TIGER SURGICAL DISPOSABLE PVT. LTD.,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-8(1),, AHMEDABAD

आदेश/O R D E R

PER PRADIP KUMAR KEDIA - AM:

“1 The ld. CIT (A) has erred in law and on facts in upholding the addition for cessation of liability of sundry creditors to the extant of Rs.8,50,642/-. 2 The ld. CIT (A) has erred in law and on facts in upholding the addition made by the Ld. A.O. by invoking Sec. 40(a)(ia) of the Act of Rs.2,00,570/-. 3 The ld. CIT (A) has erred in law and on facts in reard to not considering the claim to be allowed for exhibition exps. Of Rs.5,77,350/- in toto considering it as revenue expenditure.”

3.1 When the matter was called for hearing, the learned AR for the assessee, at the outset, adverted our attention to a tabular statement appearing at page no.21 of the impugned assessment order for AY 2008-09 and submitted outstanding amount appearing against parties; namely, (i) Reliant Packaging Films Ltd. Rs.1,19,773/-, (ii) Labdhi International Rs.5,000/-, (iii) Amol Paper Syndicate Rs.41,714/-, (iv) Multibase India Ltd. Rs. 88,013/-, (v) Asiatic Engineers Rs.4,57,851/- & (vi) Reliance Industries Ltd. Rs.68,534/- are in dispute. As regards Reliant Packaging Films Ltd. and Labdhi International, the learned AR adverted to page nos. 120 and 121 of the paper book showing the ledger account of the parties and submitted that the aforesaid amount has been already written back in the FY 2010-11 and therefore, the addition made by the AO tantamount to double Surgical Disposable Pvt. Ltd. vs. ITO] A.Y. 2008-09 - 3 - taxation. As regards Amol Paper Syndicate, the assessee referred to page no.123 of the paper book showing ledger of the parties to submit that the liability has been discharged by way of payment/write back in FY 2008-09 relevant to AY 2009-10 and therefore no disallowances called for. As regards Multibase India Ltd., the learned AR submitted that the transactions with the parties is continuing in FY 2008-09 and certain payments have been made in that year. It was further contended that the party Multibase India Ltd. has in fact claimed Rs.2,48,627/- in reverse from the assessee in FY 2007-08 as per the ledger account of the assessee in the books of Multibase India Ltd. as appearing at page no.127 of the paper book. It was thus contended that no cessation of liability can be inferred in such circumstances. As regards Asiatic Engineers ledger account and confirmation of the party as appearing at page nos. 128 to 130 of the paper book was referred to and it was pointed out that outstanding represents a pure banking transaction without any claim of allowance or deduction made in respect of these transactions towards losses, expenditures etc. and therefore, the provisions of Section 41(1) of the Act would not come into play. Similarly, it was submitted that the liability of Reliance Industries Ltd. was also discharged in the subsequent years as can be seen from the ledger accounts.

3.2. In the circumstances narrated above on behalf of the assessee where either payments have been made in the subsequent years or written back and offered for taxation in the subsequent year or the amount outstanding is shown to be in dispute or the transaction is in the nature of financial loan and not covered by the provisions of Section 41(1) of the Act, we find merit in the plea of the assessee for non-applicability of Section 41(1) of the Surgical Disposable Pvt. Ltd. vs. ITO] A.Y. 2008-09 - 4 - Act in the assessment year in question in the light of the attendant circumstances as narrated and supported.

3.3 In the result, Ground No.1 is allowed.

4.1 The learned counsel for the assessee pointed out that the aforesaid sum of Rs.2,00,570/- comprises of Rs.1,15,470/- debited by the assessee under the head ‘preliminary and pre-operative expenses and remaining amount of Rs.85,100/- was paid to Indian Cargo Movers on account of transport charges.

4.2 As regards the disallowance of Rs.1,15,470/-, the learned AR referred to the financial statement of the assessee as on 31.03.2008 and Schedule No.14 thereto to show that the assessee has not claimed the impugned expense as revenue expenditure for any deduction. The preliminary expense of Rs.3,96,843/- claimed by the assessee represents amortization of expenses incurred in the earlier years. It was thus contended that no disallowance of expenses under s.40(a)(ia) of the Act to the extent of Rs.1,15,470/- is permissible in law where the expenses itself have not been claimed for deduction.

4.3 We straightway find merit in the aforesaid plea of the assessee. In the absence of expenses claimed as revenue expenditure, no disallowance under s. 40(a)(ia) of the Act is Surgical Disposable Pvt. Ltd. vs. ITO] A.Y. 2008-09 - 5 - warranted. We thus set aside the action of the lower authorities to this extent and allow the claim of the assessee to the extent of Rs.1,15,470/-.

4.4 As regards the disallowance of remaining amount of Rs.85,100/-, it was contended on behalf of the assessee that the assessee had paid amount in small fractions on various dates, each amount being less than Rs.20,000/- as can be seen from the ledger account appearing at page no.146 of the paper book. It was thus contended that each payment being less than the threshold limit, the obligation cast under s.194C of the Act, do not apply to the assessee.

4.5 On being inquired by the Bench that as per the proviso to Section 194C (5) of the Act, the aggregate amount is required to be considered qua the party and in such a situation, the assessee has breached the threshold limit of Rs.50,000/- per contractor, the learned AR could not submit any befitting reply. Thus, in the light of provision of Section 194C(5) of the Act, the disallowance to the extent of Rs.85,100/- does not call for any interference.

4.6 In the result, Ground No.2 is allowed in part.

5.1 The learned AR for the assessee fairly submitted that the issue may go back to the file of the AO for fresh verification to examine whether the impugned expenses have been claimed as revenue expenditure at all. It is the case of the assessee that the Surgical Disposable Pvt. Ltd. vs. ITO] A.Y. 2008-09 - 6 - aforesaid expenses were transferred to preliminary and pre- operative expenses and not claimed as deduction either fully or in an amortized manner. Having regard to fact situation involved, we deem it expedient to remit the matter back to the file of the AO for re-determination to the issue. It shall be open to the assessee to establish before the AO that impugned expenditure in question has not been claimed as revenue expenditure. The AO shall restrict the disallowance to the extent of amount claimed as revenue expenditure, if any.

5.2 In the result, Ground No.3 is allowed for statistical purposes.

This Order pronounced on 21/08/2020

Sd/- Sd/- (RAJPAL YADAV) (PRADIP KUMAR KEDIA) VICE PRESIDENT ACCOUNTANT MEMBER Ahmedabad: Dated 21/08/2020 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।