GEETA BHASIN,NEW DELHI vs. ACIT, CIRCLE-28(1), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “H” BENCH: NEW DELHI BEFORE SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER & SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.89/Del/2021 [Assessment Year : 2014-15] Geeta Bhasin, vs ACIT, C/o-Mr. Sandeep Sapra, Adv., Circle-28(1), C0763, New Friends Colony, New Delhi. New Delhi-110025. PAN-ACDPB6005D APPELLANT RESPONDENT Appellant by Shri Sandeep Sapra, Adv. Respondent by Shri M.Baranwal, CIT DR Date of Hearing 07.11.2022 Date of Pronouncement 28.11.2022

ORDER PER KUL BHARAT, JM : This appeal filed by the assessee for the assessment year 2014-15 is directed against the order of Ld. CIT(A)-25, New Delhi dated 28.02.2020.

“We also take judicial notice of the fact that the steep rise in COVID-19 Virus cases is not limited to Delhi alone but it has engulfed the entire nation. The extraordinary situation caused by the sudden and second outburst of COVID-19 Virus, thus, requires extraordinary measures to minimize the hardship of litigant-public in all the states. We, therefore, restore the order dated 23rd March, 2020 and in continuation of the order dated 8th March, 2021 direct that the period(s) of limitation, as prescribed under any general or special laws in respect of all judicial or quasi-judicial

proceedings, whether condonable or not, shall stand extended till further orders. It is further clarified that the period from 14th March, 2021 till further orders shall also stand excluded in computing the periods prescribed under Sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings. We have passed this order in exercise of our powers under Article 142 read with Article 141 of the Constitution of India. Hence it shall be a binding order within the meaning of Article 141 on all Courts/Tribunals and Authorities. This order may be brought to the notice of all High Courts for being communicated to all subordinate courts/Tribunals within their respective jurisdiction.” 6. Therefore, respectfully following the order of Hon’ble Supreme Court, we hereby condone the delay in filing of appeal and admit the appeal for hearing.

BRIEF FACTS OF THE CASE 7. Facts giving rise to the present appeal are that the assessee electronically filed its return of income on 30.10.2014, declaring an income of Rs.29,69,830/- which was processed u/s 143(1) of the Income Tax Act, 1961 [“the Act”]. The case was selected for scrutiny u/s 143(3) of the Act. Accordingly, statutory notice u/s 143(2) of the Act was issued on 11.09.2015 which was duly served on the assessee within the statutory period. Subsequently, the notice was issued u/s 142(1) of the Act to the assessee. In response thereto, Ld. Authorized Representative of the assessee, Shri Ravi

Chopra, CA attended the assessment proceedings from time to time on various dates and submitted various details/information as called by AO, same was examined and placed on record. Thereafter, assessment was framed by the Assessing Officer [“AO”] u/s 143(3) of the Act vide order dated 23.12.2016 and the AO assessed the income at Rs.1,43,64,590/- of the assessee. Thereby, the AO made addition of Rs.4,70,000/- by treating the amount as deemed dividend u/s 2(22)(e) of the Act, a sum of Rs.32,94,849/- and Rs.76,29,910/- on account of cessation of liability u/s 41(1) of the Act.

Ground No. 1 reads as under: “That the Ld. CIT(A) erred on facts and in law in confirming the addition of Rs. 4,70,000 u/s 2(22)(e) of I. T. Act on account of deemed dividend. At any rate, without prejudice, such addition as made is very excessive”. AO: made addition of Rs.4,70,000 u/s 2(22)(e) of I.T. Act vide para 4.1 to 4.1.3 at pages 2-6 of the impugned assessment order. CIT(A): confirmed the above addition of Rs.4,70,000 vide pages 6 -9 of the appellate order. Submissions/documents relied upon: 1. Copy of ledger A/c of Niharika Impex Pvt. Ltd. in the books of the Assessee for the year under consideration is placed at page 36 of PB from which it is evident that the Assessee did not receive any payment from such party during the year under consideration. In fact, there is no transaction during the year under consideration and only opening credit balance of Rs.4,70,000 as on 01/04/2013 was carried forward to the next financial year. 2. As no payment has been received during the year under consideration, therefore, addition of opening credit balance of Rs.4,70,000 u/s 2(22)(e) of I.T. Act is legally untenable. In this connection, reliance is placed on Bombay High Court judgment in the case of CIT vs. Parle Plastics Ltd. reported in 332 ITR 63, copy placed at pages 102-114 of PB. Relevant portion from para 11 (pages 109 -110 of PB) is reproduced below: “This shows that during the relevant previous year (F.Y. 1996-97), AMPL had actually lent to the assessee only a sum of Rs. 11,68,135/- in two installments, namely Rs.6,00,000/- on 10.9.1996 and Rs.5,68,135/- on 31.3.1997. The opening balance of Rs.1,76,39,425/- was not advanced by AMPL to the assessee during the relevant previous year and could, therefore, be not treated as the amount of loan or advance received by the assessee during the relevant previous year. The said amount, therefore, could

not be included as the dividend (hereinafter, referred to as "the deemed dividend") under clause (e) of Section 2(22) of the Act”. In view of the above facts, circumstances and the legal position, the addition of Rs.4,70,000 u/s 2(22)(e) of I.T. Act on account of deemed dividend deserves to be deleted.” 12. Ld.CIT DR opposed these submissions and supported the orders of the authorities below.

5.1.3. “From above reply, it is observed that M/s. Niharika Impex Pvt.ltd. gave amount of Rs.4,70,000/- to the appellant from which the appellant Page | 6

purchased a plot of land in her own name. This shows that the amount given by M/s. Niharika Impex Pvt.Ltd. to the appellant was not for business purpose and is clearly covered by provisions of section 2(22)(e) of Income Tax Act. Repayment of the amount subsequently would not save the appellant from applicability of provisions of section 2(22)(e) of Income Tax Act. Hon’ble Supreme Court in the case of Miss P. Sarada vs CIT [1988] 229 ITR 444 (SC) held that advances made by company to assessee would have to be treated as deemed dividends paid on dates when withdrawals were allowed to be made and subsequent adjustment of account made on very last day of accounting year would not alter position that assessee received notional dividends on various dates. Hence, addition of Rs.4,70,000/- is hereby confirmed and Ground No.1 is dismissed.” 14. It is contention of the assessee that the amount in question was not paid during the year under consideration in support of this. Ld. Counsel for the assessee relied on ledger A/c of M/s. Niharika Impex Pvt.Ltd. This fact needs verification at the end of AO. We therefore, restore this issue to AO for decision afresh. If the AO finds that the amount was not paid during the year under consideration, he shall delete the addition. This Ground of assessee’s appeal is allowed for statistical purposes.

“Ground No. 2 reads as under: That the Ld. CIT(A) erred on facts and in law in confirming the addition aggregating to Rs.32,61,337 u/s 41(1) of I.T. Act on account of cessation of liability of the following: Particulars Credit Balance as on 31.03.2014 (Rs.) a) Retention money 3,04,337 b) Security Rent 6,93,000 c) Mahima Deshpandey 7,20,000 d) Span Advertising 15,44,040 Total 32,61,337 AO: made addition of Rs.32,94,849 under the head ‘other payables’ u/s 41(1) of I.T. Act vide para 4.2 to 4.2.2 at pages 6-7 of the impugned assessment order. CIT(A): confirmed addition of Rs.32,61,337 out of total addition of Rs.32,94,849 vide para 5.2 to 5.2.7 at pages 9-11 of the appellate order. Submissions/documents relied upon: (A) Retention money (K.D. Constructions) - Rs. 3,04,337 1. Copy of A/c of current liabilities (other payable) as on 01/04/2013 and 31/03/2014 is placed at page 37 of PB. 2. Copy of ledger A/c of Retention money (K.D. Constructions) in the books of the Assessee for the year under consideration is placed at page 38 of PB. It is evident from the ledger A/c of such party that no transaction was carried out during the year under consideration and only opening credit of Rs.3,04,337 as on 01/04/2013 has been carried forward to the next financial year. The issue as to the genuineness of a credit entry, thus does not arise during the year under consideration and this issue could only be examined in the year when the liability was recorded as having arisen. In other words, the addition made u/s 41(1) of I.T. Act is legally untenable. In this connection, reliance is placed on Jurisdictional Delhi High Court judgment in the case of CIT vs. Jain Exports Pvt. Ltd. reported in 35 taxmann.com 540 and also in 217 Taxman 54, copy placed at pages 78-93 of PB. Relevant portion from para 22 (pages 92- 93 of PB) of such judgment is reproduced below: ‘We may also add that, admittedly, no credit entry has been made in the books of the assessee in the previous year relevant to the assessment year 2008- 2009. The outstanding balances reflected as Page | 8

payable to M/s Elephanta Oil & Vanaspati Ltd. are the opening balances which are being carried forward for several years. The issue as to the genuineness of a credit entry, thus does 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 is, in the year 1984-1985. The department having accepted the balances outstanding over several years, it was not open for the CIT (Appeals) to confirm the addition of the amount of ' 1,53,48,850/- on the ground that the assessee could not produce sufficient evidence to prove the genuineness of the transactions which were undertaken in the year 1984-85”. 3. Copy of confirmatory certificate of K.D. Constructions confirming balance of Rs.3,04,337 receivable as on 31/03/2014 from the Assessee is placed at page 38A of PB. PAN No. of K.D. Construction is duly mentioned in the confirmatory certificate. The creditor having confirmed the outstanding balance of Rs.3,04,337, the AO was wholly unjustified in making an addition on account of remission or cessation of trading liability u/s 41(1) of I.T. Act. Therefore, the addition as made is legally untenable. In this connection, reliance is placed on the following case laws: a) Jurisdictional Delhi High Court judgment in the case of CIT vs. Jain Exports Pvt. Ltd. reported in 35 taxmann.com 540 and also in 217 Taxman 54, copy placed at pages 78-93 of PB. Relevant portion from para 21 (page 92 of PB) of such judgment is reproduced below: ‘Although, enforcement of a debt being barred by limitation does not ipso facto lead to the conclusion that there 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 unenforceable. It is well settled that reflecting an amount as outstanding in the balance sheet by a company amounts to the company acknowledging the debt for the purposes of Section 18 of the Limitation Act, 1963 and, thus, the claim by M/s Elephanta Oil & Vanaspati Ltd. can also not be considered as time barred as the period of limitation would stand extended. Even, otherwise, it cannot be stated that M/s Elephanta Page | 9

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 & Vanaspati Ltd. are pending and there is no certainty that any claim that may be made by the assessee with regard to the amounts receivable from M/s Elephanta Oil & Vanaspati Ltd. would be paid without the liquidator claiming the credit for the amounts receivable from the assessee company. It is well settled that in order to attract the provisions of Section 41(1) of the Act, there should have been an Irrevocable cession of liability without any possibility of the same being revived. The assessee company having acknowledged its liability 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 the said amount reflected by the assessee as payable to M/s Elephanta Oil & Vanaspati Ltd. Jurisdictional Delhi High Court judgment in the case of CIT vs. b) Hotline Electronics Ltd. 18 taxmann.com 363 and also in 205 Taxman 245, copy placed at pages 94-101 of PB. Relevant portion from para 8 to 10 (pages 100 - 101 of PB) are reproduced below: “The Bombay High Court had also observed that there was a cessation of the liability due to the expiry of period of limitation to enforce the same. Disapproving the line of reasoning of the Bombay High Court in CIT v. Bennett Coleman & Co. Ltd. (supra) the Supreme Court held as under:- “We are unable to accept the reasoning of the Bombay High Court in that case. Just because an assessee makes an entry in his books of account unilaterally, he cannot get rid of his liability. The question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee’s case alone but it is a matter which has to be decided only if the creditor is before the concerned authority. In the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt is barred Page | 10

and has become unenforceable. There may be circumstances which may enable the creditor to come with a proceeding for enforcement of the debt even after the expiry of the normal period of limitation as provided in the Limitation Act.” It may be observed that in the present case, as noted earlier, the Assessing Officer has not brought on record any evidence or material, including any statement from the creditors, that the debts had been extinguished and the liability of the assessee to pay them has ceased, despite the extension of the period of limitation by acknowledgment made in the assessee’s balance sheet. Section 41(1) (a) cannot be invoked on these facts. In ITA No.774/2009 by judgment of even date we have decided a similar matter where the income tax authorities had invoked Section 41(1)(a) of the Act. We have held that unpaid liabilities cannot be added as the assessee’s income under Section 41(1) merely because they remained unpaid for a sufficiently long time and that it is required of the revenue authorities to show that the liability to pay the creditors has ceased or has been remitted by the creditors. For the reasons stated by us hereinabove and in the aforesaid judgment, we answer the substantial question of law raised by the revenue in the present appeal in the affirmative and in favour of the assessee. The appeal of the revenue is dismissed”. c) Jurisdictional Delhi High Court judgment in the case of CIT vs. Shri Vardhman Overseas Ltd. reported in 343 ITR 408, relevant portion from Head Notes is reproduced below: ‘‘Held, dismissing the appeal, that the assessee had not unilaterally written back the accounts of the sundry creditors in its profit and loss account. The liability was shown in the balance-sheet as on March 31, 2002. The assessee being a limited company, this amounted to acknowledging the debt in favour of the creditors for purposes of section 18 of the Limitation Act, 1963. The assessee’s liability to the creditors, Page | 11

thus, subsisted and did not cease nor was it remitted by the creditors. The liability was enforceable in a court of law. The amount was not assessable under section 41(1)”. (B) Security against rent from Ethos Hotel & Resorts - Rs. 6,93,000 1. Copy of ledger A/c of security against rent (Tenant: Ethos Hotel & Resorts) for the year under consideration placed at page 39 of PB. It is evident from the ledger A/c of such tenant that no transaction has been carried out during the year under consideration and only credit opening balance of Rs.6,93,000 as on 01/04/2013 has been carried forward to the next financial year. The issue as to the genuineness of a credit entry, thus does not arise during the year under consideration and this issue could only be examined in the year when the liability was recorded as having arisen. Therefore, the addition made u/s 41(1) of I.T. Act is legally untenable. In this connection, reliance is placed on the case laws as cited in Ground No. 2 above. 2. The above addition as made is wholly unjustified from another angle as well inasmuch as the Assessee has not claimed any allowance or deduction of Rs.6,93,000 as the same represents security received from a tenant and therefore, provisions of section 41(1) of I.T. Act are not applicable to the facts of Assessee’s case. Such issue was duly raised before the Ld. CIT(A) who has completely ignored the same. Kindly refer to relevant para 6 of the written submissions made before CIT(A) placed at page 7 of PB which is reproduced below: “Security against rent amounting to Rs. 6,93,000/- was received in terms of lease agreement dated 20.02.2013 which is placed at page No. 82 to 96. The assessee continues to earn rental income from these properties which is being declared in the return of income. Please refer page No. 88 of the lease agreement. The security deposit is refundable at the time of tenant vacating the property. It is further submitted that no allowance or deduction had been given for this amount in the earlier assessment years and as such the

provisions of section are not attracted u/s 41(1) of the income tax act.” 3. Copy of registered lease rent agreement dated 20/02/2013 between the Assessee and M/s ETHOS Hotel and Resorts Pvt. Ltd. placed at pages 40-62 of PB - kindly refer to para 2 & 3 internal page 51 of PB of such lease agreement which reflects monthly rental of Rs.2,31,000 payable by such Co. to the Assessee and also interest free refundable security deposit of Rs.6,93,000 paid by such Co. to the Assessee equivalent to 3 months of lease rent for shops bearing No. 52, 53 & 54, Sector 18, Noida. 4. Copy of Assessee’s ITR and computation of total income for the year under consideration placed at pages 16-19 of PB from which it is evident that Assessee has shown rental income from such Co. for shops bearing No. 52, 53 & 54, Sector 18, Noida. 5. The credit balance of Rs.6,93,000 having been confirmed by such party vide registered lease agreement dated 20/02/2013, the AO was wholly unjustified in making an addition u/s 41(1) of I.T. Act on account of remission or cessation of trading liability. Therefore, the addition as made is legally untenable. In this connection, reliance is placed on the case laws as cited in Ground No. 2 above. (C) Mahimna Deshpandey (advance for sale of plot) - Rs.7,20,000 1. Copy of ledger A/c of Mahimna Deshpandey (advance for sale of plot) for the year under consideration placed at page 63 of PB. 2. Copy of confirmatory certificate of Mahimna Deshpandey confirming amount of Rs.7,20,000 receivable from the Assessee as on 31/03/2014 is placed at page 64 of PB. Her PAN No. is duly mentioned in the confirmatory certificate. The creditor having confirmed the outstanding balance of Rs.7,20,000, the AO was wholly unjustified in making an addition u/s 41(1) of I.T. Act on account of remission or cessation of trading liability. Therefore, the addition as made is legally untenable. In this connection, reliance is placed on the case laws as cited in Ground No. 2 above. Page | 13

I.T. Act on account of remission or cessation of trading liability. Therefore, the addition as made is legally untenable. In this connection, reliance is placed on the case laws as cited above. 3. It may not be out of place to mention here that Assessee vide para 5 of letter dated 20/12/2016, copy placed at page 15 of PB had also requested the AO, if deemed necessary, to confirm the credit balances of the parties reflected under the head ‘creditors’ and ‘other payables’ by exercising the powers bestowed upon the AO either u/s 133(6) or 131 of I.T. Act. It is pertinent to point out here that the AO chose not to confirm the credit balances directly from such parties and therefore, no adverse inference could be drawn against the Assessee particularly when the Assessee had discharged the onus of proving the credit balances by filing the confirmations of all the parties. In view of the above facts, circumstances and the legal position, the addition of Rs.32,61,337 u/s 41(1) of I.T. Act on account of cessation of liability deserves to be deleted. At any rate, the addition as made is very excessive.” 17. Ld.CIT DR opposed these submissions and supported the orders of the authorities below.

the Income Tax Department and as a result, the assessee had been put to lot of inconvenience. The amount was withheld during the course of business payments and there is no cessation of liability as such. Thus, the contention of the assessee is that the liability is still subsisting hence, it can not be treated as income of the assessee. Therefore, looking to the totality of facts, the question whether the liability was subsisting, needs verification. The AO is hereby directed to carry out necessary verification by making necessary inquiry. Needless to say that AO would afford adequate opportunity to the assessee. Thus, Ground No.2 raised by the assessee is allowed for statistical purposes.

“Ground No. 3 reads as under:

That the Ld. CIT(A) erred on facts and in law in confirming the addition aggregating to Rs.76,29,910 u/s 41(1) of I.T. Act on account of cessation of liability of the following:

Name of the creditors Credit Balance (Rs.) a) Calm Constructions 38,98,955 b) KD Constructions 19,09,350 c) Sarasan Pillai 5,36,540 d) Sameer Furniture 6,95,250 e) Shree Chakra 5,89,815 Total 76,29,910 AO: made the above addition of Rs.76,29,910 on account of sundry creditors u/s 41 (1) of I.T. Act vide para 5 to 5.6 at pages 7-10 of the impugned assessment order. CIT(A): confirmed the above addition of Rs.76,29,910 vide para 5.3 to 5.3.7 at pages 11 -14 of the appellate order. Page | 16

Assessee’s submissions/documents relied upon: 1. Details of sundry creditors as on 01/04/2013 and 31/03/2014 is placed at page 67 of PB 2. Copy of ledger A/c of Calm Constructions in the books of the Assessee for the year under consideration is placed at page 68. 3. Confirmatory certificate of the debtor Calm Constructions confirming debit opening balance as on 31/03/2013 & debit closing balance as on 31/03/2014 of Rs.38,98,955 receivable from the Assessee is placed at page 69. PAN No. of Calm Constructions is duly mentioned in the confirmatory certificate. 4. Copy of ledger A/c of K.D. Constructions in the books of the Assessee for the year under consideration is placed at page 70 of PB. 5. Confirmatory certificate of the debtor K.D. Constructions confirming debit opening balance as on 31/03/2013 & debit closing balance as on 31/03/2014 of Rs. 19,09,350 receivable from the Assessee is placed at page 71 of PB. PAN No. of K.D. Construction is duly mentioned in the confirmatory certificate. 6. Copy of ledger A/c of Sarasan Pillai G in the books of the Assessee for the year under consideration is placed at page 72 of PB. 7. Confirmatory certificate of the debtor Sarasan Pillai G confirming debit balance of Rs.5,36,540 as on 31/03/2014 receivable from the Assessee is placed at page 73 of PB. PAN No. of Sarasan Pillai G is duly mentioned in the confirmatory certificate. 8. Copy of ledger A/c of Sameer Furniture in the books of the Assessee for the year under consideration is placed at page 74 of PB. 9. Confirmatory certificate of the debtor Sameer Furniture confirming debit balance of Rs.6,95,250 as on 31/03/2014 receivable from the Assessee is placed at page 75 of PB. PAN No. of Sameer Furniture is duly mentioned in the confirmatory certificate. 10. Copy of ledger A/c of Shree Chakra in the books of the Assessee for the year under consideration is placed at page 76 of PB. Page | 17

liability deserves to be deleted. At any rate, the addition as made is very excessive.” 20. Ld.CIT DR opposed these submissions and supported the orders of the authorities below.

Order pronounced in the open Court on 28th November, 2022. Sd/- Sd/-

(N.K.BILLAIYA) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER * Amit Kumar * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI