Rajesh Batra, New Delhi V. ITO, New Delhi

ITA 996/DEL/2013

• Counselvise Citation: 99620114 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 17-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 19-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR CHOPRA
• Keywords: Period of limitation; Deemed to accrue or arise in india; Question of law
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F , NEW DELHI) BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.996 /DEL/2013 ASSESSMENT YEAR : 2008-09 RAJESH BATRA, VS. ITO, WARD 22(2), M/S. BATRA HENLAY CABLES, NEW DELHI GRANDLAY CINEMA COMPLEX, NEW FRIENDS COLONY, NEW DELHI-110 065 GIR / PAN: AFBPB5524L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. S. SINGHVI & SHRI SATYAJEET GOEL, CA RESPONDENT BY : SHRI MANOJ KUMAR CHOPRA, SR. DR ORDER PER T.S. KAPOOR, AM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF LD. CIT(A) DATED 07.12.2012. THE ONLY GROUND TAKEN BY THE ASS ESSEE IN THIS APPEAL IS REGARDING HIS GRIEVANCE WITH THE ACTION OF LD. CIT( A) BY WHICH HE HAD CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN MA KING ADDITION OF RS.53,40,155/- U/S 41(1)(A) OF THE ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT DURING ASSE SSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO FILE DETAILS OF SUNDRY CRE DITORS. FROM THE LIST OF SUNDRY CREDITORS, THE ASSESSING OFFICER OBSERVED TH AT A FEW OF CREDITORS WERE HAVING STATIC BALANCES AND THERE WAS NO TRANSACTION IN THE ACCOUNTS OF SUCH CREDITORS AND MOREOVER, NO PAYMENTS IN THE SUCCEEDI NG YEARS WERE MADE. ITA NO.996/DEL/2013 2 THE ASSESSING OFFICER ALSO ISSUED NOTICE U/S 133(6) TO CREDITORS, WHICH ALSO WENT UNSERVED AND IN THE CASE OF M/S. ASHOKA WIRE I NDUSTRIES WHERE, IT WAS SERVED, IT WAS SUBMITTED THAT IT HAD NOT ENTERED IN TO ANY TRANSACTION OF SALE AND PURCHASE DURING THE YEAR AND IT HAD NOT CONFIRM ED THE OPENING BALANCE ALSO. THEREFORE, THE ASSESSING OFFICER HELD THAT T HE SAID LIABILITY HAD CEASED TO EXIST AND AS PER THE PROVISIONS OF SECTION 41(1) (A) OF THE ACT MADE THE ADDITION ON THIS ACCOUNT. AGGRIEVED, THE ASSESSE E FILED APPEAL BEFORE LD. CIT(A) AND SUBMITTED AS UNDER: THAT THE LIABILITY OF AN ASSESSEE DOES NOT CEASE M ERELY BECAUSE THE LIABILITY HAS BECOME BARRED BY LIMITATION. THE LIAB ILITY CEASES WHEN IT HAS BECOME BARRED BY LIMITATION AND THE ASSESSEE HA S EQUIVOCALLY EXPRESSED ITS INTENTION NOT TO HONOUR THE LIABILITY EVEN WHEN DEMANDED - CIT V. CHASE BRIGHT STEEL LTD. (NO.2) (1989) 177 ITR 128 (BOM.). THE RELEVANT PROVISION WAS IGNORED BY THE LEARNED A SSESSING OFFICER. WHEN A DEBT BECOMES BARRED BY TIME, THE CREDITOR WO ULD NOT BE ABLE TO RECOVER THE AMOUNT BY ENFORCING HIS RIGHT IN COU RT. BUT THE RIGHT WILL NOT COME TO AN END NOR WILL THE LIABILITY CEAS E. SECTION 41(1) IS NOT ATTRACTED IN SUCH A CASE - LIQUIDATOR, MYSORE A GENCIES (P) LTD. V. CIT (1978) 114 ITR 853 (KAR.) THE RELEVANT PROVISIO N WAS IGNORED BY THE LEARNED ASSESSING OFFICER. LIABILITY SUBSISTING BUT NOT LEGALLY ENFORCEABLE CA NNOT AMOUNT TO CESSATION OF LIABILITY- FOR THE PURPOSE OF ADDING A NY AMOUNT UNDER SECTION 41(1), THERE SHOULD BE EITHER REMISSION OF THE LIABILITY BY THE CONCERNED CREDITOR SO THAT THE LIABILITY WITH REGAR D TO MAKING PAYMENT COMES TO AN END, OR THERE SHOULD BE CESSATION OF LI ABILITY. WHERE THE CREDITORS (WORKMEN) WHO WERE TO BE PAID B ONUS FOR THE EARLIER YEARS HAD NOT EXECUTED ANYTHING IN WRITING FOR REMISSION OF THE LIABILITY, AND THERE WAS NOTHING ON RECORD TO SHOW THAT THE WORKMEN HAD WAIVED THEIR RIGHT TO GET THE BONUS FROM THE BU SINESS OR THAT THE LIABILITY HAD COME TO AN END OTHERWISE, THERE WOULD BE NO CESSATION OF LIABILITY. SIMPLY BECAUSE THE PERIOD OF LIMITATION HAD COME TO AND END FOR THE PURPOSE OF FILING A SUIT FOR RECOVERY OF TH E SAID AMOUNT OR FOR ITA NO.996/DEL/2013 3 TAKING APPROPRIATE ACTION AGAINST THE ASSESSEE, IT COULD NOT BE SAID THAT THERE WAS A CESSATION OF LIABILITY. THE LIABIL ITY STILL REMAINED, THOUGH IT MIGHT NOT BE ENFORCEABLE AT LAW ON ACCOUN T OF THE PROVISIONS OF THE LAW OF LIMITATION - CIT V. SILVER COTTON MIL LS CO. LTD. (2002) 125 TAXMAN 741 (GUJ.). THE RELEVANT PROVISION WAS I GNORED BY THE LEARNED ASSESSING OFFICER. KINDLY ALLOWS US SOME MO RE TIME TO FILE DETAILED REPLY. 3. LD. CIT(A) VIDE ORDER SHEET ENTRY DATED 18.06.20 12 DIRECTED THE APPELLANT TO FILE WRITTEN SUBMISSIONS ON MERITS OF THE CASE TO WHICH, THE ASSESSEE DID NOT RESPOND AND THEREFORE, LD. CIT(A) CONFIRMED THE ADDITION BY HOLDING AS UNDER: THE APPELLANT HAS PLACED RELIANCE ON CASE LAWS TO A RGUE THAT A LIABILITY DOES NOT CEASE MERELY BECAUSE THE DEBT BE COMES BARRED BY LIMITATION, OR BECAUSE IT IS NOT LEGALLY ENFORCEABL E. THE APPELLANT HAS NOT EXPLAINED HOW THESE CITATIONS ARE RELEVANT TO I TS CASE. IT IS NOT STATED WHETHER THE LIABILITIES APPEARING IN HIS BAL ANCE SHEET HAVE BEEN BARRED BY TIME, OR WHETHER THEY ARE NO LONGER ENFOR CEABLE IN LAW. NEEDLESS TO SAY, THE APPELLANT HAS NOT FILED ANY EV IDENCE REGARDING THE SUBSISTENCE OF THE LIABILITIES, OR EVEN OF THEIR GE NUINENESS. ADEQUATE OPPORTUNITIES HAVE BEEN ALLOWED DURING THE APPELLAT E PROCEEDINGS FOR FURNISHING OR EVIDENCE WHICH THE APPELLANT HAS NOT AVAILED. AS NO EVIDENCE OR ARGUMENTS OF WORTH HAVE BEEN PROVIDED I N THIS CASE, I FIND NO GROUNDS FOR INTERFERING WITH THE ORDER OF THE AS SESSING OFFICER. 4. AT THE OUTSET, LD. A.R. SUBMITTED THAT THE ASSES SING OFFICER HAD MADE THE ADDITION ON ACCOUNT OF THE FACT THAT A FEW OF T HE NOTICES SENT U/S 133(6) REMAINED UNSERVED AND LD. CIT(A) CONFIRMED THE ADDI TION BY HOLDING THAT THE LIABILITY OF CREDITS WAS BARRED BY LIMITATION W HEREAS THE LEGAL PROPOSITION IN THIS RESPECT IS WELL SETTLED WHICH IS THAT ADDIT ION U/S 41(1) CANNOT BE MADE IF THE LIABILITIES ARE REFLECTED IN THE BALANCE SHE ET OF THE ASSESSEE AND THEY WERE NOT WRITTEN OFF. LD. A.R. SUBMITTED THAT IF T HE LIABILITIES ARE OUTSTANDING ITA NO.996/DEL/2013 4 AND ARE REFLECTED IN THE BALANCE SHEET, RULE OF LIM ITATION WILL NOT APPLY. LD. A.R. INVITED OUR ATTENTION TO HON'BLE DELHI HIGH CO URT DECISION IN THE CASE OF CITS VS JAIN EXPORTS P. LTD. IN I.T.A.NO. 235/20 13 AND IT WAS SUBMITTED THAT HON'BLE HIGH COURT VIDE PARAS 20-22 UNDER SIMI LAR FACTS AND CIRCUMSTANCES, HAD DECIDED THE ISSUE IN FAVOUR OF T HE ASSESSEE. SIMILARLY, IT WAS SUBMITTED THAT HON'BLE GUJARAT HIGH COURT IN TH E CASE OF CIT VS BHOGILAL RAMJIBHAI ATARA IN I.T.A.NO. 588/2013 HAD DISMISSED THE APPEAL OF THE REVENUE UNDER SIMILAR FACTS AND CIRCUMSTANCES. 5. LD. D.R. ON THE OTHER HAND RELIED UPON THE ORDER S OF THE ASSESSING OFFICER AND LD. CIT(A). 6. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. THE ISSUE RAISED IS IN RESPECT OF ADDIT ION MADE U/S 41(1)(A) OF THE ACT ON ACCOUNT OF CESSATION OF LIABILITY. THE HON 'BLE DELHI HIGH COURT IN THE CASE OF CIT VS JAIN EXPORTS PVT. LTD. VIDE PARA 20-23 HAS HELD AS UNDER: 20. IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 41(1) OF THE ACT, IT IS NECESSARY THAT THERE SHOULD HAVE BEEN A CESSATIO N OR REMISSION OF LIABILITY., AS HELD BY THE BOMBAY HIGH COURT, IN T HE CASE OF J. K. CHEMICALS LTD. (SUPRA), CESSATION OF LIABILITY MAY OCCUR EITHER BY THE REASON OF THE LIABILITY BECOMING UNENFORCEABLE IN L AW BY THE CREDITOR COUPLED WITH DEBTOR DECLARING HIS INTENTION NOT TO HONOUR HIS LIABILITY, OR BY A CONTRACT BETWEEN PARTIES OR BY DISCHARGE OF THE DEBT. IN THE PRESENT CASE, THE ASSESSEE IS ACKNOWLEDGING THE DEB T PAYABLE TO M/S. ELEPHANTA OIL & VANASPATI LTD. AND THERE IS NO MATE RIAL TO INDICATE THAT THE PARTIES HAVE CONTRACTED TO EXTINGUISH THE LIABILITY. THUS, IN OUR VIEW IT CANNOT BE CONCLUDED THAT THE DEBT OWED BY THE ASSESSEE TO M/S. ELEPHANTA OILS & VANASPATI LTD. STOOD EXTINGUI SHED. 21. ALTHOUGH, ENFORCEMENT OF A DEBT BEING BARRED BY LIMITATION DOES NOT IPSO FACTO LEAD TO THE CONCLUSION THAT THE RE IS CESSATION OR REMISSION OF LIABILITY, IN THE FACTS OF THE PRESENT CASE, IT IS ALSO NOT POSSIBLE TO CONCLUDE THAT THE DEBT HAS BECOME UNENF ORCEABLE. IT IS ITA NO.996/DEL/2013 5 WELL SETTLED THAT REFLECTING AN AMOUNT AS OUTSTANDI NG IN THE BALANCE SHEET BY A COMPANY AMOUNTS TO THE COMPANY ACKNOWLED GING THE DEBT FOR THE PURPOSES OF SECTION 18 OF THE LIMITATION AC T, 1963 AND, THUS, THE CLAIM BY M/S. ELEPHANTA OIL & VANASPATI LTD. CA N ALSO NOT BE CONSIDERED AS TIME BARRED AS THE PERIOD OF LIMITATI ON WOULD STAND EXTENDED. EVEN, OTHERWISE, IT CANNOT BE STATED THA T M/S. ELEPHANTA OIL & VANASPATI LTD. WOULD BE UNABLE TO CLAIM A SET-OFF ON ACCOUNT OF THE AMOUNT REFLECTED AS PAYABLE TO IT BY THE ASSESSEE. ADMITTEDLY, WINDING UP PROCEEDINGS AGAINST M/S. ELEPHANTA OIL & VANASPA TI LTD. ARE PENDING AND THERE IS NO CERTAINTY THAT ANY CLAIM TH AT MAY BE MADE BY THE ASSESSEE WITH REGARD TO THE AMOUNTS RECEIVABLE FORM M/S. ELEPHANTA OIL & VANASPATI LTD. WOULD BE PAID WITHOU T THE LIQUIDATOR CLAIMING THE CREDIT FOR THE AMOUNTS RECEIVABLE FROM THE ASSESSEE COMPANY. IT IS WELL SETTLED THAT IN ORDER TO ATTRA CT THE PROVISIONS OF SECTION 41(1) OF THE ACT, THERE SHOULD HAVE BEEN AN IRREVOCABLE CESSATION OF LIABILITY WITHOUT ANY POSSIBILITY OF T HE SAME BEING REVIVED. THE ASSESSEE COMPANY HAVING ACKNOWLEDGED ITS LIABIL ITY SUCCESSIVELY OVER THE YEARS WOULD NOT BE IN A POSITION TO DEFEND ANY CLAIM THAT MAY BE MADE ON BEHALF OF THE LIQUIDATOR FOR CREDIT OF T HE SAID AMOUNT REFLECTED BY THE ASSESSEE AS PAYABLE TO M/S. ELEPHA NTA OIL & VANASPATI LTD. 22. WE MAY ALSO ADD THAT, ADMITTEDLY, NO CREDIT ENT RY HAS BEEN MADE IN THE BOOKS OF THE ASSESSEE IN THE PREVIOUS Y EAR RELEVANT TO THE ASSESSMENT YEAR 208-2009. THE OUTSTANDING BALANCES REFLECTED AS PAYABLE TO M/S. ELEPHANTA OIL & VANASPATI LTD. ARE THE OPENING BALANCES WHICH ARE BEING CARRIED FORWARD FOR SEVERA L YEARS. THE ISSUE AS TO THE GENUINENESS OF CREDIT ENTRY, THUS D OES NOT ARISE IN THE CURRENT YEAR AND THIS ISSUE COULD ONLY BE EXAMINED IN THE YEAR WHEN THE LIABILITY WAS RECORDED AS HAVING ARISEN, THAT I S, IN THE YEAR 1984- 1985. THE DEPARTMENT HAVING ACCEPTED THE BALANCES OUTSTANDING OVER SEVERAL YEARS, IT WAS NOT OPEN FOR THE CIT(A) TO CO NFIRM THE ADDITION OF THE AMOUNT OF RS.1,53,48,850/- ON THE GROUND THA T THE ASSESSEE COULD NOT PRODUCE SUFFICIENT EVIDENCE TO PROVE THE GENUINENESS OF THE TRANSACTIONS WHICH WERE UNDERTAKEN IN THE YEAR 1984 -1985. 23. THE PRESENT APPEAL DOES NOT DISCLOSE ANY SUBSTA NTIAL QUESTION OF LAW FOR OUR CONSIDERATION AND IS, ACCORDINGLY DI SMISSED. ITA NO.996/DEL/2013 6 7. FROM THE ABOVE FINDINGS OF HON'BLE HIGH COURT WE FIND THAT HON'BLE HIGH COURT HAD HELD THAT ENFORCEMENT OF A DEBT BEIN G BARRED BY LIMITATION DOES NOT IPSO FACTO RESULT INTO CESSATION OR REMISS ION OF LIABILITY AS LONG AS THE LIABILITY IS OUTSTANDING IN THE BALANCE SHEET O F AN ASSESSEE, SIMILARLY, HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS BH OGILAL RAMJIBHAI ATARA HAS HELD AS UNDER: WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL. SECTION 41(1) OF THE ACT AS DISCUSSED IN THE ABOVE THREE DECISIONS W OULD APPLY IN A CASE WHERE THERE HAS BEEN REMISSION OR CESSATION OF LIABILITY DURING THE YEAR UNDER CONSIDERATION SUBJECT TO THE CONDITI ONS CONTAINED IN THE STATUTE BEING FULFILLED. ADDITIONALLY, SUCH CESSAT ION OR REMISSION HAS TO BE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR UNDER CONSIDERATION. IN THE PRESENT CASE, BOTH ELEMENTS A RE MISSING. THERE WAS NOTHING ON RECORD TO SUGGEST THERE WAS REMISSIO N OR CESSATION OF LIABILITY THAT TOO DURING THE PREVIOUS YEAR RELEVAN T TO THE ASSESSMENT YEAR 2007-08 WHICH WAS THE YEAR UNDER CONSIDERATION . IT IS UNDOUBTEDLY A CURIOUS CASE. EVEN THE LIABILITY ITS ELF SEEMS UNDER SERIOUS DOUBT. THE ASSESSING OFFICER UNDERTOOK THE EXERCISE TO VERIFY THE RECORDS OF THE SO CALLED CREDITORS. MANY OF TH EM WERE NOT FOUND AT ALL IN THE GIVEN ADDRESS. SOME OF THEM STATED THAT THEY HAD NO DEALING WITH THE ASSESSEE. IN ONE OR TWO CASES, THE RESPON SE WAS THAT THEY HAD NO DEALING WITH THE ASSESSEE NOR DID THEY KNOW HIM. OF COURSE, THESE INQUIRIES WERE MADE EXPARTE AND IN THAT VIEW OF THE MATER, THE ASSESSEE WOULD BE ALLOWED TO CONTEST SUCH FINDINGS. NEVERTHELESS, EVEN IF SUCH FACTS WERE ESTABLISHED THROUGH BI-PART E INQUIRIES, THE LIABILITY AS IT STANDS PERHAPS HOLDS THAT THERE WAS NO CESSATION OR REMISSION OF LIABILITY AND THAT THEREFORE, THE AMOU NT IN QUESTION CANNOT BE ADDED BACK AS A DEEMED INCOME UNDER SECTI ON 41 OF THE ACT. THIS IS ONE OF THE STRANGE CASES WHERE EVEN I F THE DEBT ITSELF IS FOUND TO BE NON-GENUINE FROM THE VERY INCEPTION, AT LEAST IN TERMS OF SECTION 41(1) OF THE ACT THERE IS NO CURE FOR IT. BE THAT AS IT MAY, INSOFAR AS THE ORDERS OF THE REVENUE AUTHORITIES AR E CONCERNED, THE TRIBUNAL NOT HAVING MADE ANY ERROR, THIS TAX APPEAL IS DISMISSED. ITA NO.996/DEL/2013 7 8. WE FIND THAT IN THE PRESENT CASE ALSO, THE ASSES SEE HAD ACKNOWLEDGE THE LIABILITY TOWARDS SUNDRY CREDITORS IN HIS BALAN CE SHEET AND HAD NOT WRITTEN OFF THE SAME, THEREFORE, FOLLOWING THE ABOVE JUDICI AL PRECEDENTS AS RELIED UPON BY LD. A.R., THE ADDITION CANNOT BE MADE U/S 4 1(1)(A) OF THE ACT. 9. IN VIEW OF THE ABOVE, APPEAL FILED BY THE ASSESS EE IS ALLOWED. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND AUG., 2014. SD./- SD./- (I. C. SUDHIR) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 22 ND AUG., 2014 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI).