Sh. Lok Nath Narang, Prop, New Delhi V. ITO, Gurgaon

ITA 6708/DEL/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 8412 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 09-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAINA SOIN KAPIL
• Keywords: Principle of natural justice; Period of limitation; Onus to prove
• Section: 142(1); 234B; 133(6); 143(1); 68

Judgement Text

ITA NO. 6708/DEL/2014 IN THE INCOME TAX APPELLAT E TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT ME MBER AND MS SUCHITRA KAMBLE, JUDIC IAL MEMBER ITA NO. 6708/DEL/2014 ( A .Y 2009-10) LOK NATH NARANG, PROP. C/O. M/S. RRA TAX INDIA, D-28, SOUTH EXTENSION, PART-I NEW DELHI PAN : ADRPN8014H (APPELLANT) VS ITO WARD-2(1) GURGAON (RESPONDENT) APPELLANT BY SH. RAKESH GUPTA, ADV., SH. ROHIT GUPTA, ADV. RESPONDENT BY SMT. NAINA SOIN KAPIL, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED AGAINST THE ORDER DATED 03.11. 2014 PASSED BY CIT(A)-II, FARIDABAD BY THE ASSESSEE FOR THE ASSESS MENT YEAR 2009-10. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT DEL ETING THE ADDITION OF RS. 37,95,928/- FULLY AS MADE BY LD. AO ON ACCOUNT OF SUNDRY CREDITORS AND HAS FURTHER ERRED IN SUSTAINING THE ADDITION TO THE EXTENT OF RS. 22,73,232/- BY APPLYING THE PROVISIONS OF SECTION 4 1(1) WHEREAS LD. AO MADE THE IMPUGNED ADDITION U/S 68 OF THE ACT AND TH E IMPUGNED ADDITION HAS BEEN MADE BY RECORDING INCORRECT FACTS AND FINDINGS AND WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING AND WITHOUT CONSIDERING DATE OF HEARING 0 2 . 0 1.201 9 DATE OF PRONOUNCEMENT 03.01.2018 ITA NO. 6708/DEL/2014 THE SUBMISSIONS/EVIDENCES OF THE ASSESSEE. 2. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN NOT DELETING THE ADDITION OF RS. 37,95,92 8/- FULLY AS MADE BY LD. AO ON ACCOUNT OF SUNDRY CREDITORS AND SUSTAININ G THE SAME TO THE EXTENT OF RS. 22,73,232/- AND PASSING THE IMPUGNED ASSESSMENT ORDER IS ILLEGAL, BAD IN LAW, VOID AB INITIO, UNJUSTIFIED, C ONTRARY TO FACTS & LAW AND BASED UPON RECORDING OF INCORRECT FACTS AND FINDING , WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING, IN VIOLATION OF PR INCIPLES OF NATURAL JUSTICE AND THE SAME DESERVES TO BE QUASHED. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REV ERSING THE ACTION OF LD. AO IN CHARGING INTEREST U/S 234A, 234B AND 234C OF INCOME TAX ACT, 1961. 4. THAT THE APPELLANT CRAVES THE LEAVE TO ADD, MODI FY, AMEND OR DELETE ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING AND ALL THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 3. THE ASSESSEE IS HAVING INCOME FROM TRADING BUSIN ESS. RETURNED DECLARING AN INCOME OF RS. 1,35,750/- WAS FILED ON 30.09.2009 WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961. T HE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICE U/S 143(2) OF THE INC OME TAX ACT, 1961 WAS ISSUED ON 28.09.2010 WHICH WAS DULY SERVED UPON THE ASSESSEE. NOTICE U/S 142(1) ALONG WITH THE DETAILED QUESTIONNAIRE WAS IS SUED ON 24.06.2011. REQUISITE INFORMATION WAS FURNISHED BY THE ASSESSEE AND ASSESSMENT PROCEEDING WAS ATTENDED BY THE ADVOCATE OF THE ASSE SSEE FROM TIME TO TIME. DURING THE PROCEEDINGS, THE ASSESSING OFFICER OBSER VED THAT THE ASSESSEE HAD REFLECTED SUNDRY CREDITORS AT RS. 73,07,477/-. THE ASSESSEE WAS ASKED TO SUBMIT COPY OF ACCOUNT OF ALL THE SUNDRY CREDITO RS ALONG WITH THE COMPLETE ADDRESSES AND INDIVIDUAL CONFIRMATIONS OF CREDITORS HAVING BALANCES EXCEEDING RS. 1,00,000/-. THE ASSESSING OF FICER FURTHER OBSERVED THAT ALL THE NOTICES U/S 133(6) WAS RETURNED BACK D UE TO NON AVAILABILITY AND NON-EXISTENCE OF CONCERN CREDITORS AT THE GIVEN ADDRESSES. THE INSPECTOR OF THE REVENUE PERSONALLY VISITED AND MADE DUE INQU IRIES AT THE GIVEN ITA NO. 6708/DEL/2014 ADDRESSES AND RETURNED THAT NO SUCH CONCERNS WERE A VAILABLE AT THE GIVEN ADDRESSES NOT THEIR WHEREABOUTS COULD BE LOCATED. T HEREFORE, THE ASSESSING OFFICER HELD THAT CREDIT BALANCES TOTALING TO RS. 3 7,95,928/- SHOULD BE TREATED AS THE ASSESSEES INCOME FROM UNDISCLOSED S OURCES AND ADDED BACK THE SAME TO THE INCOME OF THE ASSESSEE FOR CONTINUO US & WILLING FAILURE OF ASSESSEE TO GET THE SAME VERIFIED. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE ASSE SSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE BY MAKING AN OBSERVATION THAT THE FOUR SUNDRY CREDITOR S I.E. M/S. DELITE TRADING COMPANY, M/S. GANESH ENTERPRISES, M/S. KRIS HNA TRADING COMPANY AND M/S. NANAK ENTERPRISES HAS NOT FILED AN Y CONFIRMATION AND HENCE DUE TO NON-AVAILABILITY OF ANY EVIDENCES AND AMOUNT RECEIVED FROM THESE CREDITORS IN THE PRECEDING YEARS THE ASSESSIN G OFFICER INSTEAD OF APPLYING SECTION 68 OF THE ACT SHOULD HAVE APPLIED THE PROVISIONS OF SECTION 41(1) OF THE INCOME TAX ACT TO MAKE THE ADDITION. T HEREFORE THE CIT(A) MADE ADDITIONS U/S 41(1) OF THE INCOME TAX ACT. 5. THE LD. AR SUBMITTED THAT THE ONLY EFFECTIVE ISS UE IN THE PRESENT APPEAL IS SUSTAINING THE ADDITION OF RS. 22,73,232/ - OUT OF TOTAL ADDITION OF RS. 37,95,928/- OUT OF SUNDRY CREDITORS MADE BY THE ASSESSING OFFICER U/S 68 BUT SUSTAINED BY CIT(A) U/S 41(1) THE ASSESSING OFFICER MADE ADDITION U/S 68 IN RESPONSE OF THE PARTIES MENTIONED IN THE ASSESSING OFFICER. THE CIT(A) DELETED SOME OF THE ADDITIONS BUT SUSTAINED THE BALANCE 6 CREDITORS. THE LD. AR SUBMITTED THAT THE IMPUGNED LIABILITIES ARE VERY MUCH PAYABLE BY THE ASSESSEE AS TO WHEN DEMANDED AND UNLESS IT I S DEMANDED, THESE ARE BOUND TO BE SHOWN AS OUTSTANDING. THE VERY FACT THA T THESE LIABILITIES ARE APPEARING IN THE BALANCE SHEET IS STRONG ACKNOWLEDG EMENT OF THE DATES PAYABLE BY THE ASSESSEE AS HELD IN THE CASE OF CIT VS. TAMIL NADU WAREHOUSING CORPORATION, 292 ITR 310 (MAD.). IN CAS E OF AMBICA MILLS VS. CIT 54 ITR 167 (GUJ.) IT IS HELD THAT LIABILITY SHO WN IN THE BALANCE SHEET IS A CLEAR CASE OF ACKNOWLEDGING THE LIABILITY OF SUCH L IABILITY CANNOT BE TREATED TO HAVE CEASED SO AS TO ATTRACT SECTION 41(1) OF THE A CT. THE LD. AR FURTHER ITA NO. 6708/DEL/2014 SUBMITTED THAT BEING SO, WHERE IS THE QUESTION OF H OLDING THE SAID LIABILITIES AS CEASED TO EXIST, MORE SO WHEN ASSESSEE HERSELF I S ACKNOWLEDGING THE LIABILITIES TO BE PAID? HOW CAN A THIRD PARTY THAT TOO A QUASI-JUDICIAL AUTHORITY HOLD IN THE ABSENCE OF ANY MATERIAL THAT THE LIABILITY IS NOT PAYABLE BY THE ASSESSEE? THEREFORE, THE LD. AR SUBMITTED TH AT THE ADDITION MADE ON THE BASIS OF THE PRESUMPTION DOES NOT HAVE EITHER F ACTUAL OR LEGS TO STAND. THE LD. AR SUBMITTED THAT THE HONBLE APEX COURT I N CASE OF SUGAULI SUGAR WORKS VS. CIT 236 ITR 518 (SC) HELD THAT THE CESSAT ION OF THE LIABILITY CAN BE DONE NOT BY THE UNILATERAL ACT, BUT IT CAN CERT AINLY BE SO BY THE BILATERAL ACT. THE LD. AR SUBMITTED THAT SO LONG AS THE ASSES SEE IS RECOGNIZING HIS/HER LIABILITY TO PAY TO THESE CREDITORS, WHEREA S THE QUESTION OF QUASI JUDICIAL AUTHORITY TO INTERVENE AND TO SAY ON BEHAL F OF SUNDRY CREDITORS OR ON BEHALF OF THE ASSESSEE THAT AMOUNT IS NOT PAYABLE B Y THE ASSESSEE? 6. THE LD. AR FURTHER SUBMITTED THAT SECTION 41(1) SECTION 41(1) CREATES A DEEMING FICTION IN WHICH BURDEN TO PROVE THAT THE THREE INGREDIENTS OF SECTION 41(1) ARE THERE IN THIS CASE RESTS ON THE S HOULDERS OF THE ASSESSING OFFICER. THESE INGREDIENTS ARE THAT THE CREDIT IS I N RESPECT OF AS AN EXPENSE WHICH HAS BEEN ALLOWED AS DEDUCTION IN ANY YEAR. TH E SECOND COMPONENT IS THAT THE LIABILITY HAS CEASED TO EXIST AND THE LAST ONE IS THAT THE LIABILITY HAS CEASED TO EXIST IN THE YEAR IN WHICH THE ADDITION I S MADE. THE LD. AR SUBMITTED THAT EVEN IN LAW, THE ADDITION IS NOT SUS TAINABLE FOR MORE THAN ONE REASON. SECTION 41(1) IS A DEEMING FICTION ACCO RDING TO WHICH AN AMOUNT WHICH DOES NOT HAVE ANY TRACE OF INCOME IS TREATED AS INCOME LIABLE TO SUFFER THE BRUNT OF TAX. THEREFORE, AS PER THE ESTABLISHED CANONS OF LAW, THE BURDEN TO PROVE THAT A PARTICULAR AMOUNT FALLS WITHIN THE FOUR CORNERS OF SECTION 41(1) IS ON THE SHOULDER OF THE ASSESSING OFFICER W ITHOUT WHICH THE ADDITION CANNOT BE MADE AND IF MADE IS LIABLE TO BE DELETED. THE LD. AR FURTHER SUBMITTED THAT THE FIRST PRE-REQUISITE FOR THE APPL ICABILITY OF SECTION 41(1) IS THAT THERE MUST BE A TRADING LIABILITY IN RESPECT O F WHICH THE DEDUCTION HAS BEEN CLAIMED AND ALLOWED AND BURDEN TO PROVE THE TW IN CONDITIONS TO THE EFFECT OF THE ABOVE FACTS, IT GOES WITHOUT SAYING, IS ON REVENUE. THE LD. AR SUBMITTED THAT THERE IS NOT EVEN AN IOTA OF WHISPER AS TO WHETHER THE ITA NO. 6708/DEL/2014 IMPUGNED CREDITORS WERE IN RESPECT OF TRADING LIABI LITY FOR WHICH ANY DEDUCTION WAS EVER CLAIMED AND ALLOWED AND IF ALLOW ED, IN WHICH YEAR WAS IT ALLOWED SO ON SO FORTH. THIS IS EVIDENT FROM A PLAI N READING OF THE ASSESSMENT ORDER. THEREFORE, THE ASSESSING OFFICER MISERABLY FAILED TO DISCHARGE THE SAID BURDEN IN VIEW OF THE FOLLOWING DECISIONS AND THEREFORE THIS ADDITION IS LIABLE TO BE DELETED ON THIS SHORT GROUND ALONE. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HAS NOT ESTABL ISHED WITH EVIDENCE THAT THE LIABILITY IN RESPECT OF THE ABOVE OUTSTANDING B ALANCES HAS CEASED TO EXIST. THE ASSESSING OFFICER HAS GONE ON PRESUMPTION AND T HAT TOO BY PLACING THE BURDEN WRONGLY ON THE SHOULDERS OF THE ASSESSEE. SE CTION 41(1) DOES NOT ENVISAGE ANY SUCH PRESUMPTION OF CESSATION AND FIX THE INCIDENCE OF TAX THEREON. IN THE ABSENCE OF ANY MATERIAL HAVING BEEN BROUGHT ON RECORD TO ESTABLISH THAT THE DEDUCTION WAS CLAIMED OR CREDIT BALANCE HAS BEEN REMITTED, ADDITION CANNOT BE MADE U/S 41(1) IN VIEW OF THE FOLLOWING DECISIONS : I. STEEL AND GENERAL MILLS CO. LTD. VS. CIT 96 ITR 438 (DEL) II. CIT VS. NATHUBHAI DESHA BHAI 130 ITR 238 (MP) III. LIQUIDATOR, MYSORE AGENCIES P. LTD. VS. CIT 1 14 ITR 853 (KARN) IV. K.V.MOOSA KOYA & CO VS. CIT 175 ITR 120, 124 ( KER) V. CIT VS. PRANLAL P DOSHI 201 ITR 756 (GUJ) 7. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER FAILED TO ESTABLISH THAT CESSATION IF AT ALL HAS HAPPENED, HAS HAPPENED IN THE YEAR UNDER APPEAL AS HELD BY DELHI BENCH OF TRIBUNAL IN THE CA SE OF MADAN LAL BROTHERS. AFTER ALL, LIABILITY TO TAX CAN BE FIXED IN THE YEA R TO WHICH IT PERTAINS AND TO NO OTHER YEAR. LIABILITY TO TAX ANY CEASED LIABILITY IN A PARTICULAR YEAR DOES NOT DEPEND ON THE ACTION OF TH E ASSESSING OFFICER IN SELECTING A CASE IN SCRUTINY OF THAT YEAR. MERELY B ECAUSE THE ASSESSING OFFICER CHOSE TO ENQUIRE ABOUT THE CREDITORS IN THI S YEAR AND IF ASSESSEE FAILS TO ESTABLISH THE EXISTENCE OF THE LIABILITY IN THIS YEAR (EVEN IF IT IS SO ASSUMED) THEN ALSO IT CANNOT BE SAID THAT THE LIABI LITY CEASED TO EXIST ONLY IN THIS YEAR AND NOT BEFORE. NOBODY CAN BE PERMITTED T O FIX THE YEAR OF TAXABILITY BY A CONSCIOUS DESIGN OR OMISSION, BE HE AN ASSESSEE OR AN ITA NO. 6708/DEL/2014 ASSESSING OFFICER. THEREFORE, VIEWED FROM ANY ANGLE , THE ADDITION MADE BY THE ASSESSING OFFICER IS LIABLE TO BE DELETED. THE LD. AR ALSO RELIED UPON THE FOLLOWING DIRECT DECISIONS :- I. UTTANT AIR PRODUCTS P LTD VS DCIT 99 TTJ 718 (DEL) II. NEW COMMERCIAL MILLS CO. LTD VS DCIT 73 TTJ 893 (AHD) III. ABC INDIA LTD VS DCIT 57 TTJ 349(GAU) IV. CIT VS SADUL TEXTILES LTD 167 ITR 634(RAJ) V. CIT VS PRE STRESSED CONCRETE P LTD 162 ITR 314(M AD) THE LD. AR SUBMITTED THAT A PLAIN READING OF THE AS SESSMENT ORDER WOULD SHOW THAT NONE OF THESE THREE INGREDIENTS IS AVAILA BLE IN THE CASE OF THE ASSESSEE NOR HAS IT BEEN PROVED BY THE ASSESSING OF FICER WITH THE HELP OF ANY EVIDENCE. THEREFORE, THE ADDITION U/S 41(1) COULD N OT BE MADE AS HELD BY HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SITA DEVI JUNEJA 325 ITR 593. 8. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE W AS HAVING OPENING BALANCES AND THE SAME IS CONFIRMATION BY THE PARTIE S DIRECTLY TO THE ASSESSING OFFICER, THEREFORE, THE ADDITION CANNOT B E MADE. THE LD. AR RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT I N CASE OF PR. CIT VS. NEW WORLD SYNTHETICS LIMITED (ITA NO. 806/2018 ORDER D ATED 27.08.2018) 9. THE LD. DR SUBMITTED THAT COMMENCING WITH A BRIE F BACKGROUND THAT THE ASSESSING OFFICER MADE ADDITION U/S 68 ON ACCOU NT OF SUNDRY CREDITORS OF RS. 37,95,928/- THE CIT(A) SUSTAINED ADDITION OF RS. 22,73,232/- WHICH THE ASSESSEE IS AGITATING. THE LD. DR SUBMITTED THA T AS REGARDS M/S. DELITE TRADING CO.-RS. 7,16,903, M/S. GANESH ENTERPRISES-R S. 4,75,883, M/S. KRISHNA TRADING CO.-RS. 2,33,844 AND M/S. NANAK ENT ERPRISES-RS. 1,14,966 ARE CONCERNED THERE WAS WRONG PAN, NO CONFIRMATIONS FILED, AND NOTICES ISSUED U/S. 133(6) TWICE REMAIN UNCOMPILED WITH, IN SPECTORS SPOT INQUIRY BY PERSONALLY VISITING AND MAKING INQUIRIES AT GIVE N ADDRESS AND FROM THE OCCUPANTS / NEIGHBORS REPORTED THAT NO SUCH CONCERN S ARE AVAILABLE AT THE GIVEN ADDRESSES NOR THEIR WHEREABOUTS COULD BE LOCA TED. DURING THE REMAND PROCEEDINGS DETAILS OF CONFIRMATIONS FILED WERE EXA MINED AND PAN WAS AGAIN ITA NO. 6708/DEL/2014 FOUND TO BE WRONG BY THE AO, SO IDENTITY OF THE CRE DITOR REMAINS PROFUSELY DOUBTFUL, CREDITWORTHINESS AND GENUINENESS OF TRANS ACTION ALSO NOT PROVED IN ABSENCE OF ANY EVIDENCE. AS REGARDS TO M/S. S.B. INDUSTRIES RS. 4,00,351, THE LD. DR SUBMITTED THAT NOTICE WAS ISSU ED U/S 133(6) BUT NOT COMPLIED WITH BOTH THE TIMES, EVEN DURING REMAND PR OCEEDINGS CONFIRMATION COULD NOT BE FURNISHED BY THE ASSESSEE, OTHER CORRO BORATIVE EVIDENCES ALSO NOT PRODUCED. AS REGARDS TO M/S. VEE KAY ENTERPRISE S RS. 3,31,285, THE COPY OF A/C OF THE ASSESSEE IN THEIR BOOKS REFLECTE D NIL BALANCE. THIS SUNDRY CREDITOR DENIED OF HAVING ANY TRANSACTION BETWEEN H IM AND THE ASSESSEE SINCE 2005. IT IS CORROBORATED BY THE INQUIRY CONDU CTED BY THE INSPECTOR WHEREIN IT WAS INFORMED BY SH. VINOD BANSAL THAT M/ S. VEE KAY ENTERPRISES DID NOT HAVE ANY DEBTOR NAMED M/S. LOKNATH NARANG. THE LD. DR RELIED UPON THE FOLLOWING CASE LAWS : 1. KONARK STRUCTURAL ENGINEERING (P) LTD. VS. DCIT [20 18]96 TAXMANN.COM255 (SC) KONARK STRUCTURAL ENGINEERING (P) LTD. VS. DCIT [20 18] 90 TAXMANN.COM 56 (BOMBAY) 2. DRB EXPORTS (P) LTD. VS. CIT [2018] 93 TAXMANN.COM 490 (CALCUTTA) 3. CIT VS. ULTRA MODERN EXPORTS (P) LTD. (40 TAXMANN.C OM 458, 220 TAXMAN 165) 4. CIT VS. FROSTAIR (P.) LTD. (26 TAXMANN.COM 11, 210 TAXMAN 221) 5. CIT VS. EMPIRE BUILTECH (P.) LTD. (336 ITR 110) 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON THE RECORD. FROM THE PERUSAL OF THE RE CORDS IT CAN BE SEEN THAT ALL THE RELEVANT RECORDS WERE PRODUCED BY THE ASSES SEE BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE CIT(A). THE SUBMISSIO NS MADE BY THE LD. DR ABOUT THE EVIDENCES ARE CONTRARY TO WHAT IS ON RECO RD. THE ASSESSEE IS IN TRADING BUSINESS AND THE FIGURES APPEARING IN THE A SSESSMENT ORDER ARE THAT OF OPENING BALANCES THEREFORE, SECTION 68 AS WELL A S SECTION 41(1) WILL NOT BE APPLICABLE IN THE PRESENT CASE. SINCE THE ASSESSEE IS CHALLENGING THE ORDER OF ITA NO. 6708/DEL/2014 THE CIT(A) WHEREIN THE ADDITION HAS BEEN DONE U/S 4 1(1) THE SAME DOES NOT SUSTAIN IN LIGHT OF THE DECISION OF THE HONBLE DEL HI HIGH COURT IN CASE OF NEW WORLD SYNTHETICS LTD. WHEREIN IT IS HELD AS UND ER :- 3. IT IS AN UNDISPUTED AND ADMITTED FACT THAT THE RESPONDENT-ASSESSEE HAD AN OUTSTANDING LIABILITY OF RS.2,61,72,160/- DU E AND PAYABLE TO M/S. P.T. POLYSINDO, JAKARTA, INDONESIA SINCE 31 ST MARCH, 2003. THIS LIABILITY WAS SHOWN AND ACKNOWLEDGED IN THE BALANCE -SHEET AND THE ACCOUNTS PREPARED BY THE RESPONDENT-ASSESSEE FOR TH E YEAR ENDING 31 ST MARCH, 2006, AND FILED WITH THE REGISTRAR OF COMPAN IES AND THE INCOME TAX DEPARTMENT. M/S. P.T. POLYSINDO, WAS SHOWN AND RECORDED AS A SUNDRY CREDITOR, TO WHOM THE RESPONDENT-ASSESSEE WA S LIABLE TO PAY RS.2,61,72,160/-. 4. WHILE LIABILITY TO PAY WAS NOT DISPUTED AND DOUBTED BY THE RESPONDENT- ASSESSEE, ALBEIT, THE REVENUE INSISTS A ND CLAIMS THAT THERE WAS CESSATION OF LIABILITY AS RS.2,61,72,160/- HAD REMAINED OUTSTANDING AND UNPAID SINCE 31 ST MARCH, 2003 TILL 31 S MARCH, 2006. THE DEBT DUE TO M/S. P.T. POLYSINDO, IT IS STATED, HAD BECOME BARRE D BY LIMITATION. FURTHER THERE WAS NO LIKELIHOOD OF THE RESPONDENT-A SSESSEE MAKING THE SAID PAYMENT AS THE RESPONDENT- ASSESSED HAD INCURRED HUGE LOSSES AND STOPPED BUSINESS OPERATIONS DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2000-01. 5. SECTION 41(1) OF THE ACT, FOR THE SAKE OF CONVENIEN CE IS REPRODUCED BELOW: PROFITS CHARGEABLE TO TAX. 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE I N THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REF ERRED 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 ITA NO. 6708/DEL/2014 OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF S UCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAI NED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DE EMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHA RGEABLE TO INCOME- TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER TH E BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DED UCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF W HICH LOSS OR EXPENDITURE WAS INCURRED BY THE FIRST- MENTIONED PE RSON OR SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY REFERRE D TO IN CLAUSE (A) BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAI NED BY THE SUCCESSOR IN BUSINESS OR THE VALUE OF BENEFIT ACCRUING TO THE SUCCESSOR IN BUSINESS SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSI NESS OR PROFESSION, AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INC OME OF THAT PREVIOUS YEAR. 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 UNILAT ERAL 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 OF F 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 COMPA NY WITH ANOTHER COMPANY, THE AMALGAMATED COMPANY; (II) WHERE THE FIRST-MENTIONED PERSON IS SUCCEEDED BY ANY OTHER PERSON IN THAT BUSINESS OR PROFESSION, THE OTHER PERSON; ITA NO. 6708/DEL/2014 (III) WHERE A FIRM CARRYING ON A BUSINESS OR PROFES SION IS SUCCEEDED BY ANOTHER FIRM, THE OTHER FIRM; (IV) WHERE THERE HAS BEEN A DEMERGER, THE RESULTING COMPANY. THE PROVISION STATES THAT WHEN AN ASSESSEE MAKES AN ALLOWANCE OR DEDUCTION IN RESPECT OF LOSS, EXPENDITURE OR TRADIN G LIABILITY INCURRED, ANY AMOUNT OBTAINED IN CASH OR IN ANY OTHER MANNER; OR WHEN THERE IS REMISSION OR CESSATION, THE AMOUNT OBTAINED OR THE VALUE OF BENEFIT ACCRUING BY WAY OF REMISSION AND CESSATION SHALL BE DEEMED TO BE PROFIT AND GAIN OF THE BUSINESS OR PROFESSION. THE WORD 'C ESSATION' IN COMMON PARLANCE AND IN CONTEXT IN WHICH IT IS USED IN SECT ION 41(1) OF THE ACT CONNOTES THAT THE DEBT HAS BECOME EXTINCT, HAS COME TO AN END OR IT HAS BEEN FORFEITED. 'REMISSION' IMPLIES CANCELLATION OR EXTINGUISHMENT OF ALL OR PART OF THE FINANCIAL OBLIGATION ON PART OF THE CREDITOR. 6. EXPLANATION TO THE SECTION STATES THAT THE LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIABILI TY BY WAY OF REMISSION OR CESSATION THEREOF, SHALL INCLUDE REMISSION AND CESS ATION OF ANY LIABILITY BY UNILATERAL ACT OF THE FIRST MENTIONED PERSON I.E. THE ASSESSEE. THE EXPLANATION THEREFORE REFERS TO THE CONDUCT OF THE ASSESSEE. WE NEED NOT REFER TO CLAUSE (B) TO SECTION 41(1) FOR THE SA ID CLAUSE IS NOT APPLICABLE. 7. IN THE PRESENT CASE THERE WAS NO UNILATERAL ACT BY WAY OF REMISSION OR CESSATION BY THE ASSESSEE, FOR THE RESPONDENT-ASSES SEE HAD NOT WRITTEN OFF THE OUTSTANDING AMOUNT OF RS.2,61,72,160/- PAYA BLE TO M/S. P.T. POLYSINDO. THIS IS ALSO NOT A CASE WHERE BENEFIT IN ANY FORM OR IN CASH WAS RECEIVED BY THE RESPONDENT-ASSESSEE. HENCE THE FIRST PART OF CLAUSE (A) TO SECTION 41 (1 ) OF THE. ACT, WOULD NOT APPLY. 8. WHETHER THE DEBT HAD CEASED TO EXIST, WAS FORFEITE D, OR WAS EXTINCT OR WHETHER THERE WAS REMISSION IN WHOLE OR PART, WOULD NORMALLY BE A QUESTION OF FACT, UNLESS THERE WAS CESSATION OR REM ISSION BY OPERATION OF LAW. WHEN IT COMES TO FACTS, THE CONDUCT AND UND ERSTANDING OF THE ITA NO. 6708/DEL/2014 PARTIES IS RELEVANT AND IMPORTANT. FOR THE CONDUCT WOULD REVEAL EXISTENCE OR EXTINCTION AND FORFEITURE OF THE LIABI LITY. 9. NON-PAYMENT OF OUTSTANDING LIABILITY WHICH IS ADMI TTED AND ACKNOWLEDGED AS DUE AND PAYABLE BY AN ASSESSEE DOES NOT INDICATE REMISSION OR CESSION OF LIABILITY. WHEN AN ASSESSEE SUFFERS LOSSES, PAYMENTS AND DEBTS DUE INCLUDING THOSE DUE TO FINAN CIAL INSTITUTIONS ARE NOT PAID. DELAY OR NONPAYMENT, EVEN WHEN THE AS SESSING OFFICER IS OF THE OPINION THAT LIKELIHOOD OF PAYMENT WAS REMOT E AS BUSINESS HAS STOPPED, WOULD BY ITSELF NOT DENOTE AND MEAN CESSAT ION OR REMISSION OF LIABILITY. IN THE WINDING UP OR BANKRUPTCY PROCEEDI NGS, PAYMENTS ARE MADE, MOSTLY PARTLY, ON SALE OF ASSETS. 10. IN BOMBAY DYEING & MANUFACTURING COMPANY LIMI TED VS. STATE OF BOMBAY & ORS., AIR 1958 SG 328, IT WAS HELD AND OBSERVED THAT THE DEBT OR LIABILITY MAY SUBSIST NOTWITHSTANDING ITS R ECOVERY WAS BARRED BY LIMITATION FOR THE LAW OF LIMITATION MERELY BARS THE CREDITOR FROM INVOKING LEGAL REMEDY. IN COMMISSIONER OF INCOME TA X VS. SUGAULI SUGAR WORKS (P) LTD. ,(1999) 2 SCC 355, IT WAS ELUC IDATED THAT EXPIRY OF PERIOD OF LIMITATION AS PRESCRIBED IN THE LIMITATIO N ACT DOES NOT EXTINGUISH THE DEBT BUT ONLY PREVENTS THE CREDITOR FROM ENFORCING THE DEBT. THIS IS THE RIGHT AND CORRECT POSITION IN LAW AS HELD BY THE BOMBAY HIGH COURT IN KOHINOOR MILLS CO. LTD. VS. CO MMISSIONER OF INCOME-TAX [1963] 49 ITR 578 (BOM.) AND BHAGWAT PRASAD AND CO. VS. COMMISSIONER OF INCOME-TAX (1975) 99 ITR 111 (ALL). IN THIS CONTEXT THE ADMISSION AND ACKNOWLEDGEMENT OF THE DEBT AND LIABI LITY BY THE RESPONDENT- ASSESSEE IS SIGNIFICANT AND IMPORTANT. 11. THE PATENT FLAW IN THE ARGUMENT RAISED BY THE REVENUE IS TO IGNORE AND OVERLOOK ADMISSION OF LIABILITY TO PAY AS THE R ESPONDENT-ASSESSEE HAD ACKNOWLEDGED THAT RS.2,61,72,160/- WAS DUE AND PAYABLE TO M/S.P.T. POLYSINDO. THIS LIABILITY WAS ACCEPTED AND ACKNOWLEDGED IN THE BOOKS OF ACCOUNTS AND THE RETURNS FILED WITH TH E REGISTRAR OF ITA NO. 6708/DEL/2014 COMPANIES AND WITH THE INCOME-TAX DEPARTMENT. DEBT ACKNOWLEDGED AND ADMITTED IN THE BALANCE- SHEET AND ACCOUNTS FIL ED WITH THE REGISTRAR OF COMPANIES IS AN ACKNOWLEDGEMENT WITHIN THE MEANING OF SECTION 18 OF THE LIMITATION ACT, SO AS TO GIVE A F RESH PERIOD OF THE LIMITATION AS HAS BEEN HELD IN AMBICA MILLS LTD. AH MEDABAD VS. COMMISSIONER OF INCOME-TAX, GUJARAT, AHMEDABAD AIR 1964 GUJ. 208. THE SUPREME COURT IN UTTAM SINGH DUGGAL & CO. LTD. VS. UNITED BANK OF INDIA & ORS. (2000) (7) SCC 120 HAS REFLECTED AN D PRONOUNCED CWRADMISSION IN THE BALANCE SHEET AND ACCOUNTS FOR THE PURPOSE OF ORDER XII, RULE 6 OF THE CODE OF CIVIL PROCEDURE. 1 2. DECISION IN THE CASE OF POLYFLEX (INDIA) PVT. L TD. BANGALORE VS. COMMISSIONER OF INCOME TAX KARNATAKA (2002) 7 SCC 1 88, IS DISTINGUISHABLE, AS IN THE SAID CASE ASSESSEE HAD R ECEIVED AND OBTAINED AN AMOUNT IN CASH, WHICH AMOUNT RECEIVED W AS EARLIER RECORDED AND TREATED AS EXPENDITURE IN THE PROFIT A ND LOSS ACCOUNT. IN THE SAID CASE EXCISE DUTY PAID HAD BEEN REFUNDED, T HOUGH THE REVENUE HAD PREFERRED AN APPEAL AND THE DECISION ON REFUND HAD NOT ATTAINED FINALITY. THE SUPREME COURT THEREFORE DREW DISTINCT ION BETWEEN RECEIPT OF CASH OR AMOUNT; AND REMISSION OR CESSATION OF LI ABILITY IN RESPECT OF LOSS OR EXPENDITURE UNDER THE SECOND PART OF CLAUSE (A) OF SECTION 41(1) OF THE ACT. IN THE PRESENT CASE THE RESPONDENT-ASSE SSEE HAS NOT OBTAINED ANY MONEY OR BENEFIT UNDER THE FIRST PART OR THE DEEMING PART OF CLAUSE (A) TO SUB-SECTION 1 TO SECTION 41 OF THE ACT. 13. THERE WAS NO REMISSION OR CESSATION OF LIABILI TY. THIS DECISION OF THE JURISDICTIONAL HIGH COURT IS APPLICABLE IN THE PRESENT CASE THEREFORE, THE ORDER OF THE CIT(A) DOE S NOT SUSTAIN. FROM THE PERUSAL OF THE RECORDS IT CAN BE SEEN THAT THE ASSE SSING OFFICER HAS NOT ESTABLISHED WITH EVIDENCE THAT THE LIABILITY IN RES PECT OF THE ABOVE OUTSTANDING BALANCES HAS CEASED TO EXIST. THE CASE LAWS REFERRED BY THE LD. DR ARE FACTUAL DISTINGUISHED BY THE LD. AR AND WILL NOT BE APPLICABLE IN THE PRESENT CASE. THE APPEAL OF THE ASSESSEE IS ALLOWED . ITA NO. 6708/DEL/2014 11. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JANUARY, 2019 . SD/- SD/- (N.K.BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 03/01/2019 BINITA COPY FORWARDED TO: 1.APPELLANT 2. RESPONDENT 3. CIT 4.CIT(APPEALS) 5.DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 02.01.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 02.01.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 02.01.2019 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 03.01.2019 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 03.01.2019 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 03.01.2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 03.01.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER