IN THE HIGH COURT OF KARNATAKA AT BENGALURU ON THE 1ST DAY OF APRIL, 2019 BEFORE THE HON'BLE MR. JUSTICE RAVI MALIMATH AND THE HON'BLE MR. JUSTICE S. G. PANDIT I.T.A.NO.791 OF 2018 BETWEEN:
1. THE PR. COMMISSIONER OF INCOME TAX-4 C R BUILDINGS QUEENS ROAD BENGALURU.
2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 4(3)(1) BMTC BUILDING KORMANGALA BENGALURU.
(BY SRI. E.I.SANMATHI, ADVOCATE) AND:
SRI B.T.NAGRAJ REDDY SY.NO.63/1, NO.671 IDUSTRIAL ESTATE, HOSUR ... APPELLANTS MAIN ROAD, ANEKAL TALUK BOMMASANDRA BENGALURU-560 009 ... RESPONDENT THIS APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED: 01.06.2018 PASSED IN ITA NO.1386/BANG/2017, FOR THE ASSESSMENT YEAR 2011-2012.
THIS APPEAL COMING ON FOR ADMISSION THIS DAY, S.G.PANDIT J., DELIVERED THE FOLLOWING:
JUDGMENT Aggrieved by the order dated 01.06.2018 passed in ITA No.1386/Bang/2017 by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (hereinafter referred to as ‘the ITAT’ for short), the revenue is in appeal.
2. The assessee is running the business of supply of construction materials. The assessee has five units. The assessee filed returns for the assessment year 2011-12. The returns filed was selected for scrutiny and notice under Section 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for short) was issued. In pursuance of the said notice, a representative of the assessee appeared before the Assessing Authority. The assessee was asked to explain sundry creditors which were continued in the books of accounts without any change. The assessee was specifically asked to explain why the unclaimed credit balances should not be brought to taxation. The Assessing Officer not being satisfied with the explanation furnished by the assessee brought to tax a sum of Rs.2,52,71,577/-. Aggrieved by the assessment order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) (hereinafter referred to as ‘the Appellate Authority’ for short) in Appeal No.656 of 2014-
15. The Appellate Authority by its order dated 27.03.2017 allowed the appeal in part holding that the Assessing Officer could not have invoked provisions of Section 41(1) of the Act in the absence of any material evidence on record and held that the addition of Rs.2,52,71,577/- is to be deleted. The revenue, aggrieved by the said order filed appeal before the ITAT, ‘B’ Bench, Bengaluru in ITA No.1386 of 2017. The ITAT dismissed the appeal filed by the revenue, against which the present appeal is filed.
3. Heard the learned counsel for the appellants and perused the appeal papers.
4. Learned counsel for the appellants would submit that the Tribunal failed to appreciate that the assessee had failed to furnish PAN numbers and address of the creditors for verification. It is further submitted that the ITAT committed an error in accepting additional evidence. Hence, prays for admitting the appeal to consider the substantial questions of law suggested in the memorandum of appeal.
5. Having heard the learned counsel for the appellants and on perusal of the appeal papers, we are of the view that no substantial question of law would arises for consideration in this appeal. Under Section 260A of the Act, the appeal from the order of the ITAT could be entertained by the High Court if it is satisfied that the appeal involves a substantial question of law. In the case on hand, the assessee filed returns for the assessment year 2011-12. The case of the assessee was selected for scrutiny and notice was issued under Section 143(2) of the Act on 06.08.2013. Subsequently, notice dated 24.02.2014 was issued asking the assessee to explain sundry creditors which have been continued in the books of accounts without any change. He was also asked to explain why the unclaimed credit balances should not be brought to tax invoking Section 41(1) of the Act. The assessee submitted his explanation with regard to sundry creditors. The Assessing Authority on the ground that the assessee has not furnished PAN numbers or address of the creditors brought to tax an amount of Rs.2,52,71,577/-. The assessee filed appeal against the assessment order. The Appellate Authority allowed the appeal and deleted addition of Rs.2,52,71,577/- for the purpose of taxation holding that the Assessing Officer has failed to make any cross-verification as to remission or cessation of liability before invoking the provision of Section 41(1) of the Act. The revenue filed appeal against the appellate order before the ITAT. The ITAT also rejected the appeal of the revenue holding that the Appellate Authority has rightly deleted the addition noting that there is no evidence to show remission of liability or cessation of liability.
6. Section 41(1) of the Act reads as follows:
“(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year;-
(a)the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income- tax as the income of that previous year.
Explanation 1:- For the purposes of this sub-section, the expression “loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof” shall include the remission or cessation of any liability by a unilateral act by the first-mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.
Explanation 2:- For the purposes of this sub-section, “successor in business” means, -
(i) where there has been an amalgamation of a company with another company, the amalgamated company;
(ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person;
(iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm;
(iv) where there has been a demerger, the resulting company.”
To attract the above provision, the Assessing Officer, based on available material ought to have verified as to whether there is any remission or cessation of liability. In the absence of any such verification, the Assessing Officer could not have added such amount of credit for taxation. Therefore, the Tribunal has rightly held that in the absence of any material evidence, the assessing authority could not have invoked Section 41(1) of the Act. We see no error or illegality in the order passed by the ITAT.
5. As stated above, no substantial question of law would arise for consideration in the appeal. Accordingly, the appeal is dismissed.
Sd/- Sd/-
JUDGE JUDGE mpk/-* CT:bms