I.T.O Wd - 10(4),kolkata, Kolkata V. M/s The Bihar Cotton Mills Ltd, Kolkata

ITA 1279/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4702 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 15-05-2013
• Court: TRIBUNAL
• Department Lawyers: R P NAG JCITLD
• Assessee Lawyers: R P DAS FCA LD
• Section: 143(3)

Judgement Text

ITA NO. 1279/KOL/2013-B-JM M/S. THE BIHAR COTTON MILLS LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, K OLKATA BEFORE : SHRI P.M. JAGTAP , ACCOUNTANT MEMBER , AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A NO. 1279/KOL/2013 AY: 2007-08 I.T.O WARD 10(4), KOLKATA VS. THE BIHAR COTTO N MILLS LTD PAN: AACCT 1834A (APPELLANT) (RESPON DENT) FOR THE APPELLANT/DEPARTMENT: SHRI R.P NAG, J CIT, LD.SR.DR FOR THE RESPONDENT/ASSESSEE: SHRI R. P DAS, FCA, LD.AR DATE OF HEARING: 17-03-2016 DATE OF PRONOUNCEMENT: 08- 06 - 2015 ORDER SHRI S.S.VISWANETHRA RAVI, JM THIS APPEAL OF THE REVENUE ARISES OUT OF THE ORD ER OF THE CIT(A)-XXX, KOLKATA IN APPEAL NO. 152/CIT(A)-XXX/WD-10(1)/2011- 12 DATED 20-11-2012 FOR THE ASSESSMENT YEAR 2007-08 AGAINST THE ORDER O F ASSESSMENT FRAMED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE L D. CIT(A) HAS ERRED IN HOLDING THAT THE LIABILITY OF T HE ASSESSEE IN RESPECT OF WAGES HAS NOT CEASED TO EXIS T. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. C IT(A) HAS ERRED IN HOLDING THAT LIABILITY IN RESPECT OF I NVESTMENT ALLOWANCE RESERVE WAS NOT CLAIMED IN THE P&L ACCOUN T, AND HENCE COULD NOT BE ADDED U/S. 41(1) OF I.T. ACT 1961. ITA NO. 1279/KOL/2013-B-JM M/S. THE BIHAR COTTON MILLS LTD 2 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN APPRECIATING THE MERITS OF THE CASE. 3. BRIEF HISTORY IS THAT THE ASSESSEE DID NOT CA RRY OUT ANY BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION AND DECLARED AT NIL INCOME THROUGH ITS RETURN OF INCOME FILED ON 08-01-2008. 4. DURING THE COURSE OF ASSESSMENT THAT THE ASSESSE E HAS SHOWN LIABILITY OF RS.42,48,307/- UNDER SCHEDULE-7 IN AUDITED BALANCE SHEET OUT OF WHICH AO FOUND THAT THE RS.22,18,360/- AS OTHER MISCELLANEO US LIABILITIES. THE FINDING OF THE AO WAS THAT THE ASSESSEE FAILED TO FURNISH THE DETAILS OF SUCH MISCELLANEOUS LIABILITIES. HE ADDED THE SAME BY TREATING IT CEASE D LIABILITY. 5. IN APPEAL BEFORE THE CIT-(A), THE ASSESSEE SUB MITTED THAT THE SAID LIABILITY OR MISCELLANEOUS LIABILITY IS EXISTING AND THE SAME HAS NOT CEASED TO EXIST AND IT WAS SUBMITTED THAT ITS AUDITOR PREPARED AND CONSOL IDATED ALL LIABILITIES RELATING TO THE WORKERS UNDER DIFFERENT HEADS OF EXPENSES IN TO ONE HEAD I.E. OTHER MISCELLANEOUS LIABILITY. FURTHER, THE FACTORY OF TH E ASSESSEE WAS TAKEN OVER BY THE BIHAR STATE FINANCIAL CORPORATION ON 01.04.1981 AND THE LIABILITIES ARE VERY MUCH IN EXISTENCE AS ON THAT DATE AND THE AMOUNT I S STILL PAYABLE TO EACH WORKER IN ACCORDANCE WITH A DETAILED LIST PREPARED AS OUTS TANDING A COPY OF WHICH EXAMINED AND ACKNOWLEDGED BY THE CIT-A IN THE COURS E OF APPEAL PROCEEDINGS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT-A HAS OPINED AS UNDER: 2.2 THE SUBMISSIONS OF THE APPELLANT HAVE BEEN CONS IDERED AND IT IS SEEN THAT THE SAID LIABILITY I.E. MISCELLANEOUS LIABILIT Y MENTIONED BY THE AO IS ON ACCOUNT OF UNPAID WAGES ETC. I.E THE PRIOR PERIO D EXPENSES THE TOTAL OF ITA NO. 1279/KOL/2013-B-JM M/S. THE BIHAR COTTON MILLS LTD 3 WHICH WAS RS.22,18,360/- AS ON 31-3-2007 AND THAT T HE DETAILS OF THE SAME HAD BEEN FILED BEFORE THE AO. IT IS FURTHER SEEN TH AT THERE WAS NO COMPLETE CESSATION, AS THE AMOUNTS ARE STILL PAYABLE TO THE WORKERS BY THE APPELLANT COMPANY AND THE CLAIMS FOR WHICH HAS NOT BEEN FORGO NE BY THE CLAIMANT I.E. THE WORKERS. THEREFORE THE SAME CANNOT BE CONS IDERED AS CESSATION OF LIABILITY EVEN IF RECOVERY IS BARRED BY LIMITATION. IT IS FURTHER SEEN THAT THE DECISION KOHINOOR MILLS CO. LTD. VS. C.I.T IS DIREC TLY APPLICABLE IN THE CASE OF THE APPELLANT WHEREIN IT WAS HELD THAT EVEN THOUGH RECOVERY OF ANY CLAIM WAGES WAS BARRED BY LIMITATION, LEGALLY DEBT SUBSISTED AND HENCE THERE WAS NO CESSATION OF LIABILITY. THE AMOUNT THE REFORE, COULD NOT BE ADDED TO THE INCOME. FURTHER THE FACTS IN THE CASE OF THE APPELLANT WHEREIN IT IS SEEN THAT THE LIABILITY IS TOWARDS TH E WORKERS ETC. AND IS STILL EXISTING THEREFORE THERE IS NO CESSATION OF LIABILI TY. ACCORDINGLY CONSIDERING THE FACTS IN THE CASE OF THE APPELLANT AND THE DECISION IN THE ABOVE MENTIONED CASE LAWS IT IS HELD THAT THE LIABI LITY OF RS.22,18,360/- CLASSIFIED HIS MISCELLANEOUS LIABILITY COULD NOT BE CONSIDERED TO HAVE CEASED U/S. 41(1) OF THE I.T.ACT AND THEREFORE THE ADDITION MADE BY THE AO WAS NOT JUSTIFIED AND THE SAME IS DELETED.(RELIEF R S.22,18,360/). 6. THE REVENUE BEFORE US SUBMITTED THAT THE ASSESSE E DID NOT FILE ANY KIND OF DETAILS OF LIABILITY BEFORE THE AO, BUT, THE ASSESS EE FILED DETAILS OF OUTSTANDING PAYABLE TO THE WORKERS BEFORE THE CIT-(A). ON WHIC H CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE, WHICH IS AGAINST TO THE PROCEDURE CON TEMPLATED UNDER RULE 46A OF THE I.T RULES 1962 AND PRAYED TO SEND BACK THE ISS UE TO THE FILE OF THE AO FOR VERIFICATION OF SUCH DETAILS, IN TURN, THE LD.AR OF THE ASSESSEE ALSO SUBMITS, IN FACT, ALL THE DETAILS WERE AVAILABLE BEFORE THE AO , BUT COULD NOT NOTE DOWN ON WHICH DATE IT WAS FILED BEFORE THE AO. THE LD. AR O F THE ASSESSEE DREW OUR ATTENTION TO PAGE NO.3 OF THE PAPER BOOK AND CONCED ED NO OBJECTION IN REMANDING THE ISSUE TO THE FILE OF AO FOR VERIFICAT ION. 7. WE FIND THAT THE DETAILS OF RELEVANT LIABILITIES WERE NOT PRODUCED BY THE ASSESSEE BEFORE AO AND THE SAME FURNISHED BEFORE CI T(A) FOR THE FIRST TIME WERE RELIED UPON BY HIM TO GIVE RELIEF TO THE ASESSEE WI THOUT GIVING ANY OPPORTUNITY ITA NO. 1279/KOL/2013-B-JM M/S. THE BIHAR COTTON MILLS LTD 4 TO AO. THERE IS, THEREFORE, VIOLATION OF RULE 46A A ND THIS POSITION IS NOT DISPUTED EVEN BY LD. A/R. WE, THEREFORE, SET ASIDE THE MATTER TO AO. ACCORDINGLY, GROUND NO.1 IS ALLOWED FOR STATISTICAL PURPOSES. 8. REGARDING GROUND NO-2, THE AO FOUND THAT AN AMOU NT OF RS.10,50,000/- UNDER THE HEAD INVESTMENT ALLOWANCE RESERVE AND. TH E AO ADDED THE SAME BY TREATING IT CEASED LIABILITY ON THE GROUND THAT THE AMOUNT OF RESERVE HAS NOT BEEN UTILIZED FOR ACQUIRING PLANT & MACHINERY WITHIN T HE PERIOD OF 8 YEARS FROM THE DATE OF CREATION AND FOR NOT FILING ANY EVIDENCE BY THE ASSESSEE. 9. ON APPEAL, THE CIT(A) AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE HELD AS UNDER:- 3.1 IN APPEAL IT HAS BEEN SUBMITTED THAT THE RESE RVE WAS CREATED IN A.YR. 1977-78 AND IF THE PROVISION OF LAW IS STRIC TLY ADHERED TO THEN ADDITION SHOULD HAVE BEEN MADE IN 1977-78 AND NOT IN THE CURRENT YEAR. FURTHER THAT THE ADDITION OF THIS AMOUNT U/S. 41(1) IS NOT TENABLE IN LAW BECAUSE THE SAID 'RESERVE' WAS NOT CREATED BY AN ALLOWANCE OR DEDUCTION MADE IN ASSESSMENT FOR ANY Y EAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE APPELLANT. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE KOL KATA HIGH COURT IN CIT VS. A. TOSH & SONS (P) LTD. IN 107 CTR 233. THE APPELLANT ALSO FILED PHOTOCOPY OF AUDITED ACCOUNTS FOR FINANC IAL YEARS 1975- 76 AS WELL AS 2006-07 INDICATING THE 'RESERVE AND S URPLUS' AND CURRENT LIABILITY. 3.2 THE SUBMISSIONS OF THE APPELLANT HAVE BEEN CONS IDERED AND IT IS SEEN THAT THE RESERVE IN QUESTION I.E. THE INVESTME NT ALLOWANCE, RESERVE WAS NOT CREATED BY A DEDUCTION OR CLAIM IN THE PROFIT&' LOSS ACCOUNT. THEREFORE THE ADDITION MADE BY THE AO U/S. 41(1) IS NOT JUSTIFIED AS THE SAME DID NOT RELATE TO TRADE OR AN Y OTHER LIABILITY AND NOT IN RESPECT OF ANY LOSS OR EXPENDITURE IN THE PR OFIT & LOSS/TRADING ITA NO. 1279/KOL/2013-B-JM M/S. THE BIHAR COTTON MILLS LTD 5 LIABILITY. FURTHER IN VIEW OF THE. DECISION OF THE DECISION OF THE KOLKATA HIGH COURT IN CIT VS. A. TOSH & SONS (P) LT D., SUPRA WHERE THE HON'BLE HIGH COURT HAS HELD THAT THE ASSESSEE H AVING, NEVER CLAIMED ANY DEDUCTION IN RESPECT OF SUMS CREDITED I N P&L ACCOUNT PROVISION OF SECTION 41(1) COULD NOT BE APPLIED. TH EREFORE THE ADDITION OF THIS AMOUNT U/S 41(1) BY THE A.O IS NOT JUSTIFIED BECAUSE THE 'RESERVE' WAS NOT CREATED BY AN ALLOWANCE OR DE DUCTION IN ANY YEAR IN RESPECT OF ANY LOSS, EXPENDITURE OR TRA DING LIABILITY INCURRED BY THE APPELLANT. THEREFORE THE ADDITION M ADE BY THE AO IS NOT JUSTIFIED AND THE SAME IS DELETED (RELIEF RS. 10,50,000/-). 10. BEFORE US, THE LD. DR SUBMITS THAT AS PER SECTI ON 32A WHICH UNDER DISPUTE IS DISCONTINUED. IT CEASED TO EXIST. HOWEVE R, HE RELIED ON THE ORDER OF THE AO. THE LD.AR SUBMITS THAT THE ASSESSEE CREATED A P ROVISION FOR INVESTMENT ALLOWANCE RESERVE. THE ASSESSEE DID NOT AVAIL ANY D EDUCTION ON SUCH RESERVE. 11. HEARD RIVAL SUBMISSIONS AND PERUSED THE RELEVAN T MATERIAL ON RECORD. WE FIND SUB-SECTION (1) OF SECTION 32A IS CLEAR THAT T HERE SHALL BE A DEDUCTION EQUAL TO THE 25% OF ACTUAL COST OF MACHINERY OR PLANT INSTAL LED IN THE IMMEDIATELY SUCCEEDING PREVIOUS YEAR THAT IN RESPECT OF INVESTM ENT RESERVE CREATED FOR THE BUSINESS PURPOSE. SUB-SECTION (6) OF SECTION 32AB DEFINES THAT IF, SAID INVESTMENT RESERVE IS NOT UTILIZED WITHIN THE SPECIFIED TIME A ND THE SAME IS DEEMED TO BE PROFIT AND GAIN OF BUSINESS OF THAT PREVIOUS YEAR. IN THE PRESENT CASE, THE SAID AMOUNT APPEARS TO BE CREATED IN THE A.Y 1997-78 DEBITING TO THE P & L ACCOUNT AND THERE WAS NO DISPUTE THAT THE FACTORY OF ASSESSEE WAS TAK EN OVER BY THE BIHAR STATE FINANCIAL CORPORATION ON 01.04.1981, THEN THE QUEST ION WOULD ARISE WHETHER THE AO COULD ADD A SUM OF RS.10,50,000/- AS CEASED LIA BILITY U/S 41(1) OF THE ACT. IN OUR OPINION, THE AO CAN ADD THE SAME AS DEEMED PROF IT AND GAIN OF BUSINESS OF THAT PREVIOUS YEAR UNDER SUB-SECTION (6) OF SECTION 32AB OF THE ACT. IN THE PRESENT CASE INVESTMENT RESERVE WAS CREATED IN THE A.Y 1997 -78 AND THERE WAS NO BUSINESS ITA NO. 1279/KOL/2013-B-JM M/S. THE BIHAR COTTON MILLS LTD 6 ACTIVITY OF THE ASSESSEE SINCE 01-04-1981 AND THE A O CAN NOT TREAT THE UNUTILIZED INVESTMENT RESERVE AS DEEMED PROFIT AND GAIN OF BUS INESS OF THE YEAR UNDER CONSIDERATION I.E 2007-08 UNDER SUB-SECTION (6) OF SECTION 32AB OF THE ACT AND THE ADDITION UNDER SECTION 41(1) OF THE ACT CAN NOT BE APPLIED TAKING INTO CONSIDERATION THAT THE ASSESSEE WAS NOT CLAIMED ANY DEDUCTION IN RESPECT OF AMOUNT RS. 10,50,000/- UNDER THE HEAD INVESTMENT ALLOWANCE RESERVE CREDITED TO PROFIT & LOSS ACCOUNT, THEREFORE, WE FIND NO INFIRMITY IN TH E ORDER OF CIT-A IN FINDING THAT THE ADDITION OF AMOUNT RS. 10,50,000/- U/S 41(1) OF THE ACT BY THE A.O IS NOT JUSTIFIED AS THE INVESTMENT RESERVE WAS NOT CREATE D BY AN ALLOWANCE OR DEDUCTION IN ANY YEAR IN RESPECT OF ANY LOSS, EXPENDITURE OR TRA DING LIABILITY INCURRED BY THE ASSESSEE. THUS, GROUND-2 FAILS, ACCORDINGLY, THE SA ME IS DISMISSED AND ADDITION OF RS. 10,50,000/- IS DELETED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 08 /06/2 016 COPY OF THE ORDER FORWARDED TO: 1.. THE APPELLANT/REVENUE: THE INCOME TAX OFFICER , WARD 10(4), P-7 CHOWRINGHEE SQUARE, 3 RD FLOOR, ROOM NO.73, KOL - 69. 2 THE RESPONDENT/ASSESSEE: M/S. THE BIHAR COTTON M ILLS LTD 27 BALLYGUNGE, KOLKATA- 700019. 3 4.. /THE CIT, /THE CIT(A) SD/- P.M. JAGTAP, ACCOUNTANT MEMBER SD/- S.S.VISWANETHRA RAVI, J JU DICIAL MEMBER DATE 08 /06 /2016 ITA NO. 1279/KOL/2013-B-JM M/S. THE BIHAR COTTON MILLS LTD 7 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR ** PRADIP SPS