IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `B' , NEW DELHI
BEFORE SH. O.P. KANT, ACCOUNTANT MEMBER
AND
SH. K.N. CHARY, JUDICIAL MEMBER
ITA No.3193/Del/2015
Assessment Year: 2010-11
Sh. Nafe Singh Gahlawat, Vs. Income Tax Officer,
H. No. 1032, Sector-14, Ward-II(3), Faridabad
Faridabad
(Appellant) (Respondent)
Appellant by Sh. Gurjeet Singh, CA
Respondent by Ms. Ashima Neb, Sr.DR
Date of hearing 19.11.2018
Date of pronouncement 07.12.2018
ORDER
PER O.P. KANT, A.M.:
This appeal by the assessee is directed against order dated
16/03/2015 passed by the Ld. Commissioner of Income-tax
(Appeals), Faridabad [in short `the Ld. CIT(A)'] for assessment year
2010-11, raising following grounds:
1. (a) Because the action is under challenge on facts & law,
for not admitting the additional evidence u/r 46A of the
Income Tax Rules 1962, for the reason that the evidence
was available at initial stage & had not been produced
before AO.
(b) Because the action is under challenge on facts & law,
for not admitting the additional evidence u/r 46A of the
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Income Tax Rules 1962 after calling for the remand report
from the Assessing Officer.
2. (a) Because the action is under challenge on facts & law,
for an addition of Rs. 42,76,362/- on account of Sundry
Creditors whereas the said is an allowable liability having
examined & appreciated the 'commercial expediency &
business exigencies' thus the action is unwarranted &
unsustainable in law.
(b) Even alternatively the quantum of addition is disputed.
3. Because the action is under challenge on facts & law, for
an addition of Rs. 16,300/- on account of advertisement
expenses being expenses debited as per statement of
BPTP.
2. Briefly stated facts as culled out from the records are that
the assessee, individual has shown source of income from dealing
in real estate, pension, house property, interest from bank etc.
For the year under consideration the assessee filed return of
income on 30/07/2010 declaring income of Rs.10,22,210 and
agriculture income of Rs.45,000/-. The case of the assessee was
selected for scrutiny and notice under section 143(2) of the
Income-tax Act, 1961 (in short `the Act') was issued and in
response authorised representative of the assessee attended and
filed part of the replies, however, books of accounts were not
produced before the Assessing Officer. The Assessing Officer
noted that during the year under consideration the assessee
shown commission of Rs.12,35,491/- (inclusive service tax) from
a real estate company namely BPTP for property/flats etc sold
through him. From the details filed, the Assessing Officer
observed creditors for expenses amounting to Rs.42,72,362/-. It
was claimed by the assessee that said amount was payable since
01/04/2007. The assessee also filed a copy of ledger account for
sundry creditors from 01/04/2007 to 31/3/10 and monthly
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summary for the same period. The Assessing Officer noted
inconsistency in the closing balance of sundry creditors in ledger
account and monthly summary. According to the Assessing
Officer in the ledger account of sundry creditor, the closing
balance as on 31/03/2010 was Rs.51,79,269/- whereas the
closing balance in the monthly summary as on 31/03/2010 was
Rs.42,76,362/-. The Assessing Officer noted that no details
whatsoever of those creditors and no evidence of existence of
those creditors outstanding as on 31/03/2010 was filed before
him. The Assessing Officer further noted that the assessee
credited capital account by amount of Rs.16,77,034.85 on
account of writing back of sundry creditor for expenses and this
amount was rooted directly to the capital account instead of
rooting through the profit and loss account. In the circumstances,
the Assessing Officer called upon to explain the chargeability of
the said sum of Rs.42,76,362/- under the provisions of section
41(1) of the Act. The assessee contested that there cannot be any
unilateral cessation of the liability and the provision of section
41(1) of the Act cannot be attracted in the case of the assessee.
The submission of the assessee was rejected and addition was
made by the Ld. AO observing as under:
"The assessee has thoroughly and completely failed to prove that his
case does not fall within mischief of the section 41(1). His claim is
that no benefit is obtained by him by way of remission or cessation.
However, the fact is that the Limitation has struck in favour of the
assessee and he had obtained benefit by transferring part liability to
capital account. Even otherwise, he has failed to prove even the
existence of the creditors in current year or even their names,
conceding thereby that the creditors no more exist in his eyes.
The claim of the assessee regarding set off cannot be accepted since
no bad debts has been written off in P & L A/c or claimed. Even
proof of satisfaction of conditions under section 36(2) has not been
submitted. No confirmation or reconciliation of BPTP is submitted.
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Thus, the assessee cannot claim benefit of his own badly shaped
accounts by passing book entries into un-reconciled accounts
without furnishing any detail or evidence. In view of the above
discussion and for the reasons the creditors to the extent of Rs.
42,76,362/- cannot be accepted as existing or genuine and are
added to the income of the assessee. In this way net addition on this
comes to Rs. 42,76,362/-. I am satisfied that the assessee has
concealed his income by furnishing of inaccurate particulars of his
income on this account and therefore penalty proceedings u/s
271(1)(c) of the Income Tax Act, 1961 are hereby initiated.
(Addition Rs. 42,76,362/-)"
2.1 The Assessing Officer also made disallowance of
advertisement expresses of Rs. 16,300 and other disallowances.
The assessment was completed on 26/03/2013 assessing the
total income at Rs.62,78, 110/-.
2.2 Aggrieved, the assessee filed appeal before the Ld. CIT(A),
who partly allowed the appeal of the assessee. Aggrieved, the
assessee is in appeal before the Tribunal raising the grounds as
reproduced above.
3. In ground Nos. 1 and 2 of the appeal, the assessee has
challenged the action of the Ld. CIT(A) in not admitting the
additional evidences under rule 46A of the Income Tax Rules and
sustaining the addition of Rs.42,76,362/- on merit. The assessee
has also disputed the quantum of the addition.
3.1 The facts qua the issue in dispute are that the sundry
creditors amounting to Rs.42,76,362/- were observed by the
Assessing Officer since 01/04/2007. According to the Assessing
Officer part of the said liability (Rs.16.77 lakhs) was credited to
his capital account and thus acknowledged that the assessee was
no more required to pay those creditors. The Assessing Officer
also noted that no details to establish the existence of the
creditors in current year or even their names, conceding thereby
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that creditors no more existed. The Assessing Officer held the
cessation of the sundry creditors amounting to Rs.42,76,362/-
and the benefit accrued as deemed profit and gain of the business
under section 41(1) of the Act. During appellate proceedings, the
assessee filed additional evidences under rule 46A of Income Tax
Rules, 1962 to substantiate its claim that trading liability exist.
The Ld. CIT(A) forwarded the additional evidences to the
Assessing Officer for his comments. The Assessing Officer
objected to the admissibility of the additional evidences on the
ground that the assessee was provided several opportunity of
being heard and produce necessary documentary evidence to
support his contention, and there was no denial of opportunity on
the part of the Assessing Officer to file those documents. The Ld.
CIT(A) observed that the assessee in the submission has nowhere
mentioned as what prevented him from furnishing those
evidences during the course of assessment proceeding. The Ld.
CIT(A) after taking into account the provisions of the Rule 46A
and various judicial pronouncement on the issue of admissibility
of additional evidences concluded that assessee did not satisfy
the conditions laid down under Rule 46A for admissibility of the
additional evidence due to following reasons:
10. Coming to the facts of the instant case it is observed that done of
the listed (four) conditions envisaged under rule 46 have been
satisfied by the appellant, because of the following reasons.
a) As evident from the assessment order it's clear that several
opportunities have been given to the appellant.
b) The appellant has not been able to establish any sufficient
cause that prevented him from furnishing this evidence earlier.
c) Perusal of assessment order reveals that the AO has been
constantly calling information from the appellant and the
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appellant has been constantly denying the information to the
AO till the fag end of financial year.
d) And most importantly coming to the specifies of the
additional evidence furnished by the appellant it needs to be
appreciated that the appellant has not furnished before the AO
even the most basic information which would have been readily
available with him i.e. the complete list of the creditors along
with their addresses. I can understand if the appellant was
unable to furnish the confirmed copies of account of the
creditors as this information was dependent upon a third party
i.e. the creditors.-However the names of the creditors and their
addresses are the basic information which would have been
available with the appellant under any circumstances. The
appellant has been unable to give any justification for what
prevented him from furnishing the names and addresses of the
creditors as appearing in his books of account. This fact is
evident from the appellant's rejoinder reproduced in Para 5 of
the present order."
3.2 After rejecting the additional evidences, Ld. CIT(A) decided
the issue in dispute on merit observing as under:
"14. After perusing the order of the AO and the submission of the
appellant, my observation is as below:
a) The initial onus to authenticate the claims of the expenses
is of the assessee and once that is done then the onus is on the
Assessing Officer to prove why the credit balances arising out
the same transactions cannot be accepted as correct. In this
case the appellant has failed to even provide the names of the
creditors. In such a situation it is evident that the appellant has
failed to discharge his onus, when the burden of proof squarely
jay on his shoulders.
b) It is not the case that the appellant had provided the names
and addresses of the creditors and the AO failed to verify the
same by issuing summons u/s 131. In this case no such
occasion arose and in the absence of even the names of the
creditors the AO has rightly held that all the creditors are
nonexistent and thus there is no liability towards them as the
appellant does not even know the names of the creditors.
c) The. appellant is a property broker and is not engaged in the
business of manufacturing any goods wherein it can be held
that the creditors were on account of purchase of raw materials
and if the ^creditor are found to be non existing the purchases
made from them would be on account of bogus purchases and
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would thus disturb the GP of the appellant and would make an
unrealistic GP.
d) The assessee himself 'has credited 16.77 lacs to his capital
account out of creditors, thus, acknowledging that he is no more
required to pay them."
15. Before concluding it's pertinent to once again recap that the
onus lay on the appellant to provide the names and address of the
creditors, which the appellant failed to provide on both counts i.e. no
names were provided thus there is no question of furnishing their
addresses.
16. The terms burden of proof or onus probandi connotes the
obligation to prove a fact or facts, by adducing the necessary
evidence. The rule relating to burden of proof, as laid down in S-101
of the Evidence Act, is as follows: "Whoever desires any court to give
judgment as to any legal right or liability dependent on the existence
of facts which he asserts, must prove that these facts exist. When a
person is bound to prove the existen.ee of any fact, it is said that the
burden of proof lies on that person." The rule that the burden of
proof lies on the person who son who asserts a facts in the
affirmative is derived from the ancient maxim of Roman Law, ei qui
affirm at, non ei qui negat, incurnbit probation, and has been
adopted on two considerations: (i) In the nature of things a negative
is more difficult to establish than the affirmative; and (ii) where a
person has invoked the process of law to establish a case which is
based on the facts asserted by him, it is but reasonable that the
obligation to prove suchfacts should rest on him. And as has been
observed, the appellant totally failed to discharge his burden of
proof.
17. Thus after examining the assessment order and in light of my
observations above I see no reasons to interfere with the finding of
the AO. Thus Ground No. 1 of the appellant is dismissed."
3.3 Before us, the Ld. counsel of the assessee submitted that
the Ld. CIT(A) was not justified in rejecting the additional
evidences and deciding the issue without taking into
consideration those additional evidences. According to him, the
information in respect of the said creditors were called for in the
month of February/March, 2013 and authorised representative of
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the assessee had submitted the relevant details. The Ld. counsel
submitted that if certain details were not filed by the authorised
representative of the assessee before the Assessing Officer, the
assessee cannot be penalized by way of rejecting the additional
evidences produced before the Ld. CIT(A) in the appellate
proceedings. He requested that, in the interest of Justice, the
additional evidences might be admitted and the matter might be
restored to the file of the either Ld. CIT(A) or to the Assessing
Officer for deciding the matter afresh in the light of additional
evidences.
3.4 The Ld. DR, on the other hand, objected to the request of the
Ld. counsel on the ground that the assessee did not fulfil the
conditions of Rule 46A of the Income Tax Rules for admissibility
of the additional evidences. The Ld. DR submitted that in view of
the various decision cited by the Ld. CIT(A), the decision of
rejecting additional evidences is justified.
3.5 We have heard the rival submissions and perused the
relevant material on record. We find that the Assessing Officer
made the addition of observing that no detail in respect of the
sundry creditors and their existence was filed before him. The Ld.
CIT(A) also upheld the finding of the Ld. Assessing Officer
observing that the burden of proof was on the assessee to
produce necessary evidences and in view of the failure on the part
of the assessee, the action of the Ld. Assessing Officer were
justified.
3.6 We note that for invoking provisions of section 41(1) of the
Act, and holding the amount obtained by a person or the value of
the benefit accrued to him as deemed to be the profit or gains of
the assessee, following conditions are required to be fulfilled:
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1. The assessee must have claimed an allowance or deduction
in respect of the loss, expenditure for trading liability in
earlier years.
2. During the year under consideration the assessee must have
obtained whether in cash or in any other manner, any
amount in respect of such loss expenditure or some benefit
in respect of such trading liability by way of remission of
cessation thereof.
3.6 We find that in absence of evidences filed by the assessee;
both the authorities have not examined the issue of applicability
of provisions of section 41(1) of the Act in the case of the
assessee. In our opinion, in order to decide the issue in question,
it is important to admit the additional evidences filed by the
assessee. The Ld. counsel has submitted before us that those
evidences have not been filed due to ignorance on the part of the
authorised representative appearing before the Assessing Officer
and for which the assessee cannot be penalized. In view of the
submission of the Ld. Counsel, and in the interest of Justice, we
feel it appropriate to admit the additional evidences and restore
the matter in dispute to the Ld. CIT(A) for deciding a fresh after
analyzing the documents or the evidences, which the assessee
may file before him. The Ld. CIT(A) may call for remand report
from the Assessing Officer. We note that no books of accounts
were produced during the assessment proceeding, therefore we
direct the assessee to produce all the books of accounts along
with vouchers for the year under consideration before the
authorities. We also direct the assessee to produce confirmation
of the creditors along with their copy of ledger accounts, complete
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narration of the transaction alongwith documentary evidences,
and also produce those sundry creditors before the authorities for
verification of the their existence and transactions of the assessee
with them. To verify and ascertain facts in respect of the issue in
dispute, if the authorities feel it necessary, they may carry out
enquiries from the real estate companies, from whom the
assessee received commission and also from the customers to
whom the commission has been passed over. It is needless to
mention that the assessee shall be afforded sufficient opportunity
of being heard. In the result, issue in dispute is allowed for
statistical purposes.
4. In ground No. 3, the assessee has challenged disallowance of
Rs.16,300/- on advertisement. The Assessing Officer made
disallowance in view of the failure of the assessee to produce bills
of those expenses. The Ld. CIT(A) in his finding has recorded that
the authorised representative the assessee argued that those bills
were not essential for the allowability of the expenses and
accordingly confirmed that this disallowance.
5. We have heard arguments of the parties on the issue in
dispute. We find that issue in dispute related to sundry creditors
has already been restored to the file of the Ld. CIT(A). This
disallowance has been confirmed on the ground that no bills or
other documents in support of the expenditure have been
produced before the authorities. In the interest of substantial
Justice, we feel it appropriate to give one more opportunity to the
assessee to produce the bills of documents in support thereof,
accordingly, we restore this issue to the file of the Ld. CIT(A) for
deciding afresh, with the direction to the assessee to produce all
the bills and documentary evidence in support of the expenditure
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incurred wholly and exclusively for the purpose of the business.
The Assessing Officer as well the assessee shall be afforded
adequate opportunity of being heard on the issue in dispute. This
ground of the appeal is also accordingly allowed for statistical
purposes.
6. In the result, the appeal of the assessee is allowed for
statistical purposes.
Order is pronounced in the open court on 7th December, 2018.
Sd/- Sd/-
K.N. CHARY O.P. KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 7th December, 2018.
RK/-(D.T.D.)
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
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