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TMI Blog2011 (1) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... eased to exist and, therefore, the same could not be taxed as deemed profit u/s 41(1) - ITA No.5464/Mum./2007 - - - Dated:- 12-1-2011 - BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER, AND SMT. ASHAVIJAY RAGHAVAN, JUDICIAL MEMBER Assessee by: Shri Bhupendra shah Revenue by: Shri S.K. Singh ORDER PER S.V. MEHROTRA. A.M. This appeal by the assessee, is directed against the impugned order dated 13th June 2007, passed by the learned CIT (A)-I, Mumbai, for assessment year 2003-04. 2. The assessee, a closely held company, in the relevant assessment year, was engaged in. investment in shares and trading in ferrow alloys. It had filed its return of income declaring total loss of Rs.2,55,182 under the regular provisions of the Income Tax Act, 1961 (for short "the Act"), and book loss of Rs. 2,66,509 under section 115JB of the Act. The Assessing Officer noticed that the opening stock worth Rs. 8,33,750, had been fully sold for Rs. 4,89,213, without there being any purchase during the year and leaving no closing stock. In response to Assessing Officer's query regarding the gross loss incurred, the assessee explained that the cost of material Rs. 8,33,750, consisted of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the certificate dated 20th September 2006, of Sam Spintex Limited is contained in which they confirm that they had stored the assessee's material in their premises. The said confirmation is reproduced herein below:- "Sub: Use of premises for storage of Material With reference to the above mentioned subject, we hereby declare and confirm that M/s. Metalmin (A division of Manhattan Leasing Limited) address 408, Dalamal Chambers, 29, New Marine Lines, Mumbai, has stored their material in our premises situated at Village Talawali Chanda, P.O. Manglia A.B. Road, Indore, during the financial year 1998-99 to 2002-03, for which we have not charged any rent to the company i.e., M/s. Manhattan Leasing Limited. The above in formation is true and correct" 5. Learned Counsel for the assessee referred to Pages-7 to 23 of the paper book to demonstrate the purchase of these items and the High Seas sale Agreement entered into in this regard. 6. He further referred to Pages-24 to 30, wherein the details of sales of these items are contained. Learned Counsel for the assessee further referred to Pages-31 to 52, where the copy of sales tax is contained and further to Pages-33 to 55, wherein t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oming to the conclusion regarding sale being bogus. Further, the sale proceeds have been received through cheque and a certificate from Sam Spintex Ltd., is also contained at Page-58 of the paper book wherein it is clearly stated that it stored the assessee's material in their premises. The assessee's sales tax assessment order is also there accepting the same. The learned CIT (A) mainly was swayed by the consideration that it was not possible that Same Spintex Ltd. would have kept their sold goods for about five years and after five years the same goods would have been purchased by the same Sam Spintex Ltd. Further, since the assessee as well as Sam Spintex Ltd., dealt with same chemical, there was no reason to keep the purchased material in the seller's godown for five years. We do not find much substance behind this reasoning because it is primarily an internal arrangement of the parties as to how to keep the material. Considering evidence being on record supporting the assessee's claim, we do not find any reason to doubt the genuineness of the sales being effected at loss after five years of holding the chemicals. There is no gain saying that chemicals loose their quality with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not allowable being capital in nature. Therefore, no interference is called for with the order of the learned CIT (A) in regard to ground no.2. 14. As regards ground no.3, which relates to salary expenses, the assessee's claim was that the amount was paid to Raju and Yuvraj. However, the assessee could not give the details of services rendered by these employees either before the Assessing Officer or before the learned CIT (A). It is well settled law that onus is on the assessee to substantiate its claim and when it fails to do the same, the disallowance is called for. We, therefore, keeping in view the fact that the assessee had sold the opening stock for which services were definitely required, consider it in the interest of justice that Rs. 20,000 be allowed from out of salary expenses and the balance of Rs. 34,289 only be disallowed. We direct accordingly. This ground is, thus, partly allowed. 15. Insofar ground no.4 which relates to telephone expenses of Rs. 10,948 disallowed by the Assessing Officer and confirmed by the learned CIT(A), is concerned, we do not find much substance in the submissions of the learned Counsel because the telephone, admittedly, was in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee years as reasonable duration for deciding the cessation of liabilities on ad hoc basis. Otherwise the Revenue orders do not contain any rationale in support of such period. Delhi Bench decision in the case of Dy. CIT vs. Himalaya Refrigeration Air Conditioning Co. (P) Ltd. (2004) 91 TTJ (Del) 296 is found relevant in this regard and the said order concluded by stating that in the absence of any evidence of cessation of liabilities, mere fact that the liabilities were outstanding for more than three/years and were time-barred, was not sufficient ground for addition under s. 41(1) of the Act. Further, the Ahmedabad Bench of the Tribunal held in the case of New commercial Mills Co. Ltd. vs. Dy. CIT (2001) 73 TT] (Ahd) 893 that in the absence of cogent reason and material to come to conclusion that the liabilities outstanding for ten to fifteen years have ceased in the year under consideration and the same cannot be charged to tax under s. 41(1). Further, the Mumbai Bench Tribunal held in the case of Thomas Cook (India) Ltd. vs. Dy. Jt. CIT (2006) 105 TTJ (Mumbai) 317: (2006) 103 ITD 119 (Mumbai) that the amounts in the unclaimed balances accounts and suspense accounts, which had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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