TMI Blog2019 (2) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... en considered as ceased - AO harboured a belief that liability to pay has ceased, and therefore, it deserves to be treated as income under section 41(1) - Held that:- The section 41(1) applies where a trading liability was allowed as a deduction in an earlier year in computing the business income of the assessee and the assessee has obtained a benefit in respect of such trading liability in a later year by way of remission or cessation of the liability. In such a case the section says that whatever benefit has arisen to the assessee in the later year by way of remission or cessation of the liability will be brought to tax in that year. The principle behind the section is that the provision is intended to ensure that the assessee does not get away with a double benefit - once by way of deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with reference to the liability earlier allowed as a deduction. There is nothing in the possession of the Revenue to doubt the non existence of the liability, more so, if the facts are being examined in the light of Hon’ble High Court’s decision in the case of CIT Vs. Bhogilal Ranjibh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing M.S.Seamless pipes. It has filed return of income on 29.9.2010 declaring total income at ₹ 1,12,78,393/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, ld.AO has observed that in the Asstt.Year 2009-10, the then AO had issued notice under section 133(6) to Canara Bank and sought details of stock statement submitted by the assessee to the bank for the quarter ending on 31.3.2009. He further observed a difference of more than ₹ 10.39 crores in the Asstt.Year 2009-10 and this amount was added to the total income of the assessee under section 69B of the Income tax Act. With this analogy, he made inquiry in the present assessment year. He found that as per the stock statement given to the bank, the stock should be at 3186.621 MTs. whereas it was shown in the books at 3134.998. This difference in the stock between the one available in the books vis- -vis one given to the bank have been treated as unexplained investment under section 69B of the Income Tax Act. The ld.AO accordingly made addition of ₹ 1,37,47,163/-. On appeal, the ld.CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the assessee are accepted by the Central Excise and / or Sales Tax Department. Applying these tests to the facts of the present case, the following conclusions emerge: Applying test (a), we find that the stock details have been inflated purely on estimate basis in the statement furnished to bank to avail larger credit facilities. This aspect is duly supported by the fact that the Assessee had already borrowed an amount of ₹ 11.03 Crores from Canara Bank as at 31/03/2009, and therefore, by making upward adjustment of 30% thereon for margin required to be maintained as per the loan agreement entered with the Bank, the value of stock was estimated and inflated to ₹ 17.09 Croresso as to justify the amount already drawn from the Bank. Applying test (b), we further find that in the present case, stock is only hypothecated with the bank and not pledged. Unlike pledge, under hypothecation, the stock is not kept in lock and key of the bank. Therefore the submission of the assessee that the figure of closing stock was estimated and inflated with a view to meet the margin requirements of the bank can be accepted. Applying test (c), we also find that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , stock registers, excise records, has accepted the books of accounts and other record maintained by the assessee to be true, correct and except few discrepancies in so far as inventory is concerned. We find that the I T A No . 1 32 9 /A h d/ 1 2 A. Y. 09- 1 0 Page 17 period of audit covers 31st March, 2009. If the assessee has in fact purchased and stored such unaccounted stock allegedly shown to the bank, it is impossible not to leave a single trail more so when the assessee is a manufacturer and not a trader. It is not possible to acquire unaccounted stock, carry out manufacturing activities, consume energy, remove the finished stock and sale away the same in the market. We therefore find considerable force in the submission of the counsel for the assessee that the books of accounts are found to be genuine and recorded appropriately and no such kind of discrepancies were found to be noted in the Excise Audit Report which could remotely suggest that the Assessee has invested in unexplained stock which is not recorded in books of accounts. 16 (iv). If the discrepancies of stock at 3119.037 441.647 MT valued ₹ 10.39 crore accepted as suppressed stock than same is to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it deserves to be treated as income under section 41(1) of the Act. On appeal, the ld.CIT(A) deleted this addition by observing that the ld.AO failed to bring any evidence on record which can suggest these liabilities are not subsisting. 9. With the assistance of the ld.representatives, we have gone through the record carefully. The section 41(1) applies where a trading liability was allowed as a deduction in an earlier year in computing the business income of the assessee and the assessee has obtained a benefit in respect of such trading liability in a later year by way of remission or cessation of the liability. In such a case the section says that whatever benefit has arisen to the assessee in the later year by way of remission or cessation of the liability will be brought to tax in that year. The principle behind the section is that the provision is intended to ensure that the assessee does not get away with a double benefit - once by way of deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with reference to the liability earlier allowed as a deduction. At this stage it is pertinent to take note of finding r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. 12. The assessee has raised six grounds of appeal, which are not in consonance with Rule 8 of the Income Tax (Appellate Tribunal) Rules. Its grievance revolves around a single issue which has been bifurcated in 2-3 folds. In brief grievance of the assessee is that the ld.CIT(A) has erred in confirming the disallowance of commission expenses amounting to ₹ 53,56,535/-. 13. Brief facts of the case are that the assessee has paid commission to 18 parties amounting to ₹ 53,56,535/-. Out of these 18 parties, there are 5 HUFs. The AO had issued a show cause notice inviting explanation of the assessee as to why this commission should not be disallowed, and more particularly, how can HUF be acted as an agent, and commission should be paid. In response to the query of the AO, the assessee has filed detailed reply. It contended that in the immediately preceding year, commission of ₹ 23,92,462/- was paid to six individuals. A scrutiny assessment was made and no disallowance was made by the AO. Out those six parties, commission has been paid to 3-4 parties in this year also. Their role was not doubted by the AO in the earlier year. It was further contended that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, it is not the view point of a revenue officer which should count, but it should be the view of an ordinary businessman dealing with a situation like the one faced by the assessee. 15. In a similar circumstance, the Hon ble Delhi High Court had an occasion to examine aspect of commercial expediency considered by a businessman while incurring any expenditure. The Hon ble Delhi High Court has made the following observations on this aspect in the decision of the CIT Vs. Dalmia Cement Ltd., 254 ITR 377. An expenditure to which one cannot apply an empirical or subjective standard is to be judged from the point of view of a businessman and it is relevant to consider how the businessman himself treats a particular item of expenditure. The term commercial expediency is not a term of art. It means everything that serves to promote commerce and includes every means suitable to that end. In applying the test of commercial expediency, for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business the reasonableness of the expenditure has to be judged from the point of view of the businessman and not the Revenue (see CIT v. Walchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons for incurrence of such expenditure vis- -vis business objects. A perusal of the record would indicate that the AO has for the first time called the details emphatically on11.3.2013. He has passed the assessment order on 28.3.2013. He has observed that confirmation from purchaser of the goods is to be submitted. This was a short time period. Once the assessee has given details of purchasers, it is for the AO to issue notice and get the details. Under what circumstances, the assessee could ask its purchasers to give confirmation, through whom they have booked the goods. It is not only unprofessional, rather against the business needs of the assessee. It has to do business and not collect such type of details. If the AO has any doubt, he should have issued notice under section 133(6) to some of the purchasers, and get the details. The assessee has placed on record copy of the confirmation from the agents and to whom they have made sales. For example, confirmation from Shalini Anuj Mittal is available at page no.87 of the paper book. Copy of her income-tax return has also been placed on record. Through her, 928 MTs. steel was sold to three concerns, viz. Jay Ambe Steel Tubes, ..... 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