K.H.Floor Gallery P.Ltd,, Palakkad v. ACIt, Palakkad

ITA 705/COCH/2010 | 2007-2008
Pronouncement Date: 29-07-2011

Appeal Details

RSA Number 70521914 RSA 2010
Bench Cochin
Appeal Number ITA 705/COCH/2010
Duration Of Justice 7 month(s) 7 day(s)
Appellant K.H.Floor Gallery P.Ltd,, Palakkad
Respondent ACIt, Palakkad
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 29-07-2011
Assessment Year 2007-2008
Appeal Filed On 22-12-2010
Judgment Text
ITA NO. 705/COCH/2010 1 IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN JM AND SANJAY AR ORA AM I.T.A. NO. 705/COCH/2010 ASSESSMENT YEAR:2007-08 M/S. K.H.FLOOR GALLERY (P.) LTD. 111/1057A MELE MANJALINGAL KALLADIPATTA PATTAMBI PALAKKAD- 679 313. [PAN: AAABCK 7406Q] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1 PALAKKAD (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI T.M.SREEDHARAN ADV.-AR REVENUE BY SHRI S.R.SENAPATI SR.DR O R D E R PER SANJAY ARORA AM: THIS IS AN APPEAL BY THE ASSESSEE ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-V KOCHI (CIT(A) FOR SHOR T) DATED 08/10/2010 DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S. 14 3(3) OF THE INCOME-TAX ACT 1961 ('THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 20 07-08 VIDE ORDER DATED 02.12.2009. 2. THE APPEAL RAISES THREE ISSUES WHICH WE SHALL D EAL WITH IN SERIATIM. GROUND NO. 3; THE FIRST TWO GROUNDS BEING GENERAL IN NATURE W ARRANTING NO ADJUDICATION IS REGARDING THE DISALLOWANCE OF EXPENDITURE ON FREIGHT EFFECTE D IN THE SUM OF ` 202160/- U/S. 40(A)(IA) OF THE ACT; THE ASSESSEE HAVING ADMITTEDLY NOT PAID THE TAX DEDUCTED AT SOURCE (TDS) BEFORE THE DUE DATE OF FILING OF THE RETURN U/S. 13 9(1) I.E. 31.10.2007 BUT ONLY SUBSEQUENTLY ON 16.12.2008 SO THAT THE SAID PROVIS ION STOOD ATTRACTED. THE SAME STOOD CONFIRMED IN APPEAL ON THE SAME BASIS. THE RELIANC E ON THE CASE LAW CITED BY THE ASSESSEE ITA NO. 705/COCH/2010 2 BEFORE THE FIRST APPELLATE AUTHORITY WAS FOUND BY H IM AS DISTINGUISHABLE AS WELL AS NOT STATING THE CORRECT LAW. AGGRIEVED THE ASSESSEE I S IN APPEAL. 3. BEFORE US THE LD. AR CONTENDED THAT THERE WAS N O PRIVITY OF THE CONTRACT BETWEEN THE ASSESSEE AND M/S. SEE-CONNECT TO WHOM THE FREI GHT CHARGES STAND PAID. IT IS ITS SUPPLIERS WHO ARRANGE FOR THE SHIPMENT OF GOODS TO THE ASSESSEE SETTLING THE CHARGES TO BE PAID TO THE TRANSPORTER/S AND WHICH IT DOES ON THE RECEIPT OF GOODS IN GOOD AND PROPER CONDITION. THE FACT OF PAYMENT OF TDS SUBSEQUENTLY WHICH WAS ONLY BY WAY OF ABUNDANT CAUTION WOULD NOT OPERATE TO DETERMINE IF THE TAX WAS INDEED DEDUCTIBLE AS HAS BEEN WRONGLY INTERPRETED BY THE REVENUE AUTHORITIES . THE PROVISION OF S. 40(A)(IA) WOULD THUS BE NOT APPLICABLE IN THE FACTS AND CIRCUMSTAN CES OF THE CASE. THE LD. DR ON THE OTHER HAND RELIED ON THE ORDERS OF THE AUTHORITIES BELOW STATING OF THEM TO HAVE APPLIED THE CLEAR PROVISION OF LAW TO THE UNDISPUTED FACTS OF THE CASE. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. 4.1 WE SHALL EXAMINE THE ASSESSEES CASE FROM TH E STAND POINT OF BOTH THE ARGUMENTS RAISED BEFORE US WHICH ARE EVEN OTHERWISE INTER-RE LATED. ITS STAND OF NO PRIVITY OF CONTRACT ATTENDING THE IMPUGNED PAYMENT IS CONTRARY TO THE ADMITTED FACTS ON RECORD. THE GOODS BOUGHT ARE SHIPPED FROM THE SUPPLIERS PREMIS ES TO THAT OF THE ASSESSEE FOR AN AGREED CONSIDERATION. THE ESSENTIALS OF THE CONTRA CT ARE SATISFIED. WHO BARGAINS WITH THE SHIPPER AND SETTLES THE TERMS AND CONDITIONS OF TH E TRANSACTION INCLUDING THE CONSIDERATION FOR THE SERVICES TO BE RENDERED I.E. EVEN ASSUMING IT TO BE THE ASSESSEES SUPPLIER(S) AS CONTENDED IS OF NO MOMENT. THE SAM E EVEN IF SO IS ONLY FOR AND ONL BEHALF OF THE ASSESSEE WHO BEARS THE FREIGHT CHARG ES. IT WOULD BE A DIFFERENT MATTER IF THE ASSESSEE THOUGH PAYS THE CHARGES DEBITS THE EXPEN SE TO THE SUPPLIERS ACCOUNT I.E. PAYS FOR AND ON BEHALF OF THE SUPPLIER/S ALBEIT ONLY ON THE RECEIPT OF THE GOODS SHIPPED WHICH THUS CAN BE SAID TO HAVE BEEN SHIPPED AND DELIVERED ON BEHALF OF ITS SUPPLIER/S. CLEARLY NO CLAIM FOR FREIGHT CHARGES WOULD ARISE IN SUCH A CASE AND CONSEQUENTLY THERE IS NO SCOPE FOR APPLICATION OF S. 40(A)(IA). IN OTHER WOR DS THE ASSESSEE HAS NO CASE THAT IT IS ITS ITA NO. 705/COCH/2010 3 SUPPLIER/S WHO ENTERED INTO THE CONTRACT/S WITH THE SHIPPER/S AND IT WAS IT WHO IS LIABLE FOR TDS WHILE WE HAVE FOUND SUCH A CLAIM AS EVEN OTHER WISE NOT MAINTAINABLE ON FACTS. AS APPARENT FROM THE ADMITTED FACTS THE GOODS PUR CHASED ARE EX THE SUPPLIERS GODOWN AND ARE SUBSEQUENTLY SHIPPED TO THE ASSESSEE -PURCHASERS DESTINATION AS ITS PROPERTY AT ITS RISK. THAT THE ASSESSEE MAY HAVE IN GOOD MEASURE TRANSFERRED OR MITIGATED THAT RISK BY OBLIGING THE TRANSPORTER PE R THE SERVICE CONTRACT TO DELIVER THE GOODS IN THE SAME CONDITION I.E. AS RECEIVED BY I T STIPULATING DAMAGES FOR DEFAULT IS AN ALTOGETHER DIFFERENT MATTER. SIMPLE QUESTIONS AS: WHO BEARS THE RISK OF DAMAGE IF ANY TO THE GOODS SUPPLIED ?; WHO IS RESPONSIBLE IF THE ASSESSEE DECLINES PAYMENT TO THE TRANSPORTER OR WHO COULD CLAIM COMPENSATION FROM THE TRANSPORTE R IN CASE OF DELAY IN DELIVERY ? ETC. ARISE DIRECTLY OUT OF THE TRANSACTION ANS WERS TO WHICH WOULD CLARIFY THE ISSUE WHILE NO SUCH CLAIMS HAVE BEEN MADE BY THE A SSESSEE. AS WE SEE IT IT IS A CLEAR CASE OF A PURE AND SIMPLE SERVICE CONTRACT AND NEI THER HAS THE ASSESSEE BROUGHT ANYTHING ON RECORD TO REBUT THIS UNDERSTANDING EMANATING FRO M THE CONDUCT OF THE PARTIES INVOLVED IN THE TRANSACTION/S. AS SUCH THE CONTENTION OF NO N-EXISTENCE OF ANY CONTRACT BETWEEN ITSELF AND THE FREIGHT CARRIER WHICH IS THE SAME F OR ALL THE THREE TRANSACTIONS COMPRISING THE IMPUGNED SUM SO THAT IT IS ONLY IN PURSUANCE T O A CONTINUING BUSINESS RELATIONSHIP IS FACILE AND A CONTRADICTION IN TERMS. THE MATTER IS PURELY ONE OF FACT TOWARD WHICH THE ASSESSEE HAS LED NO EVIDENCE WHATSOEVER MAKING ONL Y A BALD ASSERTION. 4.2 THE SECOND ASPECT OF THE ARGUMENT I.E. OF THE REVENUE WRONGLY INFERRING THE SUBSEQUENT DEPOSIT OF TDS BY IT AS AN ADMISSION OF THE TRANSACTION/S BEING A CONTRACT SUBJECT TO DEDUCTION OF TAX AT SOURCE IS AGAIN M ISCONCEIVED. AS WOULD BE APPARENT FROM THE FOREGOING PART OF THE DISCUSSION THE REVENUES CHARGE IS NOT AND COULD NOT POSSIBLY BE BASED ON THE ASSESSEES ADMISSION WHICH IS AT BEST SUPPORTIVE. FINDING THE CLAIM AS HIT BY S. 40(A)(IA) IT DRAWS CORROBORATION AND ON LY RIGHTLY SO FROM THE ASSESSEES SUBSEQUENT DEPOSIT OF TDS ON ITS OWN VOLITION. AS SUCH WHETHER THE SAME WAS DONE BY WAY OF ABUNDANT CAUTION OR ON BEING SATISFIED THA T THE PAYMENT TO THE TRANSPORTER IS CONTRACTUAL AND THUS HIT BY S. 194C R/W S. 40(A)( IA) IS NEITHER PROVED NOR RELEVANT. IT IS NOT THE VIEW THAT THE PARTIES MAY TAKE OF THEIR RES PECTIVE RIGHTS BUT ONLY THE CORRECT LEGAL ITA NO. 705/COCH/2010 4 POSITION THAT IS RELEVANT IS TRITE LAW [REFER: CIT V. C. PARAKH & CO. (INDIA ) LTD . (1956) 29 ITR 661 (SC)]. WE MAY NEVERTHELESS ADD THAT THE TDS STANDS DEDUCTED PRESUMABLY IN TIME AND FINDS REFLECTION IN THE ASSESSEES ANNUAL ACCOUNTS AS ON 31.3.2007 (PB PGS. 16 17). AS SUCH THE ASSESSEES CONTENTION OF THE DED UCTION AND THE SUBSEQUENT CONSEQUENTIAL DEPOSIT OF TAX - WHICH IS AGAIN MUCH PRIOR TO THE RAISING OF THE MATTER BY THE AO IN THE ASSESSMENT PROCEEDINGS AS BEING ONL Y A LATER PRE-EMPTORY TRANSACTION STANDS DISPROVED ON RECORD. 4.3 WE THEREFORE FIND NO MERIT IN THE ASSESSEES CLAIM AND ACCORDINGLY DISMISS ITS RELEVANT GROUND. NEEDLESS TO ADD THE ASSESSEE IS AT LIBERTY TO PURSUE ITS CLAIM QUA THE IMPUGNED DISALLOWANCE FOR THE SUBSEQUENT YEAR IN A CCORDANCE WITH LAW; S. 40(A)(IA) ONLY REGULATING THE TIMING OF THE ALLOWANCE WHERE THE TD S IS PAID. 5. THE FOURTH GROUND CONCERNS THE ADDITION OF ` 219670/- MADE BY INVOKING S. 41(1) OF THE ACT AND WHICH THE LD. CIT(A) CONFIRMED AS B EING ALSO COVERED BY S. 68 OF THE ACT. THE BRIEF FACTS OF THE CASE ARE THAT THE FOLLOWING TRADE PAYMENTS BEING AT OR IN EXCESS OF ` 1 LAKH WERE FOUND TO BE OUTSTANDING AS AT THE YEAR END:- 1. VENKATA RAMANA INDUSTRIES ` 1 00 000 2. LAXMAN GRANITES ` 1 19 670 TOTAL: ` 2 19 670 THE ASSESSEE WAS REQUIRED DURING THE ASSESSMENT PRO CEEDINGS TO PRODUCE COPIES OF ACCOUNT FROM THE SUPPLIER/S WHICH IT COULD NOT DES PITE GRANT OF AMPLE OPPORTUNITY. THE SAME WERE THUS TREATED AS BOGUS AND BROUGHT TO T AX U/S. 41(1) OF THE ACT BY THE AO. AT THE APPELLATE STAGE ALSO THE ASSESSEE FAILED TO FUR NISH ANY SUPPORTING EVIDENCE SO AS TO IMPROVE ITS CASE IN ANY MANNER. THE ONE CONFIRMATIO N I.E. FROM M/S. VENKATA RAMANA INDUSTRIES WHICH WAS FURNISHED (BEFORE THE LD. CIT (A)) WAS NOT IN ORIGINAL AND BESIDES WAS DATED 13.2.2009 . THE ASSESSEE DID NOT FURNISH ANY EXPLANATION AS TO WHY THE SAME WAS NOT SUBMITTED BEFORE THE AO WHO HAD ALLOWED AM PLE OPPORTUNITY FOR THE PURPOSE; ITA NO. 705/COCH/2010 5 THE ASSESSMENT HAVING BEEN CONCLUDED ONLY ON 2.12.2 009. THE HONBLE JURISDICTIONAL HIGH COURT HAD IN THE CASE OF CIT V . ANNAMAKUTY JOSE 221 CTR (KER.) 474 HELD THAT IF THE ASSESSEE COULD NOT PROVE THE TRANSACTION THE CREDI T IS TO BE DISALLOWED. THE DECISION IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS PVT. LTD. (1999) 236 ITR 518 (SC) RELIED UPON BY THE ASSESSEE WAS FOUND BY HIM AS DISTINGUISHABLE ON FACTS. ACCORDINGLY THE LD. CIT(A) CONFIRMED THE ADDITION. AGGRIEVED THE ASSES SEE IS IN APPEAL. 6. BEFORE US THE ASSESSEE SUBMITTED THAT THE MERE NON-FURNISHING OF THE CONFIRMATION WOULD NOT ENTITLE THE REVENUE TO APPLY S. 41(1) OF THE ACT WHICH COMES INTO PLAY ONLY WHERE THERE IS A CESSATION OF LIABILITY NOT OTHERW ISE. THERE IS NOTHING ON RECORD TO EXHIBIT SO I.E. CESSATION OF LIABILITY SO THAT THE REVEN UE HAD MIS-APPLIED THE PROVISION. IN FACT BOTH THE ACCOUNTS HAVE SINCE BEEN SETTLED SO THAT THE FINDING OF THE OUTSTANDING LIABILITY (AS ON 31.3.2007) AS BEING NON-EXISTENT IS IN CONT RADICTION TO THE OBTAINING FACTS. FURTHER RELIANCE WAS PLACED ON THE DECISIONS IN TH E CASE OF SARASWATI INDUSTRIAL SYNDICATE LTD. VS. CIT (1990) 186 ITR 278 (SC) AND CIT VS. ANCHERRY PAVOO KAKKU (1985) 160 ITR 88 (KER.). 7. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD AS WELL AS THE CASE LAW CITED. 7.1 WE FIRSTLY OBSERVE THAT OF THE TWO CREDITS T HE ONE FOR ` 1 LAKH RELATES TO THE CURRENT ASSESSMENT YEAR SO THAT THE PROVISION OF S. 41(1) WOULD NOT BE APPLICABLE THERETO WHILE COULD HOLD IN RESPECT OF THE OTHER CREDIT WHICH IS IN RELATION TO THE IMMEDIATELY PRECEDING YEAR (A.Y. 2006-07) (REFER THE ASSESSEES ARGUMENT NOTE DATED 5.10.2010 BEFORE THE LD. CIT(A) REPRODUCED AT PARA 3 PGS. 4 5 OF THE IMPU GNED ORDER). THE QUESTION ARISING AND THE REVENUES CASE AS WE OBSERVE IS NOT WHETHER T HE CORRESPONDING TRANSACTIONS ARE BOGUS OR NOT BUT WHETHER THE LIABILITY IN THEIR RE SPECT OUTSTANDS AS ON 31.3.2007 I.E. AT THE END OF THE RELEVANT YEAR AS REFLECTED IN THE B OOKS OF ACCOUNTS OR NOT. IF IT DOES NOT THE REVENUE IS UNDER NO OBLIGATION TO EXHIBIT THAT THE ASSESSEE HAD IN FACT OBTAINED ANY BENEFIT IN ITS RESPECT OR THERE HAS BEEN IN FACT A REMISSION OF LIABILITY BY THE CREDITOR. THE INITIAL ONUS THOUGH IS ON THE REVENUE; THE TRANSACT IONS APPEARING IN THE ASSESSEES REGULAR ITA NO. 705/COCH/2010 6 BOOKS OF ACCOUNT WITH THAT PERTAINING TO THE EARLI ER YEAR HAVING BEEN ALSO CLAIMED AS A DEDUCTION. THE SAME HOWEVER STANDS DISCHARGED AS THE ASSESSEE FAILS TO PRODUCE THE CONFIRMATION FROM THE CREDITORS REQUISITIONED UNDE R THE VERIFICATION PROCEDURE INITIATED U/S. 143(2). THE CREDIT/S WHERE NO LONGER REPRESEN TS A SUBSISTING LIABILITY THOUGH REFLECTED AS SUCH IN THE ACCOUNTS FOR THE RELEVANT YEAR WOULD BE SUBJECT TO TAX UNDER SECTION 28(I) ITSELF [REFER: CIT V. T.V. SUNDARAM IYENGAR & SONS LTD . (1996) 222 ITR 344 (SC)] EVEN AS A CREDIT IN THE YEAR MAY IN A GIVEN SET OF FACTS AND CIRCUMSTANCES WOULD ALSO BE LIABLE TO BE TREATED AS INCOME UNDER S.68. AT THE SAME TIME IRRESPECTIVE OF THE BASIS OF THE ORIGIN OF THE CREDIT WHERE FOUND TO R EPRESENT AN ACTUAL LIABILITY AT THE TIME OF ITS INCEPTION (OR EVEN SUBSEQUENTLY AS AT THE END OF THE IMMEDIATELY PRECEDING YEAR) WHILE NOT SO AS AT THE END OF THE RELEVANT YEAR WH ILE CONTINUING TO OUTSTAND IN THE BOOKS OF ACCOUNT IT COULD BE SUBJECT TO TAX UNDER SECTIO N 69/69A OF THE ACT. AS SUCH AN UNPROVED CREDIT/TRANSACTION COULD BE BROUGHT TO TAX UNDER MORE THAN ONE PROVISION WITH ONE BEING MORE APPROPRIATE IN THE GIVEN SET OF CIRC UMSTANCES THAN THE OTHER AND THE SECTION STATED IS OF LITTLE CONSEQUENCE AS LONG AS THE BASIS OF THE CHARGE IS THE SAME I.E. AN UNPROVED LIABILITY. IT IS IN THIS CONTEXT THAT THE LD. CIT(A) STATES RELYING ON THE DECISION IN THE CASE OF CIT V . ANNAMAKUTY JOSE (SUPRA) BY THE JURISDICTIONAL HIGH COURT THAT WHERE THE TRANSACTION IS NOT PROVED THE CREDI T COULD BE BROUGHT TO TAX. 7.2 WE MAY NOW EXAMINE THE FACTS OF THE CASE. THE ASSESSEE WAS CALLED UPON DURING THE ASSESSMENT PROCEEDINGS TO CONFIRM THE CREDIT BA LANCE(S) OUTSTANDING IN ITS BOOKS AS AT THE YEAR-END WHERE THE BALANCE(S) WAS AT OR IN EXC ESS OF ` 1 LAKH EACH WHICH WAS FROM THE TWO PARTIES AFORE-REFERRED THEREFROM. IT DID NOT PRODUCE ANY EVIDENCE EITHER IN THE FORM OF COPY OF THE ACCOUNT OR A CONFIRMATION. THE REASON FOR THE SAME AS STATED BEFORE THE FIRST APPELLATE AUTHORITY WAS NON-RESPONSE FRO M THE CONCERNED PARTIES TO WHOM LETTERS WERE WRITTEN BY IT. WHY WE WONDER WHEN AS CLAIMED THE AMOUNT HAD BE EN SETTLED AND THE LIABILITY DISCHARGED DURING THE FINANCIAL YEAR 2007-08 ITSELF . RATHER THE PARTIES HAVING RECEIVED THE PAYMENT SUBSEQUENTLY OUGHT TO HAVE CONFIRMED THE SAME AS WELL. IN FACT THE ASSESSEE COULD HAVE ITSELF FURNISHED THE DETAILS OF THE SUBSEQUENT PAYMENT/S WHICH IF THROUGH THE BANKING CHANNEL SO THAT THE SAME FOUND ITS WAY TO THE BANK ACCOUNT ITA NO. 705/COCH/2010 7 OF THE CREDITORS WOULD INDIRECTLY PROVE THE OUTSTA NDING AND IN ANY CASE IS SOME MATERIAL TOWARD THE SAME. SURPRISINGLY THE ASSESSEE DID NO T EVEN MENTION THE FACT OF THE SUBSEQUENT PAYMENT BEFORE THE AO FOR HIM TO HAVE IF REQUIRED PROCEEDED ON THOSE LINES. FURTHER NEITHER BEFORE THE AO NOR BEFORE T HE LD. CIT(A) THE ASSESSEE EXPRESSED ITS INABILITY TO OBTAIN THE CONFIRMATION OF THE CRE DIT(S) FURNISHING EVIDENCE/S WITH REGARD TO THE EFFORTS MADE BY IT IN ITS RESPECT AND REQUE STING THE AUTHORITY TO PROCEED BY COMMUNICATING DIRECTLY WITH THE PARTIES FURNISHING THEIR COMPLETE ADDRESSES. IT IN FACT EVEN ADVANCES NO REASON FOR THE `NON-RESPONSE BY T HE PARTIES WHILE FOR ALL WE KNOW IT MAY HAVE CONTINUED TO HAVE TRANSACTIONS WITH THEM. HOW COULD THEN ONE MAY ASK REVENUE BE FAULTED FOR CONCLUDING THE ASSESSEE AS H AVING BEEN UNABLE TO PROVE THE EXISTENCE OF THE LIABILITY AS ON THE RELEVANT DATE ? FURTHER THE ASSESSEE SUBMITS A COPY OF THE CONFIRMATION DATED 13.2.2009 FROM ONE OF THE PARTIES BEFORE THE LD. CIT(A). THI S AGAIN BEARS A CONTRADICTION: WHERE IS THE QUESTION OF WRITING A LETTER TO THE SAID PARTY WHEN IT HAS ALREADY FURNISHED THE CONFIRMATION TO T HE ASSESSEE; THE VERIFICATION PROCEDURE COMMENCING ONLY WITH THE ISSUE OF NOTICE UNDER SECT ION 143(2) ON 12.10.2009. SECONDLY AS NOTED BY THE LD. CIT(A) WHY WAS THE SAME NOT PR ODUCED BEFORE THE AO WHILE THAT TO HIMSELF IS ALSO A COPY THEREOF? HIS ACTION IN NON-A DMITTING THE SAME IS IN ACCORDANCE WITH LAW EVEN AS THE ASSESSEE HAS NOT SPECIFICALLY CONT ESTED THE SAME WHICH IS REGULATED BY R. 46A. IT ON THE CONTRARY CHARGES THE REVENUE OF HA VING NOT ISSUED SUMMONS TO THE SAID PARTY AND WHICH IS QUIZZICAL INDEED. EVEN BEFORE US THE ASSESSEE HAS NOT SUBMITTED THE DETAILS OF THE SUBSEQUENT PAYMENTS WHICH WOULD LEN D CREDENCE TO ITS CLAIMS AND IN EFFECT PROVE ITS CASE AS TO THE OUTSTANDING LIABIL ITY TO THE STATED EXTENT. EVEN NO DETAILS OF THE PAYMENTS HAVE BEEN SPECIFIED WHICH ON BEING V ERIFIED AS NOTED EARLIER COULD ESTABLISH ITS CASE. AS IT APPEARS THE SAME ARE IN CASH AS IF BY ACCOUNT PAYEE CHEQUE/S AS IS ALSO THE MANDATE OF LAW (S. 40A(3)) THE SAME WO ULD GO TO ADVANCE THE ASSESSEES CASE WHICH THUS IS COMPLETELY UN-EVIDENCED. EVEN NO P LEA FOR RESTORATION OF THE MATTER ON THE GROUND OF BEING ABLE TO PROVE THE SUBSEQUENT DI SCHARGE/PAYMENT OF THE LIABILITY TO THE SATISFACTION OF THE REVENUE HAS BEEN RAISED BEFORE US. ACCORDINGLY WE FIND NO BASIS OR REASON TO INTERFERE WITH THE IMPUGNED ORDER MADE B Y DRAWING COGENT INFERENCES ON THE OBTAINING FACTS AND CIRCUMSTANCES OF THE CASE. THE DECISION BY THE JURISDICTIONAL HIGH ITA NO. 705/COCH/2010 8 COURT IN THE CASE OF CIT V. ANNAMAKUTY JOSE (SUPRA) IS APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND STANDS RIGHTLY APPLI ED BY THE LD. CIT(A) WHICH RELIANCE HAS AGAIN NOT BEEN MET BY THE ASSESSEE. WE DECIDE A CCORDINGLY. 7.3 WITH REGARD TO THE CASE LAW CITED THE DECISION IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS PVT. LTD . (SUPRA) PROVES IF ANY WAS REQUIRED THAT THE QUEST ION OF EXISTENCE OF A LIABILITY (AS ON A PARTICULAR DATE) IS PURELY A QU ESTION OF FACT; THE APEX COURT CLARIFYING THAT THE UNILATERAL WRITE BACK IN ITS ACCOUNTS BY T HE ASSESSEE WOULD NOT BY ITSELF BE CONCLUSIVE OF THE FACT OF CESSATION OF LIABILITY. W E HAVE AS ALSO THE REVENUE AUTHORITIES SOUGHT TO DRAW OUR CONCLUSION AS TO THE EXISTENCE O R OTHERWISE OF THE LIABILITY ON THE RELEVANT DATE ON THE BASIS OF THE ENTIRETY OF THE F ACTS BEFORE US. ALSO EXPLANATION 1 TO S. 41(1) MEETS THE CITED DECISION BY THE APEX COURT W HICH HAS ALSO BEEN FOUND DISTINGUISHABLE ON FACTS AS ALSO POINTED OUT BY TH E LD. CIT(A) WITH WE FURTHER OBSERVING THAT THE ISSUE AT LARGE IS NOT STRICTLY THE APPLICA TION OF S. 41(1) BUT OF PROVING THE LIABILITY. THE DECISION IN THE CASE OF SARASWATI INDUSTRIAL SYNDICATE LTD. VS. (SUPRA) IS AGAIN ON A DIFFERENT FOOTING ALTOGETHER I.E. WHERE THE LIABILITY DEVOLVES ON A THIRD PARTY AND CONSEQUENTLY OF NO APPLICATION IN THE PRESENT CASE EVEN AS THE SUBSEQUENT AMENDMENT IN LAW (CLAUSE (B) OF S. 41(1) R/W EXPLANATION 2 THERETO) EFFECTIVELY NEUTRALIZES THE SAME. THE THIRD DECISION I.E. IN THE CASE OF ANCHERRY PAVVU KAKKU ( SUPRA) IS ALSO EQUALLY INAPPLICABLE; IT BEING ADMITTED THAT THE CREDITS UN DER REFERENCE ARE QUA A TRADING LIABILITY TAKEN INTO ACCOUNT IN COMPUTING THE TAXABLE INCOME FOR THE YEAR IN WHICH THEY AROSE. IN FACT AS OBSERVED EARLIER S. 41(1) WOULD NOT APPLY TO THE CREDIT OF ` 1 LAC WHICH ORIGINATES IN FEBRUARY 2007. 8. THE THIRD AND LAST ISSUE RAISED PER GROUND NOS. 5 TO 8 IS IN RESPECT OF ADDITION OF ` 25.49 LAKHS EFFECTED BY THE AO BY INVOKING S. 68 O F THE ACT. THE ASSESSEE IS A DEALER IN SANITARYWARE MARBLES GRANITES AND VITRIFIED TILES . THE ACCOUNTS REVEALED THE ASSESSEE TO HAVE RECEIVED VARIOUS AMOUNTS IN CASH FROM TIME TO TIME UNDER THE ACCOUNT HEAD ADVANCE. IN EXPLANATION THE ASSESSEE SUBMITTED THAT AS IT DID NOT KNOW THE SEVERAL ITA NO. 705/COCH/2010 9 PERSONS WHO CAME TO IT FOR PURCHASE OF SPECIFIED MA RBLES AND GRANITES IT AS A PRUDENT BUSINESSMAN ACCEPTS `ADVANCE FROM THEM AGAINST TH EIR ORDER/S. NOT DOING SO WOULD EXPOSE IT TO THE RISK OF THEIR NOT COMING FORWARD S UBSEQUENTLY FOR PURCHASING THE MATERIALS WHICH ARE FOR SPECIFIC QUALITY AND QUANT ITY. THE SAME WAS FOUND NOT CONVINCING BY THE AO AS WHAT THE ASSESSEE WAS SELL ING WAS ONLY EASILY AVAILABLE MERCHANDISE IN THE MARKET FOR WHICH NO PRUDENT BUS INESSMAN/CUSTOMER WOULD PAY IN ADVANCE. IT IS SURPRISING THAT THE ASSESSEE DID NO T KNOW THE NAMES AND ADDRESSES OF THE PARTIES WITH WHOM HE WAS DEALING. THE ONUS TO PROV E THE CREDIT/S IN ITS BOOKS BEING SQUARELY ON THE ASSESSEE IT HAD COMPLETELY FAILED TO PROVE THE SAME IN ANY RESPECT. HE FURTHER FOUND THAT THE ASSESSEES DAY-BOOK REVEALE D NEGATIVE CASH BALANCE ON MOST DAYS OF THE PREVIOUS YEAR. IT WAS THUS CLEAR THAT THE ADVANCES SHOWN WERE ONLY TO MAKE GOOD THE CASH DEFICIENCY ON THE RESPECTIVE DATES. ACCOR DINGLY THE BALANCE IN THE `ADVANCE ACCOUNT AS ON 31.3.2007 I.E. ` 2548623/- WAS ADDED AS UNEXPLAINED CREDIT U/S. 68. THE SAME STOOD CONFIRMED IN APPEAL FOR THE SAME REASONS ; THE LD. CIT(A) OBSERVING THAT THE ASSESSEE HAD FAILED TO FURNISH THE PARTICULARS OF THE CREDITORS CONFIRMATIONS ETC. FINDING THE DECISION IN THE CASE OF CIT V. ANNAMAKUTY JOSE (SUPRA) AS APPLICABLE IN THE OBTAINING FACTS AND CIRCUMSTANCES. AGGRIEVED THE ASSESSEE I S IN APPEAL. 9. BEFORE US THE LD. AR SUBMITTED THAT THE REV ENUE AUTHORITIES ERRED IN INVOKING S. 68 QUA TRADE CREDIT WHICH NECESSITATED BY BUSINESS CONS IDERATIONS GETS NEUTRALIZED WITHIN A `FEW DAYS. ADVERTING TO THE STATEMENT OF THE PROFI T AND LOSS ACCOUNT (PB PGS. 14 15) HE FURTHER SUBMITTED THAT THE CLOSING STOCK AS AT THE YEAR-END IS AT ` 99.72 LAKHS WHICH WOULD SHOW THAT THE ASSESSEE IS ADEQUATELY CAPITALIZED A ND HAS SUFFICIENT WORKING CAPITAL SO THAT IT NEED NOT RESORT TO SUCH INGENIOUS METHODS T O MEET ANY `IMAGINED DEFICIENCY IN CASH. THE LD. DR ON THE OTHER HAND RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 10. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. WE FIND THE ASSESSEES CASE AS WHOLLY UNSUBSTANTIATED. THE EXP LANATION ITSELF IS BIZARRE AND COMPLETELY UNSUPPORTED ON FACTUAL PARAMETERS. IF AS STATED THE `ADVANCE IS RECEIVED FOR AN ORDER BOOKED FOR SPECIFIED MARBLES/GRANITES IT WOULD FURNISH A RECEIPT DULY SIGNED TO ITA NO. 705/COCH/2010 10 THE PROSPECTIVE CUSTOMER/PAYER WHICH ONLY WOULD EV IDENCE THE RECEIPT OF THE ADVANCE. ALSO THE `ORDERS BOOKED I.E. AGAINST WHICH THE ADVANCES STAND RECEIVED WOULD AGAIN CONSTITUTE AN INTEGRAL EVIDENCE. IF NOT EXACTLY IS SUING SERIALLY NUMBERED ORDERS; THE SAME ONLY FORMING PART OF A REGULAR PRACTICE BEARING A HIGH FREQUENCY THERE WOULD BE SOME RECORD IN RESPECT OF THE ORDERS BOOKED. HOW ELSE COULD AN ADVANCE BE CORRELATED WITH A PARTICULAR ORDER ? THEN AGAIN HOW WOULD THE PARTICULARS OF THE GOO DS ORDERED STORED AND CONSEQUENT ACTION FOR THE DELIVERY OF GOODS INCLUD ING FOLLOW UP WITH THE SUPPLIERS TAKEN. THAT IS THE ISSUE OF A `RECEIPT AND AN `ORDER (O R THE MAINTENANCE OF A RECORD IN ITS RESPECT) BOTH OF WHICH ARE CONSPICUOUS BY THEIR AB SENCE IN THE ASSESSEES FACTUAL EXPLANATION CONSTITUTE THE ESSENTIAL INGREDIENTS O F THE TRANSACTION AND WHICH ONLY WOULD PROVIDE SUBSTANCE AND LIFE TO THE ASSESSEES EXPLAN ATION. WHAT WOULD BE THE EVIDENCE OF A PARTY HAVING GIVEN THE ADVANCE ONE MAY ASK AND AG AINST A PARTICULAR ORDER ? FURTHER THE ABSENCE OF THE GOODS ORDERED IN STOCK ON THE DA TE OF ADVANCE AND CORRESPONDINGLY THEIR PRESENCE ON THE DATE OF ITS SUBSEQUENT SUPPLY WOULD ONLY COMPLETE THE ASSESSEES EXPLANATION WHICH THUS IS WANTING IN ALL MATERIA L RESPECTS; IT IN FACT WE FIND AS HAVING NOT FURNISHED EVEN THE PRIMARY DETAILS IN THE FORM OF THE NAMES AND ADDRESSES OF ITS CUSTOMERS NOT TO SPEAK OF A CONFIRMATION THERE-FRO M (IN ESTABLISHMENT OF THE ONUS AS REGARDS IDENTITY). THE ASSESSEES EXPLANATION UNDE R THE CIRCUMSTANCES IS NO MORE THAN A BALD ASSERTION. THE ASSESSEE HAS FURNISHED THE `ADVANCE ACCOUNT ( PB PGS. 1-13) WHICH SHOWS A GROSS RECEIPT OF ` 78.83 LAKHS AND DEBIT OF ` 54.87 LAKHS. THE SAME BEARS A MISTAKE AS THE NET CREDIT BALANCE IN ACCOUNT AS ON 31.3.2007 IS NO T ` 23.96 (78.83 - 54.87) LAKHS I.E. AS EXHIBITED BY THE ACCOUNT STATEMENT PRODUCED BUT AT ` 25.49 LAKHS (REFER BALANCE-SHEET/PB PG. 17). FURTHER EVEN AS S. 68 OF THE ACT WOULD AP PLY FOR THE TOTAL GROSS RECEIPT IN OUR VIEW THE AO HAS RIGHTLY ALLOWED TELESCOPING BENEFIT AND APPLIED S. 68 ONLY QUA THE NET CREDIT BALANCE WHICH ALSO REPRESENTS THE PEAK CRED IT FOR THE YEAR. THIS IS AS THE REVENUES CASE ESSENTIALLY IS THAT THE SAID AMOUNT IS ONLY TO MEET THE SHORTFALL IN CASH ON ITS BOOKS ROUTED IN ITS ACCOUNTS THROUGH THE ADVAN CE ACCOUNT WHICH FINDING EMANATING FROM THE ASSESSEES BOOKS HAS NOT BEEN MET BY IT I N ANY MANNER AND FACTUALLY DISPROVES THE ASSESSEES CLAIMS. FURTHER STILL AS OBSERVED D URING THE HEARING BY THE BENCH TO NO ITA NO. 705/COCH/2010 11 SATISFACTORY ANSWER BY THE LD. AR THE IMPUGNED CRE DIT BALANCE (WHICH IS THE OUTSTANDING IN THE ADVANCE A/C AS AT THE YEAR-END) REPRESENTS T HE RECEIPT FOR THE LAST 5 MONTHS I.E. THE `FEW DAYS STATED BY HIM EXTEND TO 150 DAYS. IT IS FOR THESE REASONS THAT WE STATED OF THE ASSSESSEES CASE/EXPLANATION AS BIZZARE. WITHOUT DOUBT THE EXPLANATION IS WHO LLY UNSATISFACTORY AND DE HORS ANY FACTUAL INPUTS/MATERIALS. SEC. 68 OF THE ACT ACCORDINGLY ST ANDS RIGHTLY INVOKED AND APPLIED AS ALSO CONFIRMED BY THE ASSESSING AND THE FIRST APPE LLATE AUTHORITY RESPECTIVELY. WE DECIDE ACCORDINGLY. 11. IN THE RESULT THE ASSESSEES APPEAL IS DI SMISSED. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 29TH JULY 2011 GJ COPY TO: 1. M/S. K.H.FLOOR GALLERY (P.) LTD. 111/1057A MEL E MANJALINGAL KALLADIPATTA PATTAMBI PALAKKAD - 679 313. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE - 1 PALAKKAD. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-V KOCH I 4. THE COMMISSIONER OF INCOME-TAX THRISSUR. 5. D.R. I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE. ITA NO. 705/COCH/2010 12