IN THE INCOME TAX APPELLATE TRIBUNAL
"B" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri Rajendra, Accountant Member
ITA No. 2724 to 2727/Mum/2011
(Assessment Years: 1999-2000, 2000-01, 2002-03 & 2003-04)
A C I T - 11(1) M/s. Maruti International
Room No. 439, Aayakar Bhavan Vs. 32, Rock Garden, New Link Road
M.K. Marg, Mumbai 400020 Andheri (W), Mumbai 400053
PAN - AAAFM 1823 D
Appellant Respondent
Appellant by: Shri Mohit Jain
Respondent by: Shri Anil Thakrar
Date of Hearing: 12.09.2012
Date of Pronouncement: 12.09.2012
ORDER
Per D. Manmohan, V.P.
These appeals by the Revenue are directed against the common order
dated 21.01.2011 passed by the CIT(A)-3, Mumbai. Since the issue involved
in all these appeals is common, we proceed to dispose of these appeals by a
combined order for the sake of convenience.
2. The common ground urged before us reads as under: -
"On the facts and in the circumstances of the case and in law, the Ld.
CIT(A) Mumbai erred in holding that section 41(1) cannot be invoked in
the case of the assessee since the assessee is following cash system of
accounting ignoring the fact that the name of the party stood as sundry
creditors in the books of the assessee during the relevant period and
hence 41(1) has been rightly invoked by the Assessing Officer."
3. The case of the AO was that the assessee firm purchased material
from M/s. Gupta Paints & Hardware Stores during the years under
consideration. Though the sum payable as per bills was more, the assessee
settled the bills through account payee cheque for a lesser amount. The case
of the assessee was that it was following cash system of accounting and only
actual payments were debited to P & L Account. The AO, on the other hand,
2 ITA No. 2724 to 2727/Mum/2011
M/s. Maruti International
was of the opinion that the assessee followed mercantile system of
accounting and hence the amount which was not payable would amount to
remission of trade liability, which is assessable to tax in the year under
consideration. During the course of survey the AO noticed, from the sales
statement found and seized, that Shri N.D. Gupta has issued sales bills with
identical serial numbers and same date to different parties with different
amounts which shows that the bills issued by Shri Gupta are not free from
doubt. At any rate, such bills are not fully paid by the assessee. Aggrieved
assessee preferred appeals before the learned CIT(A).
4. The case of the assessee was that the AO erred in making addition
under section 41(1) of the Act whereas the fact remains that the assessee
followed cash system of accounting whereby it has not booked any liability
and only actual payments were debited to the P & L Account. Having gone
through the written submissions and upon examination of the material on
record, the learned CIT(A) observed that in respect of A.Y. 1999-2000 Shri
N.D. Gupta has billed the assessee an amount of `4,83,267/- against which
the assessee made a payment of `3,50,000/- only and claimed the same
under cash system of accounting whereas the AO sought to bring the
differential amount of `1,33,267/- as ceased liability under section 41(1).
Similar additions were made in other assessment years also. He further
noticed that the addition was made on the basis of the details submitted by
Shri N.D. Gupta without verifying the fact that the assessee followed cash
system of accounting and as such did not credit any liability on accrual
basis. Having regard to the factual matrix of the case the learned CIT(A) gave
a factual finding that the assessee followed cash system of accounting in
which event there cannot be any addition under section 41(1) of the Act. In
this regard he observed as under: -
"2.6 Facts and material on record are considered. It is seen that
the Appellant's records available with the AO indicate clearly that the
method of accounting followed by Appellant in the impugned matters
is the cash method of accounting. This issue seems to have been not
considered nor verified by the AO in spite of the returns of income
and details being available to him. The AO's observation that none
attended on Appellant's behalf during the course of hearing is
contradicted in the impugned orders themselves as AO also mentions
3 ITA No. 2724 to 2727/Mum/2011
M/s. Maruti International
that Appellant had attended on 17/12/08 when the statement of Mr.
ND Gupta was being recorded and had availed of the opportunity to
cross examine Mr. Gupta. As to why AO did not utilise the
opportunity of Appellant's/Appellant's AR's presence on 17/12/08 to
examine or verify the necessary details in Appellant's own case
remains unclear. AO also mentions that reconciliation filed by
appellant was considered by him. It also seems highly unlikely that
in a case where notice under section 153C is issued, there is no
attendance from an assessee or his AR in the entire assessment
proceeding.
2.7 In the facts and circumstances of the case i.e. in view of
Appellant having followed cash method of accounting, it is held that
there can be no disallowance under section 41(1) in any of the
impugned assessment years, as Appellant had not debited in its P
and L Account, sums higher than the amount actually paid to Mr. N D
Gupta nor had he shown any amounts from those debited as liability
remaining to be paid (except the amount brought forward from years
earlier to AY 99-00) in its balance sheet. In the facts and
circumstances of the case the basic requirements under section 41(1)
have not been established by the AO. AO has himself observed that
Appellant has continued to pay Mr. ND Gupta in the years later than
A.Y. 03-04 also and therefore it cannot be considered that liability
had ceased to exist. Moreover insofar as AY 99-2000 is concerned, it
is clear that the sum of `3,50,000/- was paid by Appellant in
financial year 99-2000 and disclosed by appellant. The additions
under section 41(1) in the four impugned assessment years are
accordingly deleted."
Aggrieved Revenue is in appeal before us.
5. The learned D.R. submitted that the assessee followed mercantile
system of accounting as can be noticed from the assessment order under
section 153C r.w.s. 144 of the Act.
6. On the other hand, the learned counsel for the assessee submitted
that the assessee has been consistently following the cash system of
accounting and even in the tax audit report it was clearly mentioned that it
was following cash system of accounting. For A.Y. 2002-03 assessment was
originally made under section 143(3) of the act on 21.02.2006 wherein the
AO observed that the assessee is following cash system of accounting. At
any rate, there is no evidence on record to contradict the findings of the
learned CIT(A). He thus strongly relied on the order of the CIT(A).
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M/s. Maruti International
7. We have carefully considered the rival submissions and perused the
record. Admittedly, section 41(1) comes to play only when assessee has
taken benefit of deduction in the earlier year which was found to be not
payable in the subsequent year. In the instant case the learned CIT(A) has
given a categorical finding that the assessee followed cash system of
accounting and claimed deduction only on actual payments. In the absence
of any evidence to contradict the findings of the learned CIT(A) we are of the
view that the final conclusion of the learned CIT(A) that section 41(1) is not
applicable in the years under consideration deserves to be upheld. Under
the circumstances, as pronounced in the open court, the common order
passed by the CIT(A) is upheld and the appeals filed by Revenue are
dismissed.
Order pronounced in the open court on 12th September 2012.
Sd/- Sd/-
(Rajendra) (D. Manmohan)
Accountant Member Vice President
Mumbai, Dated: 12th September 2012
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) 3, Mumbai
4. The CIT 11, Mumbai City
5. The DR, "B" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.
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