Income Tax Appellate Tribunal - Ahmedabad
B.D. Patel Quarry Works Pvt.Ltd.,, ... vs Department Of Income Tax on 9 August, 2012
1 ITA No.733/Ahd/2010
Assessment Year 2004-05
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH -D, AHMEDABAD.
(Before Shri D.K. TYAGI, J.M. AND SHRI ANIL CHATURVEDI,A.M.)
I.T.A. No.733/AHD/2010
(Assesment Year 2003-04)
Income Tax Officer, Vs. M/s.B.D. Patel Quary Works
Ward 1(1), P.Ltd.,
Aayakar Bhavan, R.R.No.65,
Nerar Race Course At & Post Udalpur,
Circle, Tal.Savli,
Baroda. Dist. Vadodara.
(Appellant) (Respondent)
PAN No.AAACB 8676 Q
Appellant by : Shri T.Shankar,Sr.D.R.
Respondent by: Shri S.N.Soparkar,Sr.Adv.
Date of hearing :- 9-8-2012
Date of pronouncement :-14 -9-2012
ORDER
Per Shri Anil Chaturvedi,A.M. This appeal is filed by the Revenue against the order of Ld. CIT (A)-I, Baroda dated 26-11-2009 for the Assessment Year 2003-04.
2. The only ground raised by the Revenue in its appeal reads as under:-
" On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.23,09,269/- made on account of cessation of liability u/s. 41(1) of the Act."2 ITA No.733/Ahd/2010
Assessment Year 2004-05
3. Assessee is a company engaged in the business of manufacturing Kapchi, Metal, Grit and rubbles from the quary. In this case, the assessee filed original return of income on 29-11-2003 declaring total income of Rs. Nil after claiming unabsorbed depreciation of Rs.28,59,895/-. Subsequently the assessee furnished revised return of income on 4-1-2006 disclosing total income of Rs.4,16,754/- after setting of unabsorbed depreciation of Rs.24,89,371/-. The A.O. observed that the assessee had failed to file revised return of income on or before the stipulated time. He, therefore, considered revised return to be nonest.
4. During the course of assessment proceedings the A.O. observed that there were various parties which were shown as trade creditors aggregating to Rs.23,09,269/- the detailed list of which is at page -11 of the assessment order. The A.O. was of the view that the amount was outstanding for many years and assessee has not paid interest on the huge amount for a long time. The assessee did not furnish documentary evidence in the form of confirmation of credits, their addresses, names, source, telephone number etc., to prove that the liabilities were still payable. In view of these facts the A.O. held that the liabilities are not payable by the assessee and accordingly made addition u/s. 41(1) to the extent of Rs.23,09,269/-. Being aggrieved by the action of A.O., the assessee preferred appeal before the CIT (A).
5. Before CIT (A), the assessee interalia submitted that in some cases Suits have been filed before the High Court of Gujarat for recovery and in other cases there were disputes with the parties and till the time disputes 3 ITA No.733/Ahd/2010 Assessment Year 2004-05 were not settled and the liability continued to exist. Assessee further submitted that the liability continued till date and no amount has been written-back by the assessee. The Ld. CIT (A) agreed with the contentions of the assessee and allowed the appeal of the assessee by holding as under:-
"8.2. I have considered the submissions of the Ld. AR., and the facts of the case. It is seen that the assessee has been acknowledging the debt regularly. The debt has been acknowledged by it vide entry in its balance sheet.
8.2.1. Section18 of the Limitation Act,1963 provides that:
"where a debt is acknowledged in writing before expiry of the limitation period, this would amount to sufficient acknowledgement and fresh limitation shall be computed from the time when such acknowledgment is made."
8.2.2 The Courts have held in various cases that where the debtor entered the debt as due by him in a signed account, it would amount to sufficient acknowledgement. In Periaswami Udaya Tevar v. Subramaniam Chetty, 20 ILR 239(Mad) and Rajah Vizianagarm v. Official Liquidator, AIR 1952 Mad 136 (DB), it has been held that a statement in the balance sheet acknowledging a debt by the company is sufficient acknowledgment within section18 of the Limitation Act.
8.2.3. It is also worth mentioning that in the case of Sugauli Sugar Works P. Ltd., 236 ITR 518, the Supreme Court has clearly mentioned that the fact that the period of limitation prescribed under the Limitation Act expired does not mean that the debt has been extinguished merely because remedy by way of suit was barred. In fact the court went so far as to state that even where the amount is squared up by transferring the sum to capital reserve account, section41(1) would not have any application. In the instant case, there is no squaring up of the accounts of the parties. They continued to be shown as creditors at the end of the relevant previous year. Accordingly, in view of the judicial decisions as above, it is held that 4 ITA No.733/Ahd/2010 Assessment Year 2004-05 the A.O. was not justified in adding back this amount ofRs.23,09,269/- .The addition is directed to be deleted."
6. Aggrieved by the order of CIT (A), Revenue is now in appeal before us.
7. Before us the Ld. D.R. relied on the order of the A.O.
8. On the other hand, Ld. A.R. submitted that the amount has not been written back in the balance sheet. The assessee has not squared up the accounts of the parties and it continues to show the same as creditors at the end of the year. In view of these facts, the Ld. A.R. submitted that the A.O. was not justified in making addition u/s. 41 (1). The Ld. A.R. also relied on the decision of Ahmedabad Tribunal in the case of Supriya Textiles (ITA No.3228/AHD/2008) & placed on record, the copy of the decision. He thus supported the order of CIT (A).
9. We have heard the rival submissions and perused the material on record. In the present case we find that assessee has shown the creditors as payable in its balance sheet and thereby acknowledges the debt. The assessee has not written-back the amount in its profit and loss account. CIT (A) has given a finding that there is no squaring up of accounts of the parties and the assessee continues to show the amount as creditors at the end of relevant previous year. The Ld. D.R. could not controvert these facts by bringing any contrary material on record. In the case of Supriya Textiles (supra) the co-ordinate Bench has held as under.
5 ITA No.733/Ahd/2010Assessment Year 2004-05 "8. The finding given by the A.O. is that certain parties are not traceable or that such amount is not outstanding in the books of these parties against the assessee. It would mean according to Ld. D.R. that liability has ceased to exist. But this is not the event which has taken place during this year nor is visualized in section 41(1). The section clearly stipulates obtaining a benefit by cash or in any other manner. Therefore, the A.O. has to show that assessee has obtained such benefit in cash or otherwise only during the current year. Therefore, merely because certain creditors are not traceable or they have denied any liability against the assessee would not show that liability ceased to exist only in the current year by virtue of operation of law, or it was remitted by the creditor only during the current year. The enquiries had to be further carried out to show what event has taken place. They should clearly show a cessation or remission and when it happened. If these two aspects are not clearly proved by the Revenue provisions of section 41 (1) could not be invoked. In addition to this, the onus is on the Revenue to show that the amount in question which is deemed as profit during the current year u/s.41(1) was in fact taken into account in any earlier year either in the trading account or in the profit and loss account. Since Revenue has failed to discharge the onus, as to -
(i) what event has taken place during the current year;
(ii) when this event took place;
(iii) whether the sum in question was considered in the trading a/c.
or profit and loss account in any earlier year i.e. whether it is a trading liability;
the outstanding balances in the books of assessee cannot be taxed u/s. 41(1)(1).
9. In the present case though there is finding that the liabilities in question relate to trading liabilities but this alone is not sufficient to tax them in the current year. It has to be further shown that such liabilities are taxable under current year u/s.41(1) as cessation or remission has taken place in the current year. The action of the A.O. in carrying out enquiry is not the event contemplated u/s. 41(1). The event has to trigger either from the creditor or debtor or by law. Since nothing has happened from all these three sides it cannot be said that 6 ITA No.733/Ahd/2010 Assessment Year 2004-05 such liabilities are chargeable to tax u/s. 41(1) in the current year. As a result, this ground of appeal is allowed."
10. In view of the totality of facts and following the decision of Ahmedabad co-ordinate Bench, we find no reason to interfere in the order passed by the CIT (A). We thus, reject this ground of the Revenue.
11. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 14 -9-2012
Sd/- Sd/-
(D.K. TYAGI) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad.
Patki.
Copy forwarded to:-
1. The assessee.
2. The Revenue.
3. The CIT (A)-I, Baroda.
4. The CIT concerned.
5. The D.R. ITAT,Ahmnedabad.
6. Guard file.
BY ORDER.
Deputy/Assistant Registrar.
ITAT.,Ahmedabad.
7 ITA No.733/Ahd/2010
Assessment Year 2004-05
1.Date of dictation 21 - 8 -2012
2.Date on which the typed draft is placed before the Dictating 11,12 / 9 / 2012 Member................Other Member................
3.Date on which the approved draft comes to the Sr.P.S./P.S 12 - 9 -2012.
4.Date on which the fair order is placed before the Dictating Member for pronouncement 14 - 9 -2012
5.Date on which the fair order comes back to the Sr.P.S./P.S 14 - 9 -2012
6.Date on which the file goes to the Bench Clerk 17 - 9 -2012.
7.Date on which the file goes to the Head Clerk.............
8.The date on which the file goes to the Asstt. Registrar for signature on the order........................
9.Date of Despatch of the Order.................