NRC LTD, MUMBAI V. ASST (OSD) CIR 2(2), MUMBAI

ITA 2508/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0793 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 02-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Revised return
• Section: 68

Judgement Text

, H INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H,BENCH , , BEFORE S/SH. JOGINDER SING H,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 2508 //MUM/2013, / ASSESSMENT YEAR - 2009 - 10 NRC LIMITED EWART HOUSE, 2 ND FLOOR HM STREET, FORT MUMBAI - 400 020. PAN:AAACN 1616 J VS DCIT - CIRCLE - 2(2) AA YAKAR BHAVAN, MK ROAD MUMBAI - 400 020 ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI M.C. NANIWADEKAR / REVENUE B Y :SHRI ASGAR ZAIN - SR. A R / DATE OF HEARING : 06 - 07 - 2015 / DATE OF PRONOUNCEMENT : 06 - 07 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 31.12.2012 OF THE CIT(A) - 5,MUMBAI,THE ASSESSEE HAS RAISED FOLLOW ING GROUNDS OF APPEAL: A 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE 5% DISALLOWANCE ON ACCOUNT OF SUNDRY CREDITORS U/S 41 (1) RS. 5,02,28,6001 - ON ESTIMA TED BASIS 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS IGNORED THE FACT THAT PAYMENT WAS NOT MADE TO THE CREDITORS AS APPELLANT COMPANY IS FINALIZING THE SCHEME OF REHABILITATION AS INSTRUCTED BY THE BIFR AND PAYMENT WILL BE MADE TO ALL ELIGIBLE PARTIES AS PER THE SCHEME. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE FACT THAT APPELLANT HAS NOT WRITTEN BACK SUNDRY CREDITORS AND THE SAME ARE PART OF BALANCE SHEET AND MERELY BECAUSE SOME CREDITORS AR E MORE THAN 3 YEARS OLD. IT CAN NOT BE ASSUMED THAT THEY ARE NOT PAYABLE. B. THE REASONS ASSIGNED FOR SUSTAINING THE ADDITIONS 1 DISALLOWANCE ARE WRONG, INSUFFICIENT, AND CONTRARY TO LAW AND FACTS. C. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY OF THE ABOVE GROUNDS OF APPEALS. ASSESSEE - COMPANY,ENGAGED IN THE BUSINESS OF MANUFACTURING MANMADE FIBERS ETC.,FILED HIS RETURN OF INCOME ON 29.9.2008.LATER ON A REVISED RETURN WAS FILED ON 04.08.2010 DECLARING INCOME OF RS.( - )1,03,96,50, 605 / - . THE ASSESSING OFFICER ( AO ) COMPLETED THE ASS ESSMEN T O N 22.12.201. U/S. 143 (3) OF THE ACT, DETERMINING THE INCOME OF THE ASSESSEE AT ( - )91,55,87,041/ - . 2. THE EFFECTIVE GROUND OF APPEAL IS ABOUT .DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT T HE ASSESSEE HAD SHOWN SUNDRY CREDITORS TO THE TUNE OF RS.1,11,61,91,000/ - IN RESPECT OF PURCHASE MADE. HE DIRECTED THE ASSESSEE TO FURNISH CONFIRMATION/DETAILS IN RESPECT OF SUNDRY CREDITORS.VIDE IT A NO 2508 /M/13 NRC ( 09 - 10 ) 2 ITS LETTER DATED 16.11.2011 THE ASSESSEE STATED THAT NET WOR TH OF THE COMPANY HAD ERODED,THAT IT FILED A REFERENCE BEFORE THE BIFR UNDER SICA,1985,THAT THE BIFR HAD DECLARED THE COMPANY A SICK INDUSTRIAL COMPANY,THAT PNB WAS APPOINTED OPERATING AGENCY TO IMPLEMENT REHABILITATION BY THE BIFR,THAT IT WAS UNDER LOCKOU T SINCE NOVEMBER,2009,THAT THE CREDITORS WERE LYING IN THE BALANCE SHEET FOR MORE THAN THREE YEARS,THAT NO PAYMENT WAS MADE TILL THAT TIME.AFTER CONSIDERING THE REPLY THE AO DISALLOWED 10% OF THE SUNDRY CREDITORS,U/S.41(1)OF THE ACT,AMOUNTING TO RS. 11.16 CRORES. 3. IN THE APPELLATE PROCEEDINGS,BEFORE THE FIRST APPELLATE AUTHORITY(FAA)THE ASSESSEE FILED SUMMARY OF THE CREDITORS WHO HAD FILED APPLICATIONS BEFORE THE BIFR OR HAD FILED WINDING UP PETITIONS OR WHO WERE NORMAL CREDITORS.THE FAA,AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,HELD THAT THE ASSESSEE HAD FILED DETAILS ABOUT THE CREDITORS OF RS.17.18 CRORES OUT OF THE TOTAL CREDITORS OF RS.111.61 CRORES,THAT THE ACCOUNTS WERE AUDITED,THAT THE ASSESSEE WAS BEFORE THE BIFR,THAT TO PROTECT THE INTERES T OF REVENUE FOR POSSIBLE LEAKAGE DISALLOWANCE SHOULD BE RESTRICTED TO 5% OF THE BALANCE SUNDRY CREDITORS OF RS.100,45,72,000/ - .HE UPHELD THE ADDITION OF RS.5.02 CRORES. 4. BEFORE US, ARGUED THAT THE ASSESSEE HAD APPROACHED THE BIFR,THAT PENDENCY OF LITIGA TION PROVED THAT THE CREDITORS WERE INSISTING ON REPAYMENT,THAT NO ADDITION ON AD HOC BASE COULD BE MADE U/S.41(1) OF THE ACT,THAT APPEARANCE OF THE CREDITORS IN THE BALANCE SHEET IN ITSELF WAS THE PROOF THAT THE ASSESSEE HAD TO MAKE PAYMENTS TO THOSE PART IES AND THEY HAVE NOT WRITTEN OFF THE AMOUNTS IN QUESTION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD MADE A DISALLOWANCE @10% OF THE CREDITORS AND SAME WAS REDUCED TO 5% BY THE FAA.THE FAA HAD REDUCED IT TO PROTECT THE INTEREST OF THE REVENUE FOR POSSIBLE LEAKAGE.WE ARE UNABLE TO UNDERSTAND AS TO WHAT DOES THE FAA MEAN BY POSSIBLE LEAKAGE.FACTS OF THE CASE LIKE COMPANY APPROACHING THE BIFR AND APPOINTMENT OF PNB AS IMPLEMENTER OF REHABILITATION PROGRAM ME WERE KNOWN TO HIM.EVEN THEN HE UPHELD THE AD - HOC DISALLOWANCE.TAXATION LAW ARE VERY CLEAR ABOUT THIS ISSUE - COURTS HAVE HELD THAT W HERE AMOUNTS REPRESENT TIME - BARRED TRA DING LIABILITY OF THE ASSESSEE, THERE IS NEITHER REMISSION NOR CESSATION OF THE TRADIN G LIABILITY INASMUCH AS THE LAW OF LIMITATION MERELY BARS THE REMEDY BUT DOES NOT WIPE OUT THE LIABILITY.IT HAS BEEN FURTHER HELD THAT IN SUCH CASES THERE WAS NEITHER REMISSION NOR CESSATION OF THE TRADING LIABILITY OF THE ASSESSEE, SINCE THERE IS NEITHER ANY UNILATERAL ACT OF THE CREDITOR AMOUNTING TO REMISSION NOR ANY BILATERAL ACT OF THE PARTIES RESULTING IN THE LIABILITY CEASING TO EXIST IN LAW, MERELY BECAUSE THE RECOVERY OF THE SAME HAS BECOME TIME BARRED.HERE,WE WOULD LIKE TO REFER TO THE CASE OF SHR I VARDHMAN O VERSEAS L TD.( 343 ITR 408 ) DELIVERED BY THE HONBLE DELHI HIGH COURT .IN THAT MATTER I N THE COURSE OF ASSESSMENT PROCEEDINGS FOR 2002 - 03, THE AO DISCOVERED CERTAIN CREDITS. HE HELD THAT THE CREDITORS WERE NOT GENUINE AND THERE WAS NO GENUINE OUTSTAN DING IN THEIR ACCOUNTS. HE ACCORDINGLY ADDED RS. 1,25,46,534 WHICH REPRESENTED THE CREDIT BALANCES IN THE ACCOUNTS OF NINE PARTIES. HE SPECIFICALLY NOTED THAT THE AMOUNTS WERE BEING TREATED AS UNEXPLAINED CREDITS IN THE IT A NO 2508 /M/13 NRC ( 09 - 10 ) 3 BOOKS OF ACCO UNT UNDER SECTION 68 OF THE ACT, SINCE THE LIABILITIES W ERE NOT PROVED BY THE ASSESSEE. THE FAA HELD THAT THE LIABILITIES HAD CEASED TO EXIST AND, THEREFORE, THE ADDITION OF RS. 1,25,46,534 MADE BY THE AO WAS JUSTIFIED AND CONFIRMED IT UNDER SECTION 41(1) .IN THE APPELLATE PROCEEDING S,T HE TRIBUNAL HELD THAT THE APPLICABILITY OF SECTION 68 WAS RULED OUT SINCE NO FRESH AMOUNTS WERE CREDITED IN THE ACCOUNTS OF THE CREDITORS UNDER CONSIDERATION DURING THE RELEVANT ACCOUNTING YEAR. IT ALSO HELD THAT THERE WAS NO CESSATION OF LIABILITY AND HENCE SECTION 41(1) WAS NOT APPLICABLE . ON APPEAL TO THE HIGH COURT IT HELD AS UNDER: . THE ASSESSEE HAD NOT UNILATERALLY WRITTEN BACK THE ACCOUNTS OF THE SUNDRY CREDITORS IN ITS PROFIT AND LOSS ACCOUNT. THE LIABILITY WAS SHOWN IN THE BALANCE - SHEET AS ON MARCH 31, 2002. THE ASSESSEE BEING A LIMITED COMPANY, THIS AMOUNTED TO ACKNOWLEDGING THE DEBT IN FAVOUR OF THE CREDITORS FOR PURPOSES OF SECTION 18 OF THE LIMITATION ACT, 1963. THE ASSESSEES LIABILITY TO THE CREDITORS, THUS, SUBSISTED AND DID NOT CEASE N OR WAS IT REMITTED BY THE CREDITORS. THE LIABILITY WAS ENFORCEABLE IN A COURT OF LAW. THE AMOUNT WAS NOT ASSESSABLE UND ER SECTION 41(1). SECTION 41(1) OF THE INCOME - TAX ACT, 1961, SPECIFICALLY DEALS WITH AMOUNTS THAT WERE ALLOWED AS DEDUCTION IN PAST ASSE SSMENTS AS TRADING LIABILITIES, WHICH IN A LATER YEAR CEASE OR ARE REMITTED BY THE CREDITORS. IF AND WHEN THERE IS EVIDENCE IN A PARTICULAR LATER YEAR TO SHOW THAT THE LIABILITY HAS CEASED OR HAS BEEN REMITTED, IT CAN BE BROUGHT TO TAX. IN ORDER TO INVOKE THE SECTION, IT MUST BE FIRST ESTABLISHED THAT THE ASSESSEE HAD OBTAINED SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY WHICH WAS EARLIER ALLOWED AS A DEDUCTION. IT IS NOT ENOUGH THAT THE ASSESSEE DERIVES SOME BENEFIT IN RESPECT OF SUCH TRADING LIABI - LIT Y, BUT IT IS ALSO ESSENTIAL THAT SUCH BENEFIT ARISES BY WAY OF REMISSION OR CESSATION OF THE LIABILITY. THE WORDS REMISSION AND CESSATION ARE LEGAL TERMS AND HAVE TO BE INTERPRETED ACCORDINGLY. IN CIT V. SUGAULI SUGAR WORKS P. LTD. [1999] 236 ITR 518 IT WAS HELD BY THE SUPREME COURT THAT A UNILATERAL ACTION CANNOT BRING ABOUT A CESSATION OR REMISSION OF THE LIABILITY BECAUSE A REMISSION CAN BE GRANTED ONLY BY THE CREDITOR AND A CESSATION OF THE LIABILITY CAN ONLY OCCUR EITHER BY REASON OF OPERATION OF LAW OR THE DEBTOR UNEQUIVOCALLY DECLARING HIS INTENTION NOT TO HONOUR HIS LIABILITY WHEN PAYMENT IS DEMANDED BY THE CREDITOR, OR BY A CONTRACT BETWEEN THE PARTIES, OR BY DISCHARGE OF THE DEBT. IN OUR OPINION,T HERE WAS NO AMBIGUITY REGARDING TIME BARRING CREDITORS.IN THESE CIRCUMSTANCES, WE CANNOT ENDORSE THE VIEWS OF THE FAA.REVERSING HIS ORDER,WE DECIDE THE EFFECTIVE GROUND IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH ,JULY,2015. 6 , 2015 SD/ - SD/ - ( / JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 06 .07.2015 . . . JV . SR.PS. IT A NO 2508 /M/13 NRC ( 09 - 10 ) 4 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.