ACIT, circle-15(1), New Delhi V. Lakshmiji Sugar Mills Co. Ltd, Chandigarh

ITA 6428/DEL/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 9584 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 04-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 68

Judgement Text

I.T.A.No.6428/Del/2018/A.Y.2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E” NEW DELHI BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER आ .अ.स ं /.I.T.A No.6428/Del/2018 /Assessment Year:2013-14 ACIT Circle 15(1) New Delhi. ब म Vs. Lakshmiji Sugar Mills Co. Ltd. SCO, 20-81, 4 th Floor, Sector-17C, Chandigarh. PAN No. AAACL0446L अ Appellant /Respondent Assessee by None Revenue by Shri Vipul Kashyap, Sr. DR स ु नवाईक तारीख/ Date of hearing: 25.08.2022 उ ोषणाक तारीख/Pronouncement on 30.09.2022 आदेश /O R D E R PER C.N. PRASAD, J.M. This appeal is filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-5, Delhi dated 26.07.2018 for the AY 2013-14 in deleting the disallowance of unsecured loans from directors and promoters amounting to Rs.1,39,51,852/- made u/s 68 of the Act and deleting the addition made u/s 41(1) in respect of outstanding sundry creditors of Rs.15,81,908/-. I.T.A.No.6428/Del/2018/A.Y.2013-14 2 2. In spite of issue of notice fixing the date of hearing on several dates none appeared on behalf of the assessee nor any adjournment was moved. We disposed off the appeal on hearing the Ld. DR on merits of the addition/disallowance made by the Assessing Officer. 3. With regard to ground nos. 1 to 3 of grounds of appeal of the Revenue i.e. deletion of addition made u/s 68 of the Act in respect of unsecured loans from directors and promoters is concerned we observe that in the course of assessment proceedings the assessee was required to furnish the details of unsecured loans in respect of various parties listed out by the Assessing Officer in the assessment order at page 2 including loan from directors and promoters amounting to Rs.1,39,51,852/-. Assessee furnished confirmations in respect of Rana Policot Ltd., Rana Sugar Ltd. and Verms Pesticides Pvt. Ltd. It is the finding of the AO that in respect of loans from directors and promoters the assessee has not furnished any confirmations or any other documentary evidence, therefore, in the absence of any details furnished by the assessee the AO treated unsecured loans from directors and promoters as nothing but the circulation of money by the assessee company to introduce cash credit in the form of unsecured loans. Accordingly, addition of Rs.1,39,51,852/- u/s 68 was made to the income of the assessee. I.T.A.No.6428/Del/2018/A.Y.2013-14 3 4. On appeal the ld. CIT(A) on examining the evidences furnished by the assessee deleted the addition of Rs.1,39,51,852/- made u/s 68 in respect of loans from directors and promoters observing as under: “4.2 Ground No. 1: The first ground of appeal is related to an addition of Rs.1,54,33,538/- made u/s 68 on the assessment that the amount of loan from Directors and Promoters appears to have been credited during the year. The appellant has submitted that the AO has added an amount of Rs.1,39,51,852/- shown as loan from Directors. A further additions of Rs.14,81,686/- has been made on the ground of unsecured loans. The appellant has stated that these two amounts were not liable to be added back u/s 68 on the ground that there was no addition in the said accounts during the year. The list of Directors or Promoters from whom loans had been taken in earlier years and standing in the books of account of the appellant in the present year have been seen. It was also submitted by the appellant that during the course of assessment proceedings also the entire details of unsecured loans were furnished to the Assessing Officer extract from the submission of the appellant is under: - “That during the course of assessment proceedings, the appellant company was asked to submit the details of unsecured loans given and received during the year. The appellant company categorically explained that during the year under assessment they have not so far received any fresh unsecured loans either from the directors, promoters or from other persons if any, as there appears to be the opening balances of the same in their books of accounts as on 01.04.2012, which has been shown/proved from their statement of accounts filed and possessed by the AO for the year under assessment in his records, which were re-paid/cleared subsequently on 12.04.2013, as per the copy of bank statement filed and placed upon records during the course of assessment proceedings, as such the additions made were suffers from infirmity as laconic and ironic in nature, therefore, liable to be deleted and may please be deleted accordingly.” I.T.A.No.6428/Del/2018/A.Y.2013-14 4 From the copies of accounts submitted it is seen all the outstanding balance were paid back on 12.04.2013. These were the opening balance on 01.04.2012 were unchanged for all these accounts during the year under reference that i.e. FY 2012- 13. The factual position of the loans having been paid back is also on record. In these circumstances the AO was not justified in invoking Section 68. The provisions of Section 68 are as under: “68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. In order to invoke the aforesaid provisions it is essential that amount should have been credited in the books of accounts of the appellant during the financial year for which income is being assessed. Once an amount is being credited in the books the next issue is a reasonable explanation for the amounts credited is required to be furnished by the assessee. It is only when the assessee fails to furnish a reasonable explanation for the amount in his books can Section 68 be invoked. Thereafter an amount credited is treated as income of the assessee (in the year in which such amount is credited). In the present case the addition fails on very first requirement of Section 68. No amount has been credited in the year under reference and therefore no addition can be made u/s 68 in respect of these accounts. The addition therefore of Rs.1,39,51,852/- is therefore deleted.” I.T.A.No.6428/Del/2018/A.Y.2013-14 5 5. On perusal of the Ld. CIT(Appeals) order, we observe that the unsecured loans from directors and promoters are all balances in the books of account as on 01.04.2012 and it was subsequently repaid on 12.04.2013 and there were no changes in unsecured loans in respect of directors and promoters during the year under reference i.e. FY 2012-13 relevant to the AY 2013-14. Therefore, we hold that there is no infirmity in the order passed by the Ld.CIT(A) in deleting the addition made u/s 68 of the Act. Grounds raised by the Revenue on this issue are rejected. 6. Coming to ground nos. 4 & 5 i.e. in deleting the addition made u/s 41(1) of the Act on account of sundry creditors, we observe that the Assessing Officer in the course of assessment proceedings noticed that creditors to the extent of Rs.15,81,908/- are still outstanding as on the date of completion of the assessment and these credits are outstanding for more than 3 years. The Assessing Officer observing that the assessee has not filed any explanation as to why these creditors are outstanding for more than 3 years he was of the view that there is no indication that the assessee intends to pay the liabilities, treated the same as income of the assessee invoking the provisions of Section 41(1) of the Act as the liabilities are no longer payable. The Ld.CIT(A) deleted the addition following the decision of the Hon’ble Delhi High Court in the case of Vardhaman Overseas Ltd. (343 ITR 401) observing as under: “4.3 Ground No. 2: The next addition is with reference to static creditors which have been added back u/s 41(1). The AO in his order has noted that the appellant had no I.T.A.No.6428/Del/2018/A.Y.2013-14 6 intention to clear the balance of creditors outstanding in the books and there was no effort of recovery from the said creditors. These creditors were outstanding for a period of more than 3 years in the hands of the appellant company. Consistent legal position in this regard is that an addition u/s 41(1) can be made only when the amount have been written off by the appellant company in its books of accounts. The judgment of Delhi High Court in Vardhaman Overseas Ltd. 343 ITR 401 is basically clear on this account. The operative part of the judgment is quoted hereunder: “11. The question before us is limited to the applicability of Section 41(1) of the Act. The section in so far as it is relevant for our purpose is as below: -Profits chargeable to tax. 41.(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as 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 loss or expenditure or some benefit in respect of such trading 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 profession and accordingly chargeable to income- tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or xx xx xx xx xx xx (Explanation 1-For the purposes of this sub- section, the expression – loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts) (underlining ours) We may straightaway clarify that Explanation 1 which was inserted w.e.f. 01.04.1997 is not I.T.A.No.6428/Del/2018/A.Y.2013-14 7 attracted to the present case since there was no writing off of the liability to pay the sundry creditors in the assessee’s accounts. Therefore, as rightly pointed out by the Ld. Standing Counsel for the Income Tax Department, the question has to be considered de hors Explanation 1 to Section 41(1). When we do so, what we find from clause (a) is that in order to invoke the section, it must be first established that the assessee had obtained some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as purchase price in computing the business income of the assessee. The second question is whether by not paying them for a period of four years and above the assessee had obtained some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as purchase price in computing the business income of the assessee. The second question is whether by not paying them for a period of four years and above the assessee had obtained some benefit in respect of the trading liability allowed in the earlier years. The argument of the L. Standing Counsel that the non-payment or non-discharge of the liability in favour of the sundry creditors resulted in – some benefit in respect of such trading liability in a practical sense or common sense and, therefore, the section was rightly invoked, with respect, overlooks the words following the above quoted words, namely, - by way of remission or cessation thereof. As a matter of construction, it seems to us that it is not enough that the assessee derives some benefit in respect of such trading liability, but it is also essential that such benefit arises – by way of remission or cessation of the liability. The words in clause (a) viz., - some benefit in I.T.A.No.6428/Del/2018/A.Y.2013-14 8 respect of such trading liability by way of remission nor cessation thereof should be read as a whole and not in the manner suggested by the Ld. Standing Counsel. ................. 16. In our opinion, the judgment of the Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra) is a complete answer to the contention of the Ld. Standing Counsel. In the case before the Supreme Court for a period of almost 20 years the liability remained unpaid and this fact formed the basis of the contention of the Revenue before the Supreme Court to the effect that having regard to the long lapse of time and in the absence of any steps taken by the creditors to recover the amount, it must be held that there was a cessation of the debts bringing the case within the scope of Section 41(1) . In the case before us, the identical contention has been taken on behalf of the Revenue, though the period for which the amount remained unpaid to the creditors is much less. It was held by the Supreme Court that a unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only by the creditor and a cessation of the liability can only occur either by reason of operation of law or the debtor unequivocally declaring his intention not to honour his liability when payment is demanded by the creditor, or by a contract between the parties, or by discharge of the debt. 17. In the case before us, as rightly pointed out by the Tribunal, the assessee has not transferred the said amount from the creditors’ account to its profit and loss account. The liability was shown in the balance sheet as on 31.03.2002. the assessee being a limited company, this amounted to acknowledging the debts in favour of the creditors. Section 18 of the Limitation Act, I.T.A.No.6428/Del/2018/A.Y.2013-14 9 1963 provides for effect of acknowledgement in writing. It says where before the expiration of the prescribed period for a suit in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, a fresh period of limitation shall commence from the time when the acknowledgement was so signed.” In view of the aforesaid judgment the addition of Rs.15,81,908/- is hereby deleted.” 7. On perusal of the order of the Ld.CIT(A), we observe that the Ld.CIT(A) following the decision of the jurisdictional High Court in the case of Vardhaman Overseas Ltd. (supra) deleted the addition observing that consistent legal position is that an addition u/s 41(1) of the Act can be made only when the amount has been written off by the Appellant Company in its books of account. We do not see any infirmity in the order passed by the Ld.CIT(A) in deleting the addition made u/s 41(1) of the Act. Thus, we sustain the order of the Ld.CIT(A) and reject the grounds of Revenue on this issue. 8. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 30.09.2022 Sd/- Sd/- (ANIL CHATURVEDI) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 30.09.2022 *Kavita Arora, Sr. P.S. I.T.A.No.6428/Del/2018/A.Y.2013-14 10 Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order Assistant Registrar, ITAT: Delhi Benches-Delhi