ACIT 2 (1), MUMBAI V. BASIL EXPORTS P. LTD, MUMBAI

ITA 4830/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3728 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 23-09-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 20-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DHIVENDRA KHARE
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H : MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA. NO. 4830/MUM/2009 ASSESSMENT YEAR 2003-1004 ACIT 2 (1) MUMBAI VS. M/S. BASIL EXPORTS (P) LTD. MUMBAI 39 PAN AAACB3294Q (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI DHIVENDRA KHARE FOR RESPONDENT : SHRI NIRAJ D. SHETH ORDER PER D. MANMOHAN, V.P. 1. IN THIS APPEAL, FILED BY THE REVENUE, IT WAS CO NTENDED THAT THE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 4. 49 CRORES MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 41 (1) OF THE INCOME TAX ACT, 1961. 2. FACTS NECESSARY FOR THE DISPOSAL OF THE APPEAL ARE STATED IN BRIEF. THE ASSESSEE IS A DOMESTIC COMPANY. IN RE SPECT OF PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-2004 IT D ECLARED AN INCOME OF RS.11,79,734/-. THOUGH THE CASE WAS PROCESSED UN DER SECTION 143 (1) OF THE I.T. ACT, 1961, SUBSEQUENTLY IT WAS TAKE N-UP FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS EE WAS CALLED UPON TO FURNISH THE DETAILS OF BUSINESS CARRIED ON BY HIM DURING THE LAST 3 YEARS. IN RESPONSE THERETO, IT WAS SUBMITTED THAT FOR THE LAST 3 FINANCIAL YEARS ENDING ON 31-3-2003 NO BUSINESS ACT IVITY WAS CARRIED OUT BY THE ASSESSEE, IN VIEW OF HEAVY LOSS SUFFERED BY IT FROM 31/3/1996 ONWARDS. 3. ON A DETAILED PROBE, THE ASSESSING OFFICER NOTI CED THAT THE ASSESSEE HAS SHOWN, IN THE BALANCE SHEET, OUTSTANDI NG LIABILITY UNDER 2 THE HEAD CURRENT LIABILITIES AND PROVISION AMOUNT ING TO RS.4,55,05,753/-. OUT OF ITS LIABILITIES, A SUM OF RS.4,49,71,451/- WAS STATED TO BE AMOUNT PAYABLE TO SUNDRY CREDITORS I.E ., M/S. GOLD CREST FINANCE (INDIA) LIMITED WHICH IS AN ASSOCIATE CONCE RN OF THE ASSESSEE. SINCE THE ASSESSEE WAS NOT CARRYING ON ANY BUSINESS BUT STILL DECLARED OUTSTANDING LIABILITIES, THE ASSESSEE WAS ASKED TO FURNISH DETAILS OF THIS LIABILITY. IN RESPONSE THERETO, THE ASSESSEE S UBMITTED THAT DURING THE FINANCIAL YEARS 1994-95 AND 1995-96 IT HAD TAKE N OVER LEASE RENTAL LIABILITY OF VARIOUS PARTIES WHO HAD OBTAIN ED ASSETS ON LEASE BASIS FROM M/S. GOLD CREST FINANCE (INDIA) LIMITED (IN SHORT GFIL). THESE LIABILITIES WERE TAKENOVER FROM THE RESPECTIV E LESSEES AT A DISCOUNTED VALUE AND WERE STATED TO BE PAID TO M/S. GFIL ON THEIR FACE VALUE. THE DIFFERENCE BETWEEN THE DISCOUNTED VALUE AND FACE VALUE AMOUNTED TO COST OF OBTAINING FACE VALUE TO INTERES T CHARGED BUT ARE CALLED DISCOUNTING CHARGES BY THE ASSESSEE. IT WAS FURTHER STATED THAT THE ASSESSEE HAD ENTERED INTO THIS TRANSACTION IN O RDER TO OBTAIN READY MONEY SO AS TO UTILISE THE SAME FOR ITS BUSINESS PU RPOSES; HOWEVER, SINCE THE TRANSACTIONS RESULTED INTO LOSS, NO INCOM E WHATSOEVER COULD BE GENERATED FROM THE TRANSACTIONS. IN THE ASSESSME NT YEAR 1996-97 DETAILS OF THESE TRANSACTIONS WERE GIVEN TO THE ASS ESSING OFFICER AND THE ASSESSING OFFICER FINALLY FOUND THAT THE PART O F THE FUNDS OBTAINED BY THE ASSESSEE OUT OF SUCH ARRANGEMENT HAS BEEN UT ILISED FOR NON- BUSINESS PURPOSES AND ACCORDINGLY A PART OF THE DIS COUNTING CHARGES BEING RS. 25 LAKHS WAS DISALLOWED IN THAT ASSESSMEN T YEAR. 4. THE ASSESSING OFFICER FURTHER NOTICED THAT M/S. GFIL CLASSIFIED THESE LIABILITIES AS NON-PERFORMING ASS ETS (NPS). UNDER THESE CIRCUMSTANCES, THE ASSESSEE WAS CALLED UPON T O FURNISH COMPLETE DETAILS OF THE TRANSACTIONS INCLUDING THE ASSESSEES PURPOSE IN ENTERING INTO SUCH TRANSACTIONS WITH ITS ASSOCIA TE CONCERN AND ALSO THE TOTAL INCOME AND EXPENDITURE OF THE ASSESSEE OU T OF THESE TRANSACTIONS AS WELL AS BIFURCATION OF PRINCIPLE AN D DISCOUNTING CHARGES, OUT OF ITS LIABILITIES WHICH IS OUTSTANDIN G AS ON 31-3-2003. 3 THOUGH THE ASSESSEE SOUGHT TO FURNISH CERTAIN DETAI LS IT COULD NOT BIFURCATE THE EXPENDITURE REFERABLE TO REVENUE ACCO UNT AND CAPITAL ACCOUNT. ON A CONSPECTUS OF THE MATTER, THE ASSESSI NG OFFICER ARRIVED AT A CONCLUSION THAT THE LIABILITY SHOWN AS OUTSTAN DING CANNOT BE TREATED AS PAYABLE AS ON 31-3-2003 PARTICULARLY WHE N M/S. GFIL HAS ALREADY WRITTEN-OFF THE SAME AS NON-PERFORMING ASSE TS, APART FROM THE FACT THAT THE TRANSACTION WAS ENTERED INTO WITH ITS ASSOCIATE CONCERN. THEREFORE, THE SAME IS ONLY AN ARRANGEMENT BY THE A SSESSEE WITH ITS OWN ASSOCIATE CONCERN UNDER THE GARB OF OBTAINING R EADY FUNDS FOR UTILISATION OF THE SAME IN ASSESSEES BUSINESS WHER EAS THE ASSESSEE HAS NOT UTILISED THE FUNDS FOR THE BUSINESS SINCE I T HAS NOT CARRIED ON BUSINESS FOR THE PAST 3 YEARS, AND EVEN IN THE ASSE SSMENT YEARS 1996- 97 AND 1997-98 THERE IS NO EVIDENCE ON RECORD TO SH OW THAT THE TRANSACTION IN ANY WAY HELPED THE ASSESSEE INFURTHE RANCE OF ITS BUSINESS. HE ACCORDINGLY, BROUGHT TO TAX, THE IMPUG NED SUM, UNDER SECTION 41 (1) OF THE I.T. ACT, 1961. 5. ON AN APPEAL FILED BY THE ASSESSEE, THE LEARNED CIT(A) SET ASIDE THE ADDITION. THE CASE OF THE ASSESSEE BEFORE THE LEARNED CIT(A) WAS THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS O F TRADING IN SHARES AND COMMODITIES AND FINANCING ACTIVITIES. AS SESSEE HAD CREDITED INCOME OF COMMODITY TRADING IN THE P & L A CCOUNT. IT IS A FACT THAT THE SISTER CONCERN OF THE ASSESSEE-COMPANY HAD LEASED CERTAIN ASSETS TO VARIOUS COMPANIES WHEREBY GFIL WAS TO REC EIVE LEASE RENTALS OF RS.29,68,72,262/- FROM VARIOUS LESSEES OVER A PE RIOD OF 5 YEARS. THE ASSESSEE, BY VIRTUE OF ENTERING INTO AGREEMENTS WITH EACH OF THE LESSEES OF THE GFIL, OBTAINED READY FINANCE BY DISC OUNTING THE LEASE RENTALS PAYABLE BY THE LESSEES TO GFIL ON INTERNAL RATE OF RETURN BASIS AND IN RETURN THE ASSESSEE RECEIVED FUNDS OF RS.19, 27,35,576/-. INSTEAD OF LESSEES BEING LIABLE TO PAY GFIL, THE AP PELLANT WAS LIABLE TO PAY GFIL RS.29,68,72,262/-. THE ASSESSEE INCURRED E XPENDITURE BY WAY OF DISCOUNTING CHARGES OF RS.10,41,36,686/-. THE ASSESSEE HAS ALSO MADE CERTAIN PRE-PAYMENTS OF THE LEASE RENTALS TO GFIL ON 4 ACCOUNT OF WHICH THE SISTER CONCERN GAVE A REBATE O F RS.5,61,97,504/-. THUS THE BALANCE AMOUNT OF FINANCE CHARGES PAYABLE WAS REDUCED TO RS.4.79 CRORES WHICH WAS CLAIMED AND ALLOWED AS DED UCTION IN THE ASSESSMENT ORDERS FOR ASSESSMENT YEARS 1997-1998 TO 2000-2001. THUS OUT OF THE TOTAL AMOUNT OF RS. 29.68 CRORES PA YABLE BY THE ASSESSEE TO GFIL, THE ASSESSEE HAD RECEIVED REBATE OF RS. 5.61 CRORES AND BALANCE DUE PAYABLE WAS ONLY RS.4.49 CRORES. SI NCE IT WAS PAYABLE BY THE ASSESSEE, IT CANNOT BE TREATED AS RE MISSION OR CESSATION OF LIABILITY. IT WAS SUBMITTED BEFORE THE LEARNED C IT(A) THAT ASSESSEE HAD PARTIALLY DISCHARGED THE AMOUNT DUE IN ASSESSME NT YEARS 2004- 2005 AND 2005-06. SINCE LIABILITY WAS ACKNOWLEDGED BY ASSESSEE AND PARTLY DISCHARGED IN SUBSEQUENT YEARS, IT CANNOT BE CONSIDERED UNDER SECTION 41 (1) OF THE ACT. 6. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) SET ASIDE THE ADDITION BY OBSERVING IN PARA 8 AS UNDER : 8. THE AFORESAID ISSUES ARE CONSIDERED HEREINAFTER . THE APPELLANT VIDE THEIR LETTER DATED 16-1-2006 HAD EXPLAINED THAT THERE WAS NO REMISSION OR CESSATION OF LIABILITY AS THE LIABILITY WAS SUBSISTING AND DU E BY THE APPELLANT. IT WAS ALSO EXPLAINED THAT THE APPELLANT HAD PARTIALLY DISCHARGED THE AMOUNT DUE IN A.Y. 2004-05 (RS.2,38,40,000) AND 2005-06 (RS.40,50,386). THE APPELLANT HAD ALSO SUBMITTED THE ACCOUNT CONFIRMATION OF GFIL AS ON 31-3-2003. FROM THE CONFIRMATION LETTER IT IS SEEN THAT THE APPELLANT HAD PAID RS.23,36,473/- DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED YEAR IN APPEAL. THUS IT IS ESTABLISHED THAT THE APPELLANT WAS DISCHARGING ITS LIABILITY TO GFIL DURING THE PREVIOUS YEAR AS ALSO IN THE SUBSEQUENT YEARS. IN THE AFORE STATED FACTS IT IS HELD THAT THERE WAS NO CESSATION OR REMISSION OF LIABILITY DUE TO GFIL AND 5 HENCE THE PROVISIONS OF S. 41 (1) WAS NOT APPLICABL E IN A.Y. 2003-04. DURING THE APPELLATE PROCEEDINGS, THE A.R. WAS CALLED UPON TO EXPLAIN THE TREATMENT GIVEN BY THE A.O. IN THE ASSESSMENT ORDERS FOR A.Y. 2004-05 AND SUBSEQUENT YEARS FOR THE PAYMENTS MADE TO GFIL. THE A.R. PRODUCED BEFORE ME THE COPY OF THE ASSESSMENT ORDER FOR A.Y. 2004-05, WHEREFROM IT IS SEEN THAT THE A.O. HAS ALLOWED DEDUCTION FOR THE AMOUNT OF RS.2,38,40,000/-, PAID TO GFIL DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2004-05 AS THE SAID AMOUNT WAS ASSESSED U/S. 41 (1) IN A.Y. 2003-04. SUCH ACTION OF A.O. IN MAKING ADDITION U/S. 41 (1) IN A.Y. 2003-04 AND GRANTING OF DEDUCTION FOR THE ACTUAL PAYMENTS MADE IN THE SUBSEQUENT YEARS IS NOT CORRECT AND PROPER. THE PROVISIONS OF S. 41 (1) WOULD BE ATTRACTED ONLY IN CASES WHERE THERE WAS AN ABSOLUTE CESSATION OR REMISSION OF A LIABILITY. IN CASE THE LIABILITY IS EXISTING AND IS IN THE PROCESS OF BEING DISCHARGED, PROVISIONS OF S. 41 (1) CANNOT BE ATTRACTED. IN VIE W OF THE AFORESAID DISCUSSION, THE ADDITION OF RS.4,49,71,451/- U/S. 41 (1) IS DELETED. IT MIGHT ALSO BE DISCUSSED THAT THE A.O. HAS LAID MUCH EMPHASIS ON THE FACT THAT GFIL HAD WRITTEN OFF THE AMOUNT DUE FROM THE APPELLANT IN THEIR BOOKS OF ACCOUNT. THIS ISSUE WOULD NOT BE MATERIAL IN SO FAR AS THE APPELLANTS LIABILITY TO GFIL STANDS DULY CONFIRMED IN THE ACCOUNT CONFIRMATION LETTER FILED AS ALSO ON ACCOUNT OF THE SUBSEQUENT REPAYMENTS MADE BY THE APPELLANT TO GFIL. THE ACCOUNTING TREATMENT GIVEN BY GFIL WOULD NOT LEAD TO ANY INTERFERENCE THAT THE LIABILITY OF THE APPELLANT 6 CEASED OR STOOD REMITTED, ESPECIALLY HAVING THE FACTS OF APPELLANTS CASE. 7. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. LEAR NED DR ADVERTED OUR ATTENTION TO THE REASONS GIVEN BY THE ASSESSING OFFICER TO HIGHLIGHT THAT THE PROVISION OF SECTION 41 (1) WAS INVOKED NOT ONLY ON ACCOUNT OF THE FACT THAT THE SISTER CONCERN SHOWED THE LIABILITY AS NPS BUT ALSO BECAUSE THE CIRCUMSTANTIAL EVIDENCE CLEARL Y INDICATE TO THE FACT THAT THE FUNDS WERE NEVER UTILISED FOR BUSINES S AND IT WAS ONLY A DEVICE BY THE ASSESSEE WITH ITS SISTER CONCERN SO A S TO CREATE A LIABILITY WHICH IS NO LONGER PAYABLE; SINCE SECTION 41 (1) W AS INVOKED BY THE ASSESSING OFFICER, THE ASSESSEE MIGHT HAVE SHOWN TO HAVE MADE PART- PAYMENTS TO THE SISTER CONCERN WHICH AGAIN CASTS A SHADOW OF DOUBT AS TO WHETHER THE TRANSACTION WAS REAL, PARTICULARL Y IN VIEW OF THE FACT THAT IT WAS A TRANSACTION WITH A SISTER CONCERN AND THE ENTIRE CIRCUMSTANCES DO NOT INDICATE AS TO WHY SUCH HUGE L IABILITY HAD TO BE TAKEN UPON ITSELF WITHOUT ANY APPARENT BENEFIT THER EFROM. 8. LEARNED DR FURTHER SUBMITTED THAT ASSESSEE HAD NEVER EXPLAINED BEFORE THE ASSESSING OFFICER WITH REGARD TO THE CAPITAL LIABILITY AND REVENUE LIABILITY AND IT COULD NOT EX PLAIN AS TO WHY SUCH DISCOUNTING ARRANGEMENT HAS TO BE AGREED UPON. DESP ITE DETAILED OBSERVATIONS OF THE ASSESSING OFFICER, THE LEARNED CIT(A) HAS WRONGLY CONCLUDED THAT THE ASSESSING OFFICER HAS GIVEN MORE EMPHASIS TO THE FACT THAT GFIL HAD WRITTEN OFF THE AMOUNT, OVERLO OKING THE FACT THAT THE ASSESSING OFFICER HAD CLEARLY MENTIONED THAT M/ S. GFIL CLASSIFIED THESE LIABILITIES AS NON-PERFORMING ASSETS. LEARN ED CIT(A) HAS ALSO TAKEN INTO CONSIDERATION CERTAIN FACTS WHICH WERE N OT PLACED BEFORE THE ASSESSING OFFICER. FOR EXAMPLE, IT WAS NOT STAT ED BEFORE THE ASSESSING OFFICER THAT IN THE SUBSEQUENT YEARS PAYM ENTS WERE MADE. IT WAS ALSO NOT CLARIFIED AS TO WHAT IS THE BENEFIT THAT THE ASSESSEE WAS EXPECTING FROM THE SAID DEAL. HOWEVER, THE LEARNED CIT(A) JUMPED TO THE CONCLUSION THAT IT WAS NOT A CASE WHICH ATTRACT S THE PROVISIONS OF SECTION 41 (1) OF THE ACT. HE THUS, STRONGLY OBJECT ED TO THE CONCLUSION 7 REACHED BY THE LEARNED CIT(A) AND THUS SUPPORTED TH E ORDERS PASSED BY THE ASSESSING OFFICER. 9. ON THE OTHER HAND, LEARNED COUNSEL, APPEARING O N BEHALF OF THE ASSESSEE, STRONGLY RELIED UPON THE REASONS G IVEN BY THE LEARNED CIT(A). ADVERTING OUR ATTENTION TO PARAS 5 TO 8 OF THE CIT(A) ORDER, IT WAS CONTENDED THAT SECTION 41 (1) OF THE ACT WOULD GET ATTRACTED ONLY IN THE EVENT OF REMISSION OR CESSATION OF LIABILITY WHEREAS, IN THE INSTANT CASE, SUFFICIENT PROOF WAS ADDUCED BEFORE T HE CIT(A) THAT EVEN IN THE SUBSEQUENT YEARS THE LIABILITY WAS PARTIALLY DISCHARGED AND THUS THERE IS NO CASE FOR INVOKING THE PROVISIONS OF SEC TION 41 (1) OF THE ACT. LEARNED COUNSEL HAS ALSO ADVERTED OUR ATTENTION TO THE RBI GUIDELINES, FROM PAGE 34 OF THE PAPER BOOK AS WELL AS PAGE 58 OF THE PAPER BOOK (SCHEDULE FOR PAYMENTS), TO SUBMIT THAT IN THE EVENT OF NON-PAYMENT OF TWO INSTALMENTS BY ANY ENTITY, AN AS SET HAS TO BE CLASSIFIED AS NPA AND ALL THE INCOME ACCRUING HAS TO BE WRITTEN-OFF TILL ACTUAL REALISATION OF THE SAME. LEARNED COUNSE L FOR THE ASSESSEE HAS ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT (IN THE CASE OF SI GROUP INDIA LIMITED VS. ACIT AND ANO THER 42 DTR 1) IN SUPPORT OF ITS CONTENTION THAT IN ORDER TO INVOKE T HE PROVISIONS OF SECTION 41 (1) OF THE ACT IT MUST BE SHOWN THAT THE RE IS A REMISSION OR CESSATION OF A TRADING LIABILITY AND CONSEQUENTLY T HE BENEFIT MUST ENURE TO THE ASSESSEE AND, IN THE ABSENCE OF PROVIN G THE SAME, PROVISIONS OF SECTION 41 (1) CANNOT BE INVOKED. LEA RNED COUNSEL HAS ALSO REFERRED TO THE DECISION OF ITAT H BENCH, MU MBAI IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998-99 (WHILE DEA LING WITH THE ISSUE CONCERNING DEDUCTION UNDER SECTION 36(1)(III) AND VALUATION OF CLOSING STOCK) WHEREIN THE BENCH OBSERVED THAT THER E IS A TEMPORARY LULL IN THE BUSINESS, IN THE CIRCUMSTANCES OF THE C ASE, AND THUS IT CANNOT BE CONSIDERED AS A DIS-CONTINUANCE OF THE BU SINESS. LEARNED COUNSEL, THUS STRONGLY RELIED UPON THE ORDER PASSED BY THE LEARNED CIT(A). 8 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS AND PERUSED THE RECORD. AT THE OUT SET, IT MAY BE NOTIC ED THAT IN ORDER TO APPRECIATE THE ISSUE BEFORE US, THE SALIENT FEATURE S OF SECTION 41 (1) HAS TO BE TAKEN INTO CONSIDERATION. THE MARGINAL HE ADING OF SECTION 41 READS PROFITS CHARGEABLE TO TAX AND SECTION 41 (1 ) SAYS THAT IF AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSM ENT FOR ANY YEAR IN RESPECT OF LOSSES/EXPENDITURE OR TRADING LIABILI TY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY, DURING THE PREVIOUS YEAR , IF THE ASSESSEE OBTAINED ANY BENEFIT IN RESPECT OF SUCH TRADING LIA BILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE SAME HAS TO BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND A CCORDINGLY CHARGEABLE TO INCOME TAX ACT. 11. IT IS NOT IN DISPUTE THAT IN THE INITIAL YEAR THE ASSESSEE HAS TREATED IT AS A LOSS/EXPENDITURE/TRADING LIABILITY AND IT WAS ACCEPTED AS SUCH EXCEPT TO THE EXTENT OF RS. 25 LAKHS. HOWEV ER, IN THE YEAR UNDER CONSIDERATION THE ASSESSING OFFICER ANALYSED THE FACTS IN DETAIL TO HIGHLIGHT THAT THE BENEFIT OBTAINED AS A TRADING LIABILITY IN THE EARLIER YEARS WAS NOT IN FACT A TRADING LIABILITY A ND IT WAS A COLOURABLE TRANSACTION ENTERED INTO BETWEEN THE ASSESSEE AND I TS SISTER CONCERN AND, THEREFORE, IT NO LONGER REMAINS AS A TRADING L IABILITY AND, UNDER THE PECULIAR CIRCUMSTANCES, IT HAS TO BE CONSIDERED AS A REMISSION OR CESSATION OF SUCH SO-CALLED TRADING LIABILITY. THER EFORE, THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 41 (1 ) OF THE ACT. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS NOT FURNISHED RELE VANT MATERIAL BEFORE THE ASSESSING OFFICER AND IT WAS NOT THE CASE OF TH E ASSESSEE BEFORE THE ASSESSING OFFICER THAT IN THE SUBSEQUENT YEARS PART OF THE LIABILITY WAS DISCHARGED. THE MAIN PLANK OF THE CHARGE OF THE ASSESSING OFFICER IS THAT BY THE SO-CALLED ARRANGEMENT OF DISCOUNTI NG TRANSACTIONS NO BENEFIT WHATSOEVER COULD HAVE BEEN OBTAINED BY THE ASSESSEE AND ASSESSEE HAS NOT EXPLAINED IN DETAIL ITS CASE BEFOR E THE ASSESSING OFFICER WHICH FURTHER NECESSITATED THE ASSESSING OF FICER TO DRAW AN ADVERSE INFERENCE AND TO COME TO THE CONCLUSION THA T IT WAS ONLY AN 9 ARRANGEMENT BETWEEN THE ASSESSEE AND ITS ASSOCIATE CONCERN AND BY THIS ARRANGEMENT ASSESSEE HAS DEBITED A SUM OF RS.4 .79 CRORES IN ITS BOOKS OF ACCOUNTS AND CREDITED THE LIABILITY WHICH IS NO LONGER PAYABLE. UNDER THESE PECULIAR CIRCUMSTANCES, IN OUR CONSIDERED OPINION, THE LEARNED CIT(A) ERRED IN TAKING INTO CO NSIDERATION THE ADDITIONAL MATERIAL WITHOUT PUTTING THE SAME TO THE ASSESSING OFFICER. FOR EXAMPLE, THE FACTUM OF PARTIAL DISCHARGE OF LIA BILITIES IN THE SUBSEQUENT YEARS WAS NOT AVAILABLE WITH THE ASSESSI NG OFFICER. 12. SINCE THE TRANSACTION WAS WITH A SISTER CONCER N AND THERE IS NO BASIS FOR CREATING SUCH LIABILITY, MERELY BEC AUSE A LIABILITY IS CREATED IT WOULD NOT HAVE BEEN ACCEPTED BY CIT(A) A S AN EXISTING LIABILITY, MERELY BECAUSE PART OF THE AMOUNT WAS SH OWN TO HAVE BEEN REPAID IN THE SUBSEQUENT YEARS, AFTER THE ASSESSING OFFICER SOUGHT TO INVOKE THE PROVISIONS OF SECTION 41 (1) OF THE ACT IN THE ASSESSMENT YEAR 2003-2004. IN THE INTEREST OF SUBSTANTIAL JUST ICE, THE LEARNED CIT(A) OUGHT TO HAVE REMITTED THE MATTER TO THE FIL E OF THE ASSESSING OFFICER FOR FRESH EXAMINATION OF THE FACTS WITH A D IRECTION TO THE ASSESSING OFFICER TO FURNISH FULL DETAILS AS TO WHA T WAS THE BENEFIT THAT WAS EXPECTED OF BY THE ASSESSEE FROM THE SO-CALLED DISCOUNTING TRANSACTION. THE RECORD DOES NOT INDICATE AS TO WH ETHER ANY BENEFIT COULD HAVE BEEN OBTAINED BY THE ASSESSEE, EVEN AT T HE FIRST INSTANCE, OUT OF SO-CALLED ARRANGEMENT. UNDER THESE PECULIAR CIRCUMSTANCES, THE ONUS IS UPON THE LEARNED CIT(A) TO CALL FOR FURTHER DETAILS TO EXAMINE THE ISSUE IN THE CORRECT PERSPECTIVE, TO UNDERSTAND AS TO WHETHER IT WAS A CASE OF TRADING LIABILITY AND EVEN IF IT IS A TRADING LIABILITY IN THE EARLIER YEARS WHETHER IT CAN STILL BE CONSIDERED AS A TRADING LIABILITY IN THE YEAR UNDER CONSIDERATION AND IF IT IS NOT TO BE CONSIDERED AS A TRADING LIABILITY, WHETHER THE SAME CAN BE CONSIDER ED AS A REMISSION OR CESSATION OF SUCH LIABILITY ATLEAST IN THE YEAR UNDER CONSIDERATION. 13. IT IS WELL SETTLED THAT THE POWERS OF THE CIT( A) ARE CO- TERMINUS WITH THAT OF THE ASSESSING OFFICER AND EVE N IF A MISTAKE HAS BEEN COMMITTED BY THE ASSESSING OFFICER AN ASSESSME NT SHOULD NOT BE 10 SET ASIDE OR QUASHED ON THAT LIMITED GROUND AND IT IS THE DUTY OF THE FIRST APPELLATE AUTHORITY TO CORRECT SUCH MISTAKES. IN THE CASE OF KAPURCHAND SHRIMAL VS. CIT (1981) 131 ITR 451 THE A PEX COURT OBSERVED THAT APPELLATE AUTHORITY HAS THE JURISDICTION AS WELL A S THE DUTY TO CORRECT ALL THE ERRORS IN THE PROCEEDINGS U NDER APPEAL AND TO ISSUE, IF NECESSARY, APPROPRIATE DIRECTIONS TO THE AUTHORITY AGAINST WHOSE DECISION THE APPEAL IS PREFERRED, TO DISPOSE OF THE APPEAL OR ANY PART OF THE MATTER AFRESH. 14. HAVING REGARD TO THE OVER ALL CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT IN THE INTEREST OF SUBSTANT IAL JUSTICE, THE ORDER OF THE LEARNED CIT(A) DESERVES TO BE SET ASIDE AND WE HEREBY DIRECT THE ASSESSING OFFICER TO RECONSIDER THE MATTER IN ACCOR DANCE WITH LAW. NEEDLESS TO OBSERVE THAT IF THERE ARE PAYMENTS MADE BY THE ASSESSEE TO M/S. GFIL IN THE SUBSEQUENT YEARS AND IF IT WAS ACCEPTED BY THE ASSESSING OFFICER IN THE SUBSEQUENT YEARS THAT MAY BE ONE OF THE RELEVANT FACTORS TO CONSIDER AS TO WHETHER IT WAS A BONAFIDE TRADING LIABILITY WHICH STILL CONTINUE TO EXIST. HOWEVER, T HE ASSESSEE HAS TO FURNISH THE DETAILS IN RESPECT OF THE ISSUES HIGHLI GHTED BY THE ASSESSING OFFICER I.E., WHAT WAS THE PURPOSE SOUGHT TO BE ACHIEVED BY THE ASSESSEE BY ENTERING INTO THE AGREEMENT WITH TH E SISTER CONCERN WITH REGARD TO THE DISCOUNTING TRANSACTION AND IF I T CAN BE PROJECTED THEN THERE WOULD HAVE BEEN SOME BENEFIT TO THE ASSE SSEE OUT OF IT, IT CAN WELL BE TREATED AS A TRADING LIABILITY AS OTHER WISE MERELY BECAUSE IT WAS CONSIDERED AS A TRADING LIABILITY IN THE FIRST YEAR, IT CANNOT CONTINUE TO REMAIN AS A TRADING LIABILITY ATLEAST I N THE YEAR IN WHICH IT WAS NOTICED THAT IT WAS A COLOURABLE TRANSACTION. 15. ADMITTEDLY, THE ASSESSEE HAD NOT BEEN CARRYING ON ANY BUSINESS IN THE YEARS UNDER CONSIDERATION AND FROM THE AGREEMENT ENTERED INTO WITH THE ASSOCIATE CONCERN ASSESSEE AP PEARS TO HAVE NOT OBTAINED ANY BENEFIT FROM THE TIME THE AGREEMENT WA S ENTERED INTO. IT CANNOT BE SAID THAT ASSESSEE WAS NOT AWARE OF THE A CTIVITIES OF THE SISTER CONCERN AND ASSESSEE CANNOT PLEAD THAT IT IS NAIVE TO THE FACT 11 THAT THERE ARE NO CHANCES OF MAKING FAIR PROFIT. TH EREFORE, IT IS FOR THE ASSESSEE TO HIGHLIGHT AS TO WHAT PROMPTED IT TO ENT ER INTO SUCH TRANSACTION AND HOW IT HAD BENEFITED THE ASSESSEE I N ANY OF THESE EARLIER YEARS AS WELL AS IN THE YEARS UNDER CONSIDE RATION. THE EXPRESSION CESSATION OR REMISSION OF LIABILI TY WAS SUBJECT MATTER OF CONSIDERATION BY VARIOUS COURTS AND VARIOUS PRIN CIPLES WERE LAID DOWN WHICH CAN ACT AS GUIDING FACTORS IN ORDER TO C ONSIDER AS TO WHAT CAN BE CLASSIFIED AS REMISSION OR CESSATION OF TRAD ING LIABILITY. AT THE TIME OF PASSING THE CONSEQUENTIAL ORDER, THE ASSESS ING OFFICER IS FREE TO TAKE INTO CONSIDERATION ALL THESE ASPECTS AND TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW. WITH THESE OBSERVATIONS, WE HEREBY RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT, ON THIS THE 2 1 ST DAY OF DECEMBER, 2010. SD/- (RAJENDRA SINGH) ACCOUNTANT MEMBER SD/- (D. MANMOHAN) VICE PRESIDENT DATED : 21 ST DECEMBER, 2010 VBP/- COPY TO 1. ACIT 2 (1), AAYAKAR BHAVAN, R.NO. 575, 5 TH FLOOR, M.K. ROAD, MUMBAI 400 020 2. M/S. BASIL EXPORTS (P) LTD. DEVIDAS MANSION, 3 RD FLOOR, MEREWEATHER ROAD, COLABA, MUMBAI 39 PAN AAACB3294Q 3. COMMISSIONER OF INCOME TAX (APPEALS)-II, MUMBAI 4. C.I.T.,M.C.II, MUMBAI 5. DR H BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI