Income Tax Appellate Tribunal - Mumbai
A.C.I.T. Rg.3(3), Mumbai vs Trans Freight Containers Ltd, Mumbai on 21 June, 2017
आयकर अपीऱीय अधिकरण, मुंबई न्यायपीठ "ऐ" मुंबई
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI
BEFORE SHRI SAKTIJIT DEY, JM AND SHRI RAJESH KUMAR, AM
आमकय अऩीर सं./ I.T.A. No.5979/Mum/2012
(निर्धारण वषा / Assessment Year : 2009-10)
Asstt. Commissioner of Income Tax- M/s Trans Freight Containers,
Range 3(3),
फनाभ/ 72-73, Nariman Bhavan,
R No.609, 6th floor, Aayakar Bhavan Nariman Point,
M K Road, Vs.
Mumbai-400021
Mumbai-400020
Appellant Respondent
PAN: AAACT1447P
अऩीराथी की ओय से / Appellant by : Shri Rajesh Kumar Yadav
प्रत्मथी की ओय से/Respondent by : Shri Nitesh Joshi
सुनवाई की तायीख /Date of Hearing : 3.4.2017
घोषणा की तायीख /Date of
: 6.2017
Pronouncement
आदे श / O R D E R
PER SAKTIJIT DEY, JM :
The aforesaid appeal, at the instance, of the department is against the order dated 20.1.2012 of ld.CIT(A)-7, Mumbai for the assessment year 2009-
10.
2. The only issue raised by the department is challenging the deletion of addition made by the Assessing Officer of Rs.7,29,35,535/- under section 2 I.T.A. No.5979/Mum/2012 41(1) of the Income tax Act, 1961 on account of remission/secession of liability.
3. Briefly stated, facts of the case are assessee a company is engaged in the business of manufacturing of engineering goods. For the assessment year under dispute assessee filed its return of income on 29.9.2009 declaring total income of Rs.1,95,51,230/-. In course of assessment proceedings, the AO while examining the financial statement of the assessee having noticed that the assessee has shown sundry creditors amounting to Rs.7,79,12,165/- called upon the assessee to furnish the details of sundry creditors with supporting evidences. As observed by the AO, in response to the show cause notice, the assessee in letter dated 15.11.2011, simply submitted the list of creditors and date of such credits. On examination of the details submitted by the assessee, the AO found that the credit balances outstanding in the name of the concerned parties were on account of purchases and expenses and were outstanding for a pretty long period starting from the year 1997-98 to 2002-03 and there is no change in the credit balances. He also noticed that there are no transactions with the concerned creditors in the recent years. Thus, the AO finally called upon the assessee to explain why the amount remaining outstanding in the name of the sundry creditors should not be treated as income of the assessee in terms of section 41(1) of the Act. In response to the said show cause notice, the assessee submitted the reply 3 I.T.A. No.5979/Mum/2012 stating therein that out of the total amount shown as sundry creditors as on 31.3.2009 an amount of Rs.3,91,50,613/- was either paid or written back in the subsequent period or part of it was payable to government authorities. It was also submitted, the balance amount of sundry creditors also cannot be treated as income u/s 41(1) of the Act. The AO, however, did not find merit in the submissions of the assessee. He was of the views, the assessee has failed to bring on record sufficient material with justifiable reasons for showing the creditors amounting to Rs.7,29,35,535/- over a long period. Ultimately, the AO concluded that in absence of any confirmation from the creditors to prove the genuineness of such credits it has to be held that liability in respect of such creditors no more exists. Accordingly, the AO concluded that the amount outstanding in the name of sundry creditors in the books of assessee amounting to Rs.7,29,35,535/- is to be treated as deemed income of the assessee u/s 41(1) of the Act due to cessation of such liability and accordingly added back to the total income of the assessee. Being aggrieved of such addition, the assessee preferred an appeal before ld.CIT(A).
4. Ld.CIT(A) after considering the submissions of the assessee in the light of relevant case laws cited before him deleted the addition by holding that until the benefit is passed on to the assessee in respect of such liability or the said liability ceased to exist then only the same can become income of 4 I.T.A. No.5979/Mum/2012 the assessee under section 41(1) of the Act,. He observed, only because liabilities are old or continued for long time that cannot be the sole basis to apply the provisions of section 41(1) without satisfying the condition mentioned therein. He observed, when the assessee has not written back the liability in its books of account, the question of applying section 41(1) will not arise.
5. The ld.DR relying upon the reasoning of the AO submitted that in course of assessment proceedings, the assessee had not furnished any evidence to prove the sundry creditors except furnishing the names and addresses. He submitted, when genuineness of the sundry creditors are in doubt, the ld.CIT(A) was not justified in deleting the addition by holding that the liabilities still exists in the books of account. In support of his contentions, the ld.DR relied on the following case laws:
i) Natural Gas Company (P.) Ltd. v. DCIT [2015] 61 taxmann.com 297 (Mumbai - Trib.) and
ii) Asht Laxmi Diamond and Jewellery V/s ITO (2015) 59 Taxman.com 430 (Mumbai-Trib) He therefore pleaded for restoration of the addition made by the AO.
6. The ld. AR strongly supporting the order of the ld.CIT(A) submitted, before the AO the assessee has furnished all the details of the sundry creditors and purpose for which such credit entries are appearing in the books of account. He submitted, the assessee has submitted before the AO 5 I.T.A. No.5979/Mum/2012 in detail status of sundry creditors and has brought to the notice of the AO that in subsequent assessment years part of the liabilities on account of sundry creditors was either written back and offered as income or have been paid to the concerned creditors. He submitted, part of liabilities also related to government agencies which under no circumstances can be treated as non-genuine and cannot be held that they ceased to exist. He submitted, in any case of the matter burden is heavily on the department to establish by bringing evidence on record that there is remission or cessation of liability in terms of section 41(1) of the Act. The ld. AR submitted, that when the liabilities on account of sundry creditors is continuing for last so many years, there is no reasons on the part of the AO to conclude that such liability ceased to exist in the impugned assessment year. He submitted, as per explanation (1) to section 41(1) of the Act the writing off of any liability is an unilateral act of the person showing such liability. He submitted, that the allegation of the AO that the assessee was not able to prove the genuineness of the sundry creditors by furnishing confirmation and other evidences, relevant material in the relevant assessment years is irrelevant since, in the assessment years wherein such sundry creditors' originated no doubt was raised by AO. Finally, the ld.AR submitted, since the assessee is showing the liabilities in the balancesheet in each assessment year such liabilities are still 6 I.T.A. No.5979/Mum/2012 recoverable by the creditors u/s 41(1) of the Act. In support of his contention, the ld.AR relied upon the following decisions :
i) CIT V/s Jain Exports (P) Ltd-(2013) 89 DTR Judgments 265;
ii) Principal CIT V/s Matruprasad C Pandey -(2015) 377 ITR 363 (Guj);
iii) CIT V/s Bhogilal Ramjibhai Atara (2014) 222 Taxman 313 (Guj);
iv) CIT V/s Nitin S Garg -(2012) 22 Taxmann.com 59 (Guj)
7. We have heard the ld.Counsels appearing for the parties and perused the material on record. As could be seen, the AO himself in the assessment order has stated that the sundry credits amounting to Rs.7.29 crores originated in assessment years 1997-98 to 2002-03 and continuing unchanged till the impugned assessment year. Therefore, the AO has assessed the liability since it continued in the books of account of the assessee for such a long period without being paid off by the assessee hence, such liability have ceased to exist and to be treated as income of the assessee. He further held that the assessee has failed to prove genuineness of the sundry creditors by furnishing the confirmations or any other documentary evidences. As far as the second allegation of the AO is concerned, we are unable to accept the same. When the AO accepts that the liabilities were created in assessment years 1997-98 to 2002-03, the genuineness of such transactions have to be examined in those assessment years and not in assessment year under consideration. The sundry creditors shown by the assessee in the year of origin having been accepted by the 7 I.T.A. No.5979/Mum/2012 department, the genuineness of such transactions cannot be called into question in the impugned assessment year. As far as the allegation of the AO that liability on account of sundry creditors has ceased to exist in the assessment year in terms of section 41(1), on plain reading of the provisions of section 41(1) of the Act, we are of the view that before treating the amount outstanding towards sundry creditors as deemed income of the assessee u/s 41(1) on account of remission/cessation of liability, the AO is duty bound to examine whether the condition laid down u/s 41(1) are fulfilled or not. As per the reading of section 41(1) along with explanation (1) to section 41(1), the liability ceases to exist in the books of account of the assessee in a particular previous year, if the person showing such liability had obtained benefit either in cash or in any other manner in respect of such liability. It further provides that such remission or cessation of liability is also acceptable by unilateral act of writing off such liability in its account by the person showing such liability. Thus, before applying the provisions of section 41(1), it is necessary to establish on record that the assessee has obtained a benefit either in cash or in any form in respect of such liability in the relevant previous year. Thus, when in AO's own admission liability continued from past so many years, what prompted the AO to conclude that the assessee has obtained benefit in respect of such liability in the impugned assessment year must be clearly brought on record. In absence of any 8 I.T.A. No.5979/Mum/2012 material to establish that the assessee has obtained any benefit in respect of the liability on account of sundry creditors in the impugned assessment year merely on surmises and assumptions it cannot be said that there is remission/cessation of liability in the impugned assessment year. More so, when there is no unilateral act by the assessee in writing off of liability in its books of accounts. Further, it is evident from the material on record that in course of assessment proceedings the assessee had furnished the necessary details and submitted that part of the liability has already been written off or paid back in the subsequent years. However, the AO without any valid reasons has failed to recognise such facts. In fact, as pointed out by the ld. AR, such repayment or writing off of the liability in subsequent years was prior to the query raised by the AO on 07.12.2011 for invoking the provisions of section 41(1) of the Act. Thus, the Act of the assessee in repaying a part of the sundry creditors of writing off the liability in its books of account cannot be held to be an afterthought but has to be considered to have been done in good faith. Moreover, a part of the liability is due to Government agencies. Unless there is any communication by the Government giving tie-up its right to recovery of the debt there cannot be remission of the liability. The Hon'ble Delhi High Court in the case of Jain Exports (P) Ltd (supra) held as under :
9
I.T.A. No.5979/Mum/2012 "21. Although, enforcement of a debt being barred by limitation does not ipso facto lead to the conclusion that there is cessation or remission of liability, in the facts of the present case, it is also not possible to conclude that the debt has become unenforceable. It is well settled that reflecting an amount as outstanding in the balance sheet by a company amounts to the company acknowledging the debt for the purposes of Section 18 of the Limitation Act, 1963 and, thus, the claim by M/s Elephanta Oil & Vanaspati Ltd. can also not be considered as time barred as the period of limitation would stand extended. Even, otherwise, it cannot be stated that M/s Elephanta Oil & Vanaspati Ltd.
would be unable to claim a set-off on account of the amount reflected as payable to it by the assessee. Admittedly, winding up proceedings against M/s Elephanta Oil & Vanaspati Ltd. are pending and there is no certainty that any claim that may be made by the assessee with regard to the amounts receivable from M/s Elephanta Oil & Vanaspati Ltd. would be paid without the liquidator claiming the credit for the amounts receivable from the assessee company. It is well settled that in order to attract the provisions of Section 41(1) of the Act, there should have been an irrevocable cession of liability without any possibility of the same being revived. The assessee company having acknowledged its liability successively over the years would not be in a position to defend any claim that may be made on behalf of the liquidator for credit of the said amount reflected by the assessee as payable to M/s Elephanta Oil & Vanaspati Ltd.
22. We may also add that, admittedly, no credit entry has been made in the books of the assessee in the previous year relevant to the assessment year 2008- 2009. The outstanding balances reflected as payable to M/s Elephanta Oil & Vanaspati Ltd. are the opening balances which are being carried forward for several years. The issue as to the genuineness of a credit entry, thus does not arise in the current year and this issue could only be examined in the year when the liability was recorded as having arisen, that is, in the year 1984- 1985. The department having accepted the balances outstanding over several years, it was not open for the CIT (Appeals) to confirm the addition of the amount of ` 1,53,48,850/- on the ground that the assessee could not produce sufficient evidence to prove the genuineness of the transactions which were undertaken in the year 1984-85.
10
I.T.A. No.5979/Mum/2012
23. The present appeal does not disclose any substantial question of law for our consideration and is, accordingly, dismissed."
8. In the case of Matruprasad C Pandey (supra), the Hon'ble Gujarat High Court has held as under :
"6.1 At the outset, it is required to be noted that the Assessing Officer made the addition of Rs. 56,96,645/- invoking Section 41(1) of the Income Tax Act by doubting certain sundry creditors amounting to Rs. 56,96,645/- appearing in the balance sheet of the assessee since past several years. However, it is required to be noted that as such those sundry creditors mentioned in the balance sheet of the assessee were shown as sundry creditors since past several years from the relevant assessment year and at no point of time earlier the Assessing Officer doubted the creditworthiness and/or identity. In any case the addition on the aforesaid ground under Section 41(1) of the Act cannot be made unless and until it is found that there was remission and/or cessation of the liability that too during the previous year, relevant to the assessment year in question, there cannot be any addition invoking the provision of Section 41(1) of the Act. Identical question came to be considered by the Division Bench of this Court in the case of Nitin S. Garg (supra) and in the similar set of facts and circumstances of the case when the addition was made invoking Section 41(1) of the Act by doubting the creditworthiness and/or identity of the sundry creditors mentioned in the balance sheet and it was found that those sundry creditors were very old and no interest had been paid on those loans, the Division Bench has deleted such addition made under Section 41(1) of the Act. In paragraph 15 the Division Bench has observed and held as under;
"15. In the case before us, it is not been established that the assessee has written off the outstanding liabilities in the books of account. The Appellate Tribunal is justified in taking the view that as assessee had continued to show the admitted amounts as liabilities in its balance sheet the same cannot be treated as assessment of liabilities. Merely because the liabilities are 11 I.T.A. No.5979/Mum/2012 outstanding for last many years, it cannot be inferred that the said liabilities have seized to exist. The Appellate Tribunal has rightly observed that the Assessing Officer shall have to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof which is not the case before us. Merely because the assessee obtained benefit of reduction in the earlier years and balance is carried forward in the subsequent year, it would not prove that the trading liabilities of the assessee have become non existent."
"6.2 The aforesaid decision of the Division Bench in the case of Nitin S. Garg (supra) has been considered and followed by the Division Bench of this Court in the case of Bhogilal Ramjibhai Atara (supra) and the addition made under Section 41(1) of the Act in the similar facts and circumstances of the case is ordered to be deleted. In paragraph 8 the Division Bench has observed and held as under;
"We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi- parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) f the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar 12 I.T.A. No.5979/Mum/2012 as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed."
In the present case there was no remission and/or cessation of the liability during the previous year relevant to the assessment year under consideration. As such, there is no remission and/or cessation of the liability during the year under consideration subject to the conditions contained in the statute being fulfilled. In the present case, both the aforesaid elements are missing."
9. Thus, applying the ratio laid down in the aforesaid decisions to the facts of the present case, we are of the view that there is no remission or cessation of liability of the sundry creditors appearing in the books of assessee in the impugned assessment year. In view of the aforesaid factual position, we do not consider it necessary to dwell much upon the decisions relied upon by the ld.DR. Thus, in the ultimate analysis, we do not find any infirmity in the order of ld.CIT(A) which is accordingly confirmed.
10. Ground raised in the present appeal is dismissed.
11. In the result, the appeal of the department is dismissed. Order pronounced in the open court on 21st June, 2017 Sd sd (RAJESH KUMAR) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER भुंफई Mumbai; ददनांक Dated :21.6.2017 SRL,Sr.PS 13 I.T.A. No.5979/Mum/2012 आदे श की प्रततलरपऩ अग्रेपषत/Copy of the Order forwarded to :
1. अऩीराथी / The Appellant
2. प्रत्मथी / The Respondent
3. आमकय आमुक्त(अऩीर) / The CIT(A)
4. आमकय आमुक्त / CIT - concerned
5. पवबागीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai
6. गार्ड पाईर / Guard File आदे शानुसाय/ BY ORDER, True copy उऩ/सहामक ऩंजीकाय (Dy./Asstt. Registrar) आमकय अऩीरीम अधधकयण, भुंफई / ITAT, Mumbai