ACIT, Muzaffarnagar V. Bindal Duplex Ltd., Muzaffarnagar

ITA 352/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65931 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 23-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHIM SINGH
• Keywords: Period of limitation; Time period of passing order

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `A : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.352/DEL./2012 (ASSESSMENT YEAR : 2008-09) ACIT, CIRCLE 1, VS. BINDLAS DUPLEX LTD., NEW DELHI. BHOPA ROAD, MUZAFFARNAGAR, MUZAFFARNAGAR. (PAN/GIR NO.AABCB2773R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJAY KUMAR, CA REVENUE BY : SHRI BHIM SINGH, SR.DR ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A), MUZAFFARNAGAR, DATED 05.09.2011, RELEVANT TO ASSESS MENT YEARS 2008-09 WHEREBY DELETION OF THE ADDITION OF RS.28 LAKHS MADE BY THE ASSESSIN G OFFICER U/S 41(1) OF THE I.T. ACT, 1961, ON ACCOUNT OF UNSECURED LOANS WHICH WERE MORE THAN THREE YEARS OLD HAS BEEN CHALLENGED. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LI MITED COMPANY DERIVING INCOME FROM MANUFACTURE AND SALE OF PAPERS. RETURN DECLARING NIL INCOME WAS E-FILED ON 11-09-2008. DURING THE COURSE OF ASSESSMENT PROC EEDINGS IT WAS GATHERED BY THE A.O. THAT THE ASSESSEE HAD SHOWN UNSECURED LOANS AM OUNTING TO RS.28,00,000/- FROM THE FOLLOWING CONCERNS :- (I) AERON SALES (P LTD. RS.15,00,000/- ON 13-05-2005 (II) HUMERA ENGINEERING (P). LTD.RS. 5,00,000/- BEFORE 01-04-2 005 (III) JAGDARNBA CEMENT CO.(P). LTD.RS. 4,00,000/- BEFORE 01-04-2 005 I.T.A. NO.352/DEL./2012 (A.Y. : 2008-09) 2 (IV) NIKHAR AGRO FARM (P) LTD. RS. 2,00,000/- BEFORE 01-04-2005 (V) SHIKHAR CAPITAL SERVICE (P) LTD.RS.2,00,000/-BEFORE 01-04-2 005 THE A.O. REQUIRED THE ASSESSEE TO EXPLAIN THE AFORE SAID LOANS AND TO SHOW CAUSE AS TO WHY THE AFORESAID LOANS BE NOT DISALLOWED AND ADDED TO ITS INCOME AS THESE LOANS WERE OUTSTANDING FOR MORE THAN THREE YEARS AND THE , ONU S OF EXISTING LIABILITIES IN THE FORM OF UNSECURED LOANS WAS SQUARELY ON THE ASSESSEE. TH E ASSESSEE WAS REQUIRED TO EXPLAIN WHY INTEREST ON SUCH LOANS WERE NOT PAID. IN RESPON SE IT WAS CONTENDED BY THE ASSESSEE THAT ALL THE OUTSTANDING UNSECURED LOANS W ERE RAISED IN ORDINARY COURSE FOR THE PURPOSE OF BUSINESS. ALL THE LOANS WERE INTERES T FREE AND HAD BEEN TAKEN FOR BANK LIMIT. HOWEVER, THE A.O. WAS NOT CONVINCED WITH THE EXPLANATION MADE BY THE ASSESSEE AND INFERRED THAT THE LOANS BEING OLD FOR MORE THAN THREE YEARS HAD EXCEEDED THE TIME LIMIT PRESCRIBED UNDER SCHEDULE 19 & 21 OF LAW LIMITATION ACT FOR ANY LOAN REPAYMENT. MOREOVER, THERE WAS NO FINANCIAL NEED FO R THE ASSESSEE TO CONTINUE A LOAN WITHOUT INTEREST FOR SUCH A LONG PERIOD OF TIME. IT WAS FURTHER INFERRED THAT THERE WAS NO RE-PAYMENT/INTEREST ON LOAN YEAR AFTER YEAR. ACC ORDING TO THE A.O. IT WAS ONLY AN ADJUSTMENT ENTRY MADE BY THE ASSESSEE. FURTHER THE ACCOUNTS HAVE BEEN SETTLED IN CASH AND ROUTED IN THE BOOKS OF ACCOUNT AS SUCH. FURTHER THE FOLLOWING FACTS ALSO STRENGTHENED THE VIEW OF THE A.O. REGARDING NATURE OF ENTRIES:- (I) LOANS WERE TAKEN FROM PARTIES/PERSONS RELATED TO THE ASSESSEE. (II) NO INTEREST WAS PAID WHICH CREATED DOUBT ABO UT THE CASH CREDITS. (III) THE TIME LIMIT TO REPAY LOANS UNDER LAW OF LIMITATION HAD EXPIRED. (IV) THERE WAS NO BUSINESS NEED TO CONTINUE SUCH LOANS IN VIEW OF TURNOVER AT RS.40,31,71,044/-. (V) THE ASSESSEE COULD HAVE PAID THESE LOANS ANY TIME HENCE CONTINUANCE OF THESE LOANS CREATED SUSPICION. (VI) THE CREDITOR HAD NOT LODGED ANY LEGAL RECOVE RY CASE AGAINST THE ASSESSEE FOR OUTSTANDING LOANS. HENCE IT WAS ESTABL ISHED THAT THESE LOANS WERE COMPLETELY UNDER THE CONTROL OF THE ASSESSEE. I.T.A. NO.352/DEL./2012 (A.Y. : 2008-09) 3 THUS IT WAS INFERRED BY THE A.O. THAT THE AFORESAID LOANS WERE INCOME OF THE ASSESSEE AND PROFIT CHARGEABLE TO TAX AS DEFINED U/S 41 (1) OF THE ACT. THE A.O. PLACED RELIANCE ON THE DECISION OF THE HONBLE ITAT, DELHI IN THE C ASE OF DISTINCTIVE PROPERTIES & LEASING LTD. VS. ITO 1 SOT 460, WHEREIN IT HELD THAT WHERE LIABILITY WAS BARRED BY LIMITATION AND THERE WAS NO POSSIBILITY OF ANY CLAI M IN FUTURE THE REMISSION OR CESSATION OF LIABILITY WAS COVERED BY THE PROVISION S OF SECTION 41 (1) OF THE ACT. CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE THE A.O. DISALLOWED THE AMOUNT. TOTALING TO RS.28,00,000/- U/S 41(1) OF THE ACT WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE. 3. THE ACTION OF THE ASSESSING OFFICER WAS CHALLENG ED BEFORE THE CIT(A) RAISING VARIOUS PLEAS AND RELYING ON VARIOUS DECISIONS AS M ENTIONED IN PARA.3.1 OF THE ORDER INCLUDING OF GUJARAT HIGH COURT DECISION IN THE CAS E OF CIT VS. CHETAN CHAMICALS (P) LTD. (2004), REPORTED IN 267 ITR 770 AND CIT(A), WH ILE CONSIDERING AND ACCEPTING THE PLEA OF THE ASSESSEE, HAS CONCLUDED TO DELETE THE I MPUGNED ADDITION. 4. AGGRIEVED BY THIS ORDER OF CIT(A), DEPARTMENT HA S COME UP IN APPEAL AND WHILE RELYING UPON ASSESSING OFFICERS ORDER, IT WAS PLEA DED FOR SETTING ASIDE THE ORDER OF THE CIT(A) AND RESTORING THAT OF THE ASSESSING OFFICER. 5. WHEREAS LD.COUNSEL FOR THE ASSESSEE WHILE RELYIN G UPON CIT(A)S ORDER AND TAKING SUPPORT FROM THE B BENCH, ITAT DECISION I N THE CASE OF DCIT VS. C.M..K. PRINTECH LTD., REPORTED IN 53 DTR (TRIB.) 59, WHERE IN SIMILAR ISSUE WAS INVOLVED AND B BENCH OF THE ITAT HAS TAKEN THE SAME VIEW AS TAKEN BY THE CIT(A), IT WAS THUS PLEADED FOR CONFIRMATION OF THE IMPUGNED ORDER. 6. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MAT ERIAL AS WELL AS PRECEDENTS AS RELIED UPON BY THE CIT(A) AND FIND THAT THE IMPUGNE D ISSUE INVOLVED IN THIS APPEAL HAS BEEN CONSIDERED BY THE CIT(A), WHO CONCLUDED TO DEL ETE THE IMPUGNED ADDITION AS MADE BY PASSING AN ELABORATE ORDER AS PER LAST PARA. FRO M PAGES5-6 AS UNDER: THE FACTS OF THE CASE AS WELL AS SUBMISSIONS MADE BY THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. IT IS OBSERVED THAT THE A.O. HAD DISALLOWED UNSECURED LOANS TO THE EXTENT OF RS.28,00,000/- ON THE GROUND THAT THESE LOANS WERE OUTSTANDING FOR MORE THAN THREE YEARS THEREFORE EXCEEDED TIME LIMIT AVAILABLE IN SCHEDULE 19 & 21 OF LAWS LIMITATION ACT. FURTHER THE LOANS WERE RAIS ED BY THE APPELLANT WITHOUT I.T.A. NO.352/DEL./2012 (A.Y. : 2008-09) 4 A NY FINANCIAL NEED AND THE DEPOSITORS HAD NOT FILED LEGAL SUIT AGAINST THE APPELLANT FOR RECOVERY OF THE AFORESAID LOANS. THE A.O. ON SU CH BASIS HELD THAT THE LOAN AMOUNTS WERE INCOME OF THE ASSESSEE AND THE PROFIT S WERE CHARGEABLE TO TAX ULS 41(1)OF THE ACT AS THE APPELLANT WAS GETTING BENEFIT IN RESPECT OF SUCH TRADING LIABILITY. ON THE OTHER HAND IT HAWS BEEN CONTENDED BY APPELLANT THAT THE AFORESAID LOANS WERE DULY RECORD ED IN THE BOOKS OF ACCOUNTS AND CONFIRMATIONS OF LOANS WERE ALSO FILED BEFORE THE A.O. WHEREIN THE DEPOSITORS ACCEPTED TO HAVE MADE INTEREST FREE LOANS TO THE AP PELLANT. IT IS OBSERVED THAT THE AFORESAID LOANS WERE RAISED AT THE TIME OF OBTAININ G CREDIT LIMIT FROM BANKS. IT IS GATHERED THAT THE AFORESAID LOANS WERE RAISED MUCH BEFORE THE FINANCIAL YEAR 2005- 06 RELEVANT TO A.Y. 2006-07 AND ALSO IN A.Y. 2006-07 AND CONTINUED IN THE YEAR UNDER CONSIDERATION. THE ASSESSMENTS IN THE AP PELLANT CASE WERE COMPLETEDU/S143(3) ON 31-01-2001 FOR A.Y. 1998-99 A ND ON 15-12-2008 FOR A.Y.2006-07 WHEREIN THE A.O. HAD ACCEPTED SUCH LOAN S RAISED. THE APPELLANT HAS FURTHER FURNISHED CURRENT ADDRESSES OF THE CRED ITORS, PAN, ROC DETAILS OF SUCH CREDITORS. THE A.O'S OBSERVATIONS THAT THE LOA NS HAD EXCEEDED THE TIME LIMIT AVAILABLE IN SCHEDULE 19 & 21 OF LAW LIMITATION ACT FOR MAKING DISALLOWANCE U/S 41 (1) OF THE ACT IS NOT CORRECT I N AS MUCH AS EVEN IF THE LOANS HAD EXCEEDED THE TIME LIMIT THAT DOES NOT BY ITSELF CONSTITUTE CESSATION OF THE LIABILITY OF THE DEBTOR BECAUSE SUCH EXPIRY ONLY RESTRICTS THE LIABILITY OF THE CREDITOR TO SUE THE DEBTOR IN THE COURT OF LAW BUT DOES NOT RESTRICT THE LIABILITY OF THE DEBTOR I N ANY WAY TO PAY THE SAME UNDER THE SUBSTANTIVE LAW. FURTHER INDEBTEDNESS OF THE DEBTOR CONTINUES EVEN AFTER THE EXPIRY OF THE PERIOD OF LIMITATION WHICH ONLY DEPRIVES THE CREDITOR OF HIS LIABILITY TO INSTITUTE A SUIT IN COURT OF LAW T O RECOVER THE DEBT. THUS, IT CANNOT BE PRESUMED THAT THE CREDITOR HAS REMITTED T HE DEBT WHEN REMEDY TO SUE IS BARRED BY LIMITATION PERIOD OR THAT LIABILITY OF THE DEBTOR HAS FINALLY CEASED BECAUSE OF THE SAME. IT WOULD BE A DIFFERENT SITUATION IF THE CREDITOR ABAN DONS HIS RIGHT TO RECOVER THE DEBT OR THE CREDITOR INTENDS NOT TO HONOUR THE LIAB ILITY EVEN WHEN DEMANDED. IN THE CASE UNDER CONSIDERATION, THE APPELLANT HAS FURNISHED CONFIRMATIONS OF LOANS GIVEN AND CONFIRMATION OF TH E. AMOUNT OUTSTANDING AS ON 31-03-2008. FURTHER, THE A.O. HAS NOT DISCHARGED .THE ONUS TO ESTABLISH THAT THE THESE LIABILITIES HAD CEASED FINALLY WITHOUT TH E POSSIBILITY OF SURVIVAL. RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE ITAT, DELHI IN THE CASE OF SHRI VARDHMAN OVERSEAS LTD. VS. ACIT (2 008) 24 SOT 393 (DEL). THE UNSECURED LOANS HAVE BEEN RAISED BY THE APPELLA NT IN F.Y. 2005-06 AND EARLIER FOR OBTAINING CREDIT LIMITS FROM BANKS AND THE IMPUGNED SUMS DO NOT REPRESENT TRADING LIABILITY FOR INVOKING PROVISIONS OF SECTION 41(1) OF THE ACT. IN VIEW OF THE ABOVE FACTS IT IS HELD THAT THE A.O. WAS LEGALLY AND FACTUALLY INCORRECT IN INVOKING PROVISIONS OF SECTION 41(1) O F THE ACT AND MAKE DISALLOWANCE AT RS.28,00,000/-. ADDITION OF RS.28,0 0,000/- IS DIRECTED TO BE DELETED. GROUND NO.1 IS ALLOWED. I.T.A. NO.352/DEL./2012 (A.Y. : 2008-09) 5 7. ON PERUSAL OF THE ABOVE SAID FINDING, WE FIND TH AT CIT(A) HAS TAKEN A JUST AND APPROPRIATE DECISION TO DELETE THE IMPUGNED ADDITIO N. SUCH CONCLUSION AS ARRIVED BY CIT(A) ALSO FIND SUPPORT FORM THE DECISION OF B BENCH OF THE ITAT IN THE CASE OF C.M.Y.K. PRINTECH LTD.(SUPRA) IN WHICH ONE OF US IS A PARTY. NEITHER ANY CONTRARY MATERIAL HAS BEEN PLACED ON RECORD, NOR ANY HIGHER COURTS DECISION HAS BEEN PLACED BY THE REVENUE TO CONVINCE US TAKE A DIFFERENT VIEW TH AN TAKEN BY THE CIT(A). AS SUCH WHILE CONSIDERING THE ENTIRETY OF THE FACTS AND CIR CUMSTANCES AND ON RECORD, WE CONCUR WITH THE FINDING OF THE CIT(A) AND WHILE UPHOLDING HIS ORDER, WE DISMISS THE APPEAL OF THE REVENUE BEING DE VOID OF ANY MERITS. 8. AS A RESULT, THE APPEAL FILED BY THE REVENUE G ETS DISMISSED. ORDER PRONOUNCED IN OPEN COURT SOON AFTER THE CONC LUSION OF THE HEARING ON 29.11.2012. SD/- SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBER (U.B.S. BEDI ) JUDICIAL MEMBER DATED : NOV. 29, 2012 SKB COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A), MUZAFFARNAGAR. 5. CIT(ITAT) DEPUTY REGISTRAR, ITAT