INCOME TAX OFFICER, WARD-12(2)(1), MUMBAI V. F A INFRAPROJECTS LIMITED, MUMBAI

ITA 2739/MUM/2022

AI Insights

The case involves the Income Tax Officer Ward 12(2)(1), Mumbai as the appellant and FA Infraprojects Limited as the respondent. The dispute arose from the assessment order for the year 2012-13, where the Assessing Officer added \\u20b9;8,46,87,207/- to the assessee's income under Section 41(1) of the Income Tax Act, claiming cessation of liability, and disallowed \\u20b9;1,50,000/- from expenses on an ad hoc basis. The CIT (A) reversed these additions, leading to the Department's appeal. The Tribunal supported the CIT (A)'s decision, emphasizing the continuous nature of business transactions and the lack of evidence for cessation of liabilities.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299282 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 08-02-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 20-10-2022
• Other Referred Cases: Principal Commissioner of Income-tax Vs Batliboi Environmental Engineering Ltd., Principal Commissioner of Income Tax-6 V New World Synthetics Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAMESH B JOSHI
• Keywords: Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI KULDIP SINGH, JM ITA No.2739/MUM/2022 (Assessment Year: 2012-13) Incom e T ax Of f icer W ard 12(2)(1 ) Room No.147B, 1 st Floor, Aaykar Bha van , Church gate, Mum b ai-400 020 Vs. FA Infraprojects Limited Plot No.112, 1 st Floor, TPS III, 6 th Road, Khar (West) Mumbai-400 052 (Appellant) (Respondent) PAN No. AABCF3996Q Assessee by : Ramesh B Joshi, AR Revenue by : Vranda U Matkarni, DR Date of hearing: 09.02.2023 Date of pronouncement : 22.02.2023 O R D E R PER PRASHANT MAHARISHI, AM: 01. This appeal is filed by Income Tax Officer-12(2) (1), Mumbai (the learned Assessing Officer) for A.Y. 2012-13 against the appellate order passed by the National Faceless Appeal Centre, Delhi [the learned CIT (A)] dated 29 th August, 2018, wherein the appeal filed by the assessee against the assessment order dated 26 th March, 2015, passed under Section 143(3) of the Income tax Act [ the Act] by the learned Assessing Officer was allowed. 02. The learned Assessing Officer is aggrieved with the deletion of the addition of ₹8,46,87,207/- under Section Page | 2 ITA No. 2739/Mum/2022 F.A. Infraprojects Limited; A.Y.12-13 41(1) of the Act and further the deletion of disallowance of ₹1,50,000/- out of the expenses claimed on ad hoc basis. 03. The fact shows that assessee is a company engaged in providing civil work as a sub-contractor, filed its return of income on 29 th September, 2012 at a total income of ₹11,93,940/-. The return was selected for scrutiny. The learned Assessing Officer noted from the balance sheet that assessee has trade payable amounting to ₹8,46,87,207/-. The assessee was asked to submit the confirmation. The assessee could not produce the confirmation and therefore, a show cause notice was issued to make the above addition. Assessee submitted that the above account of the creditors is running business cycle and further submitted sales receipt, running account bills, etc., submitted by those parties and against which the assessee has received payment. It was also stated that there is no cessation of liability in view of continuing operations with the party. The learned Assessing Officer rejected the contention of the assessee and held that Provisions of Section 41(1) of the Act are attracted, and trading liability of the assessee is added back on account of its cessation. Addition of ₹8,46,87,207/- was made. 04. The learned Assessing Officer also found that assessee has debited direct expenses of ₹3.37 crores against sales of ₹3.69 crores. It was noticed by him that there are small payments which are not properly vouched and some of the vouchers were missing, therefore, an ad hoc disallowance of ₹1.50 lacs was made. The assessment order under Page | 3 ITA No. 2739/Mum/2022 F.A. Infraprojects Limited; A.Y.12-13 Section 143(3) of the Act was passed, determining the total income of the assessee at ₹8,60,31,047/-, vide order dated 26 th March 2015. 05. The assessee preferred the appeal against the assessment order before the learned CIT (A). With respect to the addition under Section 41(1) of the Act, the learned CIT (A) held that though the learned Assessing Officer has made the additions but the assessee provided explanation during the assessment proceedings that the accounts of the creditors was a running account when there was a opening balance payable to a person as added by the further amounts payable for the work done as reduced by the amounts paid leaving a sum outstanding at the year end, the same cycle repeats year to year. Accordingly, the liability payable to laborers is paid continuously and the question of cessation of liability does not arise. Accordingly, he held that the addition made by the learned Assessing Officer is on mis-appreciation of facts. Thus, the addition was deleted. 06. With respect to the ad hoc disallowance of ₹1,50,000/-, the learned CIT (A) held that the ad hoc disallowance in case of a company is not valid, proper and legal. He held that the amount of disallowance being only an estimate and that too without any basis cannot be confirmed. Hence, he deleted the same. The appellate order is challenged by the learned Assessing Officer in this appeal. 07. The learned Departmental Representative supported the order of the learned Assessing Officer. The learned Page | 4 ITA No. 2739/Mum/2022 F.A. Infraprojects Limited; A.Y.12-13 Assessing Officer also submitted a paper book containing 99 pages. The learned Departmental Representative also mentioned though in the form of additional ground, but which is merely additional argument that the learned CIT (A) deleted the addition merely on the basis of statement of facts. The learned Departmental Representative also submitted that provision of Section 41(1) of the Act squarely applies to the facts of the case because the assessee has failed to prove with documentary evidence about the liability. 08. The learned Authorized Representative vehemently supported the order of the learned CIT (A) as well as the provisions of the law. 09. We have carefully considered the rival contentions and the orders of the lower authorities. The fact shows that assessee is a company carrying on the contract business of civil work by sub contractor and available labour. When questioned during assessment proceedings, the assessee submitted that as per the nature of business the work is carried out at different locations. As the assessee is a contractor, if there is a delay in payment of dues by theprincipal to the assessee naturally results in delay in payment of the creditors of the assessee. The amount payable to the creditors is outstanding at the end of the year, the bills or the payments made are also adjusted and further the closing balance becomes a running cycle. A continuous payment is made to these parties. Assessee is assessed under Section 143(3) of the Act for A.Y. 2010- Page | 5 ITA No. 2739/Mum/2022 F.A. Infraprojects Limited; A.Y.12-13 11 on 5 th March 2013, for A.Y. 2011-12 on 25 th February, 2014 and for both these years, wherever the liabilities has arisen, there is no finding that these liabilities are not existing. The provision of Section 41(1) of the Act provides that where assessee has obtained any benefit in respect of trading liability by way of remission or cessation same is taxable in the hands of the assessee in the year of cessation. The above liabilities are outstanding in the balance sheet of the assessee. They have not been written back by the assessee nor there isany evidence that these liabilities have been waived by the creditors. These liabilities are existing in the books of the assessee as payable. The learned CIT (A) has categorically held that there is no evidence of cessation of this liability and therefore, addition under Section 41(1) of the Act is not sustainable. We also find that there is no evidence that the liability for payment of the above sum has ceased. This is also so because the assessee being assessed under Section 143(3) of the Act in earlier years, no such addition on account of current balances of Sundry Creditors was made. It is also not shown that any of the liability is non existing. 010. In Principal Commissioner of Income-tax Vs Batliboi Environmental Engineering Ltd.[2022] 446 ITR 238 (Bomb) it is held that :- “5. As regards second question of law is concerned, it was argued by the Appellant- Revenue that since the Respondent-Assessee had around 25 creditors whose Page | 6 ITA No. 2739/Mum/2022 F.A. Infraprojects Limited; A.Y.12-13 payments were outstanding for more than three years and some transactions which are eight to nine years old, the same were barred by the provisions of the Limitation Act, 1963 and, therefore, they will have to be treated as Assessee's income and to be added under section 41(1) of the Income-tax Act. This issue has been dealt with by both the Commissioner (Appeals) and the Tribunal relying upon the decision of the Gujarat High Court in the case of CIT v. G.K. Patel & Co. [2013] 29 taxmann.com 248/212 Taxman 384 and the decision of the Delhi High Court in the case of CIT v. Jain Exports (P.) Ltd. [2013] 35 taxmann.com 540/217 Taxman 54 (Mag.). 6. The Delhi High Court in the case of Jain Exports (P.) Ltd. (supra) has relied upon the decisions of the Supreme Court in the case of Bombay Dyeing and Manufacturing Co. Ltd. v. State of Bombay AIR 1958 SC 328 and CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 102 Taxman 713/236 ITR 518. In Sugauli Sugar Works (P.) Ltd. (supra), the Supreme Court has referred to the decision of the Division Bench of this Court in the case of Kohinoor Mills Co. Ltd. v. CIT [1963] 49 ITR 578. The Delhi High Court, after following these decisions concluded that merely because the liability is barred by limitation, it does not cease to be a debt. This view is also taken by this Court in the case of CIT v. Indian Rayon and Industries Ltd. [2011] 336 ITR 479. Therefore, the submission made by the Appellant that because the liability is barred by the period of limitation the same would be treated as income and added under section 41(1) of the Act cannot be Page | 7 ITA No. 2739/Mum/2022 F.A. Infraprojects Limited; A.Y.12-13 accepted as no other decision contrary to the above is shown to us. Thus, the second question of law does not survive for consideration.” 011. In Principal Commissioner of Income Tax-6 V New World Synthetics Ltd[2018] 97 taxmann.com 399 (Delhi) it is held thatNon-payment of outstanding liability which is admitted and acknowledged as due and payable by an assessee does not indicate remission or cessation of liability. 012. In view of the above facts, we do not find any infirmity in the order of the learned CIT (A) in deleting the addition of ₹8,46,87,207/- under Section 41(1) of the Act. Ground no 1 of appeal is dismissed. 013. Ground no.2 is with respect to the disallowance on adhoc amount out of direct expenses claimed. The learned CIT (A) has categorically held that there is no reason to uphold the addition because it was merely an estimate and that toowithout any basis. The learned Departmental Representative submitted that in the assessment proceedings for earlier years, identical disallowance should be upheld. We find that in the earlier years this was the only dispute and same was not challenged before any appellate authority. In the present year, the learned CIT (A) held that all the details of expenses were provided to the learned Assessing Officer. If the learned Assessing Officer was of the view that some of the vouchers are missing, the amount of addition should have been made of the same amount. Further, merely due to smallness of Page | 8 ITA No. 2739/Mum/2022 F.A. Infraprojects Limited; A.Y.12-13 amount cannot result into any disallowance. Therefore, we do not find any infirmity in the order of the learned CIT (A) in deleting the disallowance of ₹1,50,000/- out of the expenses. In the result, the order of the learned CIT (A) is confirmed. 014. In the result, on both counts, the order of the learned CIT (A) is upheld, and the appeal of the learned Assessing Officer is dismissed. Order pronounced in the open court on 22.02.2023. Sd/- Sd/- (KULDIP SINGH) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated:22.02.2023 Sudip Sarkar, Sr.PS Page | 9 ITA No. 2739/Mum/2022 F.A. Infraprojects Limited; A.Y.12-13 Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai