MADAN MOHLA, MUMBAI V. ITO 11(1)(2), MUMBAI

ITA 5936/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3700 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 16-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 24-08-2011
• Court: TRIBUNAL
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Period of limitation
• Section: 143(3); 133(6); 2

Judgement Text

, , B, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.5936/MUM/2011 ASSESSMENT YEAR: 2008-09 MR. MADAN MOHLA, 301, KINGS APARTMENTS, JUHU TARA ROAD, MUMBAI-400049 / VS. ITO 11(1)(2) AAYAKAR BHAVAN, M.K. RD. MUMBAI- (ASSESSEE ) (REVENUE) P.A. NO. AAOPM1470C !' / ASSESSEE BY SHRI SANJIV M. SHAH (AR) / REVENUE BY SHRI RAJGURU (DR) # $ % & / DATE OF HEARING : 21/04/2016 % & / DATE OF ORDER: 29/04/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI-3 {(IN SHORT CIT(A)}, DATED 22.07.2011 PASSED AGAIN ST MADAN MOHLA 2 ASSESSMENT ORDER U/S 143(3) DATED 24.12.2010 FOR TH E ASSESSMENT YEAR 2008-09 ON THE FOLLOWING GROUNDS: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF A SUM OF RS.17,71,210/- ON ACCOUNT OF AMOUNT PAYABLE TO SUND RY CREDITORS AS CEASED LIABILITY U/S 41(1) OF THE ACT. THAT THE ORDERS OF BOTH THE CIT(A) AND LD. ASSESSIN G OFFICER ARE BAD IN LAW AND ON FACTS. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI SANJIV M. SHAH, AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI RAJGURU, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. 3. THE SOLITARY ISSUE RAISED IN THIS APPEAL IS WITH RE GARD TO ADDITION OF RS.17,71,210/- MADE U/S 41(1) ON THE GR OUND THAT LIABILITY OF THE ASSESSEE ON ACCOUNT OF AMOUNT PAYA BLE TO SUNDRY CREDITORS CEASED TO EXIST. 3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WA S FOUND THAT THE BALANCE SHEET OF THE ASSESSEES PROP RIETARY CONCERN NAMELY M/S. SEVEN ARTS PICTURES, REFLECTED AROUND 10 CREDITORS AGGREGATING TO RS.17,71,210/- WHICH WERE OUTSTANDING FOR MORE THAN 3 YEARS. HE ISSUED NOTICE U/S 133(6) TO SOME OF THESE CREDITORS, AND IN ABSENCE O F PROPER RESPONSE FROM THE CREDITORS, THE AO HELD THAT THE L IABILITY CEASED TO EXIST AND ACCORDINGLY HE MADE ADDITION U/ S 41(1). 3.2. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) WHEREIN IT WAS CONTENDED THAT MERELY BECAUSE THE MADAN MOHLA 3 OUTSTANDING WAS FOR MORE THAN 3 YEARS, IT CANNOT BE CONCLUDED THAT THE ASSESSEE IS NOT LIABLE TO PAY THESE AMOUNT S. IT WAS FURTHER SUBMITTED THAT THERE WERE NO BASIS WITH AO TO PRESUME THAT THESE LIABILITIES CEASED TO EXIST. BUT , LD. CIT(A) WAS CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE AND THEREFORE, HE CONFIRMED THE ORDER OF THE AO AND DIS MISSED THE APPEAL OF THE ASSESSEE. 3.3. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE TRIBUNAL. 3.4. IT HAS BEEN SUBMITTED BEFORE US THAT IMPUGNED ADDI TION IS CONTRARY TO THE WELL SETTLED POSITION OF LAW; NO AD DITION COULD HAVE MADE UNDER SECTION 41(1) WITHOUT PROVING THAT LIABILITY CEASED TO EXIST AND THAT TOO IN THE YEAR UNDER CONS IDERATION. NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO TO SHO W THAT SOME BENEFIT HAS ACTUALLY ACCRUED TO THE ASSESSEE D URING THE YEAR UNDER CONSIDERATION. THE RELIANCE HAS BEEN PLA CED ON THE FOLLOWING CASES IN SUPPORT OF PROPOSITION THAT NO A DDITION COULD HAVE BEEN MADE U/S 41(1), UNLESS THE LIABILIT IES ACTUALLY CEASED TO EXIST AND THAT TOO DURING THE IMPUGNED YE AR:- 1. CIT VS. SUGAULI SUGAR WORKS (P) LTD 236 ITR 518(SC) 2. CIT VS. SI GROUP 379 ITR 326(SC) 3. CCIT V. KESARIA 254 ITR 434 (SC) 4. CIT V. JAIN 85 CCH 66 (DEL) 5. PCIT V. MATRUPRASAD 377 ITR 363(GUJ) 6. ITO V. BHAVESH 46 SOT 268(AHM) 7. MITIN V. ACIT 40 SOT 253 (AHM) MADAN MOHLA 4 3.5. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS O F THE LOWER AUTHORITIES. 3.6. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AND JUDGMENTS RELIED UPON BEFORE US. THE ADMITTED F ACTS ARE THAT THE IMPUGNED CREDITORS WERE CONTINUED TO BE SH OWN BY THE ASSESSEE IN ITS BALANCE SHEET. IT MEANS THAT AS SESSEE CONTINUE TO ACKNOWLEDGE THESE LIABILITIES IN ITS BO OKS OF ACCOUNTS. UNDER THESE CIRCUMSTANCES, EVEN IF MORE T HAN 3 YEARS HAVE PASSED, THEN AT THE BEST THESE LIABILITI ES MAY BE TERMED AS NOT ENFORCEABLE IN THE COURT OF LAW, BUT THAT ALONE WOULD NOT FINALLY EXONERATE THE ASSESSEE FROM THESE LIABILITIES. THE ASSESSEE IS CARRYING IN THE BUSINESS AND FOR IT S RESPECTFUL AND PEACEFUL EXISTENCE IN THE BUSINESS AS WELL AS I N THE SOCIETY; HE MAY PREFER TO PAY OFF ALL THE LIABILITI ES FROM SOCIAL, MORAL, COMMERCIAL OR MANY OTHER ANGLES. THE DECISIO N TO PAY OR NOT TO PAY A LIABILITY CAN BE TAKEN BY THE BUSIN ESSMAN ALONE. SO LONG AS, THE LIABILITIES ARE ACKNOWLEDGED IN THE BOOKS OF ACCOUNT, NO PRESUMPTION SHOULD BE DRAWN THAT THE LIABILITY CEASED TO EXIST THAT TOO MERELY ON THE BASIS OF THE IR AGE. FURTHER, THERE IS NOTHING TO SHOW THAT THE CREDITOR S HAD DISCHARGED THE ASSESSEE FROM PAYMENTS OF THESE LIAB ILITIES AND THAT TOO IN THE YEAR UNDER CONSIDERATION. IT IS FUR THER NOTED BY US THAT FOR THE APPLICATION OF PROVISIONS OF SECTIO N 41(1), AN ASSESSEE MUST GET SOME BENEFIT IN REAL TERMS BY WAY OF REMISSION OR CESSATION OF THE LIABILITIES. OUR VIEW IS SUPPORTED BY MANY JUDGMENTS WHICH HAVE BEEN RELIED UPON BY TH E LD. COUNSEL. WE FIND IT APPROPRIATE TO REPRODUCE RELEVA NT MADAN MOHLA 5 OBSERVATION OF HONBLE SUPREME COURT FORM ITS JUDGM ENT RENDERED IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS (P) LTD 236 ITR 518 AS FOLLOWS: THE FOLLOWING WORDS IN SECTION 41(1) OF THE INCOME -TAX ACT, 1961, ARE IMPORTANT: 'THE ASSESSEE HAD OBTAINE D, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE O R SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY B Y WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAI NED BY HIM'. THE SECTION CONTEMPLATES THE OBTAINING BY THE ASSESSEE OF AN AMOUNT EITHER IN CASH OR IN ANY OTHE R MANNER WHATSOEVER OR A BENEFIT BY WAY OF REMISSION OR CESSATION AND IT SHOULD BE OF A PARTICULAR AMOUNT OBTAINED BY HIM. THUS, THE OBTAINING BY THE ASSESSEE OF A BENEFIT BY VIRTUE OF REMISSION OR CESSATION IS THE SINE QUA NON FOR THE APPLICATION O F THIS SECTION. THE MERE FACT THAT THE ASSESSEE HAS MADE AN ENTRY OF TRANSFER IN HIS ACCOUNTS UNILATERALLY W ILL NOT ENABLE THE DEPARTMENT TO SAY THAT SECTION 41(1) WOU LD APPLY AND THE AMOUNT SHOULD BE INCLUDED IN THE TOTA L INCOME OF THE ASSESSEE. THE PRINCIPLE THAT EXPIRY OF THE PERIOD OF LIMITATI ON PRESCRIBED UNDER THE LIMITATION ACT COULD NOT EXTINGUISH THE DEBT BUT IT WOULD ONLY PREVENT THE CREDITOR FROM ENFORCING THE DEBT, HAS BEEN WELL SETTLED. IF THAT PRINCIPLE IS APPLIED, IT IS CLEAR THAT MERE ENTRY IN THE BOOKS OF ACCOUNT OF THE DEBTOR MADE UNILATERALLY WITHOUT ANY ACT ON THE PART OF THE CRE DITOR MADAN MOHLA 6 WILL NOT ENABLE THE DEBTOR TO SAY THAT THE LIABILIT Y HAS COME TO AN END. APART FROM THAT, THAT WILL NOT BY ITSELF CONFER ANY BENEFIT ON THE DEBTOR AS CONTEMPLATED BY THE SECTION. 3.7. FROM THE ABOVE JUDGMENT, IT MAY BE SEEN THAT HONB LE SUPREME COURT HAS CLEARLY OBSERVED THAT EXPIRY OF T HE PERIOD OF LIMITATION PRESCRIBED UNDER THE LIMITATION ACT W OULD NOT EXTINGUISH THE DEBT BUT IT WOULD ONLY PREVENT THE C REDITORS FROM ENFORCING THE DEBT. IT HAS FURTHER BEEN CLEARL Y HELD THAT OBTAINING BY THE ASSESSEE A BENEFIT BY VIRTUE OF RE MISSION OR CESSATION IS THE SINE-QUA-NON FOR THE APPLICATION OF SECTION 41(1). SIMILAR VIEW HAS BEEN TAKEN BY HONBLE SUPRE ME COURT IN ANOTHER JUDGMENT IN THE CASE OF CIT V. SI GROUP 379 ITR 236. THUS, TAKING INTO ACCOUNT TOTALITY OF ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND AFORESAID JUDGMENTS W E FIND THAT ADDITION MADE BY THE AO WAS NOT SUSTAINABLE IN THE EYES OF LAW AND THEREFORE, IT IS DIRECTED TO BE DELETED. 4. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL, 2016. SD/- (JOGINDER SINGH) SD/- (ASHWANI TANEJA) '# / JUDICIAL MEMBER $# / ACCOUNTANT MEMBER # $ MUMBAI; ( DATED 29/04 /2016 CTX? P.S/. . . MADAN MOHLA 7 %'&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. / / # 0 ( * ) / THE CIT, MUMBAI. 4. / / # 0 / CIT(A)- , MUMBAI 5. 34 - , / *& 5 , # $ / DR, ITAT, MUMBAI 6. 6! 7$ / GUARD FILE. / BY ORDER, .3* - //TRUE COPY// / (DY./ASSTT. REGISTRAR) , # $ / ITAT, MUMBAI