A& A INTERNATIONAL TRADING PVT. LTD,CHENNAI V. ACIT, CORP. CIRCLE 1(1), CHENNAI

SA 15/CHNY/2025

AI Insights

The case involves A & A International Trading Pvt Ltd, which appealed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Center, Delhi, concerning the assessment year 2016-17. The primary issue was the addition of Rs.11,51,74,885/- to the assessee's income, which was treated as remission of liability under section 41(1) of the Income Tax Act by the Assessing Officer and confirmed by the CIT(A). The Tribunal examined whether the liabilities were indeed ceased and whether the provisions of section 41(1) were applicable. The Tribunal considered various judicial precedents and the facts presented, ultimately deciding in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 36954 (ITAT-CHENNAI)
• Appeal Type: Stay Application
• Pronouncement Date: 12-02-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2016-2017
• Other Referred Cases: Dattatray poultry breeding farm pvt ltd vs. 95 taxman.com 130, Tamil Nadu Warehousing corporation vs. TCA number 2265 of 2006, M/s SRM Engineering construction Corporation ltd vs. ITA No. 489/Chny/2023, Nirmala Overseas New Delhi vs. ITA No.2996/Delhi/2009, Mahinder Kumar Mittal vs. ITA no.7497/Delhi/2019, Eco Krin hygiene Pvt Ltd vs. ITA No.3006 / Mum/ 2023
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A. SASIKUMAR
• Assessee Lawyers: D.ANAND
• Keywords: Set aside; Business income; Bad and doubtful debts; Corroborative evidences; Period of limitation
• Section: 143(3); 250

Judgement Text

"Page - 1 - of 8 आयकर अपीलीय अधिकरण,’डी’ न्यायपीठ, चेन्नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI श्री एबी टी. वर्की, न्यायिर्क सदस्य एवं श्री अयिताभ शुक्ला, लेखा सदस्य क े समक्ष BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.2231/Chny/2024, निर्ाारण वर्ा /Assessment Years: 2016-17 A & A International Trading Pvt Ltd, No.6-5/140, Kaviarasu Kannadasan Nagar, Kodungaiyur, Chennai-600 118. [PAN: AAICA0039J] The Asst. Commissioner of Income Tax, Corporate Circle-1(1), Chennai. आयकर अपील सं./SA No.15/Chny/2025 (ITA No.2231/Chny/2024) निर्ाारण वर्ा /Assessment Years: 2016-17 (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Assessee by : Shri D.Anand, Advocate प्रत्यर्थी की ओर से /Revenue by : Shri A.Sasikumar, CIT सुिवाई की तारीख/Date of Hearing : 05.02.2025 घोर्णा की तारीख /Date of Pronouncement : 12.02.2025 आदेश / O R D E R PER AMITABH SHUKLA, A.M : These appeals are filed by the assessee against the order bearing DIN & Order No.ITBA/NFAC/S/250/2024-25/1065907633(1) dated 21.06.2024 of the Learned Commissioner of Income Tax [herein after “CIT(A), National Faceless Appeal Center[NFAC], Delhi, for the assessment years 2016-17 and Stay Petition No.15/Chny/2025 arising out of ITA No.2231/Chny/2024 for the assessment year 2016-17. ITA-2231/Chny/2024 & SA-15 /Chny/2025 Page - 2 - of 8 Through the aforesaid appeals the assesse has challenged order u/s 250 dated 21.06.2024 passed by NFAC, Delhi. 2.0 It has been noted that there is a delay of 01 day in the case, in filing of this appeal before the tribunal. The Ld. Counsel submitted that the delay is attributable to miscommunication with its staff and that the same was neither willful nor wanton. The assesse submitted that there will not be case of any non-compliance now. We have considered the justification put forth by the assesse and we are satisfied with their adequacy. We are also conscious of the fact that no litigant gains by intentionally delaying its own matters. The Ld. DR did not pose any serious objections to the delay. Accordingly, we hereby condone the delay and proceed to adjudicate this appeal. 3.0 The Ld. Counsel for the assessee submitted that the only issue in this appeal is regarding an addition of Rs.11,51,74,885/- made by the Ld. AO invoking provisions qua remission of liability u/s 41(1) of the act and its confirmation by the Ld. CIT(A). The Ld. Counsel informed that the assessee is a trader of coal in as much as it buys and sells coal. It was submitted that given the changes naturally occurring in the quantity and quality of coal during transit from assessee’s buyer to assessee’s seller leads to trading disputes which are seminal to liabilities. The Ld. ITA-2231/Chny/2024 & SA-15 /Chny/2025 Page - 3 - of 8 Counsel informed that the Ld. AO made the impugned addition on the premise that the assessee could not provide any supporting evidence in respect of parties covered therein and / or failed to satisfactorily explain the reasons for outstanding liabilities for long. In support of his conclusion, the Ld. AO relied upon the decision of Hon’ble Ahmadabad tribunal in Dattatray poultry breeding farm pvt ltd 95 taxman.com 130 holding that addition made in respect of trading liabilities which had ceased to exists represents taxable business income u/s 41(1). Reliance was also placed on the decisions of Hon’ble Gujarat and Delhi Courts on the Subject. The Ld. CIT(A) confirmed the matter recording his views in para 5.3 of his order. IT was noted that the appellant has merely reiterated the submissions made before the Ld. AO. Before the Ld.First Appellate Authority the appellant had submitted that outstanding arise in his business because of trading disputes. A request was accordingly made to delete the addition. The Ld. DR vehemently opposed the move and placed reliance on the order of the Ld. AO and Ld. CIT(A). 4.0 We have heard rival submissions in the light of material available on records. We have noted that there exists some veracity in the claims of the assesse as far as the issue of trading disputes arising on account ITA-2231/Chny/2024 & SA-15 /Chny/2025 Page - 4 - of 8 of variations in the quality and quantity of coal creeping in during the transit. During the course of present hearing the assessee had filed statements of its trading liability between the period 31.03.2017 to 31.03.2024 so as to allude that the liabilities shown by it are not irrecoverable liabilities and were actually live, some of which were realized during the intervening period. The Ld. DR however contested that the said details were not available for consideration of the below authorities. The assessee has however principally contested the addition by invoking provisions of 41(1) on the premise that it has shown the impugned liabilities in his books of accounts during the year under consideration as recoverable / receivable amounts and that the party concerned have also not written off the same as bad debts in its books. Thus, it was contended that no benefit has accrued to the assessee in respect of impugned liabilities. In support of its contentions, the Ld. Counsel for the assessee has relied upon a catena of judgements in its favour. 4.1 It has been argued that the acknowledgement of liabilities by the two parties is sufficient to keep the claims alive and that a presumption qua remission u/s 41(1) cannot be drawn. The assessee has contended that in a recent case of Asset reconstruction company India Ltd NCLT ITA-2231/Chny/2024 & SA-15 /Chny/2025 Page - 5 - of 8 Bench had considered the issue as to whether the liability is impacted by the law of limitation and had concluded that prohibitory provisions of limitation act do not get attracted in cases where the liability is acknowledged by the parties. The impugned decision of NCLT was reversed by NCLAT. However in appeal Hon’ble Apex Court, in answer to question as to whether an entry made in the balance sheet of a corporate debtor would amount to an acknowledgement of liability u/s 18 of the limitation act, held that “…the acknowledgement of debt in the balance sheet extends the period of limitation…” thus the assessee contended that as the liabilities very much exists, there is no merit in revenue’s case of invoking provision of 41(1). 4.2 The Ld. AR invited our attention to its financials for year ending 31.03.2016, to establish that impugned liability of Rs.11,51,74,885/- was appearing as receivable. The Ld. Counsel drew our attention to the decision of Hon’ble Jurisdictional Tribunal in the case of Tamil Nadu Warehousing corporation TCA number 2265 of 2006 dated 10.10.2006 concerning issue of remission of the liabilities invoking provision of 41(1). In the said case Hon’ble High Court confirmed the decision of the tribunal that so long as the assessee continues to show the liability in its balance sheet a presumption qua its remission cannot be drawn. Hon’ble High ITA-2231/Chny/2024 & SA-15 /Chny/2025 Page - 6 - of 8 Court held that “…until there is a cessation of liability, section 41 will not be pressed into service…” 4.3 In the decision in M/s SRM Engineering construction Corporation ltd vide ITA No. 489/Chny/2023 Hon’ble Coordinate Bench of this tribunal has held as under: “…..1.5 As is evident, the sole issue in assessee’s appeal is deduction of Works Contract Tax (WCT). The issues in revenue’s appeal are two-fold i.e., cessation of liability u/s 41(1) and disallowance u/s 14A. 1.6 The Ld. CIT-DR advanced arguments in support of assessment order. The Ld. AR also advanced arguments and drew our attention to the findings of lower authorities. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. The assessee being resident corporate assessee was assessed for this year u/s 143(3) vide order dated 31-12-2019. 2. Remission / Cessation of Liability u/s 41(1) 2.1 It transpired that the assessee received advances from M/s SRMIST and M/s Valliammai Society during this year for Rs.13.44 Crores. The total amount received as on 31-03-2017 was to the tune of Rs.77.90 Crores. The said advances were stated to be received as advance towards construction of certain building. However, the projects were interrupted due to late processing of building approval. It was further submitted that the advance would be adjusted against the current as well as future projects. However, rejecting the submissions of the assessee, Ld. AO held that there was cessation of liability and accordingly, the same was added u/s 41(1) of the Act…………………………………………………………………………………………… ……………………………………………………………………………………………. The Ld. CIT(A) thus observed that the advances have ultimately been adjusted against business activities carried out by the assessee. Aggrieved as aforesaid, the revenue is in further appeal before us. 2.3 It is undisputed position by Ld. AO in the remand report that the impugned advances have been adjusted against the future bills raised by the assessee and accordingly, there is no case for cessation of liability in this year. There is no allegation that the advances were waived-off by any of the parties. It is also not the case of AO that the debt was a time barred debt. Another pertinent fact is that the assessee as well as payers accepts the liability. The Ld. AO, in the remand report, has not disputed about carrying out of construction activities for the two parties. All these findings are factual findings which could not be disputed by revenue. It is also a fact that the assessee, all along, continues to recognize this liability its books of accounts and accordingly, no case of remission or cessation of liability u/s 41(1) could be made out against the assessee. Therefore, concurring with uncontroverted factual findings rendered in the impugned order in terms of remand report of Ld. AO, we are of the considered opinion that no interference is called for in the impinged order, on this ITA-2231/Chny/2024 & SA-15 /Chny/2025 Page - 7 - of 8 issue. In the result, the corresponding grounds raised by the revenue stand dismissed…..” 4.4 The Ld. Counsel has also invited our attention to the decision of Hon’ble Delhi tribunal in Nirmala Overseas New Delhi ITA No.2996/Delhi/2009 and 3014/Delhi/2009 for AY-2005-06, late Shri Mahinder Kumar Mittal ITA no.7497/Delhi/2019 and of Hon’ble Mumbai tribunal Eco Krin hygiene Pvt Ltd ITA No.3006 / Mum/ 2023 reiterating the above proposition that cessation of liability u/s 41 would not come to fore so long as it is acknowledged in books and that even limitation act also does not impacts it adversely. 5.0 Upon careful consideration of the facts of the case and the judicial pronouncements discussed herein above we are of the view that the conclusions drawn by lower authorities are not supported by contemporary statute u/s 41 as analyzed by Hon’ble Apex Court, Jurisdictional High court as also Hon’ble Coordinate Benches of the ITAT supra. Accordingly, we set aside the order of the lower authorities and direct the Ld.AO to delete the addition of Rs.11,51,74,885/- made to the income of the assessee. All the grounds of appeal raised by the assessee are therefore allowed. ITA-2231/Chny/2024 & SA-15 /Chny/2025 Page - 8 - of 8 6.0 In the result, the appeal of the assesse is allowed. SA No.15/Chny/2025, Assessment Years: 2016-17 7.0 As the main appeal of the assessee raised vide ITA No.2231/ Chny/2024 stands disposed as above, the present stay petition No.15/Chny/2025 moved by the assessee has become infructuous and hence dismissed. Order pronounced on 12th , February-2025 at Chennai. Sd/- ( एबी टी. वकी) (ABY T VARKEY) न्यानयक सदस्य / Judicial Member Sd/- (अयिताभ शुक्ला) (AMITABH SHUKLA) लेखा सदस्य /Accountant Member चेन्नई/Chennai, नदिांक/Dated: 12th , February-2025. KB/- आदेश की प्रनतनलनप अग्रेनर्त/Copy to: 1. अपीलार्थी/Assessee: 2. प्रत्यर्थी/Revenue 3. आयकर आयुक्त/CIT - Chennai 4. नवभागीय प्रनतनिनर्/DR 5. गार्ा फाईल/GF "