Gujarat High Court
Commissioner Of Income Tax -I vs Asian Petro Products & on 11 June, 2013
Bench: M.R. Shah, Sonia Gokani
COMMISSIONER OF INCOME TAX -I....Appellant(s)V/SASIAN PETRO PRODUCTS & EXPORTS LTD....Opponent(s) O/TAXAP/465/2013 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 465 of 2013 ================================================================ COMMISSIONER OF INCOME TAX -I....Appellant(s) Versus ASIAN PETRO PRODUCTS & EXPORTS LTD....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MS JUSTICE SONIA GOKANI Date : 11/06/2013 ORAL ORDER
(PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.00. Present Tax Appeal has been preferred by the revenue challenging the impugned order dtd. 12/12/2012 passed by the ITAT in ITA No.730/AHD/2010 for A.Y.2004-2005 by which the tribunal has dismissed the said appeal preferred by the revenue confirming the order passed by CIT(A), by which CIT(A) set aside the assessment order passed by the Assessing Officer.
2.00. Facts leading to the present appeal in nutshell are as under :
2.01. That the respondent assessee Company engaged in the business of manufacturing and selling of various chemicals filed its return of income of Rs.2,40,05,449/-. The case was selected for scrutiny. That during the course of the assessment proceedings, AO noticed that aggregating to Rs.1,23,68,527/-
were outstanding since very longtime. The assessee submitted that due to financial difficulties faced by it, the amounts were outstanding and payable by the assessee. The AO did not accept the contention of the assessee and was of the view that in absence of failure on the part of the assessee to furnish confirmation letters and any documentary evidence, there has been cessation of liability and accordingly added outstanding amount of Rs.1,23,68,527/- as income under section 41(1). Aggrieved by the assessment order, the assessee carried the matter before the CIT(A). Before CIT(A) it was submitted that the assessee continued to have transaction with the parties even in latter orders. It was submitted that in many cases even payments were fully made in subsequent years and outstanding amount was reduced to nil and in some cases outstanding have reduced on account of payments made by the assessee. The CIT(A) agreed with the contention of the assessee and held that except for the amount payable to the Ahmedabad Stock Exchange Rs.40,000/-, there has been no remission of liability and therefore, he directed deletion of balance amount of Rs.1,23,28,527/-. Feeling aggrieved by the order passed by the CIT(A), the revenue preferred appeal before the tribunal and by impugned judgement and order, the tribunal has dismissed the appeal preferred by the revenue confirming the order passed by the CIT(A).
3.00. At the time of hearing of the present appeal, Mr.Parikh, learned counsel appearing on behalf of the revenue has raised the following substantial questions of law :
Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the decision of the CIT(A) deleting addition u/s.41(1) of the Act of Rs.1,23,28,527/- on the basis of details furnished during the appellate proceedings, which were not furnished during the course of assessment proceedings without appreciating that the liabilities as on 31.03.2004 were outstanding since long back and the same remained outstanding even on 31.03.2006 without any change?
ALTERNATIVELY Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the decision of the CIT(A) deleting addition of Rs.1,23,28,527/- u/s.41(1) of the Act, without appreciating that these were trading liabilities since long and no confirmation from the creditors or any other documentary evidence in support of the claim of the assessee were filed during the assessment proceedings?
3.01. Mr.Parikh, learned counsel appearing on behalf of the revenue has heavily submitted that the appellate tribunal was not justified in setting aside addition made by the Assessing Officer. It is submitted that admittedly the assessee did not furnish any confirmation letters from the parties concerned and also failed to submit any document or correspondent showing the efforts made by the parties to recover the amount from the assessee Company and liability as on 31/3/2004 were outstanding since long back and the same remained outstanding even on 31/3/2006 without any change, the Assessing Officer was justified in considering the outstanding amount of Rs.1,23,68,527/- as income u/s.41(1). It is submitted that as assessee for the first time contended during the course of the appellate proceedings that the payments have been made to the creditors subsequently, CIT(A) ought to have remanded the matter to the file of AO for verification as to whether payments had actually reached to the so-called creditors. It is submitted that inspite of that CIT(A) held that the provisions of section 41(1) would not be applicable in the facts of the case since no remission of liability has taken place in this case. It is submitted that the tribunal has materially erred in dismissing the appeal preferred by the revenue and confirming the order passed by the CIT(A).
4.00. Having heard Mr.Parikh, learned counsel appearing on behalf of the revenue and considering the orders passed by the CIT(A) as well as ITAT and the reasoning and finding, we do not see any reason to interfere with the impugned order. Considering the fact that the assessee continued to show the amounts as liabilities in its balancesheet, as rightly held by the CIT(A) as well as the tribunal, the same cannot be treated as cessation of liability and therefore, section 41(1) cannot be applied. As such, the substantial question of law raised is squarely covered by the decision of the Division Bench of this Court in Tax Appeal in the case of Commissioner of Income Tax-II Vs. Nitin S. Garg, rendered in Tax Appeal No.2428 of 2010, taking the view that when the assessee had continued to show the amount as liability in its balancesheet, the same cannot be treated as cessation of liability. It is also further held that merely because the liabilities are outstanding for many years, it cannot be inferred that the said liabilities have ceased to exist.
5.00. While dismissing the appeal preferred by the revenue the tribunal has observed and held in para 11 as under :
We have heard the rival submissions and perused the material on record. The factual matrix of the case is that the creditors were appearing in the books of the assessee since earlier years. In the absence of balance confirmations from the creditors or any evidence, the A.O. Was of the view that the amounts outstanding to be the case of the cessation of liabilities and therefore taxable u/s.41(1). CIT(A) after considering the submissions by the assessee has held that in some cases the assessee has made payments in subsequent years and in the cases where the amounts are still outstanding, the provisions of section 41(1) cannot be applied. The assessee acknowledges its liability to pay. The Revenue has not been in a position to controvert the findings of CIT(A). Further the Revenue has not brought anything on record to prove the creditors to be non existent or the creditors appearing in Balance Sheet to be of bogus in nature. In the case of CIT vs. Nitin Garg (supra) the Hon ble High Court has held that when the assessee had continued to show the amounts as liabilities in its balance sheet the same cannot be treated as cessation of liabilities. It further held that merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have ceased to exist. In view of the totality of facts and relying on the aforesaid decision of Gujarat High Court, we find no infirmity in order of CIT(A) and accordingly no interference to the order of CIT(A) is called for. We thus confirm the order of CIT(A) and the ground of the Revenue is dismissed.
Considering the aforesaid facts and circumstances of the case, neither the CIT(A) nor the Tribunal have erred in holding that the provisions of section 41(1) would not be applicable and has rightly held in favour of the assessee.
6.00. We, thus, find that as the view taken by the tribunal is absolutely in consonance with one taken by the Division Bench in the case of Nitin Garg (supra), we do not find any error much less error of law in the order passed by the tribunal. In absence of any substantial question of law arising in the present appeal, present appeal deserves to be dismissed and is accordingly dismissed. However, in the facts and circumstances of the case, there shall be no order as to costs.
(M.R.SHAH, J.) (MS SONIA GOKANI, J.) Rafik.
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