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Income Tax Appellate Tribunal - Mumbai

Expo Gas Containers Ltd, Mumbai vs Department Of Income Tax on 4 July, 2013

                   आयकर अपीलीय अिधकरण,
                               अिधकरण मुंबई Ûयायपीठ 'ई' मुंबई ।

  IN THE INCOME TAX APPELLATE TRIBUNAL " E " BENCH, MUMBAI

       सव[ौी एच.एल. कावा[ ,अÚय¢ एवं नरे Ûि कुमार ǒबãलैáया, लेखा सदःय के सम¢

     BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM

                 आयकर अपील सं./I.T.A. No.6271/Mum/2011
                 ( िनधा[रण वष[ / Assessment Year : 2007-08
The ACIT, Range 6(2),                         M/s. Expo Gas Containers
Aayakar Bhavan,                               Ltd.,
Mumbai-400 020                                150, Sheriff Devji Street,
                                              Mumbai-400 003

ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAAFE 1419R
       (अपीलाथȸ /Appellant)             ..          (ू×यथȸ / Respondent)
       अपीलाथȸ ओर से/ Appellant by: `            Shri Abanikant Nayak
       ू×यथȸ कȧ ओर से/Respondent by :              Shri Marlon Rego
             सुनवाई कȧ तारȣख / Date of Hearing                :04.07.2013
             घोषणा कȧ तारȣख /Date of Pronouncement : 10.7.2013


                               आदे श / O R D E R


PER N.K. BILLAIYA, AM:

This appeal by the Revenue is preferred against the order of the Ld. CIT(A)-12, Mumbai dt.30.06.2011 pertaining to A.Y. 2007-08.

2. The Revenue has raised two substantive grounds of appeal. The sum and substance of the Revenue's grievance is that the Ld. CIT(A) has erred in deleting the addition made u/s. 41(1) of the Act in respect of outstanding creditors of Rs. 39,52,717/- out of the total creditors of Rs. 45,14,976/-. While doing so, the Ld. CIT(A) has accepted additional evidence which was never produced before the AO.

3. The assessee is a manufacturer of Pressure vessels, cylinders and Site construction. While scrutinizing the return of income, the Assessing Officer asked the assessee to file details of sundry creditors. On perusing such details of sundry creditors, the AO observed that certain balances are being carried forward for the last 3 years with no transaction therein. The assessee was asked to file confirmation with regard to all such sundry creditors who liability is being carried forward from the last three years without having any transaction. The assessee filed a detailed reply dt. 19.11.2009 and explained that due to financial crunch and some dispute of old creditors, the assessee could not repay the outstanding liabilities. It was further explained that the assessee had incurred huge losses and therefore was not in a position to clear old creditors. On receiving no confirmation, the AO added the entire amount of sundry creditors amounting to Rs. 45,14,977/- u/s. 41(1) of the Act.

4. The assessee strongly agitated this matter before the Ld. CIT(A). The assessee reiterated that it could not pay all creditors due to dispute and liquidity crunch. The assessee also submitted a party-wise chart and party-wise copy of account of all the sundry creditors which clearly show that most of the sundry creditors have been paid. After considering the facts and submissions of the assessee, the Ld. CIT(A) observed that the cessation of liability come into effect only when the amount is written back to the profit and loss account of the assessee and if the assessee does not offer the said amount to tax, then the AO is not justified in taxing the said amount under the head cessation of trade liability u/s. 41(1) of the Act. Thereafter, the Ld. CIT(A) relied upon certain decisions which are exhibited at page-8 of his order. The Ld. CIT(A) further observed that for invoking Section 41(1) of the Act, it is very necessary to first establish by way of evidence that the receipts are income of the assessee and that 3 ITA No.6271/M/2011 there has been a cessation of liability. In this case, it is seen that it has been established by the AO that there are trade liability pending as far as the assessee is concerned. However it has to be established that the liability of the assessee has ceased to exist and there is no possibility of this liability being revived in future. The Ld. CIT(A) further noted that in case of 5 parties, complete payment of liability has been made as on 31.3.2010. The Ld. CIT(A) finally concluded that the AO was not justified in invoking Sec. 41(1) of the Act. The additions made were not justified and accordingly deleted the addition.

5. Aggrieved by this finding of the Ld. CIT(A), Revenue is before us.

6. The Ld. Departmental Representative while supporting the findings of the AO submitted that the Ld. CIT(A) has admitted such additional evidences which are in contravention of Rule 46A,

7. Per contra, the Ld. Counsel for the assessee reiterated what has been submitted before the lower authorities.

8. We have considered the rival submissions and perused the orders of the lower authorities. A perusal of the assessment order clearly shows that the AO has made additions only on the premise that the liabilities are outstanding for more than 3 years. This itself cannot be a sole ground for making additions u/s. 41(1) of the Act because where the amounts represents time barring, trading liability of the assessee there is neither remission nor cessation of the trading liability in as much as the law of limitation merely bars the remedy but does not wipe out the liability. At the most such liability cannot be enforceable but not extinguished. The remission of the liability arises when the creditor voluntarily gives up the claim. The cessation of such liability arises only when it ceases to exist 4 ITA No.6271/M/2011 in the eye of law for all intents and purposes. When the debt becomes barred by time, the creditor would not be able to recover the amount by enforcing his right in Court. But the right will not come to an end nor will be the liability cease to exist. Therefore, in our humble opinion, the AO has grossly erred in invoking provisions of Sec. 41(1) of the Act. We, therefore, do not find any reason to interfere with the findings of the Ld. CIT(A).

9. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 10th July, 2013 .

आदे श कȧ धोषणा खुले Ûयायालय मɅ Ǒदनांकः 10.7.2013को कȧ गई ।

        Sd/-                                     Sd/-
   (H.L. KARWA )                         (N.K. BILLAIYA)
 अÚय¢/ PRESIDENT              लेखा सदःय / ACCOUNTANT MEMBER
मुंबई Mumbai;     Ǒदनांक Dated 10 /07/2013
व.िन.स./ RJ , Sr. PS
आदे श कȧ ूितिलǒप अमेǒषत/Copy
                     षत      of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2.   ू×यथȸ / The Respondent.
3.   आयकर आयुƠ(अपील) / The CIT(A)-
4.   आयकर आयुƠ / CIT

5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड[ फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai