INCOME TAX OFFICER, WARD-12(2)(1), MUMBAI vs. F A INFRAPROJECTS LIMITED, MUMBAI

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ITA 2739/MUM/2022Status: DisposedITAT Mumbai22 February 2023AY 2012-139 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the trade liabilities were part of a running account and there was no evidence of cessation, making Section 41(1) inapplicable. The ad hoc disallowance was also deemed invalid without proper basis.

What were the facts?

The Assessing Officer made an addition of ₹8,46,87,207/- under Section 41(1) for alleged cessation of trade liability and disallowed ₹1,50,000/- ad hoc from expenses. The assessee contended that the trade liabilities were part of a running account and not ceased. The CIT(A) deleted both additions.

What were the issues?

Whether trade liabilities in a running account constitute cessation of liability under Section 41(1), and if an ad hoc disallowance of expenses is permissible without proper basis.

Which sections of the Income-tax Act were involved?

Section 41(1),Section 143(3)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(7)Show list

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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI

Hearing: 09.02.2023Pronounced: 22.02.2023
1.

This appeal is filed by Income Tax Officer-12(2) (1), Mumbai (the learned Assessing Officer) for A.Y. 2012-13 against the appellate order passed by the National Faceless Appeal Centre, Delhi [the learned CIT (A)] dated 29th August, 2018, wherein the appeal filed by the assessee against the assessment order dated 26th March, 2015, passed under Section 143(3) of the Income tax Act [ the Act] by the learned Assessing Officer was allowed.

2.

The learned Assessing Officer is aggrieved with the deletion of the addition of ₹8,46,87,207/- under Section

5.

The assessee preferred the appeal against the assessment order before the learned CIT (A). With respect to the addition under Section 41(1) of the Act, the learned CIT (A) held that though the learned Assessing Officer has made the additions but the assessee provided explanation during the assessment proceedings that the accounts of the creditors was a running account when there was a opening balance payable to a person as added by the further amounts payable for the work done as reduced by the amounts paid leaving a sum outstanding at the year end, the same cycle repeats year to year. Accordingly, the liability payable to laborers is paid continuously and the question of cessation of liability does not arise. Accordingly, he held that the addition made by the learned Assessing Officer is on mis-appreciation of facts. Thus, the addition was deleted.

6. With respect to the ad hoc disallowance of ₹1,50,000/-, the learned CIT (A) held that the ad hoc disallowance in case of a company is not valid, proper and legal. He held that the amount of disallowance being only an estimate and that too without any basis cannot be confirmed. Hence, he deleted the same. The appellate order is challenged by the learned Assessing Officer in this appeal. 07. The learned Departmental Representative supported the order of the learned Assessing Officer. The learned

8.

The learned Authorized Representative vehemently supported the order of the learned CIT (A) as well as the provisions of the law.

9.

We have carefully considered the rival contentions and the orders of the lower authorities. The fact shows that assessee is a company carrying on the contract business of civil work by sub contractor and available labour. When questioned during assessment proceedings, the assessee submitted that as per the nature of business the work is carried out at different locations. As the assessee is a contractor, if there is a delay in payment of dues by theprincipal to the assessee naturally results in delay in payment of the creditors of the assessee. The amount payable to the creditors is outstanding at the end of the year, the bills or the payments made are also adjusted and further the closing balance becomes a running cycle. A continuous payment is made to these parties. Assessee is assessed under Section 143(3) of the Act for A.Y. 2010-

10.

In Principal Commissioner of Income-tax Vs Batliboi Environmental Engineering Ltd.[2022] 446 ITR 238 (Bomb) it is held that :-

“5. As regards second question of law is concerned, it was argued by the Appellant- Revenue that since the Respondent-Assessee had around 25 creditors whose

6.

The Delhi High Court in the case of Jain Exports (P.) Ltd. (supra) has relied upon the decisions of the Supreme Court in the case of Bombay Dyeing and Manufacturing Co. Ltd. v. State of Bombay AIR 1958 SC 328 and CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 102 Taxman 713/236 ITR 518. In Sugauli Sugar Works (P.) Ltd. (supra), the Supreme Court has referred to the decision of the Division Bench of this Court in the case of Kohinoor Mills Co. Ltd. v. CIT [1963] 49 ITR 578. The Delhi High Court, after following these decisions concluded that merely because the liability is barred by limitation, it does not cease to be a debt. This view is also taken by this Court in the case of CIT v. Indian Rayon and Industries Ltd. [2011] 336 ITR 479. Therefore, the submission made by the Appellant that because the liability is barred by the period of limitation the same would be treated as income and added under section 41(1) of the Act cannot be

11.

In Principal Commissioner of Income Tax-6 V New World Synthetics Ltd[2018] 97 taxmann.com 399 (Delhi) it is held thatNon-payment of outstanding liability which is admitted and acknowledged as due and payable by an assessee does not indicate remission or cessation of liability.

12.

In view of the above facts, we do not find any infirmity in the order of the learned CIT (A) in deleting the addition of ₹8,46,87,207/- under Section 41(1) of the Act. Ground no 1 of appeal is dismissed.

13.

Ground no.2 is with respect to the disallowance on adhoc amount out of direct expenses claimed. The learned CIT (A) has categorically held that there is no reason to uphold the addition because it was merely an estimate and that toowithout any basis. The learned Departmental Representative submitted that in the assessment proceedings for earlier years, identical disallowance should be upheld. We find that in the earlier years this was the only dispute and same was not challenged before any appellate authority. In the present year, the learned CIT (A) held that all the details of expenses were provided to the learned Assessing Officer. If the learned Assessing Officer was of the view that some of the vouchers are missing, the amount of addition should have been made of the same amount. Further, merely due to smallness of

14.

In the result, on both counts, the order of the learned CIT (A) is upheld, and the appeal of the learned Assessing Officer is dismissed.

Order pronounced in the open court on 22.02.2023.

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