Raunika Fashion, New Delhi V. ITO WARD 21(1), New Delhi

ITA 2311/DEL/2019

AI Insights

Raunika Fashion Pvt. Ltd. appealed against the order of the Commissioner of Income Tax (Appeals)-VII, New Delhi, which arose from the assessment order passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 for the Assessment Year 2015-16. The primary contention was regarding the additions made under Section 41(1) amounting to Rs. 69,59,056 due to alleged cessation of liability. The Assessing Officer had concluded that the liabilities ceased to exist based on non-service of notice under Section 133(6) to the creditors. However, the Tribunal, referencing judgments from the Delhi and Gujarat High Courts, determined that the mere non-response to the notice and the longevity of the outstanding liabilities did not constitute cessation of liability as contemplated under Section 41(1).

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 121633 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 15-05-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 14-03-2019
• Other Referred Cases: Vardhman Overseas Ltd. vs. ACIT, Datta tray Poultry Breeding Farm P. Ltd. vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 2; 143(3); 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “F” DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A. No.2311/DEL/2019 Assessment Year 2015-16 Raunika Fashion Pvt. Ltd. J- 1906 LGF (Lower Ground Floor) CR Park New Delhi Vs. The Income Tax Officer Ward-21(1) New Delhi TAN/PAN: AADCR2715H (Appellant) (Respondent) Appellant by: None Respondent by: Shri Atiq Ahemad, Sr.DR Date of hearing: 16 05 2023 Date of pronouncement: 23 05 2023 O R D E R PER PRADIP KUMAR KEDIA, A.M.: T he capt ione d a ppeal has bee n file d by t he assess ee a gainst the or de r of t he l d. Commi ssion er of Income T a x (A ppe als )-V II, N ew D elhi ( ‘C IT (A )’ i n s hor t) da te d 23. 01. 2019 a rising fr om the assess me nt orde r dat ed 28. 12. 20 17 pass ed by th e Assessing O fficer (A O) unde r Sect ion 143(3) of t he Inc ome T ax A ct, 19 61 (t he Act ) co ncerning AY 2015-1 6. 2. A s per t he g rounds of ap peal, the assessee has cha l le nge d the a ddi ti ons ma de by t he A ssessi ng O ff ice r un der Section 41( 1) of t he A ct amount i ng t o R s.6 9, 59, 05 6/- o n a ccou nt of ce ssat ion of lia bilit y. 3. Br ie fl y stat ed, th e assessee e -filed its retu rn of income I.T.A. No.2311/Del/2019 2 decla ri ng total i nc ome at ‘Ni l’ a nd c lai me d l oss of Rs. 9, 27,2 39/ - for t he A ssess me nt Y ear 20 15-16 i n ques tion. T he asses s ment was fra me d unde r Se ct ion 143(3) o f t he A ct w he rei n t he Assessi ng O fficer inter alia allege d tha t fo ur parties appearing as sund ry cred it ors na me l y, Shr i Ra m H ari Ram Jew el lers, Shovan a Enterpris es, R oyal Sale s C orpora tion, Eks ara T rading Compa ny aggrega ting to 69, 59, 056/ - w e re o uts tanding for last th ree years. A noti ce is sue d under Sec t ion 1 33(6 ) to s uch credit ors to c onf ir m w het he r liabili t y s till exist ed or not but could not be s er ved. The assessee res po nde d to t he show ca use notice iss ued by the A O i n this regard and s ubmi tte d t ha t purch ases w ere ma de f rom the se pa rt ies a gains t bil l s and V AT s w ere cha rged and also partl y paid agains t thes e b il ls. A ll these bi lls a re from r egist ered V A T deale rs and p roper entries hav e been ma de in the books o f account in this re ga rd. C opie s o f bi lls of al l parties w ere als o presented be for e the Assess ing O f fi ce r for ve ri fica tion. T he as sessee f urt he r contend ed bef ore t he A ssess ing O ff icer t hat so me payme nts w ere ma de to these parti es b ut how ever due t o ongoing f inan ci al pro blem and lack of fund, the as sessee coul d not make full pa yme nt result i ng in outst andin g bala nces in the books of a ccount. The as sessee t hus contended be fore t he A ssess i ng O fficer that the lia bilit y e xisted i n the books of ac co unt a nd t he refor e provis ions of Secti on 41(1) ca nnot be i nvoked. T he A ssessing Of fi ce r how e ver ba sed on non se rvice of noti ce un der Sec tion 1 33(6 ) concl ud ed t hat th e lia bi lit y has ce ased to exis t. Provisi on of Sect ion 41 (1) w ere invoke d and the addit i ons we re ca rri ed out b y amount of Rs. 69, 59, 05 6/ -. 4. A gg rieve d b y t he addit i ons, t he as sessee preferred a ppe al be fore the C IT(A ). The C IT (A ) how eve r decl ined to give a ny I.T.A. No.2311/Del/2019 3 re li ef. 5. When th e matter w as cal le d for hearing, none appea re d for the ass essee. A ccordi ngl y, the matt er w as proce eded ex- par te. 6. T he l d. D R for t he Rev enue re lie d upon th e respect i ve o rders of t he lowe r authorit ies. 7. We have caref ul l y pe rus ed t he as sess ment ord er and the first appel late or de r and th e case reco rds w ith the assista nce of t he ld. D R for t he Rev en ue. T he applicabi lit y of Sec tion 41( 1) i n the facts of t he case is in contr ove rs y. 7. 1. T he ass essee in the ins tant case has cla i med th at th e l iabi lit y show n und er t he head ‘s un dry c re di tors’ aros e d ue to non pa yment but all t he c redi t ors / regis tered V A T deale rs h ad iss ue d tax invoices, a cop y of w hic h w as pla ce d be fore t he Assessi ng O fficer. The bo na fi des of the li abil it y th us cann ot be ef face d me re ly beca use of non res ponse t o the not ice u nder Secti on 133(6). The lo ngevi t y of t he ou ts tanding per se c annot be a gro und t o trea t such ou tst andi ng as c essa tio n of lia bi li t y contemplated unde r Sec t ion 41(1 ) of the A ct. In the bac kgr ound of suc h cla im of ass essee, t he a ppli ca bi li t y of Secti on 41(1) of the A ct on outs tan ding trading li abilit ie s as re fl ected in t he bala nce sheet has b een cal l ed i n quest io ns. 7. 2 Sect ion 41( 1) of the A ct s ta tes t hat w hen a llowanc es in res pect of an expend it ure or t rading l iabi lit y etc. is ma de in a yea r and t he ass essee o btai ns an y bene fi t, w het her i n cash or ot he rw ise in a s ubsequent year, s uch ben efit s hall be dee me d t o be prof its and gains of the bus iness in that s ubs eque nt yea r, w hether s uc h bus iness is in exis tence or n ot in the subs equent ye ar. T he Sect i on has the effec t of deeming such cessa tion or re mi ssion of lia bilit y I.T.A. No.2311/Del/2019 4 as i nco me i n depar tu re w ith t he ge ne ral law w here such re mi ssi on or cessat ion is no t treated as a n inc ome. 7. 3 Co mi ng t o t he fac ts, as e merges a bove from the cas e records, it i s the case of the as sesse e tha t t ra ding li abi lit ies of Rs. 69, 59,056/- cl aimed t o be pa yabl e t o se veral pa rt ies are subs is ting liabi li t y. D esp ite the observat ion o f the Assessing O fficer that such cred it ors could not be trace d on the a ddress gi ve n b y the asses see, it is inco rrect on t he pa rt of the Revenue t o concl ud e lia bil it y shown i n the bal a nce s he et t o be non ex is ti ng lia bilit y f or t he pur poses of Sect ion 41(1 ) o f the Act. It i s the content i on of the assessee befo re low er a ut horit ies that Sect ion 41( 1) can not be i nvoked where the assessee has no t w rit ten bac k these amounts i n the bo oks of accou nts. 7. 4 T he i ssue is s qu arel y co vered i n f avour of the assess ee by the j udgmen t of H on’ bl e D el hi High C ourt i n t he case of Vardhm an O verse as Ltd. , 343 ITR 40 8 (D el ) a nd D att at ray P oul try Breed in g Farm P . Ltd. vs. ACIT (201 9) 104 t axmann. com 366 (G uj. ). The Hon’bl e D el hi H igh C our t i n V ardhma n c as e i nt er a lia obs erve d that fo r i nvoca tion of Sec tion 41 (1), it is nec essa ry that the a ssesse e sh oul d ha ve rece i ved ‘s ome be ne fit’ w it h res pec t t o all such tradi ng lia bil it y. H ow ever, the be ne fit i n res pect of trad in g lia bi lit y should be ‘b y wa y of remis si on o r cessati on of the lia bilit y’. T he as sessee in t he ins tant cas e, has cont inue d t o reco gnize t he l ia bi lit y and one cannot sa y t ha t the lia bili ty i s not une nfo rc ea ble against the assessee w ith out i ts di scharge or re ve rsal. A mere f act of ex pir y of peri od o f li mitation to enforce it doe s not, b y its el f, cons titute cessat i on of lia bi li t y. T he H on’ble G ujara t H ig h Court i n t he cas e of D a tta tra y P oul tr y (su pra ) simi la rl y has ob se rv ed tha t w here t he exis te nce of l iabi l it y w as I.T.A. No.2311/Del/2019 5 doubte d, sa me cou ld have been disall ow ed i n t he year i n w hich it is c la i med or coul d hav e been treate d as unexp la ined c re di t in t hat re le vant yea r. T he H on ’ble G uj arat H igh C our t obs erved t hat w hile the assessee has co nti nu ed t o declare the trad in g l iab ili ty in its books of a ccou nt, no be ne fit can be sai d to ha ve been obtained in respect of s uch t rading li ab il i ty b y w a y of r emissi on or cessa ti on thereof a nd thus t he req uir ement of Se ction 4 1(1) are not sat isfied. G uided b y the obse rva tions i n the j udic ial pr ece dents, w e find me ri t in th e cas e of the as ses see for reversal of add it ions. The addi t ions ma de unde r Sec tion 41( 1) is thus set as ide and re ve rsed. 8. In the res ul t, the appeal of t he asses see is allow e d. Order pronounced in the open Court on 23/05/2023 Sd/- Sd/- [KUL BHARAT] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /05/2023 prabhat