TaxTMI 
TaxTMI 
2009 (4) TMI 542
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....ngs, the Assessing Officer found that assessee has been purchasing raw material from kasais situated in Hapur, Khurja, Saharanpur and Meerut area. However it did not provide any evidence for payment to them except addresses of respective parties and the amount paid. The assessee is also found issuing bearer cheques of State Bank of India, Bulandshaher Road, Hapur Branch. Some kasais or agents have been receiving money through these bearer cheques. In order to verify the purchases, the Assessing Officer issued letters under section 133(6) at the addresses provided by the assessee. The Assessing Officer required from those persons the details of day-to-day dealing with the assessee, PAN and other details about their assessment. The Assessing Officer issued about 57 letters. He did not receive any reply in 23 cases. In 14 cases, the letters were received back without service. Only in 20 cases respective persons filed copy of accounts of assessee or any reply. The Assessing Officer also obtained the details of bank account from which withdrawals were made for making payment to these persons. The Assessing Officer then confronted the assessee about his findings. It was replied to the As....
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....41(1), an addition of Rs. 1,03,53,805 being total credits standing in the balance sheet as not proved. 5. The ld. CIT(A) deleted both the additions. In respect of addition under section 40A(3), the ld. CIT(A) relied on the decision of Hon'ble Madras High Court in the case of CIT v. K.K.S.K. Leather Processor (P.) Ltd. [2007] 292 ITR 669 and held that provisions of rule 6DD(f)( ii) would be squarely applicable to the facts of the case. He also referred to the decision of the Delhi Bench of the Tribunal in the case of Dy. CIT v. Hind Industries Ltd. [2008] 26 SOT 196 for the proposition that where payment is made in cash to agents for purchase of products of animal husbandry then it could not be taken away from the purview of exclusionary clause of rule 6DD. Similar view was taken by the ITAT Bangalore Bench in the Sri Renukeswara Rice Mills v. ITO [2005] 93 ITD 263. Thus, the ld. CIT(A) held that the payment made directly by the assessee to the producers of raw hide/skin is covered by the decision of Hon'ble Madras High Court in the case of K.K.S.K. Leather Processor (P.) Ltd. (supra) and wherever payments is done through agents then it is covered by the decisions of the Tribunal....
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....to produce these persons personally in view of the fact that the matter is time barring one. This letter has been filed by the assessee some time in the third/fourth week of December, 2006 and in reply to the Assessing Officer letter dated 8-12-2006 received by the assessee on 14-12-2006. The assessee, instead, intend filed certificate in respect of some of these persons from local Sabhasad mentioning that these persons are kasais and work in a group. The Assessing Officer being not satisfied with the reply and the certificate from a third party in respect of some of these persons proceeded to disallow 20 per cent of amount of purchases by observing that cash payments have been made to all these persons in violation of section 40A(3), read with rule 6DD(f)( ii). 2. The CIT(A) while dealing with the issue has given a negative finding in his order. He has mentioned that the very fact that the Assessing Officer has invoked the provisions of section 40A(3) goes to prove that purchases made from all these 57 persons are genuine. Further, he mentions (para 17 page 7) that there is no finding given by the Assessing Officer on the amount of purchases debited to the trading/manufacturing....
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.... section 68 or 69C. The CIT(A), instead of doing this completely skirted the issue and held that the provisions of section 41(1) are not applicable. Even while discussing as to why the provisions of section 41(1) are not applicable, he has not appreciated and discussed the facts as to how these trade creditors are still existing as opposed to cassation of liability in these cases. The minimum requirement for him was to discuss party-wise that these parties are still existing or so are their claims against the assessee. This was the minimum requirement even to hold that the provisions of section 41(1) are not applicable. 7. The arguments mentioned in the above paragraphs are without prejudice to my argument that the provisions of section 68 or 69C are applicable. In support of this proposition of mine I am relying upon the case of CIT v. Smt. Annamkutty 174 Taxman 328 (Ker.). Further, in view of the peculiar facts of this case, the CIT(A) has proceeded in wrong direction and, therefore, it is my request to the Hon'ble Bench that in view of the factual situation obtaining in this case which is based on the material on the record, the both the issues mentioned above may be remanded....
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.... sustainable under section 68. The Tribunal cannot go beyond the subject-matter and scope of appeal before it. He submitted that the case of the assessee is covered by the decision of Hon'ble Madras High Court in the case of K.K.S.K. Leather Processors (P.) Ltd. (supra) and the Tribunal decisions in the case of Sri Renukeswara Rice Mills (supra) and Hind Industries Ltd. (supra). He strongly supported the order of the ld. CIT(A). 9. We have considered the rival submissions and perused the material on record. In our considered view, there is no case for interfering in the order of the ld. CIT(A). So far as addition under section 40A(3) is concerned, the undisputed facts are that assessee has purchased raw hides/skins for the purposes of manufacturing leather and leather products from local producers either directly or through their agents. Even though the Assessing Officer issued letters to various producers and some of these have come back unserved but it does not prove that the producers of the skin from whom assessee had made purchases are non-existent. Assessee had requested to issue commission for examining those persons or to issue letters afresh at the new addresses or perm....
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....nimal Husbandry (including hides and skins) or dairy poultry farming: of (iii)fish or fish products; or (iv)the produce of horticulture or apiculture; to the cultivator, grower or producer of such articles, produce or products." 11. It is nowhere denied that assessee has not purchased part of its raw material directly from the producers. Thus, direct purchases would be covered under rule 6DD(f)( ii). The Circular No. 08/2006, dated 6-10-2006 to the effect that provisions of rule 6DD(f)( ii) would not be applicable for purchases of animal husbandry product including hides/skins directly from the producers, would be effective with effect from 6-10-2006 when Circular was issued and not to an earlier assessment years. In this regard we refer to the Circular No. 4 of 29/03/2006 - 8/2005/ITA-II [2006] 282 IT, as under :- Subject : Clarification regarding the meaning of the expression "the produce of animal husbandry" used in sub-clause (ii) of clause (f) of rule 6DD of the Income-tax Rules, 1962. To, All Chief Commissioners/ Directors General of Income-tax. Subject : Clarification regarding the meaning of the expression "the produce of animal husbandry" used in....
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....ause (f) of rule 6DD of the Income-tax Rules, 1962. To All Chief Commissioners/ Directors General of Income-tax. Subject : Clarification regarding the meaning of the expression "the produce of animal husbandry" used in sub-clause (ii) of clause (f) of rule 6DD of the Income-tax Rules, 1962. Reference is invited to the clarification issued vide Circular No. 4 of 2006, dated 29-3-2006, on the above subject. Vide this Circular, it was clarified that the expression "the produce of animal husbandry" used under rule 6DD(f)(ii ) would include "livestock and meat" and in a case where payment exceeding rupees twenty thousand made to a producer of the products of animal husbandry (including livestock, meat, hides and skins) otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft for the purchase of such produce, no disallowance should be attracted under section 40A(3), read with rule 6DD. It was further clarified that the above exception will not be available in respect of payment for the purchase of livestock, meat, hides and skins from a person who is not proved to be the producer of these goods and is only a trader, broker or any other middleman by wha....
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.... relating to retrospectivity of Circulars issued by CBDT is described below. 12.1 Where the CBDT issued a Circular denying a benefit to the taxpayer but later realized that it has taken a wrong view and subsequently modified its view by issuing a clarificatory Circular than such subsequent Circular will have a retrospective effect and will be deemed to be effective from the date of original Circular. This view was taken by Hon'ble Karnataka High Court in CIT v. God Granites [1999] 240 ITR 343 . In that case, assessees exported partly cut and polished granite. CBDT issued Circular No. 693(1), dated 17-11-1994, laying down that granite which was not cut and polished would not be entitled to special deduction under section 80HHC. Subsequently, a Circular No. 729(2), dated 1-11-1995 was issued which stated that rough granite cut into dimensional blocks of uniform colour and size would be entitled to special deduction under section 80HHC. Subsequent Circular No. 729, dated 1-11-1995, was held clarificatory and having retrospective effect. 12.2 Circulars issued by the CBDT to dilute the rigours of law and to provide benefit to a taxpayer will have a retrospective effect. This was s....
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....ospectively creates a duty on a tax payer than Court and Tribunal may intervene to hold against retrospective effect of such Circulars. A Circular, giving concessions can be withdrawn only prospectively - CIT v. N.T. Ramarao (HUF) [1987] 163 ITR 453 (AP). 12.5 Where a Circular was issued after the completion of assessment then such assessment cannot be prejudicially affected by such Circulars. They cannot be even used in reassessment proceedings for that year. [ref. Rajarajeswari Weaving Mills v. ITO [1978] 113 ITR 405 (Ker.); Rajnikant Narmadashankar v. C.L. Munshi [1982] 134 ITR 310 (Bom.); Peria Karmalai Tea & Produce Co. Ltd. v. CIT [1980] 124 ITR 899^4 (Ker.)-SLP dismissed by Hon'ble Supreme Court in [1983] 144 ITR (St.) 13 (SC); Smt. Rajeshwari Birla v. WTO [1979] 119 ITR 629 (Cal.). However, where a new Circular has occupied the field before the beginning of the assessment year then they will be binding on the Assessing Officer and assessee cannot take the benefit of an earlier Circular, [ref. Ambika Construction v. ITO [1998] 234 ITR 716 (Pat.)] 13. When we view the facts of the present case in the light of above authorities we notice that the Circular No.....
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....6DD(f)(ii ) on direct purchases made from the producers is supported by the decision of Hon'ble Madras High Court in the case of K.K.S.K. Leather Processors (P.) Ltd. (supra). The head notes from that decision are reproduced below :- "Held, (i) that as a matter of fact, the Tribunal noted that a large quantity of sale of wet blue was stated to be out of the previous year's closing stock and current year's purchases. Further, verification of the regular accounts could not be considered as additional evidence. No addition to income could be made on the ground of undervaluation of stock. (ii) That the assessee had produced necessary grounds for making cash payment. The Tribunal noted that these payments were made to small time vendors, who came from surrounding villages to sell the skin and the process of dressing the skin done without the aid of power. The Tribunal also noted from the order of the Commissioner, that considering the fact that the purchases were made from the unorganised sector, cash payments were indispensable. The order of the Tribunal with regard to the cash payments was justified. 15. It is clearly held above that where payments were made to small vendors,....
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....correctly invoked this provision. There is neither any remission nor cessation of the liability. The Assessing Officer has simply added all the credits appearing in the balance sheet which could not be hit by section 41(1). The liability to the assessee should cease to exist either due to operation of law or by an order of the Court or by limitation, i.e., for cessation of liability there should be application of some external force. There is no role of the conducting parties in making a liability ceased to exist. They had to abide by the judgment of the Court or the provisions of law or rule of limitation. In remission of liability, there has to be conscious act on the part of the creditor to wave or forgo the liability. There should be evidence on record to show that the creditor has either waived the recovery from the assessee or there is some contractual agreement between the assessee and the creditor thereby entire or part of credit standing in the balance sheet of the assessee is written off or waived. To that extent it can be said that liabilities are remitted by the creditors. Another condition common in both cessation and remission is that such liability must pass through ....
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.... (Delhi). Held, (i) that the sum of Rs. 13,170 being the unclaimed balances written off by the assessee was not taxable. CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518 (SC) applied. (vi) U.P. Steels Ltd. v. CIT [2008] 303 ITR 318 (All.). The amount of Rs. 9,38,575 was shifted in the profit and loss account of the assessee from the debit to the credit side. Upon this, the Assessing Officer treated the sum to be the income of the assessee under section 41(1) of the Income-tax Act, 1961, on the ground that the liability had ceased or had been remitted. This was upheld by the Tribunal. On a reference : Held, that no finding was recorded in any of the orders up to the Tribunal that there was anything else other than alteration in the profit and loss account which could lead to this inference about cessation or remission of the liability without any possibility of revival. Therefore, it could not be held for the purposes of section 41(1) that actual income up to that extent had accrued so as to entitle the Income-tax Department to tax the same. (vii) CIT v. Willard India Ltd. [2008] 302 ITR 221 (All.). During the previous year relevant to the ass....
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.... a result of remission of unsecured loans was not taxable in the hands of the assessee. (ix) Sugauli Sugar Works (P.) Ltd.'s case (supra). The following words in section 41(1) of the Income-tax Act, 1961, are important: "the assessee had 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 him". The section contemplates the obtaining by the assessee of an amount either in cash or in any other manner whatsoever or a benefit by way of remission or cessation and it should be of a particular amount obtained by him. Thus, the obtaining by the assessee of a benefit by virtue of remission or cessation is the sine qua non for the application of this section. The mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not enable the Department to say that section 41(1) would apply and the amount should be included in the total income of the assessee. The principle that expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it....
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....1(1) introduces a fiction by which 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 and subsequently during any previous year the assessee 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 him or the value of benefit accruing to him shall be deemed to be profits and gains of the business or profession and, accordingly, chargeable to income-tax as 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. The fiction is an indivisible one. It cannot be enlarged by importing another fiction, namely, that if the amount was obtained or was receivable during the previous year, it must be deemed to have been obtained or received during that year. The amount may be actually received or it may be adjusted by way of an adjustment entry or a credit note or in any other form when the cash or the equivalent o....
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....nt 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.]" 21. A careful readin....
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....any other type of liability. Every liability standing in the balance sheet cannot be presumed to be a trading liability. The onus is on the revenue to show that amount remitted to the assessee or benefit accruing to him related to a trading liability and it has been allowed as a deduction in an earlier year. 21.5 It is for the revenue to show the factum of remission or cessation. In addition, it has to be shown that allowance as deduction and remission or cessation in a later year are correlated. It cannot be presumed. In other words, the facts relating to satisfaction of conditions for legal fiction to spring into action cannot be presumed. They have to be proved by the revenue. However once basic conditions are satisfied, the posterior facts can be assumed and onus will shift to the assessee to prove that he really did not get any benefit or that the creditor has really not remitted the liability. 21.6 As per decision of the Hon'ble Supreme Court in the case of Sugauli Sugar Works (P.) Ltd. (supra) the unilateral action of the assessee in writing off his trading liability incurred by him in his books does neither amount to remission nor amount to cessation of such liability....
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....ies, approved by a court to wave the debt or terminate the legal obligation of the assessee will also cease the liability to exist. 21.10 Even in a case where a liability ceased to exist due to limitation, i.e., the claim of the creditor is barred by limitation under Limitation Act of 1963 but if the liability subsist or has not been written off by the assessee, or the assessee does not absolve himself from the liability, though not legally enforceable, it cannot be taxed under section 41(1). 22. When we view the facts of the present case, we notice that the Assessing Officer has simply treated all the liabilities of the balance sheet as remission or cessation merely because they were either old or the letters sent to some of them returned back unserved. He did not establish that the liabilities were trading liabilities, they were charged to profit in an earlier year, or that assessee obtained any benefit in respect of them, or there was any remission or cessation thereof. There was no unilateral writing back of these liabilities by the assessee so as to attract the Explanation to section 41(1) if they were trading liabilities. The assessee has been continuously showing them ....
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....he Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions, whether of law or of facts, which relate to the assessment of the assessee may be raised before the Tribunal. If for reasons recorded by the departmental authorities in respect of a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him. 24.4 In CIT v. S. Nelliappan [1967] 66 ITR 722 (SC), it was held that in hearing an appeal the Tribunal may give leave to the assessee to urge grounds not set forth in the memorandum of appeal and in deciding the appeal the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal. The Tribunal is not precluded from adjusting the tax liabilities of the assessee in the light of its findings merely because the findings are inconsistent with the case pleaded by the assessee. 24.5 In J.S. Parkar v. V.B. Palekar [197....
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....since in such a case also the subject-matter will not change by reason of allowing the question to be raised. It is, however, not correct to say that there is no limit to the jurisdiction of the Tribunal and any question which could be raised before the Income-tax Officer could, irrespective of the scope of the appeal before the Appellate Assistant Commissioner, be raised before the Tribunal. ..... 24.7 In Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 (SC), it was held that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. 24.8 In Jute Corpn. of India Ltd. v. CIT [1992] 192 ITR 637 (All.), it was held that the p....
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....peal or cross-objections, as the case may be, if it is aggrieved by any part of the order of the Appellate Assistant Commissioner. The word "thereon" in section 254 does not, in any manner, restrict the jurisdiction of the Appellate Tribunal. The word "thereon" merely refers to the appeal. It does not refer to the scope of jurisdiction at all. The words which prescribe the extent of jurisdiction of the Tribunal under section 254 are the words "may pass such orders . . . as it thinks fit". Looked at from a slightly different point of view, if the word "thereon" can be said to refer to the subject-matter of the appeal, then, the subject-matter of the appeal is the entire tax proceeding of the assessee which is before the Tribunal for consideration; and this will cover the proceedings before the Income-tax Officer, before the Appellate Assistant Commissioner as well as before the Tribunal-including the grounds raised before the Tribunal, any additional grounds which may be allowed to be raised before the Tribunal as also cross-objections, if any, before the Tribunal. The Appellate Tribunal has jurisdiction to permit additional grounds to be raised before it even though these may not a....
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....ound to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. 24.14 In Indian Management Advisors & Leasing (P.) Ltd. v. CIT [2007] 289 ITR 179 (Delhi), it was held that section 254 of the Income-tax Act, 1961, does not put any fetters on the power of the Tribunal to consider the issue which may arise in an appeal. When an appeal comes before the Tribunal for hearing and the Appellate Tribunal finds that some documents have been relied upon by the assessee, which are on record and the documents are crucial to allow or refuse the claim made by the assessee, even if the Assessing Officer and the Commissioner (Appeals) had not gone into the contents of the document, the Tribunal can examine the documents. 25. In fact the gist of all the authorities referred above and cited by ld. D.R. is that if all the facts are on record and no further investigation is required than an alternative plea or argument o....