ITO, Wrad-1(1)(3), Ahmedabad V. M/s. Anand Infrastructure Pvt. Ltd., Ahmedabad

ITA 2256/AHD/2017

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7131 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-12-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 08-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V.K. SINGH
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH (Conducted Through Virtual Court) Before: Shri Rajpal Yadav, Vice President And Ms. Annapurna Gupta, Accountant Member Th e ITO, Ward-1(1 )(3), Ah medabad (Appellant) Vs M/s. Anand Infra structure Pvt. Ltd. 20-21 -22, Upp er Level, Shriratna Apart ment, Nr. Surdh ara Circle, Sun & Step Club Road, Thaltej, Ahmedab ad PAN: AAD CA8939 L (Resp ondent) Revenue by : Shri V. K. Sing h, Sr. D. R. Asses see b y : Shri Ankit Ta lsania, A. R. Date of hearing : 30-11 -2 021 Date of pronouncement : 02-12 -2 021 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:- The present appeal has been filed by the Revenue against the order passed by the Commissioner of Income Tax (Appeals)-1, Ahmedabad, (in short referred to as CIT(A)), dated 27-07-2017, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2014-15. ITA No. 2256/Ahd/2017 Assessment Year 2014-15 I.T.A No. 2256/Ahd/2017 A.Y. 2014-15 Page No ITO vs. M/s. Anand Infrastructure Pvt. Ltd. 2 2. The solitary issue in the present appeal pertains to addition made to the income of the assessee by the Assessing Officer(AO) on account of cessation of liability relating to sundry creditors amounting to Rs. 1,92,46,069/-, as per the provisions of section 41(1) of the Act, which stood deleted in appeal by the ld. CIT(A). 3. The facts relating to the case are that the assessee is in the business of construction of residential and commercial units. During assessment proceedings the Assessing Officer (AO) noted that there was increase in sundry creditors though the income had decreased as compared to the previous year. He noted from the details relating to creditors, filed by the assessee, aggregating in all to Rs. 3,48,25,445/-, that the same included long term creditors for purchase of construction material amounting to Rs. 1,92,46,069/- and no increase or decrease had been made by the assessee in the same, during the impugned year, that the balances pertained to earlier years only. The Assessing Officer held that the liability relating to the said creditors had ceased to exist for the reason that the balances were old, confirmed copies of ledger accounts of the same were not furnished by the assessee nor the details of periods to which the balances related. Accordingly he invoked the provisions of section 41(1) of the Act and treated the same as income of the assessee. I.T.A No. 2256/Ahd/2017 A.Y. 2014-15 Page No ITO vs. M/s. Anand Infrastructure Pvt. Ltd. 3 4. The matter was carried in appeal before the ld. CIT(A) who deleted the addition noting that the assessee had not written back the said liability in its books of account and had admitted to the liability subsisting, accordingly the ld. CIT(A) held that assessee had not received any benefit by way of cessation or remission of liability and therefore the provisions u/s. 41(1) of the Act could not be invoked in the present case. He relied upon various decisions of the Jurisdictional High Court in this regard as mentioned in para 2.3 and 2.4 of his order. 5. Against the said order, the Revenue has come up in appeal raising the following grounds:- “1. That the Id. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.1,92,46,069/-u/s 41(1) of the I.T. Act. 1. 1 That the Id. CIT(A) has erred in law and on facts in not appreciating that during the year the assessee had failed to produce confirmations from these trade creditors to demonstrate that such liabilities still existed during the year and thereby the assessee had obtained benefit in respect of such liabilities by way of remission/cessation thereof. 1.2 That the Id. CIT(A) has failed to appreciate that the write off of liabilities in the books is not a accounting criterion for invoking the provisions of section 41(1) of the Act. 1.3 That the Id. CIT(A) has failed to appreciate that under similar circumstances, the Hon'ble Gujarat High Court in the case of Gujtron Electronics Pvt. Ltd. [2017] 83 taxmann.com 389 (Gujarat) has decided the issue in favour of the Revenue. 6. We have heard both the parties and perused the material on record. 7. The issue before us relates to addition made on account of cessation of liability, as per section 41(1) of the Act. It is relevant to understand and interpret the said section before proceeding to I.T.A No. 2256/Ahd/2017 A.Y. 2014-15 Page No ITO vs. M/s. Anand Infrastructure Pvt. Ltd. 4 adjudicate the issue before us. Section 41(1) is reproduced hereunder:- “41. (1) 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 (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 other 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 deemed 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 year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.” 8. As is evident from a literal reading of the section, if any expenditure, loss or trading liability is claimed as a deduction or allowance and subsequently the assessee obtains back any amount relating to the same in cash or otherwise or obtains any benefit on account of remission or cessation of the liability, it is treated as income of the assessee, in the nature of profits and gains of business or profession. The prerequisites for deeming income by invoking section 41(1) of the Act therefore are:- 1) the assessee should have claimed deduction or allowance on account of an expenditure, loss or trading liability and, 2) subsequently any amount on account of the same is received back in cash or any other manner or the trading liability is remitted or ceases to exist. I.T.A No. 2256/Ahd/2017 A.Y. 2014-15 Page No ITO vs. M/s. Anand Infrastructure Pvt. Ltd. 5 9. So being the position of law vis a vis deeming income as per section 41(1) of the Act, we find that in the facts of the present case, the assessee does not fulfill the basic criteria of having earlier claimed any expenditure or allowance vis-à-vis the sundry creditors of Rs. 1.92 crores added back to its income as per the said section. 10. The submission by the assessee before the Assessing Officer, reiterated before the ld. CIT(A) also and which is reproduced at para 4 of the assessment order and para 2 of CIT(A)’s order, is to the effect that the expenditure relating to purchase of construction material, to which the impugned creditors relate, only resulted in work in progress in its business of construction of residential and commercial units and that it had not sold off any unit till the impugned assessment year, its sales commencing only in the subsequent assessment year onwards. The reply of the assessee before the Assessing Officer dated 24-06- 2016 reproduced in para 4 of the assessment order is as under:- "It is submitted that the assessee is carrying business of construction of residential and commercial units and has made large purchased of construction material including Sands, bricks, steel wooded frames and various construction material during the year and therefore, there remain the creditors for such purchases. However, entire purchases have resulted in the construction work in progress at the end of the year and the units have become ready for sale in the consequent year. So, there is no corresponding sale in the year but the effective sale of the units had take place in the F.Y.2014-15 onwards. During the year, there is an increase in the creditors by Rs.66,97,678/-there is corresponding increase in the value of inventories, being W WIP by Rs.3,43,67,618/- which is much more that the increase in the creditors during the year.” 11. The expenditure relating to the impugned creditors resulting only in work in progress and no sales having been made by the assessee, I.T.A No. 2256/Ahd/2017 A.Y. 2014-15 Page No ITO vs. M/s. Anand Infrastructure Pvt. Ltd. 6 surely the same has not resulted in any claim by way of expenditure made by the assessee in its assessment for the years to which it relates, being accumulated in work in progress account only. 12. The aforesaid facts were not disputed by the Ld. DR before us who also fairly admitted that no expenditure had been claimed by the assessee relating to the impugned creditors in view of the said facts. 13. Having said so, there arises no question of invoking the provision of section 41(1) of the Act in the present case at all since it fails to fulfill the basic criteria enunciated in the said section. Therefore, for this reason alone, the addition made u/s. 41(1) by the Assessing Officer deserves to be set aside and order of the Ld.CIT(A) be upheld. 14. Ld. D R relied upon various decisions before us to counter the findings of the Ld.CIT(A) which we find are of no consequence since we have deleted the addition on a different premise as opposed to that by the Ld.CIT(A). The Ld.CIT(A) had held that since the liability was admitted by the assessee and not written back in its books also it could not be treated as cessation of liability. On the other hand, we have deleted the addition finding that the basic condition of an expense or allowance having been claimed by the assessee on account of the said liability was not there in the present case. The case laws relied upon by the Ld. D.R. therefore are of no assistance. I.T.A No. 2256/Ahd/2017 A.Y. 2014-15 Page No ITO vs. M/s. Anand Infrastructure Pvt. Ltd. 7 15. In view of the above we uphold the order of the Ld. CIT(A) deleting the addition made to the income of the assessee u/s 41(1) of the Act amounting to Rs.1.92 crores. 16. The appeal of the Revenue is accordingly dismissed. Order pronounced in the open court on 02-12-2021 Sd/- Sd/- (RAJPAL YADAV) (ANNAPURNA GUPTA) VICE PRESIDENT ACCOUNTANT MEMBER Ahmedabad : Dated 02/12/2021 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद