1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI C BEN CH, NEW DELHI BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER SHRI N.K. BILLAIYA, ACCOUNTANT MEMBE R ITA NO. 2354/DEL/2017 [A.Y 2012-13] M/S HPL ADDITIVE LTD VS. THE DY. C.I.T 803, VISHAL BHAWAN, CIRCLE 11(2) 95, NEHRU PLACE, NEW DELHI NEW DELHI PAN: AAACH 0110 P (APPLICANT) ( RESPONDENT) ASSESSEE BY : SHRI MANISH K UMAR, ADV. DEPARTMENT BY : SHRI S.N. MEENA, SR. DR DATE OF HEARING : 19.12.2019 DATE OF PRONOUNCEMENT : 31.12.2019 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS] 18, NEW DELH I DATED 20.01.2017 PERTAINING TO ASSESSMENT YEAR 2012-13. 2 2. THE FIRST GRIEVANCE OF THE ASSESSEE RELATES TO T HE ADDITION OF RS. 4,17,252/- MADE BY THE ASSESSING OFFICER U/S 41(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT'] TR EATING THE OUTSTANDING AS CESSATION OF LIABILITY. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT D URING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS A SKED TO FURNISH COMPLETE DETAILS OF SUNDRY CREDITORS. THE ASSESSEE FURNISHED DETAILS OF SUNDRY CREDITORS WHICH WERE AS UNDER: NAME OF THE CREDITORS AMOUNT I ARIZONA CERAMICS 9768 ARUN AGENCIES 2277 ASIAN INTERNATIONAL 8594 BANSAL INSULATION & MICA HOU 3321 CALTEX LUBRICANTS INDIA LIMITED 1226 DIAMOND ELECTRICAL 1823 EGL - EAGLE GLOBAL LOGISTICS 110204 ERA TECH BUILDERS I LTD 119568 EXACTWAY WATER PROOF CO 9200 GENERAL COMPOSITES P LTD 7741 HARYANA INDL, SECURITY SERVICES 38812 JYOTI ELECTRICALS STORE 5927 RAVIKA ENGINEERS 4000 3 RICOH INDIA LTD. 2236 SLICE & CHILLING PLANT , 1500 SONA INDUSTRIAL CORP 8394 SUPERIOR CONTRACTORS 31618 TRANSADUCERS AND CONTROLS P VT LTD. 14402 VISHWAKARMA PATTERN WORKS 3000 ABBOTT AIR SYSTEMS 1470 AGARWAL AGENCIES 1152 ARYA DECORATIVE 1147 B.G. FASHIONERS 3780 BANSAL PLYWOOD HOUSE 2465 C.C. VALVES MFG. CO. PVT LTD. 20376 CHANDIGARH BEARING 8 B MILLS 3251 TOTAL IT! F! IF 1 I !' ' JT 1; 417252 4. AFTER PERUSING THE DETAILS, THE ASSESSING OFFICE R NOTICED THAT THE AFOREMENTIONED CREDITORS WERE STATIC SINCE LONG. T HE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THESE CREDITORS BE NO T TREATED AS CEASED LIABILITY AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE U/S 41(1) OF THE ACT. 4 5. IN ITS REPLY, THE ASSESSEE STATED THAT IT IS UND ER DISCUSSION WITH THE PARTIES TO SORT OUT DIFFERENCES WHICH AROSE ON ACCOUNT OF SHORT SUPPLY AND DEFECTIVE GOODS AND AS THE LIABILITY OF THE ASSESSEE TO PAY HAS NOT CEASED TO EXIST, THE SAME CANNOT BE TREATED AS CESSATION OF LIABILITY U/S 41(1) OF THE ACT. 6. THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE ASSESSING OFFICER WHO MADE THE ADDITION OF RS. 4,17 ,252/- U/S 41(1) OF THE ACT. 7. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BUT WITHOUT ANY SUCCESS. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHE MENTLY STATED THAT MERELY BECAUSE THE CREDITORS ARE OUTSTANDING F OR THE PAST THREE YEARS CANNOT BE A GROUND TO TREAT THE LIABILITY OF THE ASSESSEE AS CEASED. 9. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE FI NDINGS OF THE LOWER AUTHORITIES. 5 10. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. IT IS NOT IN DISPUTE THAT THE C REDITORS WERE OUTSTANDING FOR MORE THAN THREE YEARS. IN OUR CONS IDERED OPINION, MERELY BECAUSE THE PERIOD OF LIMITATION PRESCRIBED UNDER THE LIMITATION ACT HAS EXPIRED, WOULD NOT EXTINGUISH TH E DEBT. FOR THIS PROPOSITION, WE DRAW SUPPORT FROM THE DECISION OF T HE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS P. LTD 236 ITR 518 HAS HELD AS UNDER: 'THE ASSESSEE HAD OBTAINED, WHETHER IN CASH OR IN A NY OTHER MANNER WHATSOEVER ANY AMOUNT IN RESPECT OF SUCH LOS S OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT O BTAINED BY HIM'. THUS, THE SECTION CONTEMPLATES THE OBTAINING BY THE ASSESSEE OF AN AMOUNT EITHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER OR A BENEFIT BY WAY OF REMISSION OR CESSATION AND IT SHO ULD BE OF A PARTICULAR AMOUNT OBTAINED BY HIM. THUS, THE OBTAIN ING BY THE ASSESSEE OF A BENEFIT BY VIRTUE OF REMISSION OR CES SATION IS SINE QUA NON FOR THE APPLICATION OF THIS SECTION. THE MERE F ACT THAT THE ASSESS HAS MADE AN ENTRY OF TRANSFER IN HIS ACCOUNT S UNILATERALLY WILL NOT ENABLE THE DEPART-MENT TO SAY THAT SECTION 41 WOULD APPLY AND THE AMOUNT SHOULD BE INCLUDED IN THE TOTAL INCO ME OF THE ASSESSEE. 6 THE PRINCIPLE THAT EXPIRY OF PERIOD OF LIMITATION P RESCRIBED UNDER THE LIMITATION ACT COULD NOT EXTINGUISH THE DEBT BUT IT WOULD ONLY PREVENT THE CREDITOR FROM ENFORCING THE DEBT, HAS B EEN WELL SETTLED. IF THAT PRINCIPLE IS APPLIED, IT IS CLEAR THAT MERE ENTRY IN THE BOOKS OF ACCOUNTS OF THE DEBTOR MADE UNILATERAL LY WITHOUT ANY ACT ON THE PART OF THE CREDITOR WILL NOT ENABLE THE DEBTOR TO SAY THAT THE LIABILITY HAS COME TO AN END. APART FROM T HAT, THAT WILL NOT BY ITSELF CONFER ANY BENEFIT ON THE DEBTOR AS CONTE MPLATED BY THE SECTION. 11. AS THE LIABILITY STILL EXISTS IN THE BALANCE O F THE ASSESSEE, ADDITIONS MADE U/S 41(1) OF THE ACT ARE UNWARRANTED AND DESERVE TO BE DELETED TO BE DELETED IN THE LIGHT OF RATIO LAID DO WN BY THE HON'BLE SUPREME COURT [SUPRA]. THE ASSESSING OFFICER IS DI RECTED TO DELETE THE ADDITION OF RS. 4,17,252/-. GROUND NOS. 1 TO 3 ARE ALLOWED. 12. NEXT SUBSTANTIVE GRIEVANCE RELATES TO THE ADDIT ION OF RS. 3 LAKHS OUT OF TOTAL ADVERTISEMENT AND MARKETING EXPENSES O F RS. 1,19,49,371/-. 13. THE UNDERLYING FACTS IN THIS ISSUE ARE THAT THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF ADVERTISEMENT AND MARKETI NG EXPENSES AND TO PRODUCE BOOKS OF ACCOUNT ALONGWITH SUPPORTING DOCUM ENTS AND VOUCHERS. 7 14. ON PERUSING THE DETAILS FURNISHED BY THE ASSESS EE, THE ASSESSING OFFICER FOUND THAT SOME OF THE EXPENSES WERE PAID I N CASH AND IN RESPECT OF SOME OTHER EXPENSES, BILLS/VOUCHERS WERE NOT PROPERLY MAINTAINED BY THE ASSESSEE. THE ASSESSING OFFICER, ACCORDINGLY, MADE ADDITION OF RS. 3 LAKHS. 15. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 16. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT CASH PAYMENT S VIOLATED THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE LD. C OUNSEL FOR THE ASSESSEE FURTHER STATED THAT SOME OF THE EXPENSES W HICH WERE NOT SUPPORTED BY BILLS WERE SUPPORTED BY INTERNAL VOUCH ERS. 17. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE ASSESSING OFFICER. 18. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. IT IS TRUE THAT THERE IS NO VIOL ATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT. MERELY BECAUSE SOME PAY MENTS WERE MADE 8 IN CASH WOULD NOT JUSTIFY THE IMPUGNED ADDITION. I T IS EQUALLY TRUE THAT SOME OF THE EXPENSES WERE SUPPORTED BY INTERNAL VOU CHERS. IN OUR CONSIDERED OPINION, AN ADDITION OF RS. 1 LAKH WOULD MEET THE ENDS OF JUSTICE. WE, ACCORDINGLY, DIRECT THE ASSESSING OFF ICER TO RESTRICT THE DISALLOWANCE TO RS. 1 LAKHS. THE ASSESSEE WILL GET RELIEF OF RS. 2 LAKHS. GROUND NOS. 4 TO 6 ARE PARTLY ALLOWED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO. 2354/DEL/2017 IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31.12. 2019. SD/- SD/- [SUSHMA CHOWLA ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31 ST DECEMBER, 2019 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 9 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER