LOTUS INVESTMENTS LTD, MUMBAI V. ACIT CEN CIR 13, MUMBAI

ITA 1417/MUM/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2956 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 28-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUNKUMAR
• Assessee Lawyers: STANY SALDANHA
• Keywords: Unexplained cash credit; Period of limitation; Deemed to accrue or arise in india; Question of law
• Section: 68; 143(3)

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE HONBLE SH. SANDEEP GOSAIN, JM & HONBLE SH. G. MANJUNATHA, AM ./ I.T.A. NO . 1417/MUM/2014 ( / ASSESSMENT YEAR: 2007 - 08 ) M/S LOTUS INVESTMENTS LTD. 1, ANUP , SUN BEAM CO. OP. HOUSING SOCIETY, JUHU VERSOVA, LINK ROAD, ANDHERI(W) MUMBAI 400 053 / VS. ACIT CEN CIR - 13 , CGO BUILDING, 11 TH FLOOR, MUMBAI - 400 020 ./ ./ PAN NO. A A ACL6350M ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SH. STANY SALDANHA, AR / RESPONDENTBY : SHRI CHAUDHARY ARUNKUMAR , D R / DATE OF HEARING : 08.02 .201 9 / DATE OF PRONOUNCEMENT : 01.03.2019 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF LD. CIT (APPEAL) 3 7 , MUMBAI DATED 26.12.2013 F OR AY 2007 - 08 ON THE GROUNDS MENTIONED HEREIN BELOW: - 2 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 37, MUMBAI HAS ERRED, IN LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING CERTAIN ADDITIONS OF THE ORDER OF THE LEARNED A.O. THE ASST COMMISSIONER OF INCOME TAX CENTRAL CIRCLE - 13 MUMBAI, 2. THE ID. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 4,26,66,276 / - MADE BY THE ID.AO ON ACCOUNT OF OUTSTANDING EXPENSES TREATING THE SAME AS INCOME U/S 41 OF THE INCOME TAX ACT 1961 THE APPELLANT RESPECTFULLY SUBMITS THAT THE DISALLOWANCE OF THIS SUM MAY KINDLY BE DELETED. 3. THE APPELLANT PRAYS THAT THE VARIOUS GROUNDS OF APPEAL BE ADMITTED AND ALLOWED. 4. APPELLANT CAVES LEAVE TO ADD, ALTER OR AMEND OR DELETE ANY OR ALL THE GROUNDS OF APPEAL ON OR BEFORE THE HEARING OF THE APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME WAS FILED ON 15/01/07 DECLARING NIL INCOME. VIDE ORDER DATED 24/12/09 INCOME OF THE ASSESSEE WAS ASSESSED AT RS. 16,25,96,110/ - U/S 143(3) OF THE ACT, THEREBY MAKING ADDITIONS ON ACCOUNT OF NEW LOAN RECEIVED DURING THE YEAR AND ON ACCOUNT 3 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. OF OUTSTANDING EXPENSES. A S PER AO, THE ASSESSEE COULD NOT SATISFY WITH REGARD TO GENUINENESS OF TRADING LIABILITIES AND THUS ADDITIONS U/S 41(1) OF THE I.T. ACT WAS MADE. SIMILARLY IN THE ABSENCE OF CONFIRMATION FROM THE PARTIES ADVANCING THE NEW LOANS DURING THE YEAR, THE ASSESSI NG OFFICER ADDED THE SAME AS UNEXPLAINED CREDIT U/S. 68 OF THE I .T. ACT. AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES , PARTLY ALLOWED THE APPEAL OF THE ASSESS EE THE REBY RESTRICTING THE ADDITIONS U/S 41(1) OF THE ACT. NOW BEFORE US, THE ASSESSEE HAS PREFERRED THE PRESENT APP EAL BY RAISING THE ABOVE GROUND . 3 . THE SOLITARY GROUND RAISED BY THE ASSESSEE RELATES TO CHA LLENGING THE ORDER OF LD. CIT(A) IN CONFIRMING THE ADDITION MADE BY THE AO ON ACCOUNT OF OUTSTANDING EXPENSES TREATING THE SAME AS INCOME U/S 41 OF THE I.T. ACT, 1961. 4. LD. AR APPEARING ON BEHALF OF THE ASSESSEE REITERATED THE SAME ARGUMENTS AS WERE RAISED BY HIM BEFORE LD. CIT(A) AND 4 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. SUBMITTED THAT TH E ASSESSEE HAD CLAIMED OUTSTANDING EXPENSES OF RS. 4,26,66,276/ - AND IN THIS RESPECT, ASSESSEE HAD SHOWN OUTSTANDING EXPENSES PAYABLE IN ITS BALANCE SHEET. IT WAS FURTHER SUBMITTED THAT THE AO HAD WRONGLY TREATED THE SAME AS INCOME U/S 41 OF THE ACT IN ABS ENCE OF PARTY DETAILS AND CONFIRMATIONS. 5. LD. AR FURTHER SUBMITTED THAT THE AO HAD COMPLETELY IGNORED THE SPECIFIC REPLY VIDE LETTER DATED 18.12.09, WHEREIN IT WAS PLEADED THAT THE OUTSTANDING AMOUNT WAS PAYABLE TO VARIOUS PARTIES AND SINCE THE ASSESSEE COULD NOT MAKE THE PAYMENT AS THERE WAS INSUFFICIENT REVENUE GENERATION AND THE COMPANY HAD BEEN INCURRING LOSSES FOR THE PAST SEVERAL YEARS. 6. IT WAS FURTHER SUBMITTED T HAT ASSESSEE HAD SPECIFICALLY MENTIONED IN ITS REPLY THAT THEY ARE IN THE PROCESS OF GENERATING REVENUE WHICH WILL ENABLE THEM TO CLEAR THE OUTSTANDING SUMS. BUT THE SAID REPLY WAS NOT ACCEPTED BY THE AO. LD. AR FURTHER SUBMITTED THAT THE LIABILITY OF M AKI NG PAYMENT OF EXPENSES IS CONTINUED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR A LONG PERIOD AND THE ASSESSEE HAD NOT ANY BENEFIT IN RESPECT OF SUCH 5 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. LIABILITY IN THE YEAR UNDER CONSIDERATION, THEREFORE THE SAME COULD NOT HAVE BEEN DEEMED TO BE TAKEN AS IN COME OF THE ASSESSEE U/S 41 OF THE ACT. IN THIS RESPECT, LD. AR RELIED UPON THE DECISION OF THE COORDINATE BENCH OF HONBLE ITAT IN THE CASE OF ACIT VRS. M/S TRANS FREIGHT CONTAINERS (ITA NO. 5979/MUM/12). 7 . ON THE OTHER HAND, LD. DR RELIED UPON THE ORDE RS PASSED BY THE REVENUE AUTHORITIES. 8 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD , JUDGMENT CITED BY THE PARTIES AS WELL AS THE ORDERS PASSED BY THE REVENUE AUTHORITIES. WE FIND AS PER THE FACTS OF THE PRESENT CASE THAT ASSESSEE HAD CLAIMED OUTSTANDING EXPENSES OF RS. 4,26,66,276/ - AND IN THIS REGARD, ASSESSEE HAD SHOWN OUTSTANDING EXPENSES PAYABLE IN ITS BALANCE SHEET. HOWEVER, IN THE ABSENCE OF PARTY - WISE DETAILS ALONGW ITH CONFIRMATIONS TO WHOM SUCH EXPENSES TO BE PAYABLE, THE SAME WERE TREATED AS INCOME U/S 41 OF THE ACT BY HOLDING THAT SINCE THE ASSESSEE HAD FAILED TO PROVE THE GENUINENESS OF LIABILITY. 6 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. 9. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WE LL AS CONSIDERING THE JUDGMENT CITED BY THE PARTIES, WE FIND THAT IT IS AN UNDISPUTED FACT THAT THE SAID LIABILITY IS CONTINUING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR A LONG PERIOD WITHOUT BEING PAID BY THE ASSESS E E. EVEN IN THE DECISION RENDERED BY THE COORDINATE BENCH OF HONBLE ITAT IN THE CASE OF ACIT VRS. M/S TRANS FREIGHT CONTAINERS (ITA NO. 5979/MUM/12) , IT HAD CATEGORICALLY BEEN HELD THAT IF A LIABILITY IS CONTINUED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FOR A LONG PERIOD, THEN IN THAT EVENT UALITY, THE GENUINENESS OF SUCH TRANSACTIONS HAVE TO BE EXAMINED IN THAT ASSESSMENT YEAR WHEN THE LIABILITY WAS CREATED AND NOT IN THE ASSESSMENT YEAR UNDER CONSIDERATION . THE OPERATIVE PORTION OF THE ORDER OF ITAT IS CONTAI NED IN PARA NO. 7 TO 9, WHICH ARE REPRODUCED BELOW: - 7. WE HAVE HEARD THE LD.COUNSELS APPEARING FOR THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN, THE AO HIMSELF IN THE ASSESSMENT ORDER HAS STATED THAT THE SUNDRY CREDITS AMOUNTING TO RS.7.29 CRORES ORIGINATED IN ASSE SSMENT YEARS 1997 - 98 TO 2002 - 03 AND CONTINUING UNCHANGED TILL THE IMPUGNED ASSESSMENT YEAR. THEREFORE, THE AO HAS ASSESSED THE LIABILITY SINCE IT CONTINUED IN THE BOOKS OF ACCOUNT OF 7 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. THE ASSESSEE FOR SUCH A LONG PERIOD WITHOUT BEING PAID OFF BY THE ASSESSE E HENCE, SUCH LIABILITY HAVE CEASED TO EXIST AND TO BE TREATED AS INCOME OF THE ASSESSEE. HE FURTHER HELD THAT THE ASSESSEE HAS FAILED TO PROVE GENUINENESS OF THE SUNDRY CREDITORS BY FURNISHING THE CONFIRMATIONS OR ANY OTHER DOCUMENTARY EVIDENCES. AS FAR A S THE SECOND ALLEGATION OF THE AO IS CONCERNED, WE ARE UNABLE TO ACCEPT THE SAME. WHEN THE AO ACCEPTS THAT THE LIABILITIES WERE CREATED IN ASSESSMENT YEARS 1997 - 98 TO 2002 - 03, THE GENUINENESS OF SUCH TRANSACTIONS HAVE TO BE EXAMINED IN THOSE ASSESSMENT YEA RS AND NOT IN ASSESSMENT YEAR UNDER CONSIDERATION. THE SUNDRY CREDITORS SHOWN BY THE ASSESSEE IN THE YEAR OF ORIGIN HAVING BEEN ACCEPTED BY THE DEPARTMENT, THE GENUINENESS OF SUCH TRANSACTIONS CANNOT BE CALLED INTO QUESTION IN THE IMPUGNED ASSESSMENT YEAR. AS FAR AS THE ALLEGATION OF THE AO THAT LIABILITY ON ACCOUNT OF SUNDRY CREDITORS HAS CEASED TO EXIST IN THE ASSESSMENT YEAR IN TERMS OF SECTION 41(1), ON PLAIN READING OF THE PROVISIONS OF SECTION 41(1) OF THE ACT, WE ARE OF THE VIEW THAT BEFORE TREATING THE AMOUNT OUTSTANDING TOWARDS SUNDRY CREDITORS AS DEEMED INCOME OF THE ASSESSEE U/S 41(1) ON ACCOUNT OF REMISSION/CESSATION OF LIABILITY, THE AO IS DUTY BOUND TO EXAMINE WHETHER THE CONDITION LAID DOWN U/S 41(1) ARE FULFILLED OR NOT. AS PER THE READING OF SECTION 41(1) ALONG WITH EXPLANATION (1) TO SECTION 41(1), THE LIABILITY CEASES TO EXIST IN THE 8 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. BOOKS OF ACCOUNT OF THE ASSESSEE IN A PARTICULAR PREVIOUS YEAR, IF THE PERSON SHOWING SUCH LIABILITY HAD OBTAINED BENEFIT EITHER IN CASH OR IN ANY OTHER MANNER IN RESPECT OF SUCH LIABILITY. IT FURTHER PROVIDES THAT SUCH REMISSION OR CESSATION OF LIABILITY IS ALSO ACCEPTABLE BY UNILATERAL ACT OF WRITING OFF SUCH LIABILITY IN ITS ACCOUNT BY THE PERSON SHOWING SUCH LIABILITY. THUS, BEFORE APPLYING THE PROVISIONS OF SECTION 41(1), IT IS NECESSARY TO ESTABLISH ON RECORD THAT THE ASSESSEE HAS OBTAINED A BENEFIT EITHER IN CASH OR IN ANY FORM IN RESPECT OF SUCH LIABILITY IN THE RELEVANT PREVIOUS YEAR. THUS, WHEN IN AOS OWN ADMISSION LIABILITY CONTINUED FROM PAST SO MANY YEARS, WHAT PROMPTED THE AO TO CONCLUDE THAT THE ASSESSEE HAS OBTAINED BENEFIT IN RESPECT OF SUCH LIABILITY IN THE IMPUGNED ASSESSMENT YEAR MUST BE CLEARLY BROUGHT ON RECORD. IN ABSENCE OF ANY MATERIAL TO ESTABLISH THAT THE ASSESSEE HAS OBTAINED ANY BENEF IT IN RESPECT OF THE LIABILITY ON ACCOUNT OF SUNDRY CREDITORS IN THE IMPUGNED ASSESSMENT YEAR MERELY ON SURMISES AND ASSUMPTIONS IT CANNOT BE SAID THAT THERE IS REMISSION/CESSATION OF LIABILITY IN THE IMPUGNED ASSESSMENT YEAR. MORE SO, WHEN THERE IS NO UNI LATERAL ACT BY THE ASSESSEE IN WRITING OFF OF LIABILITY IN ITS BOOKS OF ACCOUNTS. FURTHER, IT IS EVIDENT FROM THE MATERIAL ON RECORD THAT IN COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAD FURNISHED THE NECESSARY DETAILS AND SUBMITTED THAT PART OF THE LI ABILITY HAS ALREADY BEEN 9 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. WRITTEN OFF OR PAID BACK IN THE SUBSEQUENT YEARS. HOWEVER, THE AO WITHOUT ANY VALID REASONS HAS FAILED TO RECOGNISE SUCH FACTS. IN FACT, AS POINTED OUT BY THE LD. AR, SUCH REPAYMENT OR WRITING OFF OF THE LIABILITY IN SUBSEQUENT YEA RS WAS PRIOR TO THE QUERY RAISED BY THE AO ON 07.12.2011 FOR INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT. THUS, THE ACT OF THE ASSESSEE IN REPAYING A PART OF THE SUNDRY CREDITORS OF WRITING OFF THE LIABILITY IN ITS BOOKS OF ACCOUNT CANNOT BE HELD T O BE AN AFTERTHOUGHT BUT HAS TO BE CONSIDERED TO HAVE BEEN DONE IN GOOD FAITH. MOREOVER, A PART OF THE LIABILITY IS DUE TO GOVERNMENT AGENCIES. UNLESS THERE IS ANY COMMUNICATION BY THE GOVERNMENT GIVING TIE - UP ITS RIGHT TO RECOVERY OF THE DEBT THERE CANNOT BE REMISSION OF THE LIABILITY. 10. APART FROM THE ABOVE DECISION OF COORDINA TE BENCH OF ITAT, WE ALSO DRAW STRENGTH FROM THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VRS. J AIN EXPORTS (P) LTD (2013 89 D TR JUDGMENTS 265 ) , WHEREIN IT WAS HE LD AS UNDER : 21. ALTHOUGH, ENFORCEMENT OF A DEBT BEING BARRED BY LIMITATION DOES NOT IPSO FACTO LEAD TO THE CONCLUSION THAT THERE IS CESSATION OR REMISSION OF LIABILITY, IN THE FACTS OF THE PRESENT CASE, IT IS ALSO NOT POSSIBLE TO CONCLUDE THAT THE DEBT HAS BECOME UNE NFORCEABLE. IT IS 10 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. WELL SETTLED THAT REFLECTING AN AMOUNT AS OUTSTANDING IN THE BALANCE SHEET BY A COMPANY AMOUNTS TO THE COMPANY ACKNOWLEDGING THE DEBT FOR THE PURPOSES OF SECTION 18 OF THE LIMITATION ACT, 1963 AND, THUS, THE CLAIM BY M/S ELEPHANTA OIL & V ANASPATI LTD. CAN ALSO NOT BE CONSIDERED AS TIME BARRED AS THE PERIOD OF LIMITATION WOULD STAND EXTENDED. EVEN, OTHERWISE, IT CANNOT BE STATED THAT M/S ELEPHANTA OIL & VANASPATI LTD. WOULD BE UNABLE TO CLAIM A SET - OFF ON ACCOUNT OF THE AMOUNT REFLECTED AS PAYABLE TO IT BY THE ASSESSEE. ADMITTEDLY, WINDING UP PROCEEDINGS AGAINST M/S ELEPHANTA OIL & VANASPATI LTD. ARE PENDING AND THERE IS NO CERTAINTY THAT ANY CLAIM THAT MAY BE MADE BY THE ASSESSEE WITH REGARD TO THE AMOUNTS RECEIVABLE FROM M/S ELEPHANTA OIL & VANASPATI LTD. WOULD BE PAID WITHOUT THE LIQUIDATOR CLAIMING THE CREDIT FOR THE AMOUNTS RECEIVABLE FROM THE ASSESSEE COMPANY. IT IS WELL SETTLED THAT IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 41(1) OF THE ACT, THERE SHOULD HAVE BEEN AN IRREVOCABLE CE SSION OF LIABILITY WITHOUT ANY POSSIBILITY OF THE SAME BEING REVIVED. THE ASSESSEE COMPANY HAVING ACKNOWLEDGED ITS LIABILITY SUCCESSIVELY OVER THE YEARS WOULD NOT BE IN A POSITION TO DEFEND ANY CLAIM THAT MAY BE MADE ON BEHALF OF THE LIQUIDATOR FOR CREDIT OF THE SAID AMOUNT REFLECTED BY THE ASSESSEE AS PAYABLE TO M/S ELEPHANTA OIL & VANASPATI LTD. 11 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. 22. WE MAY ALSO ADD THAT, ADMITTEDLY, NO CREDIT ENTRY HAS BEEN MADE IN THE BOOKS OF THE ASSESSEE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2008 - 2009. THE OUTSTANDING BALANCES REFLECTED AS PAYABLE TO M/S ELEPHANTA OIL & VANASPATI LTD. ARE THE OPENING BALANCES WHICH ARE BEING CARRIED FORWARD FOR SEVERAL YEARS. THE ISSUE AS TO THE GENUINENESS OF A CREDIT ENTRY, THUS DOES NOT ARISE IN THE CURRENT YEAR AND THIS ISSUE COULD ONLY BE EXAMINED IN THE YEAR WHEN THE LIABILITY WAS RECORDED AS HAVING ARISEN, THAT IS, IN THE YEAR 1984 - 1985. THE DEPARTMENT HAVING ACCEPTED THE BALANCES OUTSTANDING OVER SEVERAL YEARS, IT WAS NOT OPEN FOR THE CIT (APPEALS) TO CONFIRM TH E ADDITION OF THE AMOUNT OF ` 1,53,48,850/ - ON THE GROUND THAT THE ASSESSEE COULD NOT PRODUCE SUFFICIENT EVIDENCE TO PROVE THE GENUINENESS OF THE TRANSACTIONS WHICH WERE UNDERTAKEN IN THE YEAR 1984 - 85. 23. THE PRESENT APPEAL DOES NOT DISCLOSE ANY SUBSTANTI AL QUESTION OF LAW FOR OUR CONSIDERATION AND IS, ACCORDINGLY, DISMISSED. 11. WE HAVE ALSO CONSIDERD THE DECISION OF HONBLE GUJARAT HIGH COURT I N THE CAS E OF PCIT VRS. M ATRUPRASAD C PANDEY (2015 ) 377 ITR 363 (GUJ) , WHEREIN IT WAS HELD AS UNDER: - 12 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. 6.1 AT THE OUTSET, IT IS REQUIRED TO BE NOTED THAT THE ASSESSING OFFICER MADE THE ADDITION OF RS. 56,96,645/ - INVOKING SECTION 41(1) OF THE INCOME TAX ACT BY DOUBTING CERTAIN SUNDRY CREDITORS AMOUNTING TO RS. 56,96,645/ - APPEARING IN THE BALANCE SHEET OF THE ASS ESSEE SINCE PAST SEVERAL YEARS. HOWEVER, IT IS REQUIRED TO BE NOTED THAT AS SUCH THOSE SUNDRY CREDITORS MENTIONED IN THE BALANCE SHEET OF THE ASSESSEE WERE SHOWN AS SUNDRY CREDITORS SINCE PAST SEVERAL YEARS FROM THE RELEVANT ASSESSMENT YEAR AND AT NO POINT OF TIME EARLIER THE ASSESSING OFFICER DOUBTED THE CREDITWORTHINESS AND/OR IDENTITY. IN ANY CASE THE ADDITION ON THE AFORESAID GROUND UNDER SECTION 41(1) OF THE ACT CANNOT BE MADE UNLESS AND UNTIL IT IS FOUND THAT THERE WAS REMISSION AND/OR CESSATION OF TH E LIABILITY THAT TOO DURING THE PREVIOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR IN QUESTION, THERE CANNOT BE ANY ADDITION INVOKING THE PROVISION OF SECTION 41(1) OF THE ACT. IDENTICAL QUESTION CAME TO BE CONSIDERED BY THE DIVISION BENCH OF THIS COURT IN THE CASE OF NITIN S. GARG (SUPRA) AND IN THE SIMILAR SET OF FACTS AND CIRCUMSTANCES OF THE CASE WHEN THE ADDITION WAS MADE INVOKING SECTION 41(1) OF THE ACT BY DOUBTING THE CREDITWORTHINESS AND/OR IDENTITY OF THE SUNDRY CREDITORS MENTIONED IN THE BALANCE SHEE T AND IT WAS FOUND THAT THOSE SUNDRY CREDITORS WERE VERY OLD AND NO INTEREST HAD BEEN PAID ON THOSE LOANS, THE DIVISION BENCH HAS 13 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. DELETED SUCH ADDITION MADE UNDER SECTION 41(1) OF THE ACT. IN PARAGRAPH 15 THE DIVISION BENCH HAS OBSERVED AND HELD AS UNDER; 15. IN THE CASE BEFORE US, IT IS NOT BEEN ESTABLISHED THAT THE ASSESSEE HAS WRITTEN OFF THE OUTSTANDING LIABILITIES IN THE BOOKS OF ACCOUNT. THE APPELLATE TRIBUNAL IS JUSTIFIED IN TAKING THE VIEW THAT AS ASSESSEE HAD CONTINUED TO SHOW THE ADMITTED AMOUNT S AS LIABILITIES IN ITS BALANCE SHEET THE SAME CANNOT BE TREATED AS ASSESSMENT OF LIABILITIES. MERELY BECAUSE THE LIABILITIES AREOUTSTANDING FOR LAST MANY YEARS, IT CANNOT BE INFERRED THAT THE SAID LIABILITIES HAVE SEIZED TO EXIST. THE APPELLATE TRIBUNAL H AS RIGHTLY OBSERVED THAT THE ASSESSING OFFICER SHALL HAVE TO PROVE THAT THE ASSESSEE HAS OBTAINED THE BENEFITS IN RESPECT OF SUCH TRADING LIABILITIES BY WAY OF REMISSION OR CESSATION THEREOF WHICH IS NOT THE CASE BEFORE US. MERELY BECAUSE THE ASSESSEE OBTA INED BENEFIT OF REDUCTION IN THE EARLIER YEARS AND BALANCE IS CARRIED FORWARD IN THE SUBSEQUENT YEAR, IT WOULD NOT PROVE THAT THE TRADING LIABILITIES OF THE ASSESSEE HAVE BECOME NON EXISTENT. 6.2 THE AFORESAID DECISION OF THE DIVISION BENCH IN THE CASE OF NITIN S. GARG (SUPRA) HAS BEEN CONSIDERED AND FOLLOWED BY THE DIVISION BENCH OF THIS COURT IN THE CASE OF BHOGILAL RAMJIBHAI ATARA (SUPRA) AND THE ADDITION MADE UNDER SECTION 41(1) OF THE ACT IN THE 14 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE IS ORDERED TO BE DELETED. IN PARAGRAPH 8 THE DIVISION BENCH HAS OBSERVED AND HELD AS UNDER; 'WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL. SECTION 41(1) OF THE ACT AS DISCUSSED IN THE ABOVE THREE DE CISIONS WOULD APPLY IN A CASE WHERE THERE HAS BEEN REMISSION OR CESSATION OF LIABILITY DURING THE YEAR UNDER CONSIDERATION SUBJECT TO THE CONDITIONS CONTAINED IN THE STATUTE BEING FULFILLED. ADDITIONALLY, SUCH CESSATION OR REMISSION HAS TO BE DURING THE PR EVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THE PRESENT CASE, BOTH ELEMENTS ARE MISSING. THERE WAS NOTHING ON RECORD TO SUGGEST THERE WAS REMISSION OR CESSATION OF LIABILITY THAT TOO DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSME NT YEAR 2007 - 08 WHICH WAS THE YEAR UNDER CONSIDERATION. IT IS UNDOUBTEDLY A CURIOUS CASE. EVEN THE LIABILITY ITSELF SEEMS UNDER SERIOUS DOUBT. THE ASSESSING OFFICER UNDERTOOK THE EXERCISE TO VERIFY THE RECORDS OF THE SO CALLED CREDITORS. MANY OF THEM WERE NOT FOUND AT ALL IN THE GIVEN ADDRESS. SOME OF THEM STATED THAT THEY HAD NO DEALING WITH THE ASSESSEE. IN ONE OR TWO CASES, THE RESPONSE WAS THAT THEY HAD NO DEALING WITH THE ASSESSEE NOR DID THEY KNOW HIM. OF COURSE, THESE INQUIRIES WERE MADE EX PARTE AND IN THAT VIEW OF THE MATTER, THE ASSESSEE WOULD BE ALLOWED TO CONTEST SUCH 15 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. FINDINGS. NEVERTHELESS, EVEN IF SUCH FACTS WERE ESTABLISHED THROUGH BIPARTE INQUIRIES, THE LIABILITY AS IT STANDS PERHAPS HOLDS THAT THERE WAS NO CESSATION OR REMISSION OF LIABILITY AND THAT THEREFORE, THE AMOUNT IN QUESTION CANNOT BE ADDED BACK AS A DEEMED INCOME UNDER SECTION 41(C) F THE ACT. THIS IS ONE OF THE STRANGE CASES WHERE EVEN IF THE DEBT ITSELF IS FOUND TO BE NON - GENUINE FROM THE VERY INCEPTION, AT LEAST IN TERMS OF SECTI ON 41(1) OF THE ACT THERE IS NO CURE FOR IT. BE THAT AS IT MAY, INSOFAR AS THE ORDERS OF THE REVENUE AUTHORITIES ARE CONCERNED, THE TRIBUNAL NOT HAVING MADE ANY ERROR, THIS TAX APPEAL IS DISMISSED.' IN THE PRESENT CASE THERE WAS NO REMISSION AND/OR CESSATI ON OF THE LIABILITY DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. AS SUCH, THERE IS NO REMISSION AND/OR CESSATION OF THE LIABILITY DURING THE YEAR UNDER CONSIDERATION SUBJECT TO THE CONDITIONS CONTAINED IN THE STATUTE BEING FULFILLED. IN THE PRESENT CASE, BOTH THE AFORESAID ELEMENTS ARE MISSING. 9. THUS, APPLYING THE RATIO LAID DOWN IN THE AFORESAID DECISIONS TO THE FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THERE IS NO REMISSION OR CESSATION OF LIABILITY OF THE SUND RY CREDITORS APPEARING IN THE BOOKS OF ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR. IN VIEW OF THE AFORESAID FACTUAL POSITION, WE DO NOT CONSIDER IT NECESSARY TO DWELL MUCH UPON THE DECISIONS RELIED 16 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. UPON BY THE LD.DR. THUS, IN THE ULTIMATE ANALYSIS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD.CIT(A) WHICH IS ACCORDINGLY CONFIRMED. 12. IN VIEW OF THE ABOVE PRINCIPLES LAID DOWN AND KEEPING IN VIEW THE FA CTS OF THE PRESENT CASE, WE ALSO FIND THAT THE EXPENSES HAVE BEEN CLAIMED BY THE ASSESSEE IN EARLIER YEARS AND ARE CONTINUING UNCHANGED TILL THE IMPUGNED ASSESSMENT YEAR. BUT THE DISALLOWANCE WAS MADE BY HOLDING THAT ASSESSEE HAD FAILED TO FILE CONFIRMATIONS AND NO PAYMENTS HAVE BEEN MADE FOR YEARS TOGETHER . WE ARE OF THE VIEW THAT WHEN THE AO ACCEPTS THA T THE LIABILITIES WERE CREATED IN THE EARLIER YEARS, THEN THE GENUINENESS OF SUCH TRANSACTIONS HAVE TO BE EXAMINED IN THOSE ASSESSMENT YEARS AND NOT IN ASSESSMENT YEAR UNDER CONSIDERATION. EVEN ON PLAIN READING OF THE PROVISIONS OF SECTION 41(1) OF THE ACT , WE ARE OF THE VIEW THAT BEFORE TREATING THE AMOUNT OUTSTANDING AS DEEMED INCOME OF THE ASSESSEE U/S 41(1) ON ACCOUNT OF REMISSION/CESSATION OF LIABILITY, THE AO IS DUTY BOUND TO EXAMINE WHETHER THE CONDITION LAID DOWN U/S 41(1) ARE FULFILLED OR NOT. AS P ER THE READING OF SECTION 41(1) ALONG WITH EXPLANATION (1) TO SECTION 41(1), THE LIABILITY CEASES TO EXIST IN THE BOOKS OF ACCOUNT 17 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. OF THE ASSESSEE IN A PARTICULAR PREVIOUS YEAR, IF THE PERSON SHOWING SUCH LIABILITY HAD OBTAINED BENEFIT EITHER IN CASH OR IN ANY OTHER MANNER IN RESPECT OF SUCH LIABILITY. IT FURTHER PROVIDES THAT SUCH REMISSION OR CESSATION OF LIABILITY IS ALSO ACCEPTABLE BY UNILATERAL ACT OF WRITING OFF SUCH LIABILITY IN ITS ACCOUNT BY THE PERSON SHOWING SUCH LIABILITY. THEREFORE, BEFORE APPL YING T HE PROVISIONS OF SECTION 41(1), IT IS NECESSARY TO ESTABLISH ON RECORD THAT THE ASSESSEE HAD OBTAINED A BENEFIT EITHER IN CASH OR IN ANY FORM IN RESPECT OF SUCH LIABILITY IN THE RELEVANT PREVIOUS YEAR. THUS, WHEN IN AOS OWN ADMISSION LIABILITY CONTI NUED FROM PAST SO MANY YEARS, THEN WHAT PROMPTED THE AO TO CONCLUDE THAT THE ASSESSEE HAS OBTAINED BENEFIT IN RESPECT OF SUCH LIABILITY IN THE IMPUGNED ASSESSMENT YEAR MUST BE CLEARLY BROUGHT ON RECORD. IN THE ABSENCE OF ANY MATERIAL TO ESTABLISH THAT THE ASSESSEE HAD OBTAINED ANY BENEFIT IN RESPECT OF THE LIABILITY IN THE IMPUGNED ASSESSMENT YEAR , SO MERELY ON THE BASIS OF SURMISES AND ASSUMPTIONS IT CANNOT BE SAID THAT THERE IS REMISSION/CESSATION OF LIABILITY IN THE IMPUGNED ASSESSMEN T YEAR. 18 I.T.A. NO. 1417 /MUM/201 4 M/S LOTUS INVESTMENT LTD. 13. THEREFORE KEEPING IN VIEW THE ABOVE DISCUSSIONS, WE DIRECT THE AO TO DELETE THE DISALLOWANCE MADE U/S 41 OF THE ACT RESULTANTLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. 1 4 . IN THE NET RESULT , THE APPEAL FILED BY THE ASSESSEE STANDS AL LOWED WITH NO ORDER AS TO COST. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST MARCH , 2019. SD/ - SD/ - ( G. MANJUNATHA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 01 . 0 3 .201 9 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI