ACIT 11(1), MUMBAI V. CMM LTD, MUMBAI

ITA 1581/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8923 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 02-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJIV DUTT

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI B. RAMAKO TAIAH,(AM) ITA NO.1581/MUM/2010 ASSESSMENT YEAR : 2006-07 ASSTT. COMMISSIONER OF INCOME TAX- 11(1), ROOM NO.439, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 ..( APPELLANT ) VS. M/S. CMM LTD. 4T FLOOR, PARAGON CONDOMINIUM, P.B. MARG, MUMBAI-400 018 ..( RESPONDENT ) P.A. NO: ( AAACC 0419 Q ) APPELLANT BY : SHR I SANJIV DUTT RESPONDENT BY : NONE O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 9.12.2009 PASSED BY THE LD. CIT(A) FOR TH E ASSESSMENT YEAR 2006-07. 2. AT THE TIME OF HEARING NONE WAS PRESENT ON BEHALF OF THE ASSESSEE NOR FILED ANY APPLICATION FOR ADJOURNMENT OF TH E CASE. IN THIS CASE NOTICE OF DATE OF HEARING FIXING THE CASE FOR 4.1.2 011 SENT BY RPAD WAS RETURNED BACK BY THE POSTAL AUTHORITIES WITH THE REMARK LEFT. IN THE ABSENCE OF ANY OTHER ADDRESS AVAILABLE ON RECORD, WE TREAT IT AS SERVED. THEREFORE, IT WAS DECIDED TO DISPOSE OF THE APPEAL EXPARTE, QUA THE ASSESSEE ON MERITS AFTER HEARING THE L D. DR. ITA NO.1581/M/10 A.Y:06-07 2 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY FILED RETURN DECLARING LOSS OF RS.3,15,859/-. DURING T HE COURSE OF ASSESSMENT PROCEEDING IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THERE ARE SOME CREDITORS LYING OUTSTANDING FOR MORE THA N TWO YEARS. THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF THE CREDITO RS. IN RESPONSE TO QUERY RAISED BY THE ASSESSING OFFICER THE ASSESSEE COMPANY FILED LIST OF OUTSTANDING CREDITORS OF RS.2,23,0 4,617/-. THE ASSESSING OFFICER OBSERVED THAT SINCE THESE AMOUNTS ARE LYIN G OUTSTANDING FOR MORE THAN 5 YEARS TILL DATE THEREFORE , ACCORDING TO HIS OPINION THESE TRADE CREDITORS CAN VERY WELL BE TREATED AS CEASED LIABILITY AS PER THE MEANING SPECIFIED IN THE STATUTE U/S.41(1) AND HENCE, HE ADDED RS.2,23,04,617/- U/S.41(1) OF THE INCO ME TAX ACT, 1961 (THE ACT). ON APPEAL, THE ASSESSEE CONTENDED THAT T HE PROVISIONS OF SEC.41(1) OF THE ACT ARE NOT APPLICABLE TO THE APPELLANTS CASE FOR THE REASON THAT THE APPELLANT HAS NEITHER WRI TTEN BACK THE ABOVE CREDITORS IN THEIR BOOKS NOR ANY AMOUNT OR BENEF IT WAS OBTAINED BY THE APPELLANT BY WAY OF REMISSION OR CESSATION THEREO F; WHICH IS THE BASIC REQUIREMENT FOR APPLICABILITY OF SECTION 41(1) OF THE ACT. FURTHER, THE APPELLANTS BUSINESS OPERATIONS WERE ADVERSELY AFFECTE D AND PENDING OUTCOME OF THE VARIOUS LEGAL MATTERS, APPELLA NT WOULD BE UNABLE TO PAY THE CREDITORS. HOWEVER, THESE WILL BE SET TLED IN DUE COURSE AND THEREFORE, ALL THE CREDITORS ARE ALIVE. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF THE INCOME TAX APPELLATE TRI BUNAL LUCKNOW BENCH IN THE CASE OF DCIT VS. ALLIED LEATHER FINISHERS PVT. LTD. IN ITA NO.58/LUC/09. THE LD. CIT(A) WHILE OBSERVING THAT THE APPELLANT HAS EXPLAINED IN DETAIL HOW THE SAID LIABILITIES ARE ALIV E AT THE END OF THE FINANCIAL YEAR AND EVEN LATER, HELD THAT THERE IS NO T ENOUGH MATERIAL OR EVIDENCE TO HOLD THAT IN THE INSTANT ASSESSMENT YEAR, T HE LIABILITIES OF ITA NO.1581/M/10 A.Y:06-07 3 SUNDRY CREDITORS CEASED TO EXIST WITHIN THE MEANING OF S ECTION 41(1) AND ACCORDINGLY HE DELETED THE ADDITION MADE BY THE A SSESSING OFFICER. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US CHALLENGING IN BOTH THE GROUNDS THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER U/S.41(1) OF THE A CT. 5. AT THE TIME OF HEARING THE LD. DR SUBMITS THAT FOR THE REASONS AS DISCUSSED IN THE ASSESSMENT ORDER THE LD. CIT(A) WAS NOT J USTIFIED IN DELETING THE ADDITION OF RS.2,23,04,617/- MADE BY TH E ASSESSING OFFICER U/S.41(1) OF THE ACT. HE THEREFORE, SUBMITS THA T THE ADDITION MADE BY THE ASSESSING OFFICER BE RESTORED. 6. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE LD. DR A ND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THA T THE ADDITION OF RS.2,23,04,617/- U/S.41(1) WAS MADE BY THE ASSESSING OFFI CER ON THE GROUND THAT THE OUTSTANDING AMOUNT IS MORE THAN 5 Y EARS. HOWEVER, THE LD. CIT(A) DELETED THE SAME BY HOLDING THAT THER E IS NOT ENOUGH MATERIAL OR EVIDENCE TO HOLD THAT THE LIABILITIES OF SUNDRY CREDITORS CEASED TO EXIST WITHIN THE MEANING OF SEC.41(1) OF THE ACT. 7. SECTION 41 OF INCOME-TAX ACT, TO THE EXTENT IT IS R ELEVANT, PROVIDES THAT WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURIN G ANY PREVIOUS YEAR THE ASSESSEE HAS OBTAINED WHETHER IN CASH OR IN ANY O THER MANNER, 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 THE ASSESSEE FRO M THE VALUE ITA NO.1581/M/10 A.Y:06-07 4 OF THE BENEFIT ACCRUED TO HIM SHALL BE DEEMED TO BE PR OFITS AND GAINS OF PROFESSION OR BUSINESS, AND ACCORDINGLY, CHARGEABLE TO INCOME-TAX, AS THE INCOME OF THAT PREVIOUS YEAR. 8. IT IS, THEREFORE, A PRE-REQUISITE CONDITION BEFORE TAKING RECOURSE TO THE SECTION 41 OF THE ACT THAT ASSESSEE MUST HAVE EITHE R OBTAINED THE AMOUNT IN RESPECT OF THE LOSS, EXPENDITURE OR TRA DING LIABILITY INCURRED EARLIER BY IT OR IT SHOULD HAVE RECEIVED ANY BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. THE OBJECTIVE IS TO TAX THE AMOUNT OR BENEFIT RECEIVED BY THE ASSESSEE THEREBY MAKING HIM PAY BACK FOR THE BENEFIT AVAILED EARLIER BY HIM BY WAY OF CLAIMING LOSS, EXPENDITURE OR LIABILITY IN RESP ECT OF THAT AMOUNT. 9. REMISSION IS A POSITIVE CONDUCT ON THE PART OF THE CRE DITOR. IN THE PRESENT CASE, ADMITTEDLY THERE HAS BEEN NO REMISSION OF THE LIABILITY OF THE ASSESSEE. THEREFORE, THE ONLY QUESTION WHICH ARISES IN THIS CASE IS WHETHER THERE WAS ANY CESSATION OF LIABILITY AS HAS BEEN CLAIMED BY THE REVENUE. THE CESSATION OF THE LIABILITY MAY ACCRUE EITHE R BY OPERATION OF LAW, I.E., ON THE LIABILITY BECOMING UNENFORCEABLE IN LAW BY THE CREDITOR, PROVIDED THE DEBTOR UNEQUIVOCALLY DECLARES HI S INTENTION NOT TO OWN THE LIABILITY EVEN IF DEMANDED BY THE CREDITO R. IT MAY ALSO ACCRUE BY WAY OF A JUDICIAL PRONOUNCEMENT, ABSOLVING T HE ASSESSEE FROM THE LIABILITY. IT MAY ACCRUE IF THERE IS A CONTRACT BETWEEN THE PARTIES WHEREBY THE LIABILITY GETS EXTINGUISHED OR IT MAY COME TO AN END BY DISCHARGE OF THE DEBT. SOME BENEFIT HOWEVER, MUST ACCRUE TO THE ASSESSEE BY VIRTUE OF REMISSION OR CESSATION OF THE LIAB ILITY, AS THE CASE MAY BE. 10. IN THE ABSENCE THEREOF AND MERELY BECAUSE SUCH LIABIL ITIES ARE OUTSTANDING FOR THE LAST SO MANY YEARS IT CANNOT BE PRESU MED THAT THE ITA NO.1581/M/10 A.Y:06-07 5 SAID LIABILITIES HAVE CEASED TO EXIST. THERE IS NO MATER IAL ON RECORD TO SHOW THAT THERE IS ANY DENIAL BY THE TRADE CREDITORS T HAT NO SUCH LIABILITY IS PAYABLE BY THE ASSESSEE OR THE SAME IS NOT D UE AGAINST THE ASSESSEE. IN THIS VIEW OF THE MATTER WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT SUSTAINABLE I N LAW AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDING OF T HE LD. CIT(A) IN DELETING THE SAME. THE GROUNDS TAKEN BY THE REVENUE A RE, THEREFORE, REJECTED. 11. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.1.2011. SD/- SD/- (B. RAMAKOTAIAH) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 14.1.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.