Commissioner of Income Tax vs Ravjibhai Becharbhai Dhameliya

Sonia Gokani, J.—Challenging the order of the income tax Appellate Tribunal dated January 28, 2012, the Revenue has chosen this tax appeal proposing the following questions of law for our consideration u/s 260A of the income tax Act, 1961 ("the IT Act" for short) :

Whether, on the facts and in the circumstances of the case and in law, the hon''ble income tax Appellate Tribunal was legally justified in holding that there was no cessation of liabilities of Rs. 3,18,87,684 u/s 41(1) of the income tax Act even though the Assessing Officer had duly brought out the falsehood of the claim of purported liability may be subsequently shown as purportedly discharged through account payee cheques in subsequent year ?

Heard learned counsel, Mr. Sudhir Mehta for the Revenue and with his assistance examined the material on record.

The assessee is running two separate proprietary concerns wherein the activities of cutting and polishing the diamond on the job work basis and activity of export of the diamond are being carried out. Survey u/s 133A of the income tax Act was conducted on September 9, 2004, and the assessee had surrendered undisclosed income of Rs. 2.51 crores in the return of income filed for the assessment year 2005-06 over and above the regular income. During the course of the survey, the statements of 7 subcontractors out of total 12 sub-contractors were recorded. They have stated in their statements that they were employees of M/s. Vraj Diamonds, one of the proprietary concerns.

The Assessing Officer observed that these deemed sub-contractors in fact, were the employees of the assessee working in the same building and under complete control of the assessee. Rejecting the books of account gross profit was estimated by him at Rs. 2.71 crores (rounded off) 10 per cent. of the total turnover instead of the gross profit. The Assessing Officer considered this to be the bogus outstanding liability invoking the provisions u/s 41(1) of the income tax Act.

When challenged before the Commissioner of income tax (Appeals), the Commissioner of income tax (Appeals) was satisfied with the entire records maintained by the assessee. He also deleted the additions made on account of gross profit. What weighed with the Commissioner of income tax (Appeals) essentially was the substantial amount of Rs. 2.51 crores declared by the assessee as an additional income during the assessment year under appeal.

This aggrieved the Revenue and when challenged by the Revenue before the Appellate Tribunal, it confirmed the order of the Commissioner of income tax (Appeals). The Tribunal was of the opinion that section 41(1) of the income tax Act could be invoked only when there is remission or cessation of liability. It had also been found by the Tribunal from the record that there was no benefit derived either in cash or otherwise by the assessee and the assessee had already paid the outstanding liabilities in the subsequent year by way of the account payee cheques. With no material having been made available to the Tribunal to indicate that the additions incorporated in the provision of section 41(1) is satisfied it concurred with the findings of the Commissioner of income tax (Appeals) and chose not to uphold the second addition as was done by the Assessing Officer.

We are of the opinion that the issue is appropriately dealt with by both the Commissioner of income tax (Appeals) and the Tribunal who have concurrently held in favour of the assessee based on the material made available to them. The question raised by the Revenue in this appeal essentially and predominantly is based on the facts and when they both found from the material on record absence of remission or cessation of liability as contemplated u/s 41 of the income tax Act as also absence of material to indicate deriving of any benefit in cash or otherwise by the assessee, no question of law arises for our consideration. This tax appeal merits for no further consideration and is, therefore, dismissed.