parekh Building, Sion (E),          /        Pratyaksha Kar Bhavan,
Mumbai-400 022                             Vs.      Bandra Kurla Road, Bandra (E),
     . /  . /PAN/GIR No. AAUPS 0516 R
         ( /Appellant)                        :            (     / Respondent)

         / Appellant by                      :     Shri B. V. Jhaveri

           /Respondent by                    :     Shri Jitendra Kumar

                          /                  :     25.09.2014
                    Date of Hearing
                                             :     28.11.2014
           Date of Pronouncement

                                      / O R D E R
Per Sanjay Arora, A. M.:
       This is an Appeal by the Assessee directed against the Order by the Commissioner
of Income Tax (Appeals)-32, Mumbai (`CIT(A)' for short) dated 10.12.2010, dismissing
the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961
(`the Act') for the assessment year (A.Y.) 2006-07 vide order dated 29.12.2008.

2.     The appeal concerns two additions u/s. 41(1) of the Act, since confirmed by the
first appellate authority. The assessee has made a prayer for admission of additional
evidence qua both the impugned additions under Rule 29 of the Appellate Tribunal
Rules, 1963 (the `Rules' hereinafter). We shall accordingly discuss both the facts as well
                                                        ITA No. 1287/Mum/2011 (A.Y. 2006-07)
                                                                      Viresh D. Sheth vs. ITO

as the additional evidence/s in relation thereto, separately for both the credits, as under,
having heard the parties and perused the material on record:

3.1    M/s. Chandralok Fabrics (Rs.1,08,553/-):
       The credit outstands admittedly from a date prior to 31.03.2000 in respect of work
of dying and printing. The reason for non-payment, as explained by the assessee, is not
for carrying out the work properly, i.e., defective work. Notice u/s.133(6) to the party
during the course of assessment proceedings, at the address supplied by the assessee,
toward verifying the said balance as on 31.03.2006, i.e., even after over six years, came
back unserved, with the postal remark `left'. The assessee was unable to supply the
whereabouts or the correct address of the party, with which it had admittedly no contact;
there being no transaction with it since. The assessee was provided opportunity in the
appellate proceedings by remanding the matter back to the Assessing Officer (A.O.),
whereat again the assessee was unable to, despite abundant opportunity, as much as
secure a confirmation from the said party (refer remand report dated 13.10.2010/PB
pgs.24-25). Though another address of the `creditor' was supplied, the A.O.'s
communication thereat also remained unresponded, so that it was doubtful if the new
address was the correct address. There being no claim by the said party, even as 10 years
had lapsed since, the same gave rise to the unmistakable inference of the liability having
ceased to exist. The addition, made u/s.41(1), was accordingly confirmed as income,
either u/s.41(1) or s. 28(iv), relying on the decisions in the case of CIT vs. Agarpara Co.
Ltd. [1986] 158 ITR 78 (Cal); CIT vs. Hides & Leather Products (P.) Ltd. [1975] 101
ITR 61 (Guj); and CIT vs. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344 (SC).
The assessee before us has (vide letter dated 24.02.2014) stated that the payment (of
Rs.1,08,553/-) to the said party has since been made on 06.02.2014 by cross payee
cheque, discharging the liability. The same would itself, it is argued, prove the existence
of the liability as on 31.03.2006, the relevant year-end. A copy of the creditor's account
in its own books (at pg.27), reflecting the said payment, is adverted to in support. The
same is prayed for admission under rule 29 of the Rules.
                                                         ITA No. 1287/Mum/2011 (A.Y. 2006-07)
                                                                       Viresh D. Sheth vs. ITO

       We are wholly unmoved by the assessee's case, including the `additional
evidence' sought to be admitted. To begin with, the amount is admittedly disputed, which
is the reason for it outstanding - for years together. Not only does it continue year after
year, there is no attempt by either the assessee to pay or by the `creditor' to claim it; the
assessee being neither in contact with nor aware of the creditor's whereabouts. There is
also no attempt at dispute resolution; the amount being unpaid due to the stated reason of
the work having not been carried out properly, with the assessee's address, which
remained unchanged, being only known to the `creditor'. Why, therefore, under the
circumstances, one may ask, the impugned credit be considered as no longer representing
a liability. The same cannot surely be considered as so merely because the assessee does
not write back the same in its accounts, which cannot be considered as sacrosanct. In the
absence of the assessee furnishing any details in its respect, or leading any evidence to
the contrary, the entire unpaid amount is to be therefore considered as the loss arising to
the assessee thus, i.e., on account of defective work and, accordingly, sought to be
compensated to it by paying the creditor less by that amount, so that it was not paid. In
any case, the entire of it is to be considered as disputed by the assessee, who has
throughout failed to show in any manner that the liability to any extent qua the said
amount exists, or of any attempt by the party toward dispute resolution. The assessee's
accounts reflecting it as a liability, it is only he on whom even otherwise, being in the
know of the facts, the onus to prove the truth of its' accounts lies. This is particularly so
when the surrounding and circumstancial facts, as in the instant case, unequivocally
suggest otherwise. Even the attempts by the Revenue to verify the matter did not meet
with any success. Even assuming the creditor's second address furnished by the assessee
as correct, why did not the creditor ­ with whom the assessee had established contact,
respond? The position continues for over ten years (of the booking of liability). The only
irresistible conclusion is that the same does not represent a liability or, in any case, the
assessee had failed to prove it as so, despite grant of abundant opportunity. We,
accordingly, find no merit in its case. Reliance on CIT vs. Sugauli Sugar Works (P.) Ltd.
[1999] 236 ITR 518 (SC) would be to no consequence. Vide the same the hon'ble apex
                                                          ITA No. 1287/Mum/2011 (A.Y. 2006-07)
                                                                        Viresh D. Sheth vs. ITO

court had clarified that a unilateral entry of write back in the assessee's accounts would
not be determinative of the matter. The same only underscores our understanding of the
existence of a liability (or its cessation) as being a matter of fact, which would be
required to be proved based on all available facts and material on record and, further that
accounts cannot be considered as determinative of the matter. Reference in the matter
may be made to the decisions, inter alia, in Kesoram Industries & Cotton Mills Ltd. v.
CIT [1992] 196 ITR 845 (Cal); Kalyani Maan Singh vs. ITO (in ITA No.
6500/Mum/2011 dated 14.11.2013); and ITO vs. Sajjankumar Didwani (in ITA Nos.
7716 & 7793/Mum/2012 dated 28.05.2014). In fact, the law stands since amended,
so that it is not permissible for an assessee to plead its case de hors or in disregard of its'
accounts and, therefore, even a unilateral entry of write off in its books of account would
be taken cognizance of (refer: Explanation 1 below section 41(1)).
        We, in view of the foregoing, find no merit in the assessee's claim. There is
accordingly no question of admission of additional evidence under r.29 of the Rules. As it
appears, the assessee in his bid to exhibit it's contention as to the existence of the
impugned liability as `correct', pursued the creditor to make the payment in view of its
appeal before the tribunal, outstanding since 11.02.2011. The claim of payment, which
cannot be regarded as genuine merely because the transaction is per cheque, contradicts
the assessee's own claim of the amount being disputed on account of defective/improper
work. How, then, and what therefore forms the basis, one may ask, for it make the
payment for the whole amount, for which, rather than the creditor, it is the assessee who
seeks the latter ­ whom it had declined the payment for deficiency in work for over 14
years, which can only be regarded as incredulous. There is no explanation as to the basis
or the circumstances under which the payment stands made, and for the entire disputed
sum. The claim is completely inconsistent with the admitted and exhibited facts and
circumstances of the case. We regard it as make-believe, so that no even useful purpose
would be served in admitting fresh evidence for adjudicating this matter, i.e., u/r. 29. We,
accordingly, deny the assessee's application for admission of additional evidence u/r. 29.
We decide accordingly.
                                                        ITA No. 1287/Mum/2011 (A.Y. 2006-07)
                                                                      Viresh D. Sheth vs. ITO

3.2    Dombivali Acid and Chemicals (DAC) (Rs.8,58,833/-):
       While the assessee's books revealed a credit balance in the account of the said
party, a trade creditor, in the stated sum, constant since 31.03.2001, the latter's accounts
revealed the following balances, furnished in response to notice u/s.133(6):
                          Assessment Year         Amount (Rs.)
                              2000-01               5,83,324
                              2001-02              12,14,849
                              2002-03              10,31,525
                              2003-04              10,31,525
                              2004-05                 NIL
       In explanation for the difference, the assessee explained the said party to have
been paid and, thus, it to have received Rs.9,67,521/- from Shri Bhavesh D. Sheth (BS),
the assessee's brother, on its behalf, during the period 15.01.2001 to 27.11.2011. A letter
dated 20.12.2008 from the said party, addressed to Shree Shanti Silk Mills (`SSSM' for
short), the assessee's proprietary concern, was produced in support. Further, as per the
information furnished by the said party u/s. 133(6), its' accounts bore a debit and credit
balance as on 31.03.2004, i.e., as due from and to the assessee's two proprietary
concerns, SSSM and Sujata Silk Mills (`SSM' for short), at Rs.10,29,869/- and
Rs.10,31,525/- respectively, which were set off, with the net balance of Rs.1,656/-
written back as rebate. There was no transaction post 31.03.2004. Copies of the balance-
sheet of BS (from 31.03.2002 to 31.03.2008), reflecting the said payments (aggregating
to Rs.9.68 lacs) to DAC as `loan and advance', were also submitted, besides a
confirmation from him to the effect that the said payments by him to DAC were made for
and on behalf of the assessee to help the latter (the assessee) in financial crisis. In the
view of the Revenue, however, there was nothing to link the payments by BS to DAC
with the outstanding of the latter as being reflected in the assessee's accounts. Why, in
case the payment was made for and on behalf of the assessee, did the assessee's accounts
not reflect the same, crediting BS in its accounts? Also, BS did not debit the said
payments in his accounts to the account of the assessee, on whose behalf the same are
stated to have been made, but to DAC, so that these were independent transactions. Even
                                                          ITA No. 1287/Mum/2011 (A.Y. 2006-07)
                                                                        Viresh D. Sheth vs. ITO

as stated by the ld. CIT(A), correct entries had not been passed by either the assessee or
his brother in their books of account even to date. How could the said payments by BS be
then linked with the assessee's liability to DAC? The assessee has since passed the
entries in its' accounts, which is sought to be admitted as additional evidence.
       Our first observation is that the entries stated to be passed by the assessee in the
books of his proprietary firm, SSM, in which its' other proprietary concern, SSSM,
merged, were not passed, as claimed, on 31.03.2010. This is as, if so, why were the
accounts were not presented to the ld. CIT(A), who has finally heard the appeal on
10.12.2010, with he rather stating of no corrective entries having been passed even by
that date. So, however, DAC has credited the payments by BS in its accounts to the
account of SSSM (PB pg.12). As such, for the Revenue to contend that there was no
nexus between the payments by BS (i.e., at Rs.9.68 lacs, from January to November,
2001) with the assessee's liability to DAC, outstanding in its books at Rs.8.59 lacs since
31.03.2002 (PB pgs. 6-8), is without basis. Rather, the difference between the two sets of
accounts; the payment being at a higher sum of Rs.9.68 lacs, as against the admitted
liability of Rs.8.59 lacs, is also explained per the accounts of DAC (PB pg.12) to be on
account of interest on the overdue payment (at Rs.1.07 lacs), with the balance (Rs.0.02
lacs) written off to the rebate account. This (i.e., the reconciliation of the two amounts) is
significant in-as-much as the Revenue's charge is of there being no nexus between the
two sums, i.e., the liability to DAC outstanding in the assessee's books and the admitted
payments thereto by BS. Also, why would anyone pay in excess of what one is liable for,
particularly considering that he is facing financial crises? The non passing of the journal
entries or, rather, corrects entries, i.e., to the account of the right person, from whom the
payment is receivable or due to, in their respective books of account by the assessee and
BS, should therefore not be of much consequence. This is as the payee (DAC) himself
admits (through its' accounts) to payments from BS being received from and on behalf of
the assessee's firm, SSSM, with the payer (BS) also confirming this to be so (PB pgs.19-
21). Their accounts have not been impugned by the Revenue in any manner.
                                                          ITA No. 1287/Mum/2011 (A.Y. 2006-07)
                                                                        Viresh D. Sheth vs. ITO

       Again, however, the copies of its' accounts (in the firm, SSM, for financial year
2009-10), now submitted before us (PB pgs.30-31), praying for their admission as
`additional evidence', exhibit the transfer of the credit of DAC (Rs.8.58 lacs), firstly, to
the account of BS (which is only understandable in-as-much as he has admittedly made
the payments to DAC on assessee's behalf), and then to the capital account of the
assessee. The latter entry needs to be explained. Why should a liability be transferred to
the proprietor's capital account, which rather establishes the Revenue's case of it not
being or in any case no longer representing a liability? In fact, the assessee had already
advanced Rs.5 lacs to BS as on 31.03.2008, so that the transfer of the liability of DAC in
its' accounts to the account of the payer (BS) would result in a net sum (liability) of
Rs.4.67 lacs to BS. We, therefore, though inclined to consider the issue as having been
substantially explained by the assessee, find the journal entries passed by the assessee in
its' books (SMM) on 31.03.2010 as, in effect, incongruent and inconsistent with its
avowed claim of it being liable to BS, i.e., in substitution of the credit to DAC, which
(substitution) though had remained to be recognized in its' accounts. The said transfer to
its capital account changes the whole complexion of the case, vindicating, as it were, the
Revenue's charge of the impugned sum as not being, or no longer being, a liability of the
assessee. The non-passing of the entries, reflecting the `correct' statement of affairs, both
by the assessee and BS in their accounts, i.e., prior to 31/3/2010, assumes significance in
context thereof. The said evidence is crucial, and is accordingly admitted.
       The matter is consequently restored back to the file of the A.O. to enable the
assessee to explain the said entry in its' accounts. This is relevant and important as it, and
only it, that would give the assessee an opportunity to explain the same, i.e., the said
transfer of Rs.8.58 lacs to its' capital account, instead of continuing to outstand in the
account of BS, to which the impugned amount was in fact first credited. Again, what has
transpired, either between 31.03.2002 to 31.03.2010, or on 31.03.2010 itself, for the
assessee to have transferred the said liability to its' capital account on 31.03.2010, which
entry we have rather observed to have been passed only subsequent to 31.03.2010
inasmuch as the same stood not disclosed to the first appellate authority even as the
                                                          ITA No. 1287/Mum/2011 (A.Y. 2006-07)
                                                                        Viresh D. Sheth vs. ITO

assessee's appeal before him was outstanding at the relevant time. In our view, it would
also need to be explained as to how and why the balance amount of Rs.1.07 lacs paid by
BS to DAC as and by way of interest had not been accounted for or otherwise adjusted
between the assessee and BS. This is as the assessee shall, after all, stand to be liable to
BS for Rs.9.68 lacs, i.e., the full amount paid by the latter to DAC, even as, as it appears
to us, and most surprisingly, he even appropriates the principal amount for which he
claims to continue to be liable for, albeit to BS, as he had paid the creditor (DAC) on its
behalf. The assessee's accounts for f.y. 2009-10, as well as for the subsequent years,
would only have crystallized and, in fact, also been furnished to the Revenue since.
Again, what adjustment entries, if any, has BS, an assessee with the Revenue,
correspondingly passed in his books of accounts. The onus to establish its' case, though,
would be on the assessee. We may in this regard clarify that the assessee shall neither be
allowed to raise any new plea, nor one inconsistent with its accounts; we having
explained that to be the premise of Explanation 1 to s. 41(1). The journal entries,
purportedly passed on 31/3/2010, are ostensibly corrective entries, passed after due
deliberation. The purport of the exercise is to establish the existence or otherwise of the
assessee's liability to DAC as on 31/3/2006, or, as explained, to BS in lieu thereof; the
assessee's accounts being admittedly deficient, with even the `corrected' accounts being
in contradiction to the stated position. The A.O. shall, mindful of our observations,
adjudicate the matter by issuing definite findings of the fact after allowing the assessee an
opportunity to present its case. We decide accordingly.

4.     In the result, the assessee's appeal is partly allowed for statistical purposes.
               Order pronounced in the open court on November 28, 2014

            Sd/-                                        Sd/-
      (Joginder Singh)                               (Sanjay Arora)
         / Judicial Member                             / Accountant Member
 Mumbai;  Dated : 28.11.2014
                                    ITA No. 1287/Mum/2011 (A.Y. 2006-07)
                                                  Viresh D. Sheth vs. ITO

. ../Roshani, Sr. PS
         /Copy of the Order forwarded to :
1.  / The Appellant
2.  / The Respondent
3.     () / The CIT(A)
4.      / CIT - concerned
5.             ,     ,  / DR, ITAT, Mumbai
6.     / Guard File
                                   / BY ORDER,

                             /  (Dy./Asstt. Registrar)
                            ,  / ITAT, Mumbai
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