Rishirajit Solutions And Agro Limited, Pune V. Income -tax Officer, Pune

ITA 1332/PUN/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7122 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-09-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 25-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Assessee Lawyers: NITIN CHANDRANI
• Keywords: Business income
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 1332 /P U N/201 7 / ASSESSMENT YEAR : 20 1 3 - 14 RISHIRAJIT SOLUTIONS AND AGRO LIMITED, 209, CENTURY ARCADE, OFF BUND GARDEN ROAD, PUNE 411001 PAN : AACCR7080E ....... / APPELLANT / V/S. THE INCOME TAX OFFICER, WARD 5(4), PUNE / RESPONDENT ASSESSEE BY : S HRI NITIN CHANDRANI REVENUE BY : SHRI MUKESH JHA / DATE OF HEARING : 21 - 09 - 2017 / DATE OF PRONOUNCEMENT : 08 - 1 2 - 2017 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMI SSIONER OF INCOME TAX (APPEALS) - 4, PUNE DATED 25 - 01 - 2017 FOR THE ASSESSMENT YEAR 2013 - 14. 2 ITA NO . 1332/PUN/2017, A.Y. 2013 - 14 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING SOLUTIONS IN THE FIELD OF INFORMATION TECHNOLOGY, AGRICULTURE PRODUCTS AND ALLIED INDUSTRIES. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 18 - 09 - 2013 DECLARING TOTAL INCOME OF RS. 13,34,620/ - . DURING FINANCIAL YEAR 2012 - 13 N O BUSINESS ACTIVITY WAS CARRIED OUT BY THE ASSESSEE . THE ASSESSEE EARNED INCOME FROM INTEREST ON FIXED DEPOSITS ONLY. THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS AND ACCORDINGLY , STATUTORY NOTICE U/S. 143(2) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) WAS ISSUED TO THE ASSESSEE ON 10 - 09 - 2014. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT BALANCE SHEET OF ASSESSEE COMPANY AS ON 31 - 03 - 2013 REFLECTS SHARE APPLICATION MONEY PENDING ALLOTMENT TO THE TUNE OF RS.2,34,86,419/ - . THE ASSESSING OFFICER FURTHER OBSERVED THAT THE SHARE APPLICATION MONEY WAS RECEIVED BY ASSESSEE FOR MORE THAN 9 YEARS BACK IN CASH . THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 41(1)(A) OF TH E ACT AND TREATED THE SHARE APPLICATION MONEY AS CESSATION OF LIABILITY QUA THE ASSESSEE COMPANY. AGGRIEVED BY ASSESSMENT ORDER DATED 31 - 03 - 2016, THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER REJECTED THE CONTENTIONS OF ASSESSEE AND CONFIRMED THE ADDITION. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 3. THE ASSESSEE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) BY RAISING FOLLO WING GROUNDS OF APPEAL : 3 ITA NO . 1332/PUN/2017, A.Y. 2013 - 14 THE FOLLOWING BRIEF GROUNDS OF APPEAL ARE TAKEN WITHOUT PREJUDICE TO EACH OTHER - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS - 4 ), PUNE - CIT(A) HAS ERRED IN PASSING AN ORDER CONFIRMING AND JUSTIFYING AS CORRECT THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER AMOUNTING TO RS . 2,34,86,149=00 UNDER SECTION 41(1) OF THE INCOME TAX ACT,1961 TREATING SHARE APPLICATION MONEY PENDING ALLOTMENT AS TAXABLE INCOME BY WAY OF R EMISSION/CESSATION OF TRADING LIABILITY DURING THE YEAR UNDER CONSIDERATION AND THEREBY HELD THAT PROVISIONS OF SECTION 41(1) OF THE INCOME TAX ACT,1961 BECOME APPLICABLE IN THE PRESENT CASE OF THE APPELLANT WITHOUT BRINGING/DISCUSSING ON RECORDS ANY KIND OF MATERIAL/EXPLANATION EVIDENCING/JUSTIFYING FULFILMENT OF SECTION 41(1) CONDITIONS IN THE PRESENT CASE OF THE APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS - 4 ), PUNE - CIT(A) HA S ERRED IN PASSING AN ORDER CONFIRMING, JUSTIFYING AND SUPPORTING THE OPINION OF THE LEARNED ASSESSING OFFICER THAT THE TRANSACTIONS IN RESPECT OF SHARE APPLICATION MONEY PENDING ALLOTMENT ARE FICTITIOUS AND NON - GENUINE. 3. THE APPELLANT CRAVES LEAVE TO A DD TO, ALTER, AMEND OR WITHDRAW ANY OF THE ABOVE GROUNDS OF THE APPEAL AS THE CIRCUMSTANCES MAY DEMAND. 4. SHRI NITIN CHANDRANI APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE RECEIVED SHARE APPLICATION MONEY DURING THE FINANCIAL YEAR 2009 - 10 RELEVANT TO THE ASSESSMENT YEAR 2010 - 11. THE ASSESSEE HAS ALLOTTED SHARES AGAINST THE SHARE APPLICATION MONEY IN FINANCIAL YEAR 2013 - 14 I.E. THE PERIOD RELEVANT TO ASSESSMENT YEAR 2014 - 15. THE LD. AR OF ASSESSEE REFERRED TO THE LIST OF ALLOTTEES OF SHARES AT PAGES B - 33 TO B - 36 OF THE PAPER BOOK AND THE RETURN OF ALLOTMENT FILED WITH REGISTRAR OF COMPANIES IN THE PRESCRIBED FORM UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AT PAGE S B - 38 TO B - 41 OF THE PAPER BOOK. THE LD. AR CONTENDED THAT OUT O F TOTAL SHARE APPLICATION MONEY OF RS.2,34,86,1 00/ - , THE ASSESSEE RECEIVED SHARE APPLICATION MONEY TO THE TUNE OF RS.1,28,78,100/ - IN CASH FROM 28 INVESTORS . THE REMAINING AMOUNT OF RS.1,06,08,000/ - WAS RECEIVED BY THE ASSESSEE THROUGH CHEQUE. DURING THE COURSE OF SCRUTINY 4 ITA NO . 1332/PUN/2017, A.Y. 2013 - 14 ASSESSMENT PROCEEDINGS THE ASSESSEE HAD FURNISHED THE LIST OF PERSONS FROM WHOM SHARE APPLICATION MONEY WAS RECEIVED AND THE MODE OF INVESTMENTS. THE LD. AR POINTED THAT THE ASSESSING OFFICER WHILE RECORDING THE FACTS OF THE CASE HAS E RRED IN OBSERVING THAT ENTIRE SHARE APPLICATION MONEY HAS BEEN RECEIVED IN CASH. THE ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) HAVE FURTHER ERRED IN RECORDING THE FACT THAT THE ASSESSEE NEITHER ALLOTTED THE SHARES NOR RETURNED THE MONEY B UT HAS UTILIZED THE SHARE APPLICATION MONEY FOR MORE THAN 9 YEARS. THE ASSESSEE RECEIVED SHARE APPLICATION MONEY DURING FINANCIAL YEAR 2009 - 10 AND THE SHARES HAVE ALREADY BEEN ALLOTTED AS IS EVIDENT FROM RETURN OF ALLOTMENT AT PAGE B - 38 OF THE PAPER BOOK. THE LD. AR SUBMITTED THAT THE AUTHORITIES BELOW HAVE ERRED IN INVOKING THE PROVISIONS OF SECTION 41(1)(A) AND TREATING THE SHARE APPLICATION MONEY AS CESSATION OF LIABILITY. THE LD. AR FURTHER SUBMITTED THAT THE AUTHORITIES BELOW HAVE ERRED IN MAKING A DDITION U/S. 68 OF THE ACT. THE PROVISIONS OF SECTION 68 ARE ATTRACTED ONLY WHEN THE AMOUNT IS CREDITED IN THE BOOKS OF ASSESSEE IN THE PREVIOUS YEAR. IN THE CASE OF ASSESSEE THE AMOUNT OF RS.2,34,86,419/ - WAS BROUGHT FORWARD AS OPENING CREDIT BALANCE FR OM THE AUDITED BALANCE SHEET ON THE FIRST DAY OF FINANCIAL YEAR UNDER CONSIDERATION. IT IS NOT A CASE WHERE THE SHARE APPLICATION MONEY WAS RECEIVED DURING YEAR UNDER CONSIDERATION. THEREFORE, THE PROVISIONS OF SECTION 68 ARE NOT ATTRACTED. IN SUPPORT O F HIS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : I . COMMISSIONER OF INCOME TAX VS. PRAMESHWAR BOHRA, 301 ITR 404 (RAJ.); 5 ITA NO . 1332/PUN/2017, A.Y. 2013 - 14 II . COMMISSIONER OF INCOME TAX VS. USHA STUD AGRICULTURAL FARMS LTD., 301 ITR 384 (DEL.); III . COMMISSIONER OF INCOME TAX VS. VARDHMAN OVERSEAS LTD., 343 ITR 408 (DEL.). 5. ON THE OTHER HAND SHRI MUKESH JHA REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). THE LD. DR SUBMITTED THAT BOTH THE AUTHORITIES BELOW HAD GIVEN A FINDING THAT THE ASSESSEE HAS RECEIVED SHARE APPLICATION MONEY MORE THAN 9 YEARS BACK AND AGAINST SAID SHARE APPLICATION MONEY THE ASSESSEE NEITHER ALLOTTED SHARE NOR RETURNED MONEY TILL ASSESSMENT YEAR 2013 - 14. THE LD. DR FURTHER SUBMITTED THAT THE ASSES SEE HAS RECEIVED SHARE APPLICATION MONEY IN CASH. THE ASSESSEE WAS ASKED TO EXPLAIN THE REASON FOR ACCEPTING THE MONEY IN CASH AND ALSO PROVING THE GENUINENESS OF TRANSACTIONS. THE ASSESSEE FURNISHED LIST OF 34 SHARE APPLICANTS OUT OF WHICH 28 WERE FARME RS AND REMAINING 6 WERE INDIVIDUAL WHO WERE PARTNERS IN DIFFERENT FIRMS. THE ASSESSEE HAS ADMITTED SHARE APPLICATION MONEY RECEIVED FROM FARMERS IS IN CASH . AS AGAINST THE NAME S OF INDIVIDUALS PARTNERS IN FIRM , THOUGH IT IS MENTIONED THAT SHARE APPLICATI ON MONEY HAS BEEN RECEIVED BY WAY OF CHEQUE BUT THE NAMES OF THE BANKS, CHEQUE NUMBER , ETC. ARE NOT MENTIONED. THE ASSESSEE HAS NOT DISCHARGED HIS ONUS IN PROVIDING HIS GENUINENESS OF THE INVESTORS. 6. THE LD. AR CONTROVERTING THE SUBMISSIONS MADE BY D R SUBMITTED THAT THE ASSESSEE HAD GIVEN THE LIST OF INVESTORS AND HAD ALSO FURNISHED 7/12 EXTRACTS OF INVESTORS WHO HAD INVESTED IN CASH. THE CASH INVESTORS ARE PRIMARILY FARMERS. THE LD. AR SUBMITTED THAT THE ASSESSEE IS A PUBLIC 6 ITA NO . 1332/PUN/2017, A.Y. 2013 - 14 LIMITED COMPANY AND ITS ACCOUNTS ARE SUBJECT TO AUDIT. THE ASSESSEE RECEIVED SHARE APPLICATION MONEY OF RS.89,999/ - DURING FINANCIAL YEAR 2009 - 10 AND RS.2,70,24,150/ - IN FINANCIAL YEAR 2010 - 11. OUT OF THE TOTAL SHARE APPLICATION MONEY OF RS.2,71,14,149/ - , THE ASSESSEE REPAID R S. 1,58,000/ - IN FINANCIAL YEAR 2011 - 12 AND RS.34,70,000/ - IN FINANCIAL YEAR 2012 - 13. THUS, THE CLOSING BALANCE OF SHARE APPLICATION MONEY AS PER AUDITED BALANCE SHEET AS ON 31 - 03 - 2013 AS RELEVANT TO ASSESSMENT YEAR UNDER APPEAL WAS RS.2,34,86,149/ - . THE LD. AR CONTENDED THAT THE FINDINGS OF ASSESSING OFFICER ARE PURELY BASED ON SURMISES AND CONJUNCTURES . THE COMMISSIONER OF INCOME TAX (APPEALS) HAS UPHELD THE SAME IN MECHANICAL MANNER WITHOUT ASCERTAINING TRUE AND CORRECT FACTS OF THE CASE. THE LD. AR P RAYED FOR SETTING ASIDE THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) AND ALLOWING THE APPEAL OF ASSESSEE. 7. W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . WE HAVE ALSO TAKEN INTO CONSIDERATION VARIOUS DOCUMENTS ON WHICH THE LD. AR OF ASSESSEE HAS PLACED RELIANCE TO SUPPORT HIS CONTENTIONS. 8. THE ASSESSEE IN SECOND APPEAL HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN RESPECT OF SOLITARY ADDITION OF RS.2,34,86,149/ - . THE ADDITION HAS BEEN MADE BY INVOKING THE PROVISIONS OF SECTION 41(1)(A) AND TREATING SHARE APPLICATION MONEY PENDING ALLOTMENT AS REMISSION/CESSATION OF TRADING LIABILITY. THE AUTHORITIES BELOW IN THEIR ORDER S HAV E OBSERVED THAT THE ASSESSEE HAS RECEIVED SHARE APPLICATION MONEY MORE THAN 9 YEARS BACK. HOWEVER, THE AUTHORITIES BELOW HAVE FAILED TO INDICATE AS TO FROM WHERE THEY HAVE COME TO SUCH A FINDING. THE 7 ITA NO . 1332/PUN/2017, A.Y. 2013 - 14 COMPANY IS A PUBLIC LIMITED COMPANY AND ITS BOOKS OF A CCOUNT ARE SUBJECT TO AUDIT. THE RECEIPT OF SHARE APPLICATION MONEY MUST BE RECORDED BY ASSESSEE IN BOOKS, AS AND WHEN RECEIVED . THE ASSESSEE HAS CONTENDED THAT THE SHARE APPLICATION MONEY WAS RECEIVED FOR THE FIRST TIME IN FINANCIAL YEAR 2009 - 10 (RELEVA NT TO ASSESSMENT YEAR 2010 - 11) AND FINANCIAL YEAR 2010 - 11 (RELEVANT TO ASSESSMENT YEAR 2011 - 12). THE ASSESSEE HAS FURNISHED COPY OF BALANCE SHEET AS ON 31 - 03 - 2010 AT PAGE G - 1 OF THE PAPER BOOK. A PERUSAL OF SAME SHOWS THAT SHARE APPLICATION MONEY RS.89,9 99/ - IS DULY REFLECTED. SIMILARLY, IN THE BALANCE SHEET AS ON 31 - 03 - 2012 AT PAGE G - 6, TOTAL SHARE APPLICATION MONEY OF RS.2,69,56,149/ - IS SHOWN. THEREFORE, THE OBSERVATIONS OF THE AUTHORITIES BELOW THAT THE ASSESSEE HAS RECEIVED SHARE APPLICATION MONEY 9 YEARS AGO IS WITHOUT ANY BASIS AND FACTUALLY INCORRECT. 9. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS ALLOTTED SHARES TO SHARE APPLICANTS IN FINANCIAL YEAR 2013 - 14. THE ASSESSEE HAS FURNISHED LIST OF SHAREHOLDERS TO WHOM SHARES HAVE BEEN ALLOTTED AND HAS ALSO FURNISHED A COPY OF STATUTORY RETURN OF ALLOTMENT FILED WITH REGISTRAR OF COMPANIES UNDER THE PROVISIONS OF COMPANIES ACT, 1956. 10. THE CONTENTION OF THE ASSESSEE IS THAT ADDITION U/S. 68 CANNOT BE MADE WHERE THE AMOUNTS HAVE BEEN CREDITE D IN BOOKS IN PERIOD PRIOR TO PREVIOUS YEAR. WE FIND MERIT IN THIS SUBMISSION OF ASSESSEE. THE DOCUMENTS ON RECORD AND AS PER DEPARTMENT S OWN CASE , THE SHARE APPLICATION MONEY WAS RECEIVED BY THE ASSESSEE MUCH BEFORE THE PREVIOUS YEAR UNDER QUESTION. A BARE PERUSAL OF SECTION 68 SHOWS THAT PROVISIONS OF SECTION 68 ARE ATTRACTED WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF 8 ITA NO . 1332/PUN/2017, A.Y. 2013 - 14 AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR UNDER CONSIDERATION. THEREFORE, NO ADDITION CAN BE MADE U/S. 68 IN THE ASSESSME NT YEAR UNDER APPEAL WHEN THE SHARE APPLICATION MONEY HAS BEEN RECEIVED IN FINANCIAL YEARS 2009 - 10 AND 2010 - 11. 11. THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. USHA STUD AGRICULTURAL FARMS LTD. (SUPRA) CONFIRMED DELETING OF ADDITION U/S. 68 WHERE THE CREDIT BALANCE IN THE ACCOUNTS OF ASSESSEE DID NOT PERTAIN TO YEAR UNDER CONSIDERATION. THE HONBLE HIGH COURT UPHELD THE ACTION OF COMMISSIONER OF INCOME TAX (APPEALS) AND TRIBUNAL IN DELETING ADDITION U/S. 68 WHERE CREDIT BALA NCE WAS REFLECTED IN THE ACCOUNTS OF THE ASSESSEE OVER THE PAST FOUR TO FIVE YEARS AND THE SAME WAS NOT FRESH CREDIT ENTRY IN THE BOOKS IN THE PREVIOUS YEAR UNDER CONSIDERATION. 12. NOW, BEFORE DWELLING ON INVOKING PROVISIONS OF SECTION 41(1)(A), IT WOULD BE NECESSARY TO HAVE GLANCE AT THE RELEVANT PROVISIONS OF SECTION 41(1) OF THE ACT . THE SAME ARE REPRODUCED HERE - IN - BELOW : 41(1). WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY Y EAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO AS THE FIRST - MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, (A) THE FIRST - MENTIONED PERSON HAS OBTAINED , WHETHER IN CASH OR IN ANY O THER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF , THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DE EMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME - TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEA R OR NOT; 9 ITA NO . 1332/PUN/2017, A.Y. 2013 - 14 WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. VARDHMAN OVERSEAS LTD. (SUPRA) AFTER REFERRING TO CATENA OF JUDGMENTS AND FOLLOWING THE LAW LAID DOWN BY HONBLE APEX COURT IN THE CASE OF COMMISSIONER O F INCOME TAX VS. SUGAULI SUGAR WORKS P. LTD. REPORTED AS 236 ITR 518 HAS EXPLAINED THE SCOPE OF SECTION 41(1) OF THE ACT. 20. SECTION 41(1) SPECIFICALLY DEALS WITH AMOUNTS THAT WERE ALLOWED AS DEDUCTION IN THE PAST ASSESSMENTS AS TRADING LIABILITIES, WHICH IN A LATER YEAR CEASE OR ARE REMITTED BY THE CREDITORS. IF AND WHEN THERE IS EVIDENCE IN A PARTICULAR LATER YEAR TO SHOW THAT THE LIABILITY HAS CEASED OR HAS BEEN REMITTED, THE SAME CAN BE BROUGHT TO TAX AS PROVIDED IN SECTION 41(1). IN THIS MANNER THE STATUTE PRESCRIBES THAT A DEDUCTION FOR A TRADING LIABILITY ALLOWED EARLIER CAN BE BROUGHT TO TAX ON THE GROUND THAT THE LIABILITY TO PAY THE SAME HAS BEEN REMITTED OR CEASED. EMPHASIZING THE OBJECTIVE OF INCORPORATING THE PROVISIONS OF SECTION 41(1) IN THE ACT, THE HONBLE HIGH COURT OBSERVED : 23. THE PROVISIONS OF SECTION 41(1) HAVE BEEN SPECIFICALLY INCORPORATED IN THE ACT TO COVER A PARTICULAR FACT SITUATION. THE SECTION APPLIES WHERE A TRADING LIABILITY WAS ALLOWED AS A DEDU CTION IN AN EARLIER YEAR IN COMPUTING THE BUSINESS INCOME OF THE ASSESSEE AND THE ASSESSEE HAS OBTAINED A BENEFIT IN RESPECT OF SUCH TRADING LIABILITY IN A LATER YEAR BY WAY OF REMISSION OR CESSATION OF THE LIABILITY. IN SUCH A CASE THE SECTION SAYS THAT W HATEVER BENEFIT HAS ARISEN TO THE ASSESSEE IN THE LATER YEAR BY WAY OF REMISSION OR CESSATION OF THE LIABILITY WILL BE BROUGHT TO TAX IN THAT YEAR. THE PRINCIPLE BEHIND THE SECTION IS SIMPLE. IT IS A PROVISION INTENDED TO ENSURE THAT THE ASSESSEE DOES NOT GET AWAY WITH A DOUBLE BENEFIT ONCE BY WAY OF DEDUCTION IN AN EARLIER ASSESSMENT YEAR AND AGAIN BY NOT BEING TAXED ON THE BENEFIT RECEIVED BY HIM IN A LATER YEAR WITH REFERENCE TO THE LIABILITY EARLIER ALLOWED AS A DEDUCTION. THE GIST OF THE FINDINGS OF HONBLE HIGH COURT IS AS UNDER : SECTION 41(1) OF THE INCOME - TAX ACT, 1961, SPECIFICALLY DEALS WITH AMOUNTS THAT WERE ALLOWED AS DEDUCTION IN PAST ASSESSMENTS AS TRADING LIABILITIES, WHICH IN A LATER YEAR CEASE OR ARE REMITTED BY THE CREDITORS. IF AND WH EN THERE IS EVIDENCE IN A PARTICULAR LATER YEAR TO SHOW THAT THE LIABILITY HAS CEASED OR HAS BEEN REMITTED, IT CAN BE BROUGHT TO TAX. IN ORDER TO INVOKE THE SECTION, IT MUST BE FIRST ESTABLISHED THAT THE ASSESSEE HAD OBTAINED 10 ITA NO . 1332/PUN/2017, A.Y. 2013 - 14 SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY WHICH WAS EARLIER ALLOWED AS A DEDUCTION. IT IS NOT ENOUGH THAT THE ASSESSEE DERIVES SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY, BUT IT IS ALSO ESSENTIAL THAT SUCH BENEFIT ARISES BY WAY OF REMISSION OR CESSATION OF THE LIABILITY . THE WORDS REMISSION AND CESSATION ARE LEGAL TERMS AND HAVE TO BE INTERPRETED ACCORDINGLY. IN CIT V. SUGAULI SUGAR WORKS P. LTD. [1999] 236 ITR 518 IT WAS HELD BY THE SUPREME COURT THAT A UNILATERAL ACTION CANNOT BRING ABOUT A CESSATION OR REMISSION OF THE LIABILITY BECAUSE A REMISSION CAN BE GRANTED ONLY BY THE CREDITOR AND A CESSATION OF THE LIABILITY CAN ONLY OCCUR EITHER BY REASON OF OPERATION OF LAW OR THE DEBTOR UNEQUIVOCALLY DECLARING HIS INTENTION NOT TO HONOUR HIS LIABILITY WHEN PAYMENT IS DE MANDED BY THE CREDITOR, OR BY A CONTRACT BETWEEN THE PARTIES, OR BY DISCHARGE OF THE DEBT. DISMISSING THE APPEAL OF DEPARTMENT, THE HONBLE HIGH COURT HELD : THE ASSESSEE HAD NOT UNILATERALLY WRITTEN BACK THE ACCOUNTS OF THE SUNDRY CREDITORS IN ITS PRO FIT AND LOSS ACCOUNT. THE LIABILITY WAS SHOWN IN THE BALANCE - SHEET AS ON MARCH 31, 2002. THE ASSESSEE BEING A LIMITED COMPANY, THIS AMOUNTED TO ACKNOWLEDGING THE DEBT IN FAVOUR OF THE CREDITORS FOR PURPOSES OF SECTION 18 OF THE LIMITATION ACT, 1963. THE AS SESSEES LIABILITY TO THE CREDITORS, THUS, SUBSISTED AND DID NOT CEASE NOR WAS IT REMITTED BY THE CREDITORS. THE LIABILITY WAS ENFORCEABLE IN A COURT OF LAW. THE AMOUNT WAS NOT ASSESSABLE UNDER SECTION 41(1). IN THE CASE IN HAND, WE OBSERVE THAT IN FIRST INSTANCE RECEIPT OF SHARE APPLICATION MONEY DOES NOT RESULT IN GENERATION OF CREDITORS OR TRADE LIABILITIES. SECONDLY, THE ASSESSEE THROUGHOUT REFLECTED SHARE APPLICATION MONEY IN ITS BALANCE SHEET ACKNOWLEDGING RECEIPT OF SUCH AMOUNT , T HEREFORE, R EMISSION OR CESSATION OF LIABILITIES BY FLUX OF TIME DOES NOT ARISE. 13. THUS, IN VIEW OF THE FACTS OF THE CASE AND JUDGMENTS REFERRED ABOVE, WE HOLD THAT SHARE APPLICATION MONEY RECEIVED BY ASSESSEE AND DULY REFLECTED IN THE BALANCE SHEET AGAINST WH ICH THE SHARES HAVE BEEN ALLOTTED 11 ITA NO . 1332/PUN/2017, A.Y. 2013 - 14 BY FOLLOWING DUE PROCEDURE OF LAW IN THE SUCCEEDING ASSESSMENT YEAR CANNOT BE TREATED AS REMISSION/CESSATION OF LIABILITY . THE PROVISIONS OF SECTION 41(1)(A) WERE WRONGLY INVO KED BY THE ASSESSING OFFICER TO TAX SHARE APPL ICATION MONEY. ACCORDINGLY, THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL OF ASSESSEE IS ALLOWED. 14. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 08 TH DAY OF DECEMBER, 2017 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 08 TH DECEMBER, 2017 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4 , PUNE 4. THE PR. CIT - 3, PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE