Sri Suresh Kumar T Jain vs The Income Tax Officer
2022 Latest Caselaw 3673 Kant

  IN THE HIGH COURT OF KARNATAKA AT BENGALURU

        DATED THIS THE 4TH DAY OF MARCH, 2022

                        PRESENT

         THE HON'BLE MRS.JUSTICE S.SUJATHA

                          AND

        THE HON'BLE MR. JUSTICE K.NATARAJAN

         R.P.No.26/2019 IN I.T.A.No.160/2010

BETWEEN :
SRI SURESH KUMAR T. JAIN
S/O SRI TARACHANDJI
AGED ABOUT 63 YEARS,
PROP: M/s NINZA ELECTRONICS,
115/5, LEELA GOPAL COMPLEX,
PR LANE, SP ROAD,
BANGALORE-560002.                           ...PETITIONER

            (BY SMT.JINITHA CHATTERJEE, ADV.)

AND :
THE INCOME TAX OFFICER
WARD 2(1), ROOM NO.59,
HMT BUILDING, VI FLOOR
BELLARY ROAD, BANGALORE-560032.            ...RESPONDENT

                  (BY SRI M.DILIP, ADV.)

     THIS RP IS FILED UNDER ORDER 47 RULE 1 R/W
SECTION 114 OF CPC, PRAYING TO A) REVIEW THE JUDGMENT
DATED 20.11.2018 PASSED IN ITA NO.160/2010 AND MODIFY
PARAGRAPHS 6.7 AND 12 OF THE JUDGMENT. B) CONSIDER
THE SUBMISSIONS OF THE PETITIONER MADE IN THE ABOVE
REVIEW PETITION AS WELL AS THE ABOVE REVIEW PETITION
AS WELL AS IN QUESTION NO.4 OF THE INCOME TAX APPEAL
UNDER SECTION 260A OF THE ACT (ITA NO.160/2010) AND
MAY PASS A SPEAKING ORDER WITH REGARD TO THE SAME.
                              -2-


      THIS PETITION COMING ON FOR ADMISSION, THIS DAY,
S. SUJATHA, J., MADE THE FOLLOWING:

                        ORDER

This review petition is filed by the petitioner

seeking review of the judgment dated 20.11.2018

passed in ITA No.160/2010 insofar as paragraphs 6, 7

and 12 are concerned.

2. The assessee had preferred ITA No.160/2010

challenging the order of the Income Tax Appellate

Tribunal, Bengaluru [ITAT] in ITA No.667/Bang/2009

dated 08.01.2010. The said appeal was admitted to

consider the following substantial questions of law:

"Whether the finding of the Tribunal upholding the impugned addition made by applying the provisions of Section 41(1) and 68 which were made by mere accepting the statements of the creditors who had not been examined and without giving opportunity for cross-examination and upholding the application of Section 68 in respect of trade credits outstanding at the end of the year on account of purchases,

when the purchases have not been disputed and the trading results have been fully accepted is perverse and arbitrary?"

3. Learned counsel for the assessee had

contended that the provisions of Section 4[1][a] and 68

of the Income Tax Act, 1961 ['Act' for short] could not

have been invoked by the Revenue in the facts and

circumstances of the case, placing reliance on the

judgment of the Co-ordinate Bench of this Court in the

case of Commissioner of Income Tax V/s. Alvares

and Thomas [(2017) 394 ITR 0647 (Karn)] more

particularly paragraphs 8 and 9, wherein, it has been

held as under:

"8. Examining of the facts of the present case reveals that, it is not the case of the Department that, any benefit in respect of such trading liability was taken by the assessee but, the Revenue contends that since the burden was not discharged of existence of the liability, it be treated as cessation of the liability and therefore, Section 41(1) could be invoked. Further, stand of

the Revenue is that, when in respect of debt in question, confirmation was called for, a letter was 18 produced of the creditor with its address but, when the same was verified, the report was that, party could not be traced and therefore, it was not verifiable.

9. In our view, even if we accept the contention of the Revenue that the party could not be traced and therefore debt could not be verified then also, by no stretch of imagination can it be held that it would satisfy the requirement of cessation of liability. In legal parlance, merely because the creditor could not be traced on the date when the verification was made, same is not a ground to conclude that there was cessation of the liability. Cessation of the liability has to be cessation in law, of the debt to be paid by the assessee to the creditor. The debt is recoverable even if the creditor has expired, by the legal heirs of the deceased creditor. Under the circumstances, in the present case, it can hardly be said that the liability had ceased. If the liability had not ceased or the benefit was 19 not taken by the assessee in respect of such trade liability, in our view, the

conditions precedent were not satisfied for invoking Section 41(1) of the Act in the instant case."

4. Learned counsel for the Revenue had argued

that the creditors have confirmed the balance and

provided the details as called for. Hence, the said

judgment was not applicable.

5. Having considered the submissions made by

the learned counsel for the parties as aforesaid, this

Court has dismissed the appeal observing that the

judgment of the Co-ordinate Bench of this Court in

Alvares and Thomas supra, would not come to the aid

of the appellant as the facts and circumstances differs.

6. The assessee has preferred this review

petition contending that 12 sundry creditors to whom

the notices were sent were returned unserved for

insufficient address, no such person etc., since the

debts of those 12 sundry creditors could not be verified

because of non-service of the notices, it does not satisfy

the requirement of cessation of liability under Section

41[1] of the Act. This view of this Court in not

considering the same is an error apparent on the face of

the record inasmuch as in applying the dictum laid

down by the Co-ordinate Bench of this Court in the case

of Alvares and Thomas supra.

7. Learned counsel appearing for the petitioner

reiterating the grounds urged in the review petition

submitted that this Court has categorically observed that

out of 26 sundry creditors, in 4 cases, the credit balance

confirmed as Nil, in 10 cases as the assessee has not

furnished the addresses of the creditors and in 12 cases

the notices are returned as un-served for insufficient

address, no such person etc. As regards these 12 cases,

certainly the judgment of the Co-ordinate Bench of this

Court in Alvares and Thomas supra is applicable.

8. Learned counsel for the Revenue fairly

submits that the matter requires to be re-examined by

the Assessing Officer as regards these 12 cases wherein

the notices were returned as un-served, in the light of

the judgment of the Co-ordinate Bench of this Court in

Alvares and Thomas supra.

9. We have carefully considered the rival

submissions of the learned counsel appearing for the

parties and perused the material on record.

10. As noticed above, the appeal filed by the

assessee came to be dismissed rejecting the contention of

the learned counsel for the assessee that the matter is

covered by the decision of the Co-ordinate Bench of this

Court in Alvares and Thomas supra. In the light of the

legal principles laid down by the Co-ordinate Bench of

this Court in Alvares and Thomas supra, in paragraphs

8 and 9 extracted herein above, even accepting the

contention of the Revenue that the party could not be

traced and therefore debt could not be verified, then also

it cannot be held that it would specify the requirement of

cessation of liability. Non tracing of the creditor on the

date when the verification was made could not be a

ground to conclude that there was cessation of liability.

11. The 12 cases in which the notices were

returned as un-served, necessarily requires to be

examined in the light of the legal principles enunciated

in Alvares and Thomas supra, which indeed is not

objected by the Revenue. Hence, we deem it appropriate

to re-call the order dated 20.11.2018 passed in ITA

No.160/2010 and modify the same in paragraphs 6, 7

and 12 insofar as the 12 cases are concerned where

notices are returned as un-served for insufficient

address, no such person etc.

12. Hence, we pass the following:

ORDER

i] The order dated 20.11.2018 passed in ITA

No.160/2010 is modified as under:

The 12 cases where the notices

are returned un-served, the Assessing

Officer shall examine whether there

was cessation of liability of debt to be

paid by the assessee to the creditor, in

the light of the judgment of the Co-

ordinate    Bench       of     this   Court    in

Alvares and Thomas supra. On such

verification     being       made      by     the

Assessing Officer, the tax liability of the

assessee can be determined applying

the provisions of Section 41[1] and

Section 68 of the Act after providing an

opportunity to the assessee to

examine/cross-examine the creditors

on this aspect with respect to 12

creditors where the notices were

returned un-served, the total of which

amounts to Rs.29,75,621/-.

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ii] Such exercise shall be made by the

Assessing Officer in an expedite manner.

iii] With the aforesaid modifications, Review

Petition stands disposed of accordingly.

iv] Consequentially, the appeal in ITA

No.160/2010 is partly allowed to the extent

indicated above.

Sd/-

JUDGE

Sd/-

JUDGE

NC.