Kothari Car P. Ltd., Pune V. ACIT, Pune

ITA 72/PUN/2013

• Counselvise Citation: 7224514 RSA 2013
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 07-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: C V CHITALE
• Keywords: Capital asset; Principle of natural justice; Period of limitation; Capital receipt; Time period of passing order

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER. ITA.NO.72/PN/2013 (ASSESSMENT YEAR 2006-07) KOTHARI CARS PVT. LTD., 458/2&4, TILAK ROAD, NEAR ALKA TALKIES, PUNE - 411030 PAN NO. AABCK1768P .. APPELLANT VS. ACIT, CIRCLE-11(1), PUNE .. RESPONDENT ASSESSEE BY : SHRI C.V. CHITALE REVENUE BY : SHRI S.P. WALIMBE DATE OF HEARING : 04-02-2014 DATE OF PRONOUNCEMENT : 06-02-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 14-08-2012 OF THE CIT(A)-I, PUNE RELATING TO ASSESS MENT YEAR 2006-07. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF DEALERS IN AUTOMOBILE PR ODUCTS, CARS, SPARES, ACCESSORIES, REPAIRING WORKS AND MANUFACTURING OF P OWER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFI CER NOTED THAT ASSESSEE IS PURCHASING VEHICLES FROM HYUNDAI AND THE PAYMENT IS MADE BY THE ICICI ON BEHALF OF THE ASSESSEE. IN SUPPORT OF THIS ASSE SSEE FURNISHED AGREEMENT COPY BETWEEN ASSESSEE & ICICI. IN THE PROCESS ICIC I HAS FORWARDED AN AMOUNT OF RS.20,79,140/- TO THE DEALER HYUNDAI ON B EHALF OF ASSESSEE. CONSEQUENT UPON ASSESSEE COLLECTED THE SAID MONEY F ROM THE CUSTOMERS BY SELLING VEHICLES BUT IN RETURN ASSESSEE HAS NOT PAI D BACK THIS AMOUNT TO 2 ICICI. IN THE YEAR 2007-08 ASSESSEE OFFERED THIS A MOUNT TO TAX ON THE GROUND THAT THE SAID AMOUNT IS NO MORE PAYABLE TO I CICI UNDER THE LIMITATION PERIOD PRESCRIBED IN THE ACT. 2.1 THE ASSESSING OFFICER, HOWEVER, NOTED THAT THE LIMITATION PERIOD GETS OVER IN THE A.Y. 2006-07 ITSELF, THEREFORE, THE ASS ESSEE SHOULD HAVE OFFERED THIS AMOUNT TO TAX IN THE A.Y. 2006-07 AND NOT IN A .Y. 2007-08. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THIS AMOUNT OF RS.20,79,140/- SHOULD NOT BE ADDED TO THE TOTAL INC OME DURING A.Y. 2006- 07. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY TH E ASSESSEE THE ASSESSING OFFICER ADDED AN AMOUNT OF RS.20,79,140/- TO THE TO TAL INCOME OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR ON ACCOUN T OF CESSATION OF LIABILITY. 3. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER BY OBSERVING AS UNDER : 5.4 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE LAW AS ARE APPARENT FROM THE RECORD. THE APPELLANT HAS STATED THAT THERE WAS A FINANCE ARRANGEMENT WITH ICICI BANK UPTO F.Y. 2002-03, UNDE R WHICH ICICI BANK USED TO PAY THE HYUNDAI COMPANY ON BEHALF OF THE ASSESSE E TOWARDS THE PAYMENT OF PURCHASE OF CARS. THE APPELLANT WAS REPAYI NG THE AMOUNT TO ICICI BANK AFTER SALE OF CARS. IN THIS PROCESS, THE PAY MENT OF RS.20,79,140/- WAS NEITHER PAID BY THE APPELLANT NOR DEMANDED BY TH E ICICI. CONSIDERING THE HUGE TURNOVER OF ICICI AND THEIR COMPLEXITY OF ACCOUNTS, RECONCILIATION METHODS, THE ICICI COULD NOT TRACE THEIR MISTAKE AND THE SAME REMAINED TO BE CLAIMED BY THE ICICI. THE ASSESSEE TREATED THIS AS P AYABLE CREDIT IN ITS BOOKS AS ADVANCE FROM CUSTOMERS-SANTRO AS ON 31-03-2006 . THIS WAS THE STARTING POINT OF INVESTIGATION FOR MAKING THE ADDITI ON. IT IS ALSO APPARENT FROM THE CONDUCT OF THE ASSESSEE THAT IT NEVER WANTED T O PAY THIS AMOUNT TO BANK AND THERE WAS ALL THE INTENTION TO TAKE ADVANTA GE OF THIS LAPSE. THE APPELLANT HAS FURTHER SUBMITTED A COPY OF THE LEDGER EXTRACT OF THE ACCOUNT OF ICICI BANK IN THE BOOKS OF THE ASSESSEE COMPANY FOR F.Y. 2002-03. DURING THE COURSE OF ASSESSMENT, THE ASSESSEE WAS ASKED TO EXPLAIN B Y THE A.O. THE UNVERIFIED ENTRIES IN ITS BOOKS OF ACCOUNTS. ON VERIFI CATION OF THE LEDGER EXTRACT OF THE ACCOUNT OF ICICI IN THE BOOKS OF THE ASSESSEE IT IS NOTICED THAT A SINGLE ENTRY WAS PASSED ON 29-06-2002 AS ADVANCE FROM C USTOMER FOR AN AMOUNT OF RS.20,79,140/-. NO FULL DETAILS THEREOF WE RE EITHER SUBMITTED DURING THE APPELLATE PROCEEDINGS OR IN ASSESSMENT PROC EEDINGS. IT HAS ALSO BEEN STATED BY THE APPELLANT THAT THE AMOUNT IN QUEST ION HAS ALREADY BEEN OFFERED FOR TAXATION IN A.Y. 2007-08 AT ITS OWN. TH US, THERE APPEARS TO BE NO DISPUTE REGARDING TAXABILITY OF THE AMOUNT. THE ONL Y QUESTION REMAINS FOR ADJUDICATION IS THE YEAR, IN WHICH THE AMOUNT IS TAXA BLE? IT HAS ALREADY BEEN 3 ADMITTED BY THE APPELLANT THAT THE AMOUNT WAS ITS LIA BILITY WHICH IT HAD TO PAY BACK TO ICICI, AS SUCH THE AMOUNT OF DEBT WAS NO T IN DISPUTE. IN THIS SITUATION, THE APPELLANT COULD HAVE PAID THE AMOUNT AT ITS OWN EVEN IF THE ICICI HAD NOT DEMANDED THE SAME. THIS SHOWS THE VERY I NTENTION OF THE APPELLANT FOR NOT PAYING THE DUES TO THE BANK. THER EFORE, WHEN IT IS APPARENT THAT THE APPELLANT HAD NO INTENTION OF PAY ING THE SUM, IT HAS TO BE ACCEPTED TO HAVE CEASED WHEN THE RECOVERY BECOME LE GALLY TIME BARRED. BECAUSE THE LIABILITY THEREAFTER CAN ONLY SUBSISTS WHEN THE APPELLANT COULD BE SEEN TO HAVE THE INTENTION OF PAYING IT EVEN IF B Y LAW THE RECOVERY HAS BECOME BARRED. FURTHER, THE CASE LAWS REFERRED BY TH E APPELLANT ARE DISTINGUISHABLE ON THESE FACTS. IN MY OPINION, CONSIDER ING THE TOTALITY OF FACTS THE ASSESSING OFFICER HAS RIGHTLY TAXED THE AMOUNT IN THE YEAR IN WHICH THE CLAIM WAS BARRED BY THE LIMITATION ACT AS THE PO SSIBILITIES OF CLAIMING THE DUES BY THE BANK CEASED AND IT IS ALREADY CLEAR T HAT APPELLANT HAD NO DESIRE OR INTENTION TO PAY IT. THEREFORE, THE ACTIO N OF THE ASSESSING OFFICER IS UPHELD AND THE GROUND IS DISMISSED. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. WITHOUT CONSIDERING THE FACT THE A.O. HAS ERRED I N MAKING ADDITION AND THE LD.CIT(A)-I, PUNE HAS ERRED IN CONFIRMING TH E ENTIRE ADDITION OF RS.20,79,140/- BEING REMISSION OF A LOAN FROM ICICI BA NK, INSPITE OF IT BEING A CAPITAL RECEIPT AND NOT AN INCOME RECEIPT. 2. WITHOUT CONSIDERING THE FACT AND THE LAW THAT THE PROVISIONS OF SECTION 41(1) ARE NOT APPLICABLE IN RESPECT OF UNPAID LOAN OF RS.20,79,140/- THAT HAS NOT BEEN TIME BARRED, THE A.O. HAS ERRED IN DISALLOWING AND THE LD.CIT(A)-I, PUNE HAS ERRED IN CONFIRMING THE DISALLO WANCE FOR DEDUCTION OF THE AFORESAID AMOUNT. 3. WITHOUT CONSIDERING THE FACT AND THE LAW THAT THE PROVISIONS OF SECTION 41(1) ARE NOT APPLICABLE IN RESPECT OF UNPAID LOAN OF RS.20,79,140/- THAT MAY BE TIME BARRED, THE A.O. HAS ERRED IN DISALL OWING AND THE LD.CIT(A)- I, PUNE HAS ERRED IN CONFIRMING THE DISALLOWANCE FOR DEDUCTION OF THE AFORESAID AMOUNT. 4. WITHOUT CONSIDERING THE FACT THE A.O. AND THE LD. CIT(A)-I, PUNE HAVE FAILED TO APPRECIATE THAT : (I) THAT WAS NO EVIDENCE THAT THE LIABILITY ON ACCOU NT OF LOANS OF ICICI CEASED DURING THIS YEAR AND HENCE, THE INCOME U /S.41(1) COULD NOT BE ASSESSED IN THIS YEAR. (II) THE ASSESSEE ITSELF HAD OFFERED THIS INCOME IN NEXT YEAR, I.E. A.Y. 2007-08 BY WRITING BACK THE AMOUNT OF RS.20,79, 140/- ON ACCOUNT OF LOAN FROM ICICI AND AS PER EXPLANATION 1 TO SECTION 41(1), IT WAS TAXABLE IN THE AFORESAID A.Y. ITSELF. (III) THE LIABILITY DOES NOT CEASE BECAUSE OF THE REASO N THAT THE DURATION OF THREE YEARS HAD ELAPSED IN A.Y. 2006-07. SUPREME COURTS DECISION IN THE CASE OF SUGAULI SUGAR WORKS [236 ITR 5 18] EXPRESSES THE SAME AND THUS, THERE IS NO REASON WARRANTING THE AD DITION U/S.41(1). 5. THE ASSESSMENT ORDER IS PASSED NOT IN KEEPING WITH THE PROVISIONS OF LAW AND NATURAL JUSTICE AND SAME NEEDS TO BE CANCELLED . 4 6. THE ORDER U/S.143(3) OF THE I.T. ACT 1961, DATED 18-09-2012 OF THE CIT(A)-II, PUNE, IN CASE OF THE ASSESSEE IS BAD IN LAW. 5. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITTED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD. VS. CIT REPORTED IN 261 ITR 501 WHEREIN IT HAS BEEN HELD TH AT NO ALLOWANCE OR DEDUCTION HAVING BEEN ALLOWED IN RESPECT OF LOAN TA KEN BY ASSESSEE FOR PURCHASE OF CAPITAL ASSETS, SECTION 41(1) WAS NOT A TTRACTED TO REMISSION OF PRINCIPAL AMOUNT OF LOAN. REFERRING TO THE DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS PV T. LTD. REPORTED IN 236 ITR 518 HE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS CLEARLY HELD THAT THE EXPIRY OF PERIOD OF LIMIT ATION UNDER THE LIMITATION ACT COULD NOT EXTINGUISH THE DEBT BUT IT WOULD ONLY PREVENT THE CREDITOR FROM ENFORCING THE DEBT. IT WAS ACCORDINGLY HELD T HAT SIMPLY BECAUSE THE PERIOD OF LIMITATION HAS EXPIRED THAT DOES NOT MEAN THAT THERE IS CESSATION OF LIABILITY. HE SUBMITTED THAT THE ASSESSEE HIMSELF HAS OFFERED THE AMOUNT TO TAX IN THE SUBSEQUENT YEAR, THEREFORE, IN VIEW OF T HE DECISIONS CITED ABOVE, THERE CANNOT BE ANY ADDITION U/S.41(1) OF THE I.T. ACT. 6. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALS O CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE THE ASSESSEE HAS OBTAINED LOAN FROM ICICI BANK AND AN AMOUNT OF RS.2 0,79,140/- WAS PAYABLE BY THE ASSESSEE AS ON 29-06-2002. ACCORDIN G TO THE ASSESSING 5 OFFICER THE PERIOD OF LIMITATION EXPIRES DURING THE IMPUGNED FINANCIAL YEAR AND THEREFORE THE AMOUNT SHOULD HAVE BEEN OFFERED T O TAX IN THE IMPUGNED ASSESSMENT YEAR WHEREAS THE ASSESSEE HAS OFFERED TH E SAME TO TAX IN THE A.Y. 2007-08. 7.1 IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSES SEE THAT IT HAS NOT OBTAINED ANY DEDUCTION IN ANY OF THE ASSESSMENT YEA R IN RESPECT THIS TRADING LIABILITY NOR HAS OBTAINED ANY ALLOWANCE OR DEDUCTI ON IN RESPECT OF SUCH EXPENDITURE. FURTHER, IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT EXPIRY OF THE PERIOD OF LIMITATION PE RIOD UNDER THE LIMITATION ACT COULD NOT EXTINGUISH THE DEBT BUT IT WOULD ONLY PREVENT THE CREDITOR FROM ENFORCING THE DEBT. FURTHER, ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE THE ASSESSEE HAS ALREADY OFFERED THE AMOUN T TO TAX IN THE A.Y. 2007-08, THEREFORE, NO ADDITION SHOULD HAVE BEEN MA DE IN THE IMPUGNED ASSESSMENT YEAR. 7.2 WE FIND MERIT IN THE ABOVE ARGUMENTS ADVANCED B Y THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THE HONBLE SUPREME COUR T IN THE CASE OF SUGAULI SUGAR WORKS PVT. LTD. (SUPRA) HAS OBSERVED AS UNDE R (SHORT NOTES) : THE FOLLOWING WORDS IN SECTION 41(1) OF THE INCOME-T AX ACT, 1961, ARE IMPORTANT : THE ASSESSEE HAD OBTAINED, WHETHER IN C ASH 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 W AY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY HIM. THE SECTION CONTEMPLATES THE OBTAINING BY THE ASSESSEE OF AN AMOUNT EITHER IN CA SH OR IN ANY OTHER MANNER WHATSOEVER OR A BENEFIT BY WAY OF REMISSION OR CESSATION AND IT SHOULD BE OF A PARTICULAR AMOUNT OBTAINED BY HIM. T HUS, THE OBTAINING BY THE ASSESSEE OF A BENEFIT BY VIRTUE OF REMISSION OR CESSATI ON IS THE SINE QUA NON FOR THE APPLICATION OF THIS SECTION. THE MERE FA CT THAT THE ASSESSEE HAS MADE AN ENTRY OF TRANSFER IN HIS ACCOUNT UNILATERALL Y WILL NOT ENABLE THE DEPARTMENT TO SAY THAT SECTION 41(1) SHOULD APPLY AND THE AMOUNT SHOULD BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. 6 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 SETTL ED. 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 TH E CREDITOR WILL NOT ENABLE THE DEBTOR TO SAY THAT THE LIABILITY HAS COME TO AN E ND. APART FROM THAT, THAT WILL NOT BY ITSELF CONFER ANY BENEFIT ON THE DEBTOR AS CONTEMPLATED BY THE SECTION. 7.3 RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TH E HONBLE SUPREME COURT AND FURTHER CONSIDERING THE FACT THAT ASSESSE E HAS ALREADY OFFERED THE AMOUNT TO TAX IN THE SUBSEQUENT YEAR, THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT NO ADDITION U/S.41(1) IS CALLED FOR UN DER THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE IMPUGNED ASSESSMEN T YEAR. WE, THEREFORE, SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AS SESSING OFFICER TO DELETE THE ADDITION. THE GROUNDS RAISED BY THE ASSESSEE A RE ACCORDINGLY ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 06-02-2014. SD/- SD/- (R.S.PADVEKAR ) ( R. K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER SATISH PUNE, DATED 6 TH FEBRUARY 2014 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. THE DR B BENCH, PUNE. 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.