The ACIT, Kheda Circle, Nadiad V. M/s. Dattatray Poultry Breeding Farm Pvt. Ltd., Kheda

ITA 2193/AHD/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8113 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 31-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Period of limitation; Deemed to accrue or arise in india; Corroborative evidences
• Section: 133(6); 68

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR ./ I.T.A. NO. 2193/AHD/2014 ( ASSESSMENT YEAR : 2010-11) THE ASSTT. COMMISSIONER OF INCOME-TAX, KHEDA CIRCLE, NADIAD / VS. M/S. DATTATRAY POULTRY BREEDING FARM PVT. LTD., AT. & PO. SURASAMAL, TA: NADIAD, DIST. KHEDA- 387115 ./ ./ PAN/GIR NO. : AAACD8192M ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MUDIT NAGPAL, SR.D.R. / RESPONDENT BY : SHRI JAIMIN GANDHI, A.R. DATE OF HEARING 06/06/2018 !'# / DATE OF PRONOUNCEMENT 19/06/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE CIT(A)-IV, BARODA (CIT(A) IN SHORT), DATED 20.05.2014 ARISING IN THE ASSESSMENT ORDER DATED 12.03.2013 PASSED BY THE ASSESSING OFFICER (AO) U/S .143(3) OF THE INCOME TAX ACT, 1961; (THE ACT) CONCERNING ASSESSME NT YEAR 2010-11. ITA NO. 2193/AHD/14 [ACIT VS. MS. DATTATRAY POULTRY BREEDING FARM PVT. LTD.] A.Y. 2010-11 - 2 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ S AS UNDER: 1. ON THE FACTS OF THE CASE AND IN THE CIRCUMSTANC ES AND IN LAW, THE CIT(A)-IV, BARODA HAS ERRED IN DELETING THE ADD ITION OF RS.72,49,188 MADE BY THE AO U/S.41(1) OF THE I.T. A CT, IN RESPECT OF THE CESSATION OF LIABILITY IGNORING THE FACT THAT T HE PURPORTED CREDITORS SHOWN AS OUTSTANDING IN THE BOOKS FOR SEV ERAL YEARS WERE UNSUPPORTED BY COMPLETE ADDRESSES AND WERE NON-TRAC EABLE AND THE ASSESSEE ON FEW INSTANCES DID NOT DISPUTE ABOUT CLO SURE OF ITS ACCOUNT IN RIVAL PARTY'S BOOKS. 2. ON THE FACTS OF THE CASE AND IN THE CIRCUMSTANCE S AND IN LAW, THE CIT(A)-IV, BARODA HAS ERRED IN DELETING THE ADDITIO N OF RS.72,49,188 MADE BY THE AO RUNNING OVER THE EYES ON EXPLANATION 1 BELOW SECTION 41(1) CONSPICUOUSLY SPELLS OUT THAT LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIABILI TY BY WAY OF REMISSION OR CESSATION THEREOF SHALL INCLUDE THE RE MISSION OR CESSATION OF ANY LIABILITY AND THIS RUDIMENTARY PRI NCIPLE GETS SUPPORT FROM THE DECISION IN THE CASE OF CIT V/S CHIPSOFT T ECHNOLOGY (P.) LTD. REPORTED IN 26 TAXMANN.COM 109 [DELHI]. 3. ON THE FACTS OF THE CASE AND IN THE CIRCUMSTANCE S AND IN LAW, THE CIT(A)-IV, BARODA HAS ERRED IN DELETING ADDITION OF RS.72,49,188 MADE BY THE AO IGNORING THE FACTUM THAT SECTION 41( 1) IS A DEEMING PROVISION AND LEGAL DISABILITY IS APPLICABLE EVEN I N THE ABSENCE OF UNILATERAL ACT OF REMISSION OR CESSATION OF ANY LIA BILITY BY THE ASSESSEE AS PER PRINCIPLES OF LAW OF LIMITATION. 3. BRIEFLY STATED, THE ASSESSEE, A DOMESTIC COMPANY , IS ENGAGED IN THE BUSINESS OF JOB WORK OF HATCHING OF EGGS FOR SA GUNA POULTRY FARM LTD., CHENNAI. IN THE COURSE OF SCRUTINY ASSESSMEN T, THE AO OBSERVED FROM THE BALANCE SHEET FILED BY THE ASSESSEE THAT A SSESSEE HAS SHOWN SUNDRY CREDITORS OUTSTANDING FOR PAYMENT BY THE ASS ESSEE AT RS.74,40,360/-. IN ORDER TO ASCERTAIN THE BONAFIDE S OF THE SUNDRY CREDITORS REFLECTED IN THE BALANCE SHEET. THE AO M ADE INQUIRIES WITH CERTAIN CREDITORS UNDER S.133(6) OF THE ACT. IT WA S FOUND BY THE AO THAT CERTAIN CREDITORS HAVE CATEGORICALLY DENIED TH AT THEY HAVE NOT MADE ANY TRANSACTION WITH THE ASSESSEE. IT WAS ALS O SIMULTANEOUSLY OBSERVED THAT NOTICES IN SOME CASES HAVE RETURNED U NSERVED BY THE POSTAL AUTHORITY AND THE ASSESSEE FAILED TO PRODUCE THE SAID CREDITORS AS DIRECTED. THE AO ALSO INTER ALIA NOTED THAT THE ASSESSEE HAS NOT ITA NO. 2193/AHD/14 [ACIT VS. MS. DATTATRAY POULTRY BREEDING FARM PVT. LTD.] A.Y. 2010-11 - 3 EVEN FURNISHED THE CORRECT ADDRESS OF ALL THE CREDI TORS, PAN NUMBERS AND CONFIRMATION IN RESPECT OF THE CREDITORS. IN T HE LIGHT OF THESE FACTS, THE AO ALSO DOUBTED THE BONAFIDES OF THE CRE DITORS. THE AO ALSO OBSERVED THE CLAIM OF THE ASSESSEE THAT OUTSTA NDING IS ON ACCOUNT OF PURCHASES MADE DOES NOT APPEAR PLAUSIBLE CONSIDE RING THE NATURE OF BUSINESS CARRIED OUT BY THE ASSESSEE. IT WAS OBSER VED THAT THE ASSESSEE IS ONLY DOING JOB WORK AND HENCE, THERE IS NO POSSI BILITY OF THE PURCHASES FROM THE CREDITORS IS CLAIMED. IT WAS FO UND THAT THE CREDITORS ARE STANDING IN THE BOOKS FOR LAST MANY Y EARS WITHOUT PAYMENT. IT WAS FURTHER OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY CORROBORATIVE EVIDENCES REGARDING PURCHASES MAD E FROM THE CREDITORS. THE AO THEREFORE CAME TO THE CONCLUSION THAT IN THE LIGHT OF THESE PECULIAR FACTS WHERE THE CREDITORS ARE OUTSTA NDING FOR LONG PERIOD AND THE PARTIES ARE NOT TRACEABLE, DENIED TRANSATIO NS AND NOT DEMAND MONEY ETC. THE GENUINENESS OF THE CREDITORS REMAINS UNPROVED AND THE ONUS CAST UPON THE ASSESSEE IN THIS REGARD HAS NOT BEEN DISCHARGED. HOWEVER, THE AO ACCEPTED BONAFIDES IN THE CASE OF T WO CREDITORS WHERE THE CORROBORATION WAS AVAILABLE. CONSEQUENTL Y, THE AO HELD THAT RS.72,49,188/- OUT OF RS.74,40,360/- SHOWN AS CREDITORS LIABILITY ARE NOT GENUINE AND TREATED THE SAME AS CESSATION O F LIABILITY WITHIN THE MEANING OF SECTION 41(1) OF THE ACT AND ADDED T HE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE AFORESAID ACTION OF THE AO WAS CHALLENGED BY THE ASSESSEE BEFORE THE CIT(A). 4. THE CIT(A) REVISITED THE SUBMISSIONS MADE ON BEH ALF OF THE ASSESSEE IN THIS REGARD AND ALSO REFERRED TO CERTAI N JUDICIAL PRONOUNCEMENTS AND FOUND MERIT IN THE APPEAL OF THE ASSESSEE. IT WILL BE APT TO REPRODUCE THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE CIT(A) DEALING WITH THE ISSUE: ITA NO. 2193/AHD/14 [ACIT VS. MS. DATTATRAY POULTRY BREEDING FARM PVT. LTD.] A.Y. 2010-11 - 4 4.2 I HAVE CONSIDERED THE APPELLANT'S SUBMISSIONS AND THE ASSESSING OFFICER'S OBSERVATIONS. IN THIS CASE, THE APPELLANT HAD NOT BEEN ABLE TO GIVE THE ADDRESSES OF MANY SUNDRY CRED ITORS. BESIDES, IN SOME CASES IN WHICH ADDRESSES WERE AVAILABLE THE NO TICE U/S. 133(6) COULD NOT BE SERVED AT THOSE ADDRESSES. IN 5 CASES, OTHER PARTIES DID NOT CONFIRM THAT THEY HAD TO RECEIVE SOME AMOUNT FR OM THE APPELLANT. BUT IT IS ALSO A FACT THAT THERE WAS NO TRANSACTION WITH THESE SUNDRY CREDITORS DURING THE F.Y. 2009-10. BESIDES, THE APP ELLANT HAS NOT WRITTEN OFF THESE AMOUNTS IN ITS BOOKS OF ACCOUNTS. ON SIMILAR FACTS, THE HON'BLE GUJARAT HIGH COURT IN ITS DECISION IN T HE CASE OF BOGILAL RAMAJBHAI ATARA (SUPRA) HAS HELD AFTER DISCUSSING T HE DISCUSSIONS IN THE CASE OF MIRAA PROCESSORS PVT. LTD 208 TAXMANN.C OM 93 (GUJ), NITIN S. GARG, 208 TAXMANN.COM 16 (GUJ) AND G.K. PA TEL & COMPANY 2012 TAXMANN.COM 384 (GUJ) AS FOLLOWS: '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 REMISSIO N OR CESSATION OF LIABILITY DURING THE YEAR UNDER CONSID ERATION SUBJECT TO THE CONDITIONS CONTAINED IN THE STATUTE BEING FULFILLED. ADDITIONALLY, SUCH CESSATION OR REMISSIO N HAS TO BE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THE PRESENT CASE, BOTH ELEMENTS A RE MISSING. THERE WAS NOTHING ON RECORD TO SUGGEST THERE WAS RE MISSION OR CESSATION OF LIABILITY THAT TOO DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 WHICH WAS THE YEAR U NDER CONSIDERATION. IT IS UNDOUBTEDLY A CURIOUS CASE. EV EN THE LIABILITY ITSELF SEEMS UNDER SERIOUS DOUBT. THE ASS ESSING OFFICER UNDERTOOK THE EXERCISE TO VERIFY THE RECORD S OF THE SO CALLED CREDITORS. MANY OF THEM WERE NOT FOUND AT AL L IN THE GIVEN ADDRESS. SOME OF THEM, WERE NOT FOUND AT ALL IN THE GIVEN ADDRESS. SOME OF THEM STATED THAT THEY HAD NO DEALI NG WITH THE ASSESSEE. IN ONE OR TWO CASES, THE RESPONSE WAS THA T THEY HAD NO DEALING WITH THE ASSESSEE NOR DID THEY KNOW HIM. OF COURSE, THESE INQUIRIES WERE MADE EX PARTE 'AND IN THAT VIE W OF THE MATTER, THE ASSESSEE WOULD BE ALLOWED TO CONTEST SU CH FINDINGS. NEVERTHELESS, EVEN IF SUCH FACTS WERE ESTABLISHED T HROUGH BI- PARTE INQUIRIES, THE LIABILITY AS IT STANDS PERHAPS HOLDS THAT THERE WAS NO CESSATION OR REMISSION OF LIABILITY AN D THAT THEREFORE, THE AMOUNT IN QUESTION CANNOT BE ADDED B ACK AS A DEEMED INCOME UNDER SECTION 41 (C) OF 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 TE RMS OF SECTION 41(1) OF THE ACT THERE IS NO CURE FOR IT BE THAT AS IT MAY, INSOFAR AS THE ORDERS OF THE REVENUE AUTHORITI ES ARE CONCERNED, THE TRIBUNAL NOT HAVING MADE 'ANY ERROR, THIS TAX APPEAL IS DISMISSED. ITA NO. 2193/AHD/14 [ACIT VS. MS. DATTATRAY POULTRY BREEDING FARM PVT. LTD.] A.Y. 2010-11 - 5 4.2.1. THUS, THE ISSUE IN THIS CASE IS COVERED SQUA RELY IN FAVOUR OF THE APPELLANT BY THE DECISIONS OF HON'BLE GUJARAT HIGH COURT DISCUSSED ABOVE. HENCE, FOLLOWING THE SAME, ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION MADE BY HIM U/S. 41(1) OF THE A CT. 5. IN ESSENCE, THE CIT(A) OBSERVED THAT WHERE THE A SSESSEE HAS NOT WRITTEN BACK THESE AMOUNTS AS INCOME IN ITS BOOKS O F ACCOUNTS SUCH OUTSTANDING LIABILITIES CANNOT BE REGARDED AS INCOM E UNDER S. 41(1) OF THE ACT. THE CIT(A) ALSO RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF BHOGILAL RAMJIBHA I ATARA 227 TAXMAN 313(GUJ) AND CONCLUDED THAT SECTION 41(1) OF THE ACT HAS NO APPLICATION IN THE FACTS OF THE CASE. HE ACCORDING LY EXONERATED THE ASSESSEE FROM THE CLUTCHES OF SECTION 41(1) OF THE ACT AND REVERSED THE ACTION OF THE AO IN THIS REGARD. 6. AGGRIEVED BY THE AFORESAID ACTION OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. LEARNED DR FOR THE REVENUE SUBMITTED AT THE OUTS ET THAT EXISTENCE OF LIABILITY SHOWN IN THE BALANCE SHEET I S UNDER SERIOUS DOUBT. THE AO HAS UNDERTAKEN DETAILED VERIFICATION OF THE FACTUAL ASPECTS AND FOUND THAT THE FACTS OF THE CASE ARE GR OSS AND PECULIAR. IT IS A MATTER OF RECORD THAT CREDITORS WERE EITHER NO T TRACEABLE OR HAVE ACTUALLY DENIED THE EXISTENCE OF THESE LONG OUTSTAN DING LIABILITY. IN SUCH A FACTUAL MATRIX, THE CIT(A) HAS MISDIRECTED H IMSELF IN LAW AND ON FACTS IN SUMMARILY ADJUDICATING THE ISSUE IN FAV OUR OF THE ASSESSEE. AS REGARDS THE RELIANCE PLACED BY THE CIT(A) ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. B HOGILAL RAMJIBHAI ATARA (SUPRA), THE LEARNED DR SUBMITTED THAT THE LA W HAS EVOLVED OVER A PERIOD OF TIME SINCE THE DECISION OF THE AFORESAI D HONBLE GUJARAT HIGH COURT. THE LEARNED DR MADE REFERENCE TO THE R ECENT DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJTR ON ELECTRONICS (P.) ITA NO. 2193/AHD/14 [ACIT VS. MS. DATTATRAY POULTRY BREEDING FARM PVT. LTD.] A.Y. 2010-11 - 6 LTD. VS. ITO (2017) 83 TAXMANN.COM 389 (GUJ) AND CO NTENDED THAT THE HONBLE GUJARAT HIGH COURT IN THE LATER DECISION HA S CLEARLY HELD THAT CESSATION OF LIABILITY OCCURRED WHERE NOT A SINGLE CUSTOMER HAD DEMANDED MONEY BACK NOR ASSESSEE HAD MADE ANY ATTEM PT TO REPAY THE SAME. IT WAS ALSO OBSERVED BY THE HONBE GUJARAT H IGH COURT THAT IN SUCH A SITUATION WHERE THE LIABILITY IS REFLECTED I N THE BOOKS OF ACCOUNTS WHEREAS OVER YEARS, ASSESSEE HAD ALSO INVE STED SUCH AMOUNT AND EARNED INTEREST AND USED SUCH INTEREST FOR ITS PURPOSE, THE AO WAS JUSTIFIED IN ADDING THE IMPUGNED AMOUNT TO THE INCO ME OF THE ASSESSEE ON THE GROUNDS OF CESSATION OF LIABILITY CONTEMPLAT ED U/S.41(1) OF THE ACT. IT WAS ALSO POINTED OUT THAT THE HONBLE GUJA RAT HIGH COURT TOOK COGNIZANCE OF THE FACT THAT THERE IS ABSOLUTELY NO MOVEMENT OR CORRESPONDENCE BETWEEN ASSESSEE AND ITS CREDITORS W ITH RESPECT TO THE CLAIM OR WITH RESPECT TO THE DEPOSITED AMOUNTS WHIL E DECIDING THE ISSUE AGAINST THE ASSESSEE. THE LEARNED DR THEREAF TER REFERRED TO ANOTHER JUDGMENT RENDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. CHIPSOFT TECHNOLOGY (P.) LTD. (2012 ) 210 TAXMAN 173 (DELHI) TO BUTTRESS ITS PLEA THAT EXPLANATION TO SE CTION 41(1) DOES NOT RESTRICT THE SCOPE OF SECTION 41(1) ONLY TO A SITUA TION WHERE THE ASSESSEE WRITES BACK THE LIABILITY IN ITS BOOKS OF ACCOUNTS AS PER ITS OPTION. THE LEARNED DR IN CONCLUSION SUBMITTED THA T WHERE AS A MATTER OF FACT IT IS FOUND THAT EXISTENCE OF THE CR EDITORS CLAIMED IN THE BOOKS OF ACCOUNTS IS FOUND TO BE INCORRECT OR IN-GE NUINE, THE OPERATION OF SECTION 41(1) TO ASSESS THE NON-EXISTENT TRADE L IABILITY BY RESORTING TO SECTION 41(1) CANNOT BE EXCLUDED. 8. THE LEARNED AR, ON THE OTHER HAND, STRONGLY SUPP ORTED THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE PROVISIONS OF SECTION 41(1) CAN APPLY ONLY WHERE; (I) THERE IS A POSITIVE ACT ON TH E PART OF THE ASSESSEE FOR WRITING BACK THE LIABILITIES AS INCOME IN THE P &L ACCOUNT, (II) THE ITA NO. 2193/AHD/14 [ACIT VS. MS. DATTATRAY POULTRY BREEDING FARM PVT. LTD.] A.Y. 2010-11 - 7 LIABILITY CEASES TO EXIST BY THE REASON OF OPERATIO N OF LAW I.E. ON THE LIABILITY BECOMING UNENFORCEABLE AT LAW, (III) BY D ISCHARGE OF THE DEBT AS REFERRED TO IN THE DECISION OF THE HONBLE SUPRE ME COURT OF INDIA IN CIT VS. SUGAULI SUGAR WORKS (P.) LTD. 236 ITR 518 ( SC). THE LEARNED AR INSISTED THAT MERELY BECAUSE THE LIABILITIES HAV E REMAINED OUTSTANDING IN THE BOOKS OF ACCOUNTS FOR LAST MANY YEARS IS AN IRRELEVANT CONSIDERATION TO ASCERTAIN TAXABILITY WI TH REFERENCE TO SECTION 41(1) OF THE ACT. IT WAS ALSO CONTENDED TH AT THE EXPIRY OF PERIOD OF LIMITATION PRESCRIBED UNDER THE LIMITATIO N ACT CANNOT EXTINGUISH THE DEBTS AS IT WOULD ONLY PREVENT THE C REDITOR FROM ENFORCING THESE DEBTS. THE LEARNED AR SUBMITTED TH AT IN THE ABSENCE OF REMOVAL OF THE LIABILITY FROM THE BALANCE SHEET BY WAY OF WRITE BACK, NO BENEFIT CAN BE SAID TO BE CONFERRED ON THE ASSESSEE BY WAY OF CESSATION WHICH CAN BE DEEMED TO BE PROFIT AND GAIN S OF BUSINESS OF THE ASSESSEE. THE LEARNED AR NEXT REFERRED TO THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. BHOGILAL RAMJIBHAI ATARA (SUPRA) AND SUBMITTED THAT IN THAT CASE ALSO, THE A O UNDERTOOK EXERCISE TO VERIFY THE RECORDS OF THE SO CALLED CREDITORS AN D FOUND THAT CREDITORS HAD NO DEALING WITH THE ASSESSEE. IT WAS FURTHER F OUND BY THE AO THEREIN THAT DEBTS WERE OUTSTANDING SINCE LAST SEVE RAL YEARS. IN THE BACKDROP OF THESE FACTS WHERE SOME OF THE PARTIES W ERE NOT FOUND AT THE GIVEN ADDRESS OR SOME OF THE PARTIES HAVE STATE D THAT THEY HAD NO CONCERN WITH THE ASSESSEE; SOME OF THE PARTIES CONV EYED THAT THEY DID NOT EVEN KNOW THE ASSESSEE AND THUS WHERE THE LIABI LITY ITSELF FOUND TO BE IN SERIOUS DOUBT, THE HONBLE GUJARAT HIGH COURT HELD THAT NO CURE IS AVAILABLE TO THE REVENUE IN TERMS OF SECTION 41( 1) OF THE ACT. LEARNED AR RESTATED IN ELABORATION THAT SECTION 41( 1) WOULD APPLY ONLY IN A CASE WHERE THERE HAS BEEN REMISSION OR CE SSATION OF LIABILITY DURING THE YEAR UNDER CONSIDERATION SUBJECT TO THE CONDITIONS TO BE FULFILLED AS STATED IN THE PROVISION. BESIDES, THE LEARNED AR CONTENDED ITA NO. 2193/AHD/14 [ACIT VS. MS. DATTATRAY POULTRY BREEDING FARM PVT. LTD.] A.Y. 2010-11 - 8 THAT THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO ESTABLISH THAT SUCH CESSATION OR REMISSION HAS TAKEN PLACE DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. T HIS APART, THE LEARNED AR NEXT CONTENDED THAT SECTION 41(1) OF THE ACT COMES INTO PLAY ONLY WHERE THE LIABILITY DO EXISTS EARLIER WHI CH CEASES TO EXIST DURING THE FINANCIAL YEAR UNDER CONSIDERATION. THE REFORE, SECTION 41(1) PRESUPPOSES EXISTENCE OF LIABILITY IN THE EAR LIER YEAR. THE LEARNED AR ACCORDINGLY SUBMITTED THAT SCOPE OF SECT ION 41(1) REQUIRES TO BE READ IN DISTINCTION TO SECTION 68 OF THE ACT. ADVERTING TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF GUJTRON ELECTRONICS (SUPRA) RELIED UPON BY THE OTHER SIDE, THE LEARNED AR CONTENDED THAT THE AFORESAID DECISION WAS RENDERED IN THE BACKDROP OF ALTOGETHER DIFFERENT FACTS. IT WAS SUBMITTED THAT IN GUJTRON ELECTRONICSS CASE (SUPRA), THE LIABILITY WAS NEARL Y 15 TO 20 YEARS BACK IN RELATION TO SALES PROMOTION SCHEME WHEN THE COMP ANY WAS ENGAGED IN THE MANUFACTURING OF GOODS. THE COMPANY THEREAF TER WAS NO LONGER ENGAGED IN SUCH MANUFACTURING ACTIVITY AND WAS NOW ENGAGED ONLY IN TRADING OF ELECTRONICS APPLIANCES ETC. THE LEARNED AR SUBMITTED THAT, NOTABLY, SCHEME ITSELF SUGGESTED THAT IT WAS VALID FOR A PERIOD OF TWELVE MONTHS. SINCE YEARS, THERE WAS NO ACTIVITY AND SINCE THE SCHEME ITSELF WAS DISPENSED, THE LIABILITY HAD ACTU ALLY CEASED TO EXIST. THE LEARNED AR THUS SUBMITTED THAT CESSATION OF LIA BILITY HAD OCCURRED AS A MATTER OF FACT. THE LEARNED AR THUS SUBMITTED THAT IN VIEW OF THE MATERIAL DIFFERENCE IN THE FACTS, THE DECISION IN G UJTRON ELECTRONICSS CASE (SUPRA) HAS NO APPLICATION TO THE FACTS OF A C ASE. THE LEARNED AR THUS SUBMITTED THAT THE CIT(A) HAS DECIDED THE ISSU E IN RIGHT PERSPECTIVE AND NO INTERFERENCE THEREOF IS CALLED F OR. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LA WS CITED AT BAR. THE ITA NO. 2193/AHD/14 [ACIT VS. MS. DATTATRAY POULTRY BREEDING FARM PVT. LTD.] A.Y. 2010-11 - 9 APPLICABILITY OF SECTION 41(1) OF THE ACT ON OUTSTA NDING TRADING LIABILITIES AS REFLECTED IN THE BALANCE SHEET HAS B EEN CALLED INTO QUESTION. SECTION 41(1) OF THE ACT STATES THAT WHE RE AN ALLOWANCE IN RESPECT OF AN EXPENDITURE OR TRADING LIABILITY ETC. IS MADE IN A YEAR AND THE ASSESSEE OBTAINS ANY BENEFIT, WHETHER IN CASH O R OTHERWISE IN A SUBSEQUENT YEAR, SUCH BENEFIT SHALL BE DEEMED TO BE PROFITS & GAINS OF THE BUSINESS OF THAT SUBSEQUENT YEAR, WHETHER SUCH BUSINESS IS IN EXISTENCE OR NOT IN THAT SUBSEQUENT YEAR. THE SECT ION HAS AN EFFECT OF DEEMING SUCH CESSATION OR REMISSION OF LIABILITY AS INCOME IN DEPARTURE WITH THE GENERAL LAW WHERE SUCH REMISSION OR CESSATION IS NOT REGARDED AS AN INCOME. COMING TO THE FACTS, AS NOTED ABOVE, IT IS THE CASE OF THE REVENUE THAT THE TRADING LIABILITIE S OF RS.74.40 LAKHS CLAIMED TO BE PAYABLE TO SEVERAL PARTIES WAS NOT FO UND TO BE SUBSISTING LIABILITY AS PER THE OUTCOME OF INQUIRIES MADE IN T HIS REGARD. THE AO NOTED ON FACTS THAT THE CREDITORS SHOWN IN THE BOOK S ARE FOR PURCHASE OF GOODS WHEREAS THE ASSESSEE IS ENGAGED IN JOB WOR K AND THEREFORE OUTSTANDING TOWARDS PURCHASE OF GOODS IS A HIGH SUS PECT. THE AO BASED ON INQUIRY; OBSERVED THAT MANY OF THE CREDITO RS COULD NOT BE TRACED ON THE ADDRESS GIVEN BY THE ASSESSEE. MANY OTHERS HAVE DENIED MAKING ANY TRANSACTION WITH THE ASSESSEE. COUPLED WITH THIS, SUCH HUGE AMOUNTS OF OUTSTANDING REMAINS IN THE BOOKS FO R LAST SIX TO TWENTY YEARS WITHOUT ANY REPAYMENT. ON THESE FACTS , THE AO CONCLUDED THAT LIABILITY SHOWN IN THE BALANCE SHEET TO BE A NON- EXISTING LIABILITY AND ACCORDINGLY INVOKED SECTION 41(1) OF THE ACT FOR THE PURPOSES OF TAXABILITY OF SUCH NON-EXISTENT LIA BILITY AS CHARGEABLE INCOME OF THE ASSESSEE OWING TO THE FACT THAT THE A SSESSEE HAS OBTAINED BENEFIT IN THE PAST AGAINST SUCH OUTSTANDING TRADIN G LIABILITIES. THE CIT(A), IN FIRST APPEAL, HOWEVER, HAS SET ASIDE THE ACTION OF THE AO PRIMARILY ON THE GROUND THAT THE ASSESSEE HAS NOT W RITTEN BACK OF THESE AMOUNTS IN THE BOOKS OF ACCOUNTS. THE CIT(A) GRANT ED RELIEF TO THE ITA NO. 2193/AHD/14 [ACIT VS. MS. DATTATRAY POULTRY BREEDING FARM PVT. LTD.] A.Y. 2010-11 - 10 ASSESSE PLACING RELIANCE UPON THE DECISION OF THE H ONBLE GUJARAT HIGH COURT IN ITS DECISION IN THE CASE OF BHOGILAL RAMJ IBHAI ATARA (SUPRA). 10. IT IS THE CASE OF THE REVENUE THAT THE LAW HAS EVOLVED JUDICIAL PRECEDENTS SINCE THE EARLIER DECISION OF THE HONBL E GUJARAT HIGH COURT IN THE CASE OF BHOGILAL RAMJIBHAI ATARAS CASE (SUP RA). KEEPING IN MIND THE PECULIAR FACTS AS FOUND BY THE AO, WE OBSE RVE THAT HONBLE GUJARAT HIGH COURT WAS CONFRONTED WITH THE SIMILAR ISSUE IN THE CASE OF GUJTRON ELECTRONICSS CASE (SUPRA) WHERE ALSO TH E FACTS ARE BROADLY SIMILAR. IN GUJTRON ELECTRONICSS CASE (SUPRA) ALSO THE OUTSTANDING WAS APPEARING IN THE BALANCE SHEET DURING THE YEAR UNDE R CONSIDERATION AND WAS NOT ACTUALLY WRITTEN OFF BY THE ASSESSEE. HOWE VER, THE HONBLE GUJARAT HIGH COURT NOTED THAT NOT A SINGLE CUSTOMER HAD DEMANDED MONEY BACK NOR ASSESSEE HAD MADE ANY ATTEMPT TO REP AY THE SAME. OVER YEAR, COMPANY HAD INVESTED SUCH AMOUNT IN DIVE RSE ACTIVITIES. ON SUCH FACTS WHERE SINCE LAST MANY YEARS, THERE WA S NO ACTIVITY OF ANY REPAYMENT OF AMOUNTS NOR THE AMOUNTS HAVE BEEN COLLECTED BY THE CUSTOMERS, THE HONBLE COURT ENDORSED THE DECISION OF THE CO-ORDINATE BENCH OF TRIBUNAL (ITA NO.1145/AHD/2016 ORDER DATED 10.01.2017) THAT TRADING LIABILITY HAD, IN FACT, CEASED TO EXIS T. THEREFORE, IT LOGICALLY FLOWS THAT THE HONBLE GUJARAT HIGH COURT HAS CLEARLY OPINED THAT LIABILITY MAY CEASE TO EXIST IN TERMS OF SECTI ON 41(1) WHERE IT IS OUTSTANDING FOR A LONG PERIOD WITHOUT ANY PAYMENT D ESPITE IT BEING REFLECTED IN THE BOOKS OF ACCOUNTS. THE HONBLE GU JARAT HIGH COURT ALSO DID NOT QUESTION THE ACTION OF REVENUE TOWARDS TAXABILITY U/S.41(1) OF THE ACT WITH REFERENCE TO FINANCIAL YE AR IN QUESTION. THE DISTINCTION SOUGHT TO DRAWN ON BEHALF OF ASSESSEE F OR ITS NON- APPLICATION IS UN-MERITED. THE HONBLE GUJARAT HIG H COURT HAS APPROVED THE FINDINGS OF ITAT THAT SECTION 41(1) OF THE ACT WOULD APPLY WHERE LIABILITIES OUTSTANDING ARE FOUND TO BE NOT PAYABLE FOR ONE ITA NO. 2193/AHD/14 [ACIT VS. MS. DATTATRAY POULTRY BREEDING FARM PVT. LTD.] A.Y. 2010-11 - 11 OR MORE REASONS. WE NOTICE THAT SIMILAR VIEWS HAVE BEEN ECHOED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. CHIPSOFT TECHNOLOGY (SUPRA) CITED ON BEHALF OF REVENUE. THE HONBLE DELHI HIGH COURT IN THAT CASE OBSERVED THAT THE ASSESSEE COULD NOT CLAIM BENEFIT OF SHOWING UNPAID DUES OF EMPLOYEES OUTSTAN DING FOR 6-7 YEARS AND IT WAS FOUND THAT THERE WAS CESSATION OF SUCH L IABILITY ON FACTS WHICH WAS LIABLE TO BE ADDED TO THE INCOME OF THE A SSESSEE. THE HONBLE DELHI HIGH COURT ALSO NEGATED THE CONTENTIO N OF ASSESSEE THAT A LIABILITY DOES NOT CEASE AS LONG AS IT IS REFLECT ED IN THE BOOKS AND THAT MERE LAPSE OF TIME GIVEN TO THE CREDITOR TO RE COVER THE AMOUNT DUE DOES NOT EFFACE THE LIABILITY. THE HONBLE HIGH CO URT TOOK NOTE OF EXPRESSION INCLUDE OCCURRING IN EXPLANATION TO SE CTION 41(1) OF THE ACT AND HELD THAT THE EXPLANATION DOES NOT RESTRICT THE SCOPE OF REMISSION OR CESSATION OF ANY LIABILITY BY A UNILAT ERAL ACT ALONE. THE HONBLE HIGH COURT HELD THAT IN VIEW OF THE PHRASEO LOGY OF EXPLANATION TO SECTION 41(1), EVEN OMISSION TO PAY OVER A PERIOD OF TIME AND RESULTANT BENEFIT DERIVED BY THE ASSESSEE WOULD QUALIFY AS CESSATION OF LIABILITY ALBEIT BY OPERATION OF LAW. IN THIS BACKDROP, WHERE THE REVENUE AUTHORITIES HAVE FOUND AS A MATTE R OF FACT AFTER DETAILED INQUIRY THAT THE LIABILITIES SHOWN IN THE BALANCE SHEET DO NOT, IN FACT, EXIST, THE REVENUE AUTHORITIES ARE NOT EXP ECTED TO PUT BLINKERS WHILE LOOKING AT THE OUTSTANDING TRADING LIABILITY. MERELY BECAUSE THE LIABILITIES HAVE BEEN SHOWN IN THE BOOKS OF ACCOUNT S AND NOT WRITTEN BACK, WOULD NOT, IN OUR VIEW TIE DOWN THE REVENUE T O HOLD SUCH LIABILITIES TO BE SUBSISTING LIABILITY. THE GROUND REALITIES ON FACTS WERE FOUND TO BE ALTOGETHER DIFFERENT IN THE PRESENT CAS E. IT DOES NOT ACCORD WITH HUMAN PROBABILITIES TO INFER THAT TRADING LIAB ILITIES DO EXIST WHERE THE PARTIES ARE NOT TRACEABLE, DENIED THE OUTSTANDI NG, NO REPAYMENT MADE FOR LAST MANY MANY YEARS AND TILL DATE. SUCH APPROACH WOULD BE QUITE THEORETICAL AND ABSTRACT. ITA NO. 2193/AHD/14 [ACIT VS. MS. DATTATRAY POULTRY BREEDING FARM PVT. LTD.] A.Y. 2010-11 - 12 11. ADVERTING TO THE LEGAL CLAIM MADE BEFORE US ON BEHALF OF THE ASSESSEE THAT LIABILITIES SHOWN IN THE BALANCE SHEE T WAS ITSELF SUFFICIENT TO HOLD SUCH LIABILITY EXISTS AND BONAFIDE IS NOT U NDERSTOOD AT ALL. THE LIABILITIES SHOWN IN THE BALANCE SHEET AS EXISTING BY ASSESSEE WAS FOUND TO BE SYMBOLIC BY AO. THE ONUS IS ON THE AS SESSEE TO SHOW THE REASONS WHY IT BELIEVED AT THE TIME OF FILING THE R ETURN THAT THE LIABILITIES WERE TRUE. NO SUCH ATTEMPT WAS EVEN MA DE TO PROVE THE EXISTENCE OF LIABILITIES. IN THIS VIEW OF THE MATT ER, THE INCIDENCE OF TAXATION UNDER S.41(1) OF THE ACT CANNOT BE ESCAPED ON NON-EXISTING LIABILITY. OUR THIS VIEW ALSO FINDS SUPPORT FROM Y ET ANOTHER DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PAL KHI INVESTMENTS AND TRADING CO. PVT. LTD. VS. ITO 288 CTR 473 (BOM. ) WHERE THE HONBLE BOMBAY HIGH COURT WENT TO THE EXTENT OF CON FIRMING PENALTY FOR NOT OFFERING SUCH TRADING LIABILITY UNDER S.41( 1) OF THE ACT. THUS, THE CONCLUSION APPARENTLY LEANS AGAINST THE ASSESSE E. HOWEVER, WE ARE LEFT WITH ONE PERTINENT QUESTION HURLED AT US O N BEHALF OF THE ASSESSEE I.E. YEAR OF TAXABILITY. IN THIS REGARD, WE ARE NOT IMPRESSED BY THE PLEA THE AO DID NOT BRING ANYTHING ON RECORD TO ALLEGE THAT CESSATION TOOK PLACE DURING THE FINANCIAL YEAR IN Q UESTION FOR THE PURPOSES OF TAXABILITY UNDER S.41(1) OF THE ACT. W E FIND THAT AO HAS ASSERTIVE JUSTIFICATION TO BRING THE OUTSTANDING LI ABILITY WITHIN THE NET OF S.41(1) OF THE ACT IN THE FINANCIAL YEAR UNDER I NQUIRY. THE ONUS IS ON THE ASSESSEE TO SHOW THAT YEAR OF CESSATION IS D IFFERENT. IN THE INSTANT CASE, THE ASSESSEE DOES NOT ADMIT CESSATION AT FIRST PLACE. THE AO THEREFORE IS WITHIN ITS RIGHT TO HOLD THE FINANC IAL YEAR IN QUESTION AS THE RIGHT YEAR FOR TAXABILITY WHEN THE FACTS CON CURRING THE NON- EXISTENCE WERE UNREVEALED. THE ASSESSEE WAS FAILED TO DISCHARGE ONUS. BESIDES, THE DEFECT OF YEAR OF TAXATION IF A NY CAN BE CURED UNDER S.153(6) IN SUCH CASES. HOWEVER, WE DO NOT CONSIDE R IT EXPEDIENT TO DWELL FURTHER. IN THE TOTALITY OF THE FACTS AND ITA NO. 2193/AHD/14 [ACIT VS. MS. DATTATRAY POULTRY BREEDING FARM PVT. LTD.] A.Y. 2010-11 - 13 CIRCUMSTANCES, WE FIND OURSELVES IN AGREEMENT WITH THE VIEW TAKEN BY THE AO THAT ADDITION MADE IN RESPECT OF TRADING LIA BILITIES WHICH HAD CEASED TO EXIST REPRESENTS TAXABLE BUSINESS INCOME IN TERMS OF SECTION 41(1) OF THE ACT. THE CIT(A) IN OUR VIEW HAS COMMI TTED ERROR IN DISREGARDING THE GROSS FACTS UNEARTHED IN THE PRESE NT CASE WHILE DECIDING IN FAVOUR OF THE ASSESSEE. THE ORDER OF T HE CIT(A) IS THEREFORE SET ASIDE AND THE ORDER OF THE AO ON THE ISSUE IS RESTORED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP K UMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 19/06/2018 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 19/06/20 18