Supriya Textile Industries, Surat V. The Income tax Officer,Ward-2(3), Surat

ITA 3228/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6281 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 06-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SOURYAVANSHI
• Keywords: Depreciation; Additional depreciation

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI D. K. TYAGI, JM AND D.C.AGRAWAL, AM M/S SUPRIYA TEXTILES INDUSTRIES, 101, CALCUTTA CHAMBERS, ZAMPA BAZAR, SURAT. VS. INCOME-TAX OFFICER, WARD 2(3), SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SMT. URVASHI SHODHAN, AR RESPONDENT BY:- SHRI G. S. SOURYAVANSHI, SR.DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS:- (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING DISALLOWANCES OF RS.6,72,339/- BY AO U/S 41(1) OF T HE ACT. BOTH THE LOWER AUTHORITIES HAVE FAILED TO TAKE COGN IZANCE OF THE FACT THAT WHEN THE LIABILITY HAS NOT CEASED TO EXIS T NO ADDITION CAN BE MADE U/S 41(1) OF THE ACT. THE OUTSTANDING C REDITORS ARE ON ACCOUNT OF SUPPLY OF MATERIAL WHICH WAS FOUND TO BE INFERIOR AND THE CIVIL SUIT RELATING TO THE NON-PAYMENT IS P ENDING IN THE CIVIL COURT. THE ORDER OF LD. CIT(A) CONFIRMING DIS ALLOWANCE INVOKING PROVISION OF SECTION 41(1) IS BAD IN LAW A ND DESERVES TO BE QUASHED. (2) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING DISALLOWANCES OF RS.52,156/- MADE BY AO ON ACCOUNT OF CLAIM OF ADDITIONAL DEPRECIATION ON FIXED ASSETS PURCHASE D UNDER TECHNOLOGY UPGRADATION FUND SCHEME. BOTH THE LOWER AUTHORITIES FAILED TO OBSERVE THAT THE APPELLANT IS IN THE BUSINESS ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 2 OF TWISTING THE YARN WHICH IS ELIGIBLE IN THE CRITE RIA UNDER WHICH THE BENEFIT IS GRANTED BY THE GOVERNMENT OF INDIA. (3) BOTH THE LOWER AUTHORITIES HAVE FAILED TO PROPERLY APPRECIATING THE FACTS, VARIOUS SUBMISSIONS, EXPLANATIONS AND IN FORMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IMPUGNED OR DER. 2. THE FIRST ISSUE RELATES TO DISALLOWANCE OF RS.RS .6,72,339/- U/S 41(1). THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A REGISTERED FIRM AND ENGAGED IN THE BUSINESS OF MANUFACTURING OF TWISTED YARN. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT FOLLOWING CREDITORS ARE STANDING IN THE BALANCE SHEET :- 1. SARVOTTAM TRADE (P) LTD. RS.3,66,889/- 2. RAMESH CHANDRA AGRAWAL RS.1,96,356/- 3. HARYANA PETROL CHEMICALS RS.53,462/- 4. NITIN SILK MILLS RS.55,632/- ----------------- TOTAL RS.6,72,339/- ----------------- 3. ON ENQUIRY IT WAS FOUND BY THE AO THAT THEY WERE STANDING FOR MORE THAN 3 YEARS. NO CONFIRMATIONS FROM THESE PART IES WERE FILED. THESE CREDITORS WERE OUTSTANDING AS THEY HAD SUPPLIED INF ERIOR QUALITY MATERIALS AND THE ASSESSEE DID NOT PAY FOR THEM. THE ABOVE PA RTIES WERE NOT FOUND AVAILABLE AT THE GIVEN ADDRESSES. THE AO ACCORDINGL Y SOUGHT TO TREAT THESE CREDITORS AS PROFIT U/S 41(1), AS NO EVIDENCE OF RE PAYMENT TO ANY ONE OF THEM WAS PRODUCED. FINALLY NOT FINDING THE REPLY SA TISFACTORY, HE HELD - ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 3 (1) THE ASSESSEE DOES NOT HAVE ADDRESSES OF THESE PARTI ES; (2) THE AMOUNTS SHOWN ARE OUTSTANDING CONSISTENTLY FOR OVER THREE YEARS AND ARE APPEARING UNDER THE HEAD SUNDRY CREDI TORS; (3) THERE ARE NO BUSINESS TRANSACTIONS WITH THEM IN SUB SEQUENT PERIOD; AND (4) NO SUPPLIER WOULD FORGET TO CLAIM OUTSTANDING DUES TO HIM IN ABSENCE OF REGULAR BUSINESS TRANSACTION. THUS THERE BEING NO REAL LIABILITY OUTSTANDING HE T REATED THE SAME AS PROFIT U/S 41(1). 4. THE LD. CIT(A) CONFIRMED THE ADDITION FOR THE SA ME REASONS. THE ASSESSEE HAD ARGUED BEFORE HIM BUT IN VAIN THAT COU RTS DISPUTES ARE PENDING WITH THESE PARTIES. IN SUPPORT OF ITS SUBMI SSION, ASSESSEE HAD FILED DETAILS OF CORRESPONDENCE/LETTERS AND NOTICES OF ADVOCATES TO THESE PARTIES. THERE WAS ALSO A COMPLAINT BEFORE SURAT CI VIL JUDGE, SURAT BY ONE OF THESE PARTIES. THE LD. CIT(A) REJECTED THESE PIE CES OF EVIDENCES HOLDING THAT THEY ARE IN THE NATURE OF ADDITIONAL E VIDENCES WHICH WERE NOT PRODUCED BEFORE THE AO AND NO REASONS HAS BEEN FURN ISHED AS TO WHY THEY WERE NOT PRODUCED BEFORE HIM. FURTHER ASSESSEE HAS NOT FURNISHED LATEST STATUS OF THE OUTSTANDING BALANCE BY THE CRE DITORS OR EVIDENCE OF RETURN OF UNUSED YARN TO THE ABOVE SUPPLIERS, WHICH WERE DEFECTIVE. HE ACCORDINGLY, CONFIRMED THE ADDITION. ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 4 5. WE HAVE HEARD THE PARTIES. THE LD. AR SUBMITTED THAT PROVISIONS OF SECTION 41(1) CANNOT BE APPLIED AS THERE IS NEITHER CESSATION NOR REMISSION OF THE LIABILITIES. SHE FRANKLY ADMITTED THAT THOUG H LIABILITIES ARE TRADING LIABILITIES STILL OTHER CONDITIONS LAID DOWN U/S 41 (1) ARE NOT SATISFIED INASMUCH AS NO EVENT HAS TAKEN PLACE FOR HOLDING TH AT THERE IS CESSATION OR REMISSION. THE SAME CONDITIONS PREVAIL IN THE CURRE NT YEAR AS IT WAS IN THE EARLIER YEAR. SHE REFERRED TO THREE JUDGMENTS IN SU PPORT OF HER CONTENTIONS. THEY ARE AS UNDER :- (1) CIT VS. BHARAT IRON & STEEL INDUSTRIES (1993) 1 99 ITR 67 (GUJ)(FB).. (2) CIT VS. SUGAULI SUGAR WORKS (P) LTD. (1999) 236 ITR 518 (SC). (3) NEW COMMERCIAL MILLS CO. LTD. VS. DY. CIT ITA NO.1715/AHD/1995. 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE CREDITORS DID NOT RESPOND WHEN NOTICES WERE ISSUED TO THEM. THEIR COR RECT ADDRESSES ARE NOT KNOWN. THEY HAVE NOT CONFIRMED THE BALANCES. IF GOO DS ARE DEFECTIVE ASSESSEE IS NOT REQUIRED TO PAY ANYTHING AND, THERE FORE, IT BECOMES HIS INCOME. HE STRONGLY RELIED ON THE ORDERS OF AUTHORI TIES BELOW. 7. THE UNDISPUTED FACTS ARE THAT THESE LIABILITIES ARE OUTSTANDING IN THE BOOKS OF ASSESSEE FOR LAST THREE YEARS OR MORE. IN THE CURRENT YEAR THE AO THOUGHT TO ENQUIRE AS TO WHY THESE LIABILITIES ARE OUTSTANDING FOR SO LONG AND FOUND THAT NOTICES ISSUED BY HIM EITHER REMAINE D UN-SERVED OR NO ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 5 CONFIRMATION WAS FILED IN RESPECT OF OTHERS. BEFORE THE LD. CIT(A) THE ASSESSEE SOUGHT TO PRODUCE EVIDENCE ABOUT DISPUTES WITH THESE PARTIES PENDING IN THE COURTS BUT THE LD. CIT(A) DID NOT AD MIT THEM. IN ANY CASE APPARENTLY NOTHING HAD HAPPENED THIS YEAR IN RESPEC T OF THE SUM OUTSTANDING IN THE BOOKS OF THE ASSESSEE AND IN RES PECT OF WHICH ADDITION WAS ORIGINALLY PROPOSED BY THE AO OR IN RESPECT OF WHICH ADDITION WAS SUSTAINED BY THE LD. CIT (A). NEITHER THE CREDITOR HAS TAKEN ANY ACTION NOR HAS THE DEBTOR DONE ANYTHING. THUS IN FACT NO EVENT HAS TAKEN PLACE DURING THE CURRENT YEAR. THUS APPARENTLY THERE WAS NO OCCASION TO HOLD THAT THE OUTSTANDING BALANCES HAVE BECOME PROFIT CH ARGEABLE TO TAX U/S. 41(1) EXCEPT ENQUIRIES CARRIED OUT BY THE A.O. FOR THE SAKE OF CONVENIENCE WE REPRODUCE SECTION 41(1) AS UNDER:- SEC.41(1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO A S 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 EXPENDITURE, OR SOME BENEFIT IN RESPECT OF SUCH TRA DING 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 PROFE SSION AND ACCORDINGLY CHARGEABLE TO INCOME TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION I N RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS I N EXISTENCE IN THAT YEAR OR NOT; OR (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED WHETHER IN C ASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF WHICH ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 6 LOSS OR EXPENDITURE WAS INCURRED BY THE FIRST MENTI ONED 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 DEEM ED TO BE PROFITS AND GAINS OF THE BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME TAX AS THE INCOME OF THAT PREV IOUS YEAR; EXPLANATION 1 FOR THE PURPOSES OF THIS SUB-SECTION , THE EXPRESSION LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SU CH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF SHALL INCLUDE THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILATERAL ACT BY T HE FIRST MENTIONED PERSON UNDER CLAUSE (A) OR THE SUCCESSOR IN THE BUSINESS U NDER CLAUSE (B) OF THAT SUB-SECTION BY WAY OF WRITING OFF SUCH LIABILITY IN HIS ACCOUNTS. EXPLANATION 2 FOR THE PURPOSES OF THIS SUB-SECTION SUCCESSOR IN BUSINESS MEANS - (I) WHERE THERE HAS BEEN AN AMALGAMATION OF A COMPANY W ITH ANOTHER COMPANY, THE AMALGAMATED COMPANY; (II) WHERE THE FIRST-MENTIONED PERSON IS SUCCEEDED BY AN Y OTHER PERSON IN THAT BUSINESS OR PROFESSION, THE OTHER PE RSON; (III) WHERE A FIRM CARRYING ON A BUSINESS OR PROFESSION I S SUCCEEDED BY ANOTHER FIRM, THE OTHER FIRM; (IV) WHERE THERE HAS BEEN A DEMERGER, THE RESULTING COMP ANY. THE FIRST CONDITION REQUIRED TO BE SATISFIED FOR TR EATING A SUM TAXABLE U/S 41(1) IS THAT AN ALLOWANCE OR DEDUCTION HAS BEEN MA DE IN RESPECT OF THAT SUM IN THE CURRENT ASST. YEAR OR IN EARLIER ASST. Y EAR AS A LOSS, EXPENDITURE OR TRADING LIABILITY. IN OTHER WORDS, L IABILITY SHOULD RELATE EITHER TO TRADING ACCOUNT OR TO PROFIT AND LOSS ACC OUNT WHICH MUST HAVE BEEN DEBITED IN THE CURRENT YEAR OR IN AN EARLIER A SST. YEAR WHILE COMPUTING THE INCOME OF THE ASSESSEE. MERELY BECAUS E CERTAIN AMOUNTS WERE OUTSTANDING IN THE BOOKS OF THE ASSESSEE DOES NOT LEAD TO THE INFERENCE THAT THERE IS A CESSATION OR REMISSION. ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 7 THE SECOND CONDITION REQUIRED TO BE SATISFIED IS TH AT ASSESSEE MUST HAVE OBTAINED EITHER IN CASH OR IN OTHER MANNER SOME BEN EFIT IN RESPECT OF SUCH TRADING LIABILITY EITHER BY WAY OF REMISSION OR CES SATION THEREOF. THE CONCEPT OF CESSATION IN SECTION 41(1) IMPLIES T HAT LIABILITY OF THE ASSESSEE HAS CEASED TO EXIST IN THE YEAR UNDER CONS IDERATION, EITHER BY OPERATION OF LAW, OR BY MUTUAL CONTRACT BETWEEN THE PARTIES. OPERATION OF LAW WOULD INDICATE THAT LIABILITY HAS BECOME UNENFO RCEABLE AT LAW I.E. THE LIMITATION PRESCRIBED FOR RECOVERY OF THE DUES BY T HE CREDITOR HAS EXPIRED OR THERE IS A COURT DECREE OR ORDER FINALLY AGAINST THE CREDITOR THEREBY HE LOSES HIS RIGHT TO RECOVER THE MONEY FROM THE DEBTO R I.E. THE ASSESSEE. THUS IT IS EITHER EXPIRY OF LIMITATION OR A DECREE OF A COURT THAT WOULD MAKE THE LIABILITY CEASED TO EXIST. HOWEVER, A FURT HER CONDITION IS IMPOSED WHERE LIMITATION IS EXPIRED. IT IS THAT THE DEBTOR I.E. THE ASSESSEE SHOULD UNEQUIVOCALLY DECLARE HIS INTENTION NOT TO H ONOUR HIS LIABILITY WHEN PAYMENT IS DEMANDED BY THE CREDITOR. FURTHER, IF THERE IS A CONTRACT BETWEEN THE PARTIES AND THE CREDITOR DISCHARGES THE DEBTOR OF THE DEBT EITHER FULLY OR PARTLY THEN TO THE EXTENT THE DEBT IS DISCHARGED BY THE CREDITOR WITHOUT PAYMENT BY THE ASSESSEE, LIABILITY WOULD CEASE TO EXIST. THUS THERE HAS TO BE AN EVENT FOR CESSATION OF LIAB ILITY TO TAKE PLACE. IF NOTHING HAPPENS DURING THE ASST. YEAR THEN IT CANNO T BE SAID THAT LIABILITY HAS CEASED TO EXIST. IN CASE OF REMISSION THERE HAS TO BE A WAIVER BY THE ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 8 CREDITOR IN FAVOUR OF THE ASSESSEE EITHER UNILATERA LLY OR THROUGH CONTRACTUAL AGREEMENT. TO THE EXTENT SUCH REMISSION OR WAIVER O F THE LIABILITY IS GRANTED ASSESSEE WOULD GET BENEFIT AND ACCORDINGLY TO THAT EXTENT SAME WOULD BE TAXABLE U/S 41(1) SUBJECT TO THE BASIC CON DITION THAT SUCH LIABILITY REMITTED HAS BEEN TAKEN INTO ACCOUNT IN T HE TRADING ACCOUNT OR IN THE PROFIT AND LOSS ACCOUNT IN THE CURRENT YEAR OR IN AN EARLIER YEAR. THUS THERE HAS TO BE A POSITIVE ACT ON THE PART OF THE C REDITOR IN THE CURRENT YEAR WHICH WOULD PROVIDE THE BENEFIT TO THE ASSESSEE BY WAY OF REMISSION. IF NO SUCH ACT ON THE PART OF CREDITOR TAKES PLACE THE N THERE IS NO CASE FOR HOLDING THAT A LIABILITY HAS BEEN REMITTED IN FAVOU R OF THE ASSESSEE. 7. MERELY BECAUSE CERTAIN AMOUNT IS OUTSTANDING FOR NUMBER OF YEARS WILL NOT BE CASE FOR HOLDING THAT THERE IS A CESSAT ION OR REMISSION. HON. PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SITADEVI JUNEJA IN (2010) 325 ITR 593 (P & H) HELD THAT IF AO FAILED T O SHOW THAT IN ANY EARLIER YEAR ALLOWANCE OF DEDUCTION HAS BEEN MADE I N RESPECT OF ANY TRADING LIABILITY INCURRED BY THE ASSESSEE OR IF HE FAILS TO SHOW THAT ANY BENEFIT WAS OBTAINED BY THE ASSESSEE IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, DURING THE C URRENT YEAR THEN IT CANNOT BE SAID THAT ANY BENEFIT ACCRUED TO THE ASSE SSEE. HONBLE PUNJAB & HARYANA HIGH COURT IN CIT VS. GP INTERNATIONAL LTD. IN (2010) 325 ITR 25 (P & H) HELD THAT PROVISIONS OF SECTION 41(1) AN D EXPLANATION THERETO ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 9 ARE NOT APPLICABLE WHERE ASSESSEE IS STILL SHOWING SAME AMOUNT AS LIABILITY IN ITS BOOKS AND HAS NOT WRITTEN OFF THE SAME. IN CHIEF CIT VS. KESARIA TEA CO. LTD. 254 ITR 434 (SC) IT WAS HELD T HAT FOR APPLYING PROVISIONS OF SECTION 41(1) FOLLOWING CONDITIONS AR E REQUIRED TO BE SATISFIED:- (1) IN THE COURSE OF ASSESSMENT FOR AN EARLIER YEAR , ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF TRADING LIABILITY INCURRED BY TH E ASSESSEE ; (2) SUBSEQUENTLY, A BENEFIT IS OBTAINED IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF DURING THE YEAR IN W HICH SUCH EVENT OCCURRED ; (3] IN THAT SITUATION THE VALUE OF THE BENEFIT ACC RUING TO THE ASSESSEE IS DEEMED TO BE THE PROFIT AND GAINS OF BUSINESS WHICH OTHERWISE WO ULD NOT BE HIS INCOME ; AND (4) SUCH VALUE OF THE BENEFIT IS MADE CHARGEABLE T O INCOME-TAX AS THE INCOME OF THE PREVIOUS YEAR WHEREIN SUCH BENEFIT WAS OBTAINED. HON. SUPREME COURT IN TERUNELVELI MOTOR BUS SERVICE CO. (P) LTD. VS. CIT (1970) 78 ITR 55 (SC) HELD THAT IF IT IS NOT PR OVED THAT ANY ALLOWANCE OR DEDUCTION WAS GIVEN IN ANY EARLIER YEAR THEN PRO VISION OF SECTION 41(1) CANNOT BE INVOKED. HON. GUJARAT HIGH COURT IN THE C ASE OF CIT VS. BHARAT IRON & STEEL INDUSTRIES (1993) 199 ITR 67 (GUJ) (FB ) HELD THAT SECTION 41(1) CREATES A FICTION WHICH IS INDIVISIBLE, IT CA NNOT BE ENLARGED BY IMPORTING ANOTHER FICTION NAMELY THAT IF THE AMOUNT WAS OBTAINABLE OR RECEIVABLE DURING THE PREVIOUS YEAR THEN IT MUST HA VE BEEN OBTAINED OR RECEIVED DURING THAT YEAR. THE WORDS USED ARE OBTAI NED WHETHER IN CASH OR ANY OTHER MANNER WHICH CLEARLY REFER TO ACTUALLY RE CEIVING CASH OR THE BENEFIT DURING THAT YEAR. THE AMOUNT MAY BE ACTUALL Y RECEIVED OR IT MAY ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 10 BE ADJUSTED BY WAY OF AN ADJUSTMENT ENTRY OR A CRED IT NOTE OR IN ANY OTHER FORM. IN OTHER WORDS, THERE HAS TO BE A POSITIVE EV ENT SIGNIFYING OBTAINING A BENEFIT BY WAY OF REMISSION OR CESSATION DURING T HE CURRENT YEAR. HON. GUJARAT HIGH COURT IN THE CASE OF CIT VS. BHARAT IR ON & STEEL INDUSTRIES (SUPRA) HAD OBSERVED AS UNDER :- THE KEY WORDS IN SECTION 41(1) OF THE IT ACT, 1961 ARE THE ASSESSEE HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WH ATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SO ME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CE SSATION THEREOF. IT IS THE OBTAINING IN CASH OR IN ANY OTHER MANNER WHATSOEVER ANY AMOUNT..OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY. . WHICH IS CONTEMPLATED BY THE LEGISLATURE WHEN IT USED THE WO RDS HAS OBTAINED. SECTION 41(1) INTRODUCES A FICTION BY WHICH WHERE A N ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY Y EAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR THE ASSESSEE HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER A NY 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 HIM OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS OR PROFESSI ON AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLO WANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT. THE FICTION IS AN INDIVISIBLE ONE. IT CANNOT BE ENLARGED BY IMPORTING ANOTHER FIC TION, NAMELY, THAT IF THE AMOUNT WAS OBTAINED OR WAS RECEIVABLE DURING TH E PREVIOUS YEAR, IT MUST BE DEEMED TO HAVE BEEN OBTAINED OR RECEIVED DU RING THAT YEAR. THE AMOUNT MAY BE ACTUALLY RECEIVED OR IT MAY BE ADJUST ED BY WAY OF AN ADJUSTMENT ENTRY OR A CREDIT NOTE OR IN ANY OTHER F ORM WHEN THE CASH OR THE EQUIVALENT OF CASH CAN BE SAID TO HAVE BEEN REC EIVED BY THE ASSESSEE. BUT IT MUST BE THE OBTAINING OF THE ACTUAL AMOUNT W HICH IS CONTEMPLATED BY THE LEGISLATURE WHEN IT USED THE WORDS HAS OBTAI NED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER ANY AMOUNT IN RES PECT OF SUCH LOSS OR EXPENDITURE IN THE PAST. IN THE CONTEXT IN WHICH TH ESE WORDS OCCUR, NO OTHER MEANING IS POSSIBLE ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 11 8. THE FINDING GIVEN BY THE AO IS THAT CERTAIN PART IES ARE NOT TRACEABLE OR THAT SUCH AMOUNT IS NOT OUTSTANDING IN THE BOOKS OF THESE PARTIES AGAINST THE ASSESSEE. IT WOULD MEAN ACCORDING TO L D. DR THAT LIABILITY HAS CEASED TO EXIST. BUT THIS IS NOT THE EVENT WHICH HA S TAKEN PLACE DURING THIS YEAR NOR IS VISUALIZED IN SECTION 41(1). THE SECTIO N CLEARLY STIPULATES OBTAINING A BENEFIT BY CASH OR IN ANY OTHER MANNER. THEREFORE, THE AO HAS TO SHOW THAT ASSESSEE HAS OBTAINED SUCH BENEFIT IN CASH OR OTHERWISE ONLY DURING THE CURRENT YEAR. THEREFORE, MERELY BECAUSE CERTAIN CREDITORS ARE NOT TRACEABLE OR THEY HAVE DENIED ANY LIABILITY AGA INST THE ASSESSEE WOULD NOT SHOW THAT LIABILITY CEASED TO EXIST ONLY IN THE CURRENT YEAR BY VIRTUE OF OPERATION OF LAW, OR IT WAS REMITTED BY THE CREDITO R ONLY DURING THE CURRENT YEAR. THE ENQUIRIES HAD TO BE FURTHER CARRIED OUT T O SHOW WHAT EVENT HAS TAKEN PLACE. THEY SHOULD CLEARLY SHOW A CESSATION O R REMISSION AND WHEN IT HAPPENED. IF THESE TWO ASPECTS ARE NOT CLEARLY P ROVED BY THE REVENUE PROVISIONS OF SECTION 41(1) COULD NOT BE INVOKED. I N ADDITION TO THIS, THE ONUS IS ON THE REVENUE TO SHOW THAT THE AMOUNT IN Q UESTION WHICH IS DEEMED AS PROFIT DURING THE CURRENT YEAR U/S 41(1) WAS IN FACT TAKEN INTO ACCOUNT IN ANY EARLIER YEAR EITHER IN THE TRADING A CCOUNT OR IN THE PROFIT AND LOSS ACCOUNT. SINCE REVENUE HAS FAILED TO DISCH ARGE THE ONUS, AS TO - (I) WHAT EVENT HAS TAKEN PLACE DURING THE CURRENT YEAR; (II) WHEN THIS EVENT TOOK PLACE; ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 12 (III) WHETHER THE SUM IN QUESTION WAS CONSIDERED IN THE T RADING A/C OR PROFIT OR LOSS ACCOUNT IN ANY EARLIER YEAR I.E. WHE THER IT IS A TRADING LIABILITY; THE OUTSTANDING BALANCES IN THE BOOKS OF THE ASSESS EE CANNOT BE TAXED U/S 41(1). 9. IN THE PRESENT CASE THOUGH THERE IS FINDING THAT THE LIABILITIES IN QUESTION RELATE TO TRADING LIABILITIES BUT THIS ALO NE IS NOT SUFFICIENT TO TAX THEM IN THE CURRENT YEAR. IT HAS TO BE FURTHER SHOW N THAT SUCH LIABILITIES ARE TAXABLE UNDER CURRENT YEAR U/S 41(1) AS CESSATION O R REMISSION HAS TAKEN PLACE IN THE CURRENT YEAR. THE ACTION OF THE AO IN CARRYING OUT ENQUIRY IS NOT THE EVENT CONTEMPLATED U/S 41(1). THE EVENT HAS TO TRIGGER EITHER FROM THE CREDITOR OR DEBTOR OR BY LAW. SINCE NOTHING HAS HAPPENED FROM ALL THESE THREE SIDES IT CANNOT BE SAID THAT SUCH LIABI LITIES ARE CHARGEABLE TO TAX U/S 41(1) IN THE CURRENT YEAR. AS A RESULT, THI S GROUND OF APPEAL IS ALLOWED. 10. THE SECOND ISSUE RELATES TO GRANTING OF DEPRECI ATION UNDER T.U.F. SCHEME. THE ASSESSEE HAD PURCHASED TFO TWISTER MOD EL UNDER TUFS FOR EXPANSION AND UPGRADATION OF ITS EXISTING UNIT DURING THE FINANCIAL YEAR 2002-03 ALL THE SAID MACHINERIES ARE ELIGIBLE FOR DEPRECIATION OF 50%. THE AO DISALLOWED THE CLAIM HOLDING THAT MACHI NERIES PURCHASED UNDER TUFS ARE NOT ELIGIBLE FOR DEPRECIATION @ 50% AND RESTRICTED THE APPLICATION OF THE PROVISION OF RULE 5 IN APPENDIX- I, SR. NO.III(6) OF IT ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 13 RULES TO MACHINERY AND PLANTS USED IN WEAVING, PROC ESSING AND GARMENT SECTOR OF TEXTILE INDUSTRIES. THE LD. CIT(A) ALSO C ONFIRMED THE ORDER OF THE AO. 11. BEFORE US, THE LD. AR RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF BIPINCHANDRA MOHANLAL GAJJAR VS. ITO IN ITA NO.3128/AHD/2008 ASST. YEAR 2005-06 PRONOUNCED ON 18 TH FEBRUARY, 2009 WHEREIN THE TRIBUNAL HAD OBSERVED AS UNDER :- 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS, GONE THRO UGH THE FACTS AND CIRCUMSTANCES AND ALSO ORDERS OF THE TAX AUTHORITIE S. IT IS APPARENT FROM THE RECORD THAT THE AO HAS RESTRICTED THE DEPRECIAT ION AT THE RATE OF 25% BY OBSERVING THAT AS PER RULE 5 OF THE IT ACT, DEPR ECIATION WAS ALLOWABLE @ 50% ONLY ON THOSE MACHINERY AND PLANT, WHICH ARE ACTUALLY USED IN WEAVING PROCESS AND NOT MACHINERY USED FOR TWISTING PROCESS. ON PERUSAL OF THE APPENDIC-1 OF THE INCOME-TAX RULES, IT IS EV IDENT THAT THIS PARTICULAR MACHINERY SHOULD BE USED IN WEAVING SECTOR AND DOES NOT RESTRICT THAT IT SHOULD BE USED IN WEAVING PROCESS OF THE TEXTILE IN DUSTRY. SINCE ADMITTEDLY THE TWISTER MACHINE WAS USED BY WEAVING SECTOR OF TEXTILE INDUSTRY, DEPRECIATION ON THE SAID MACHINERY AT THE RATE OF 50% SHOULD BE ALLOWED. THE ASSESSEE UNDERTAKES ALL THE ACTIVITIES RIGHT FROM TWISTING OF YEARN TO WEAVING TO MAKE FINAL GREY CLOTH. LIST OF MACHINERIES MENTIONED IN THE SCHEDULE PUBLISHED BY THE MINISTRY OF TEXTIL E AND REFERRED TO ABOVE STATE MULTIPLE PURPOSE AND USAGE OF TWISTER MACHINE S. WE FIND THAT TAX AUTHORITIES HAVE NOT JUSTIFIED IN DENYING THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON THE TWISTER MACHINE AT THE RATE OF 50% AND THEREFORE, WE SET ASIDE THEIR RESPECTIVE ORDERS AND ALLOW THE CLA IM OF THE ASSESSEE. 12. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF AUTHORITIES BELOW. 13. AFTER HEARING THE PARTIES, WE ALLOW THE CLAIM O F THE ASSESSEE ON THE BASIS OF THE DECISION OF THIS TRIBUNAL IN THE CASE OF BIPINCHANDRA ITA NO.3228/AHD/2010 ASST. YEAR 2007-08 14 MOHANLAL GAJJAR VS. ITO (SUPRA). IT WAS HELD BY THE TRIBUNAL IN THE ABOVE CASE THAT TWISTERS ARE USED BY WEAVING SECTOR OF TE XTILE INDUSTRIES. AS A RESULT, THIS GROUND OF ASSESSEE IS ALSO ALLOWED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 30/6/11. SD/- SD/- (D. K. TYAGI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 30/6/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 17/6/11. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 22/6/11. /OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..