M/s Somani Iron & Steels Ltd., Kanpur V. Dy. Commissioner Of Income Tax-VI, Kanpur

ITA 929/LKW/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4711 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-01-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 29-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: B P YADAV COST ACCOUNTANT
• Keywords: Capital asset; Opportunity of being heard; Period of limitation; Time period of passing order
• Section: 143(3); 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI. A. K. GARODIA , ACCOUNTANT MEMBER ITA NO. 87 & 929/LKO/2014 ASSESSMENT YEAR: 1997 - 98 & 2004 - 05 M/S SOMANI IRON & STEELS LTD. CIT Y CENTRE, 4 TH 63/2, THE MALL FLOOR KANPUR V. DY. CIT - 6 KANPUR T AN /PAN : AABCS9127N (APP ELL ANT) (RESPONDENT) APP ELL ANT BY: SHRI. B. P. YADAV, COST ACCOUNTANT RESPONDENT BY: SHRI. AMIT NIGAM, D.R. DATE OF HEARING: 19 01 201 6 DATE OF PRONOUNCEMENT: 26 02 201 6 O R D E R PER SUNIL KUMAR YADAV: THESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAINST THE RESPECTIVE ORDERS OF THE LD. CIT(A). 2 . SINCE SOME OF THE ISSUES IN THESE APPEALS ARE COMMON, THESE APPEALS WERE HEARD TOGETHER. WE, HOWEVER, PREFER TO AD JUDICATE THESE APPEALS ONE AFTER THE OTHER. 3 . THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) ON VARIOUS GROUNDS, B UT THEY ALL RELATE TO THE ISSUE RELATING TO ADDITION OF RS.60,85,882/ - AFTER INVOKING THE PROVISIONS OF SECTION 41(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT') . I.T.A. NO. 87/LKW/2014: : - 2 - : 4 . THE FACTS IN BRIEF CULLED OUT FROM THE ORDERS OF THE LOWER AUTHORITIES ARE THAT THE ORIGINAL ASSESSMENT WAS FRAMED AT A TOTAL INCOME OF RS.88,33,462/ - UNDER S ECTION 143(3) OF THE ACT AGAINST THE RETURNED NET LOSS OF RS.3,39,835/ - HAVING MADE THE FOLLOWING ADDITIONS HAVING INVOKED THE PROVISIONS OF SECTION 41(1) OF THE ACT: - 1 . OUTSTANDING LIABILITIES RS.18,20,526/ - 2 . OTHER OUTSTANDING LIABILITIES RS.33,65,797/ - 3 . S UNDRY CREDITORS RS.8,53,839/ - 4 . FORFEITURE OF ADVANCES RS.60,85,882/ - RS.45,720/ - 5 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), BUT DID NOT FIND FAVOUR WITH HIM. LATER ON , AN APPEAL WAS PREFERRED BEFORE THE TRIBUNAL AND THE TRIBUNA L VIDE S ORDER DATED 16.11.2007 RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE DE NOVO AFTER TAKING INTO CONSIDERATION VARIOUS DETAILS FILED BY THE ASSESSEE AND AFTER EXAMINING THE MERIT OF THE ASSESSEES SUBMISSIONS. 6 . CONSEQUENTLY , THE A SSESSMENT WAS FRAMED BUT THE ASSESSING OFFICER AGAIN MADE THE SAME ADDITION HAVING OBSERVED THAT THE ASSESSEE FAILED TO FURNISH NECESSARY EVIDENCE IN THE FORM OF CONFIRMATIONS, ETC. 7 . ASSESSEE PREFERRED AN APPEAL AGAINST THE ASSESSMENT ORDER BEFORE THE LD. CIT(A), BUT HE DID NOT FIND FAVOUR WITH HIM AND THE ADDITIONS MADE BY THE ASSESSING OFFICER WAS CONFIRMED. 8 . NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AND HAS CONTENDED THAT OUT OF OUTSTANDING LIABILITIES OF RS.18,20,526/ - , THE INTEREST PAYABLE WAS OF RS.16,31,134/ - AND THIS IS A CAPITAL LIABILITY NOT FA L LING UNDER THE PURVIEW OF SECTION 41(1) OF THE ACT. IT IS A N INTEREST PAYABLE TO IDBI BANK DURING CONSTRUCTION PERIOD AS THE LOAN WAS TAKEN : - 3 - : FOR SETTING UP OF PLANT AND , THEREFORE, IT IS NOT DEBITED T O THE PROFIT & LOSS ACCOUNT. IN SUPPORT OF HIS CONTENTION, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO PAGE 215 OF THE COMPILATION OF THE ASSESSEE WITH THE SUBMISSION THAT TOTAL F INANCIAL CHARGES DEBITED TO T HE PROFIT & LOSS ACCOUNT IS R S. 1,85,05,443 / - AND I NTEREST PAYABLE WAS OF RS.16,31,13 4/ - , WHICH IS APPEARING AT PAGE 73 OF THE COMPILATION OF THE ASSESSEE . COPY OF THE LEDGER ACCOUNT OF INTEREST ACCRUED DURING THE CONSTRUCTION PERIOD IS PLACED AT PAGES 79 TO 80 OF THE COMPILATION OF TH E ASSESSEE . IT WAS FURTHER CONTENDED THAT AS ON 31.03.1997 THERE HAS BEEN WORK - IN - PROGRESS OF RS.34,07,17,859 / - AG AINST THE OP ENIN G BALANCE OF RS.26,31,04,142/ - . THUS , THERE HAS BEEN INCREASE OF RS.7,76,13,717/ - , WHICH INCLUDES INTEREST PAYABLE OF RS.16, 31,134/ - . IT WAS FURTHER CONTENDED THAT SINCE IT IS A CAPITAL LIABILITY, IT DOES NOT FALL UNDER SECTION 41(1) OF THE ACT. THEREFORE, NO ADDITION IN THIS REGARD CAN BE MADE UNDER SECTION 41(1) OF THE ACT. 8 . 1 IT WAS FURTHER CONTENDED THAT BROKERAGE PAYABLE AT RS.1,11,266/ - ; UNPAID PRODUCTION BONUS OF RS.676/ - ; UNPAID LABOUR WAGES OF RS.28,924/ - ARE O LD LIABILITIES STANDING IN THE BOOKS . THOUGH IT IS AN OLD LIABILITY, IT DOES NOT MEAN THAT THESE LIABILITIES HAVE CEASED TO EXIST. SINCE NO EVIDENCE IS BROUGHT ON RECORD BY THE REVENUE TO DEMONSTRATE THAT THESE LIABILITIES IN FACT CEASED TO EXIST, NO ADDITION UNDER SECTION 41(1) OF THE ACT CAN BE MADE ON ACCOUNT OF CESSATION OR RECESSION OF LIABILITY. 8 . 2 IT WAS FURTHER CONTENDED THAT THE LIABILITY OF RS.37,500/ - TOWAR DS VAISHYA BANK IS STANDING IN THE BOOKS OF THE ASSESSEE BECAUSE OF RECONCILIATION, AS THIS AMOUNT PERTAINS TO PUBLIC ISSUE MONEY WHICH WERE TAKEN IN THE VAISHYA BANK. THIS AMOUNT WAS ALSO NOT DEBITED TO THE PROFIT & LOSS ACCOUNT, THEREFORE, NO ADDITION CO ULD BE MADE U/S 41(1) OF THE ACT . : - 4 - : 8 . 3 SIMILAR IS THE POSITION WITH RESPECT TO SHARE APPLICATION MONEY OF RS.7,500/ - AND PNB RIGHT ISSUE I.E. RS.3,526/ - . THESE LIABILITIES THOUGH STANDING IN THE BOOKS OF ACCOUNT BECAUSE OF RECONCILIATION, BUT THEY WERE NEVER D EBITED TO THE PROFIT AND LOSS ACCOUNT, THEREFORE, NO ADDITION COULD BE MADE UNDER SECTION 41(1) OF THE ACT. 8 . 4 WITH REGARD TO OTHER LIABILITIES OF RS.33,65,797/ - , IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THESE LIABILITIES INCLUDE OUTSTANDING LIABILITIE S OF RS.22,83,797/ - AND ERECTION AND COMMISSION CHARGES OF RS.10,82,000/ - AND WITH REGARD TO THE OUTSTANDING LIABILITIES, IT WAS CONTENDED THAT ON THE FIRST DAY OF THE YEAR UNDER CONSIDERATION, THE TOTAL OUTSTANDING LIABILITIES WERE AT RS.19,37,358/ - WHICH WENT UPTO RS.22,83,797/ - BY THE END OF THE YEAR UNDER CONSIDERATION. THUS, THERE HAS BEEN AN INCREASE OF ONLY RS.2,46,439/ - . BUT THE WHOLE OF LIABILITIES WERE PAID OFF IN 1997 IN THE SUBSEQUENT YEAR. SINCE WHOLE LIABILITIES HAVE BEEN PAID OFF, THERE WAS NO OCCASION AT ALL TO MAKE ANY ADDITION UNDER SECTION 41(1) OF THE ACT. COPY OF THE LEDGER ACCOUNT OF THE OUTSTANDING LIABILITIES FOR ASSESSMENT YEAR S 1996 - 97 AND 1997 - 98 ARE PLACED AT PAGES 82 TO 109 OF THE COMPILATION OF THE ASSESSEE. 8 . 5 WITH REGARD TO TH E ERECTION AND COMMISSION CHARGES OF RS.10.82 LAKHS, IT WAS CONTENDED THAT IT IS A CAPITAL LIABILITY AND NOT A TRADING LIABILITY AND HENCE IT DOES NOT FALL UNDER THE PURVIEW OF THE PROVISIONS OF SECTION 41(1) OF THE ACT. TO DEMONSTRATE THAT THESE LIABILIT IES ARE CAPITAL LIABILITIES, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE COPY OF THE VOUCHERS DATED 31.3.1995 SHOWING THAT THE LIABILITY OF RS.10.82 LAKHS WAS DEBITED TO THE PLANT AND MACHINERY UNDER CONSTRUCTION FORMING PART OF CAPIT AL ASSETS, WHICH IS PLACED AT PAGE 221 OF THE COMPILATION OF THE ASSESSEE. OUR ATTENTION WAS ALSO INVITED TO THE COPY OF LEDGER ACCOUNT OF MACHINERY AND CONSTRUCTION , WHICH ARE APPEARING AT PAGES 222 TO 225 OF THE COMPILATION OF THE ASSESSEE , WHICH : - 5 - : DEMONS TRATE THAT THE AMOUNT OF RS.10.82 LAKHS WAS CAPITALIZED AND NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT. 8 . 6 WITH REGARD TO THE SUNDRY PARTIES OF RS.8,53,839/ - , IT WAS CONTENDED THAT THESE ARE OLD BALANCES AND DETAILS OF THESE LIABILITIES ARE PLACED AT PAGES 15 5 & 156 OF THE COMPILATION OF THE ASSESSEE AND COPIES OF LEDGER ACCOUNTS ARE PLACED AT PAGES 157 TO 158 OF THE COMPILATION OF THE ASSESSEE. THOUGH THESE LIABILITIES ARE OLD LIABILITIES, BUT THEY ARE NOT WRITTEN BACK BY THE ASSESSEE, THEREFORE, NO ADDITION UNDER SECTION 41(1) OF THE ACT IS CALLED FOR. TO DEMONSTRATE THAT THESE LIABILITIES HAVE BEEN CEASED TO EXIST, THE REVENUE HAS TO BRI NG SOME MATERIAL ON RECORD. BY SIMPLY ALLEGING THAT THESE LIABILITIES ARE OLD LIABILITIES, THE ADDITION CANNOT BE MADE U NDER SECTION 41(1) OF THE ACT ON ACCOUNT OF CESSATION OR RECESSION OF LIABILITIES. IN SUPPORT OF HIS CONTENTIONS, THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF C CIT VS. KESARIA TEA CO. LTD. , 254 ITR 434; JUDGMENTS OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF U.P. STEELS LTD. VS. CIT, 303 ITR 318 & CIT VS. WILLARD INDIA LIMITED, 302 ITR 221 AND ORDERS OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF NITI N S. GARG VS. ACIT, 40 SOT 253 AND I NCOME TAX OFFICER VS. M/S BHAVESH PRINTS PVT. LTD., 46 SOT 268. 8 . 7 IT WAS FURTHER CONTENDED THAT THE OUTSTANDING BALANCE STANDING IN THE NAME S OF FOLLOWING CREDITORS HAVE ALSO BEEN MADE IN ASSESSMENT YEAR 2004 - 05, SO TO THAT EXTENT IT IS DOUBLE ADDITION: - I ) AGA RWAL STEEL TRADERS RS.87,437/ - II ) CONIN ENGINEERING LTD. RS.4,00,000/ - III ) M/S ION HYDRO PVT. LTD. RS.1,00,000/ - IV ) M/S PAHARPUR COOLING TOWER RS.30,026/ - V ) M/S SUPREME METALLURGICAL SERVICES RS.56,524/ - : - 6 - : 8 . 8 SO FAR AS ADVANCES FROM CUSTOMERS ARE CONCERNED, IT CANNOT BE ADDED UNDER SECTION 41(1) OF THE ACT, AS THESE AMOUNTS WERE NEVER DEBITED TO THE PROFIT AND LOSS ACCOUNT. 9 . THE LD. D.R., ON THE OTHER HAND, HAS PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). 10 . HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AU THORITIES, CASE LAWS REFERRED TO BY THE PARTIES AND OTHER MATERIAL AVAILABLE ON RECORD IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT OUT OF OUTSTANDING LIABILITIES OF RS.18,20,526/ - , RS.16,31,134/ - IS CAPITAL LIABILITY NOT FALLING UNDER THE PURVIEW O F SECTION 41(1) OF THE ACT. FROM THE DETAILS AVAILABLE ON RECORD, IT HAS BEEN ESTABLISHED THAT AN AMOUNT OF RS.16,31,134/ - IS THE INTEREST PAYABLE TO THE BANKERS ON LOAN BORROWED FROM BANKS FOR SETTING UP OF PLANT AND THE SAID INTEREST WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT AND IT WAS CAPITALIZED. FOR INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT, ONE OF THE ESSENTIAL INGREDIENTS IS THAT THE LIABILITIES MUST HAVE BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT IN EARLIER YEARS. IF IT IS NOT DEB ITED TO THE PROFIT AND LOSS ACCOUNT, IT CANNOT BE ADDED UNDER SECTION 41(1) OF THE ACT ON ITS CESSATION OR RECESSION . THEREFORE, IN THIS CASE WHERE THE INTEREST IS PAYABLE TO THE BANKERS AND WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT, IT CANNOT BE ADD ED TO THE INCOME OF THE ASSESSEE UNDER SECTION 41(1) OF THE ACT. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND DELETE THE ADDITION. 10 . 1 SO FAR AS THE OTHER LIABILITIES OF BROKERAGE PAYABLE OF RS.1,11,266/ - ; UNPAID PRODUCTION BONUS OF RS.676/ - AND UNPAID LABOUR WAGES OF RS.28,924/ - , WE FIND THAT UNDISPUTEDLY THESE ARE OLD LIABILITIES AND THERE IS NO EVIDENCE ON RECORD THAT THESE LIABILITIES HAVE BEEN CEASED TO EXIST. UNLESS AND UNTIL LIABILITIES ARE CEASED TO EXIST BY THE ACT : - 7 - : OF THE A SSESSEE OR OTHERWISE, THESE LIABILITIES CANNOT BE HELD TO HAVE BEEN CEASED OR REMITTED. 10 . 2 ON THIS ISSUE, WE HAVE ALSO EXAMINED THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CCIT VS. KESARIA TEA CO. LTD. (SUPRA), IN WHICH IT HAS BEEN HELD THAT IN OR DER TO APPLY SECTION 41(1) OF THE ACT , THE FOLLOWING FACTS ARE TO BE KEPT IN VIEW: - (1) IN THE COURSE OF ASSESSMENT FOR AN EARLIER YEAR, ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF TRADING LIABILITY INCURRED BY THE ASSESSEE; (2) SUBSEQUENTLY, A BEN EFIT IS OBTAINED IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF DURING THE YEAR IN WHICH SUCH EVENT OCCURRED; (3) IN THAT SITUATION THE VALUE OF BENEFIT ACCRUING TO THE ASSESSEE IS DEEMED TO BE THE PROFIT AND GAINS OF BUSINE SS WHICH OTHERWISE WOULD NOT BE HIS INCOME; AND (4) SUCH VALUE OF BENEFIT IS MADE CHARGEABLE TO INCOME TAX AS THE INCOME OF THE PREVIOUS YEAR WHEREIN SUCH BENEFIT WAS OBTAINED. 10 . 3 IT WAS ALSO HELD BY THE HONBLE APEX COURT IN THE SAID CASE THAT SUCH ACT OF THE ASSESSEE IS NOT CONCLUSIVE AND THE UNILATERAL ACTION ON THE PART OF THE ASSESSEE BY WAY OF WRITING - OFF THE LIABILITY IN ITS ACCOUNTS DOES NOT NECESSARILY MEAN THAT THE LIABILITY IS CEASED IN THE EYE OF LAW . 10 . 4 SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE AP EX COURT IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS (P) LTD. (1999) 236 ITR 518 AND BY THE HONBLE RAJASTHAN HIGH C OURT IN THE CASE OF CIT VS. EID MOHD. NIZAMMUDDIN [2007] 294 ITR 139. THIS VIEW WAS FOLLOWED BY THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF U.P. STEELS LTD. VS. CIT : - 8 - : (SUPRA) AND IN THE CASE OF CIT VS. WILLARD INDIA LIMITED (SUPRA), IN WHICH IT HAS BEEN HELD THAT LIABILITY OF THE ASSESSEE TO PAY THOSE AMOUNT S TO THE CREDITORS DOES NOT DEPEND UPON ON THE ADMISSION OF THOSE AMOUNTS BY THE ASSE SSEE, THEREFORE, WRITING BACK OF THOSE AMOUNTS NEED NOT HAVE ANY EFFECT OF THE QUESTION OF LIABILITY. THE LIABILITY ON THE PART OF THE ASSESSEE WOULD CONTINUE TO BE THERE SO LONG AS THE LIMITATION PERIOD IS AVAILABLE TO THE CREDITORS TO RECOVER THOSE AMOU NTS. THE REVENUE COULD NOT, THEREFORE, TAKE ADVANTAGE OF THE FICTION CREATED BY SECTION 41 OF THE ACT. THE SECOND CONDITION FOR THE APPLICABILITY OF SEC TION 41(1) IS THAT THE ASSESSEE SHOULD, IN THE ASSESSMENT YEAR IN QUESTION RECEIVE SOME BENEFIT BY WAY OF CESSATION OF ITS TRADING L IABILITY . WHEN A LIABILITY BECOMES BARRED BY THE LAW OF LIMITATION, THERE IS NEITHER REMISSION NOR CESSATION OF LIABILITY; THE LIABILITY IS NOT EXTINGUISHED; ONLY THE CREDITOR'S REMEDY BECOMES BARRED. THEREFORE, THE AMOUNT COULD NOT BE TAXED UNDER SECTION 41 10 . 5 THE HONBLE ALLAHABAD HIGH COURT HAS ALSO RELIED UPON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS (P) LTD. (SUPRA), IN WHICH IT HAS BEEN HELD THAT OBTAINING BY THE ASSESSEE OF A BENEFIT BY VIRTUE OF REMISSION OR CESSATION IS SINE QUA NON FOR THE APPLICATION OF THIS SECTION. THE MERE FACT THAT THE ASSESS EE HAS MADE AN ENTRY OF TRANSFER IN HIS ACCOUNTS UNILATERALLY WILL NOT ENABLE THE DE PARTMENT TO SAY THAT SECTION 41(1) OF THE ACT WOULD APPLY AND THE AMOUNT SHOULD BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. THE PRINCIPLE THAT EXPIRY OF PERIOD OF LIMITATION 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. MERE ENTRY IN THE BOOKS OF ACCOUNTS OF THE DEBTOR MADE UNILATERALLY WITHOUT ANY ACT (1) AS INCOME FOR THE YEAR IN WHICH THE DEBT DUE TO THE CREDITOR BE CAME TIME BARRED AS THERE WAS NEITHER REMISSION NOR CESSATION OF ITS LIABILITY IN THAT YEAR . : - 9 - : ON THE PART OF THE CREDITOR WILL NOT ENABLE THE DEBTOR TO SAY THAT THE LIABILITY HAS COM E TO AN END. APART FROM THAT, THAT WILL NOT BY ITSELF CONFER ANY BENEFIT ON THE DEBTOR AS CONTEMPLATED BY THE SECTION. 10 . 6 SIMILAR VIEWS WERE EXPRESSED BY THE TRIBUNAL IN THE CASES OF NITIN S. GARG VS. ACIT (SUPRA) AND INCOME TAX OFFICER VS. M/S BHAVESH PRINTS PVT. LTD. (SUPRA). 10 . 7 THOUGH THESE LIABILITIES ARE OLD LIABILITIES, BUT THEY WERE NOT WRITTEN BACK BY THE ASSESSEE ITSELF NOR DID THE REVENUE BRING ANYTHING ON RECORD TO DEMONSTRATE THAT THE LIABILITIES ARE CEASED TO EXIST . THEREFORE , THE PROVISIONS OF SECT ION 41(1) OF THE ACT CANNOT BE INVOKED TO TREAT THE LIABILITIES AS THE INCOME OF THE ASSESSEE ON ITS CESSATION. 10 . 8 WITH REGARD TO THE LIABILITIES OF RS.37,500/ - TOWARDS VAISHYA BANK; RS.7,500/ - TOWARDS SHARE APPLICATION MONEY AND RS.3,526/ - TOWARDS PNB RIGHT ISSUE ON ACCOUNT OF RECONCIL I ATION, IT IS NOTICED THAT THESE LIABILITIES WERE NEVER DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT IS SETTLED POSITION OF LAW THAT FOR INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT, THE LIABILITIES ARE REQUIRED TO BE DEDU CTED OR DEBITED IN THE PROFIT AND LOSS ACCOUNT IN EARLIER YEARS. SINCE THESE LIABILITIES WERE NEVER DEBITED IN THE PROFIT AND LOSS ACCOUNT, THE PROVISIONS OF SECTION 41(1) OF THE ACT CANNOT BE INVOKED TO TREAT THESE LIABILITIES TO BE THE INCOME OF THE ASS ESSEE ON ITS CESSATION. WE, THEREFORE, FIND NO MERIT IN THESE ADDITIONS AND WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND DELETE THE ADDITIONS. 10 . 9 SO FAR AS LIABILITIES OF RS.33,65,797/ - UNDER THE HEAD OTHER LIABILITIES ARE CONCER NED, WE FIND THAT IT INCLUDES OUTSTANDING LIABILITIES OF RS.22,83,797/ - AND ERECTION AND COMMISSION CHARGES OF RS.10.82 LAKHS. SO FAR AS OUTSTANDING LIABILITIES OF RS.22,83,797/ - IS CONCERNED, WE FIND THAT THESE LIABILITIES HAVE BEEN PAID OFF ON 31.5.1997 IN THE SUBSEQUENT : - 10 - : YEAR. COPIES OF THE LEDGER ACCOUNT OF OUTSTANDING LIABILITIES FOR FINANCIAL YEARS 1996 - 97 AND 1997 - 98 ARE PLACED ON RECORD AT PAGES 82 TO 109 OF THE COMPILATION OF THE ASSESSEE. SINCE LIABILITIES HAVE BEEN PAID OFF IN SUBSEQUENT YEARS, PROVISIONS OF SECTION 41(1) OF THE ACT CANNOT BE INVOKED, AS THE LIABILITIES WERE NEVER CEASED TO EXIST. WE ACCORDINGLY FIND NO MERIT IN THIS ADDITION AND WE SET ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND DELETE THE ADDITION. 10 . 10 SO FAR AS ERECTIO N AND COMMISSIONING CHARGES OF RS.10.82 LAKHS IS CONCERNED, WE FIND THAT IT IS A CAPITAL LIABILITY AND NOT A TRADING LIABILITY. IN ORDER TO DEMONSTRATE THAT TH IS LIABILIT Y IS A CAPITAL LIABILIT Y , THE ASSESSEE HAS FILED COPY OF VOUCHERS DATED 31.3.1995 SH OWING THAT THE LIABILIT Y OF RS.10.82 LAKHS WAS DEBITED TO THE PLANT & MACHINERY AND CONSTRUCTION FORMING PART OF THE CAPITAL ASSET , WHICH IS PLACED AT PAGE 221 OF THE COMPILATION OF THE ASSESSEE. COPY OF THE LEDGER ACCOUNT OF MACHINERY AND CONSTRUCTION IS ALSO PLACED AT PAGES 222 TO 225 OF THE COMPILATION OF THE ASSESSEE DEMONSTRATING THAT THE AMOUNT OF RS.10.82 LAKHS WAS CAPITALIZED AND NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT. IN THE LIGHT OF THESE FACTS , WHERE ERECTION AND COMMISSIONING CHARGES ARE C APITAL LIABILITIES AND WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT, THE PROVISIONS OF SECTION 41(1) OF THE ACT CANNOT BE INVOKED. ACCORDINGLY WE FIND NO MERIT IN THESE ADDITIONS AND WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AN D DELETE THE ADDITION. 10 . 11 SO FAR AS SUNDRY PARTIES OF RS.8,53,839/ - ARE CONCERNED, THESE ARE OLD LIABILITIES, OF WHICH DETAILS ARE GIVEN AT PAGES 155 AND 156 OF THE COMPILATION OF THE ASSESSEE. UNDISPUTEDLY THESE LIABILITIES ARE OLD LIABILITIES B UT THEY WERE NOT WRITTEN BACK BY THE ASSESSEE. NOW THE REVENUE DID NOT BRING ANYTHING ON RECORD TO DEMONSTRATE THAT THESE LIABILITIES ARE CEA SED TO EXIST. THE PROVISIONS OF SECTION 41(1) OF THE ACT CAN ONLY BE INVOKED WHERE THE ASSESSEE OBTAINS BENEFIT IN RESPECT OF : - 11 - : SUCH TRADING LIABILITIES BY WAY OF REMISSION OR CESSATION THEREOF DURING THE YEAR. SIMPLY THE LIABILITIES ARE THE OLD LIABILITIES , IS NOT A CRITERIA FOR DETERMINING THAT THE LIABILITIES ARE CEASED TO EXIST. IT HAS TO BE WRITTEN BACK BY THE ASSESSEE OR T HE REVENUE HAS TO BRING SOMETHING ON RECORD TO DEMONSTRATE THAT THE LIABILITY IS CEASED TO EXIST. THE REVENUE CANNOT TAKE THE ADVANTAGE OF FICTION CREATED BY SECTION 41(1) OF THE ACT. WHEN A LIABILITY BECOMES BARRED BY THE LAW OF LIMITATION, THERE IS NEI THER REMISSION NOR CESSATION OF LIABILITY; TH E LIABILITY IS NOT EXTINGUISHED, ONLY FOR THE REASON THAT THE CREDITOR'S REMEDY BECOMES BARRED. THEREFORE, THE AMOUNT COULD NOT BE TAXED UNDER SECTION 41 10 . 12 DURING THE COURSE OF HEARING, THE LD. COUN SEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION THAT CERTAIN ADDITIONS ARE DOUBLE ADDITIONS , WHICH WERE ALREADY MADE IN ASSESSMENT YEAR 2004 - 05. THE DETAILS OF CREDITORS ARE AS UNDER: - (1) OF THE ACT AS INCOME FOR THE YEAR IN WHICH THE DEBT DUE TO THE CREDITOR BECAME TIME BARRED. IN THE LIGHT OF THIS LEGAL PROPOSITION, WE ARE OF THE VIEW THAT SINCE NOTHING HAS BEEN BROUGHT ON RECORD TO DEMONSTRATE THAT LIABILITY IS CEASED TO EXIST, THE ADDI TION UNDER SECTION 41(1) OF THE ACT ARE NOT CALLED FOR ONLY FOR THE SIMPLE REASON THAT THE LIABILITIES ARE TIME BARRED. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND DELETE THE ADDITION. I ) AGARWAL STEEL TRADERS RS. 87,437 / - II ) CONIN ENGINEERING LIMITED RS. 4 ,00,000 / - III ) M/S ION HYDRO PVT. LTD RS. 1,00,000 / - IV ) M/S PAHARPUR COOLING TOWER RS. 30,026 / - V ) M/S SUPREME METALLURGICAL SERVICES RS. 56,524 / - 10 . 13 IN THIS REGARD, IT WAS CONTENDED THAT ADDITIONS WERE MADE IN ASSESSMENT YEAR 2004 - 05, THEREFORE, IT AMOUNTS TO DO UBLE ADDITION. IN : - 12 - : ORDER TO VERIFY THESE FACTS, THIS MATTER MAY ALSO BE EXAMINED BY THE ASSESSING OFFICER AND IF HE FINDS THAT THE ADDITIONS WERE MADE IN ASSESSMENT YEAR 2004 - 05 WITH RESPECT TO THESE CREDITORS, NO ADDITION IS CALLED FOR IN THE IMPUGNED ASS ESSMENT YEAR. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE ASSESSING OFFICER FOR VERIFICATION. 10 . 14 WITH REGARD TO RS.45,720/ - BEING ADVANCE FROM CUSTOMERS, IT WAS CONTENDED THAT SINCE IT WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT, NO ADDITION CAN BE MADE UNDER SECTION 41(1) OF THE ACT AND IT WAS SIMPLY AN ADVANCE RECEIVED FROM THE CUSTOMERS. WE, THEREFORE, FIND NO MERIT IN THIS ADDITION ALSO, AS IT WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT. ACCORDINGLY, WE SET A SIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND DELETE THE ADDITION. 11 . IN THIS APPEAL, THE ASSESSEE HAS ASSAILED THE ORDER OF THE LD. CIT(A) RAISING VARIOUS GROUNDS , WHICH WERE LATER ON REVISED AND THE REVISED GROUNDS OF APPEAL ARE AS UNDER: - I . T . A N O. 929/LKW/2014: 1 . THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - L, KANPUR (HEREINAFTER REFERRED TO AS THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS.2,84,37,667/ - MADE BY THE LD. ASSESSING OFFICER IN THE HANDS OF THE ASSESSEE, BY OB SERVING THAT 'THESE LIABILITIES ARE THUS EXISTING MERELY ON PAPERS EVEN ON PRESENT DATE & THERE IS NO ONE TO WHOM THESE OUTSTANDING AMOUNT HAVE TO BE PAID' WITHOUT APPRECIATING THE FACT THAT THESE ARE OLD BALANCES AND THERE HAS NEITHER BEEN ANY CESSATION N OR REMISSION OF LIABILITIES DURING THE YEAR UNDER CONSIDERATION AS CONTEMPLATED U/S 41(1) OF THE IT. ACT, 1961. 2 . THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS.69,14,258/ - MADE BY THE LD. A.O. IN THE HANDS : - 13 - : OF THE ASSESSEE BY INVO KING THE PROVISIONS OF SECTION 41(1) OF THE I.T. ACT, 1961, BY OBSERVING THAT 'THESE LIABILITIES ARE THUS EXISTING MERELY ON PAPERS EVEN ON PRESENT DATE & THERE IS NO ONE TO WHOM THESE OUTSTANDING AMOUNT HAVE TO BE PAID' WITHOUT APPRECIATING THE FACT THAT THESE ARE OLD BALANCES AND THERE HAS NEITHER BEEN ANY CESSATION NOR REMISSION OF LIABILITIES DURING THE YEAR UNDER CONSIDERATION AS CONTEMPLATED U/S 41(1) OF THE IT. ACT, 1961. 3 . THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS.30,92 ,441 / - MADE BY THE LD. A.O. IN THE HANDS OF THE ASSESSEE BY TREATING THE ADVANCES AS UNEXPLAINED ADVANCE, BY OBSERVING THAT 'THESE LIABILITIES ARE THUS EXISTING MERELY ON PAPERS EVEN ON PRESENT DATE & THERE IS NO ONE TO WHOM THESE OUTSTANDING AMOUNT HAVE T O BE PAID' WITHOUT APPRECIATING THE FACT THAT THESE ARE OLD BALANCES AND THERE HAS NEITHER BEEN ANY CESSATION NOR REMISSION OF LIABILITIES DURING THE YEAR UNDER CONSIDERATION AS CONTEMPLATED U/S 41(1) OF THE IT. ACT, 1961. 4 . THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITIONS OF RS.6,47,732/ - BEING 50 % OF ADDITIONS OF RS.12,95,464/ - WITHOUT APPRECIATING THE FACT THAT ALL THESE EXPENSES WERE INCURRED AND PAID WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF KEEPING THE ESTABLISHMENT INTACT AND IN RU NNING CONDITION. 5 . THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITIONS OF RS. 17,48,686 / - OUT OF TOTAL ADDITION OF RS.25,88,686/ - BY OBSERVING THAT 'AS REGARDS THE REMAINING EXPENSES NO CONCRETE JUSTIFICATION IS AVAILABLE' WITHOUT APPRECIATIN G THE FACT THAT ALL THESE EXPENSES WERE INCURRED AND PAID WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF KEEPING THE ESTABLISHMENT INTACT AND IN RUNNING CONDITION. : - 14 - : 6 . THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN NOT PROVIDING THE APPELLANT THE PROPER ADEQUATE OR S UFFICIENT OPPORTUNITY TO HAVE IT SAY OR MAKE NECESSARY COMPLIANCE OF THE REASONS RELIED UPON BY HIM FOR CONFIRMING THE ADDITIONS MADE BY THE LD. A.O. 12 . DURING THE COURSE OF HEARING, OUR ATTENTION WAS INVITED THAT THE ASSESSING OFFICER WAS MADE ADDITION OF R S.2,84,37,667/ - ; RS.69,14,258/ - AND RS.30,92,441/ - PERTAINING TO GROUNDS NO.1 TO 3 HAVING INVOKED THE PROVISIONS OF SECTION 41(1) OF THE ACT. 13 . WHILE DEALING WITH THE ISSUE, THE MAIN OBJECTION OF THE ASSESSING OFFICER WAS THAT THESE LIABILITIES ARE PAPER LIA BILITIES AND HE HAS DOUBTED EVEN THE EXISTENCE OF THE LIABILITIES IN THE ABSENCE OF CONFIRMATIONS FILED BY THE RESPECTIVE PARTIES. 14 . IN APPEAL, THE LD. CIT(A) HAS ADJUDICATED ALL THESE ADDITIONS TOGETHER AND HAVING RELIED UPON HIS ORDER FOR ASSESSMENT YEAR 1 997 - 98, THE LD. CIT(A) HAS CONFIRMED THE ADDITIONS IN TWO LINES WHEREAS IN ASSESSMENT YEAR 1997 - 98 MOST OF THE LIABILITIES ARE CAPITAL LIABILITIES FOR WHICH PROVISIONS OF SECTION 41(1) OF THE ACT CANNOT BE INVOKED. BUT IN THE INSTANT YEAR THESE LIABILITIE S ARE TRADING LIABILITIES AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSEE COULD NOT PLACE CONFIRMATIONS OF THE CONCERNED PARTIES. THE ASSESSING OFFICER HAS ALSO OBSERVED IN HIS ORDER THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSES SEE WAS ASKED TO FURNISH ED THE DETAILS OF LIABILITIES ALONG WITH CONFIRMATIONS, BUT THE ASSESSEE NEITHER FURNISH ANY DETAILS N OR NAME OF THE PARTIES TO WHOM THESE AMOUNTS BELONG. WHILE ADJUDICATING THESE GROUNDS, THE LD. CIT(A) HAS BLINDLY FOLLOWED HIS OR DER FOR ASSESSMENT YEARS 1997 - 98 AND 2001 - 02 WHEREAS THE FACTS IN THOSE ASSESSMENT YEARS ARE DIFFERENT. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRACTED HEREUNDER: - : - 15 - : 5.2.2. THE ASSESSING OFFICER MAY VERIFY IF THESE ARE THE SAME AMOUNTS AND IF TH EY ARE SO, DOUBLE ADDITION MADE IF ANY MAY BE RECTIFIED AS THESE THE ABOVE ADDITION WERE CONFIRMED IN ASSESSMENT YEAR 1997 - 98 AND 2001 - 02. 15 . IN THE LIGHT OF THESE FACTS, WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS NOT PROPERLY ADJUDICATED THESE GROUNDS IN T HE LIGHT OF THE LEGAL PROVISIONS OF THE ACT AND VARIOUS JUDICIAL PRONOUNCEMENTS RENDERED ON THE SUBJECT. WE ARE, THEREFORE, OF THE VIEW THAT THE MATTER BE RESTORED TO THE FILE OF THE LD. CIT(A) FOR RE - ADJUDICATION OF THE ISSUE. ACCORDINGLY WE SET ASIDE T HE ORDER OF THE LD. CIT(A) IN THIS REGARD AND RESTORE THE MATTER TO HIS FILE WITH A DIRECTION TO RE - ADJUDICATE THE ISSUE AFRESH AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IF THE REVENUE INTENDS TO TREAT THESE LIABILITIES TO HAVE BEEN C EASED OR REMITTED, IT IS FOR THEM TO BRING OUT SOMETHING ON RECORD THAT IN FACT THE LIABILITY HAS BEEN CEASED OR REMITTED AND THE ASSESSEE HA S ACQUIRED SOME BENEFIT OUT OF IT, BY MAKING NECESSARY INVESTIGATION, ETC. ACCORDINGLY, THE MATTER IS RESTORED TO THE FILE OF THE LD. CIT(A) TO RE - ADJUDICATE THE ISSUE OF APPLICABILITY OF SECTION 41(1) OF THE ACT TO THE EXISTING LIABILITIES SHOWN BY THE ASSESSEE. 16 . APROPOS GROUND NO.4, IT IS NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS.12,95,464/ - UNDER THE HEAD MA NUFACTURING AND OTHER EXPENSES. ON VERIFICATION, THE ASSESSING OFFICER NOTICED THAT THESE EXPENSES ARE CLAIMED ON ACCOUNT OF STORES AND SPARES CONSUMED, SALARY AND WAGES, GRATUITY, INSURANCE AND REPAIRS & MAINTENANCE TO PLANT AND MACHINERY. THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY MANUFACTURING EXPENSES MAY NOT BE DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE, AS THE PLANT WAS CLOSED EVER SINCE 1.12.1998 AND NO MANUFACTURING ACTIVITIES WHATSOEVER HAS CARRIED OUT. IN RESPONSE THERETO, IT WAS STATED ON BEHALF OF THE ASSESSEE THAT THERE WAS : - 16 - : TEMPORARY SUSPENSION OF THE BUSINESS ACTIVITIES OF THE ASSESSEE AND THE MATTER IS PENDING WITH BIFR AND OTHER CORPORATE MATTERS AS LEGAL AND OTHER PROCEEDINGS RELATING TO COMPANY LAW ARE BEING CARRIED OUT . THEREFORE, MINIMUM EXPENSES KEEPING THE COMPANY ALIVE ARE TO BE ALLOWED. BUT THE ASSESSING OFFICER DISALLOWED THE ENTIRE CLAIM OF THE ASSESSEE AND WHEN THE MATTER WAS BROUGHT BEFORE THE LD. CIT(A), THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO 50% , FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2007 - 08. 17 . AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL, BUT NOTHING HAS BEEN STATED ON BEHALF OF THE ASSESSEE AS TO WHAT HAS HAPPENED TO THE ORDER OF THE LD. CIT(A) FOR ASSESSMENT YEAR 2007 - 08. IN THE AB SENCE OF SPECIFIC AVERMENT WITH RESPECT TO THE LD. CIT(A)S ORDER FOR ASSESSMENT YEAR 2007 - 08, WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS ADJUDICATED THE ISSUE FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2007 - 08. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER O F THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, WE CONFIRM THE SAME. 18 . APROPOS GROUND NO.5, IT IS NOTICED THAT THE ASSESSEE HAS DEBITED MISCELLANEOUS EXPENSES OF RS. 25,73,120/ - WHICH INCLUDED AN AMOUNT OF RS.8.40 LAKHS AS DIRECTORS REMUNERATION AND RS.11,20,7 54/ - AS MISCELLANEOUS EXPENDITURE WRITTEN OFF. BESIDES, UNDER THE HEAD SALE EXPENSES THE ASSESSEE HAS DEBITED A SUM OF RS.23,664/ - . THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF THE ENTIRE CLAIM ON THE GROUND THAT PLANT OF THE ASSESSEE HAS BEEN CLOSED. 19 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) HAS ALLOWED RS.8.40 LAKHS BEING REMUNERATION PAID TO THE MANAGING DIRECTOR HAVING FOLLOWED HIS ORDER FOR ASSESSMENT YEAR 2007 - 08. : - 17 - : 20 . AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIB UNAL, BUT NOTHING HAS BEEN STATED WITH REGARD TO THE ORDER OF THE LD. CIT(A) FOR ASSESSMENT YEAR 2007 - 08 , IN WHICH THE REMUNERATION TO THE MANAGING DIRECTOR WAS ONLY ALLOWED. SINCE THE LD. CIT(A) HAS DECIDED THE ISSUE FOLLOWING HIS ORDER FOR ASSESSMENT YE AR 2007 - 08, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, WE CONFIRM THE SAME. 21 . GROUNDS NO.6 AND 7 ARE GENERAL IN NATURE AND NEED NO SPECIFIC ADJUDICATION. 22 . IN THE RESULT, APPEAL OF THE ASSESSEE IN I.T.A. NO. 87/LKW/2014 IS ALLOWED AND I.T.A. NO. 929/LKW/2014 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENT I ONED ON THE CAPTION ED PAGE. SD/ - SD/ - [ A. K. GARODIA ] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 26 TH 1 . APPELLANT FEBRUARY , 2016 JJ: 22 - 2302 COPY FORWARDED TO: 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR