K.Sankara Rao, CHENNAI V. ACIT, CHENNAI

ITA 787/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5929 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN IRS
• Assessee Lawyers: A S SRIRAMAN

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B (SMC) BENCH : CHENNAI . , ! [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NO.787/MDS/2016 / ASSESSMENT YEAR : 2011-2012 K. SANKARA RAO, NO.21,NORTH MADA STREET, VILLIVAKKAM, CHENNAI 600 049. [ PAN AACPR 1610H ] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE XII, CHENNAI 600 006. ( '# / APPELLANT) ( $%'# /RESPONDENT) / APPELLANT BY : SHRI. A.S. SRIRAMAN, ADVOCATE /RESPONDENT BY : SHRI.B.SAGADEVAN, IRS, JCIT. /DATE OF HEARING : 27-10-2017 ! /DATE OF PRONOUNCEMENT : 31-10-2017 & / O R D E R ASSESSEE IN THIS APPEAL ASSAILS AN ADDITION OF RS. 12,02,153/- MADE U/S. 41(1) OF THE INCOME TAX ACT, 1961 (IN SHO RT THE ACT) WHICH WAS CONFIRMED BY THE LD. COMMISSIONER OF INCO ME TAX (APPEALS)-5, CHENNAI. 2. ASSESSEE HAS FILED AN APPLICATION SEEKING ADJOURNME NT. HOWEVER, I FIND THAT ADJOURNMENTS WERE GRANTED A NU MBER OF TIMES EARLIER BASED ON THE REQUEST OF ASSESSEES COUNSEL. NOW I DO NOT FIND ITA NO. 787/MDS/2016 :- 2 -: ANY GOOD REASON SHOWN IN THE PETITION SEEKING ADJO URNMENT FOR ALLOWING FURTHER TIME. ACCORDINGLY, PETITION FOR ADJOURNMENT STANDS REJECTED. 3. FACTS APROPOS ARE THAT ASSESSEE, PROPRIETOR OF A CO NCERN, ENGAGED IN THE BUSINESS OF MANUFACTURING OF BETALNU T POWDER & SUPARI HAD FILED HIS RETURN OF INCOME FOR THE IMPUGNED ASS ESSMENT YEAR DECLARING AN INCOME OF RS.26,84,536/-. ASSESSEE HAD ALSO FILED AUDITED BALANCE SHEET, PROFIT AND LOSS ACCOUNT AND AUDIT RE PORT IN FORM NO.3CB AND 3CD. IN THE BALANCE SHEET ASSESSEE HAD SHOWN A SUM OF RS.12,02,153/- AS OPENING SUNDRY CREDITOR BALANCE I N THE NAME OF M/S. RAVIKUMAR AND COMPANY. AS PER THE LD. ASS ESSING OFFICER, M/S. RAVIKUMAR AND COMPANY WAS A PROPRIETORSHIP CONCERN EARLIER RUN BY ASSESSEES FATHER WHICH WAS NOW RUN BY THE ASSESSEE . LD. ASSESSING OFFICER NOTED THAT ASSESSEES FATHER HAD EXPIRED TW ELVE YEARS BACK AND HENCE SUCH TRADING LIABILITY WAS NO LONGER REQUIRED TO BE PAID BY THE ASSESSEE. ASSESSEE WAS REQUIRED TO EXPLAIN WHY SEC. 41(1) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) SHOULD NOT BE APPLIED ON SUCH AMOUNT. REPLY OF THE ASSESSEE WAS THAT THERE WERE A NUMBER OF LEGAL HEIRS TO THE BUSINESS OF THE ASSESSEES FATHE R AND LIABILITY TO HIS FATHER DID NOT ABATE BECAUSE OF HIS DEATH. HOWEVE R, LD. ASSESSING OFFICER WAS NOT IMPRESSED. ACCORDING TO HIM, ASSES SEE WAS NOT OBLIGED TO PAY RS.12,02,153/- DUE TO M/S.RAVIKUMAR AND COMPANY ITA NO. 787/MDS/2016 :- 3 -: SINCE ITS PROPRIETOR WHO WAS ASSESSEES FATHER HAD EXPIRED LONG BACK. HE APPLIED SEC.41(1) OF THE ACT AND MADE AN ADDITIO N OF RS.12,02,153/-. 4. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT LD. ASSESSING OFFICER ERRONEOUSLY TOOK A P RESUMPTION OF CESSATION OF LIABILITY. ACCORDING TO HIM AMOUNT PAY ABLE TO THE ESTATE OF HIS FATHER DID NOT ABATE DUE TO INFLUX OF TIME. H OWEVER, LD.CIT(A) WAS NOT IMPRESSED. ACCORDING TO HIM, AT ONE POINT OF TI ME ASSESSEE HAD STATED THAT ASSETS AND LIABILITY OF THE BUSINESS O F HIS FATHER WERE NOT TAKEN OVER BY HIM ON FORMERS DEATH, WHEREAS AT AN OTHER POINT OF TIME, ASSESSEE STATED THAT HE HAD TAKEN OVER THE PR OPRIETORSHIP OF HIS FATHER LOCK STOCK AND BARREL. HE THUS CONFIRMED THE ADDITION MADE BY THE LD. ASSESSING OFFICER. 5. NOW BEFORE ME, THE LD. AUTHORISED REPRESENTATIVE STRONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT SECTION 41(1) OF THE ACT HAD NO APPL ICATION ON THE FACTS OF THE CASE. 6. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ITA NO. 787/MDS/2016 :- 4 -: 7. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. SECTION 41(1) OF T HE ACT IS REPRODUCED HEREUNDER:- 1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINA FTER 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 (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF WHICH LOSS OR EXPENDITURE WAS INCURRED BY THE FIRST-MENTIONED PERSON OR SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY REFERRE D TO IN CLAUSE (A) BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED 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 BUSINESS OR PROFESSION, AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR . FIRST REQUIREMENT TO BRING A SUM TO TAX U/S.41(1) O F THE ACT IS THAT ASSESSEE CONCERNED SHOULD HAVE MADE A CLAIM FOR AN ALLOWANCE OR DEDUCTION IN RESPECT OF LOSS OR TRADING LIABILITY I N ANY EARLIER ASSESSMENT YEAR. SINCE M/S. RAVIKUMAR AND COMPANY, APPEARED AS A TRADE CREDITOR IN ASSESSEES ACCOUNTS THIS REQUIREM ENT, PRIME FACIE IS ITA NO. 787/MDS/2016 :- 5 -: SATISFIED. HOWEVER, WHAT I FIND IS THAT ASSESSEE HA D NO RIGHT, TO WRITE BACK THE AMOUNTS DUE TO HIS FATHER ON THE DEATH OF HIS FATHER. DEATH OF A CREDITOR WILL NOT ABATE THE DEBT DUE TO HIM. L EGAL HEIRS OF THE CREDITOR STEPS IN THE SHOE OF THE CREDITOR AND CAN CLAIM THE DEBTS DUE TO HIM. EFFLUX OF TIME WILL NOT RESULT IN SUCH DEB T BECOMING INCOME IN THE HANDS OF THE DEBTOR. IT MAY BE TRUE THAT CREDIT OR CANNOT FILE A SUIT FOR RECOVERY. HOWEVER, THE DEBT REMAINS DUE FROM THE ASSESSEE TO THE LEGAL HEIRS OF THE CREDITOR AND ASSESSEES RELA TIONSHIP WITH THE CREDITOR DOES NOT CHANGE THIS LEGAL CONSEQUENCE. TH AT APART ASSESSEE HAD NOT MADE ANY UNILATERAL WRITE BACK OF THE SUMS . IN MY OPINION, SUCH SUM COULD NOT BE CONSIDERED AS INCOME U/S.41(1 ) OF THE ACT SINCE THERE WAS NO CESSATION OF LIABILITY. THE ADDITIO N STANDS DELETED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON TUESDAY, THE 31ST DAY OF OC TOBER, 2017, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:31ST OCTOBER, 2017 KV %& '()( / COPY TO: 1. / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF