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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: Shri L. P. Sahu & Shri Ravish Sood
PER RAVISH SOOD, JM The present appeal filed by the assessee is directed against the order passed by the CIT(A)-2, Jalandhar, dated 16.03.2016, which in turn arises from the order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (for short ‘IT Act’), dated 20.11.2009 for A.Y. 2007-08. 2. The assessee has assailed the impugned order on the following grounds of appeal before us:
“1. That the learned Commissioner is wrong in confirming the addition of Rs. 50,000/- under s. 41(1) of the Income Tax Act, 1961 inspite of the AO having failed to prove that liability has ceased to exist and the appellant has claimed the amount as an expenditure when the liability was created.
Without prejudice to above the addition even if it had to be made should have been made the year in which amount was paid to the party.
That the learned Commissioner is wrong in confirming the addition of Rs. 6,98,007/- under s. 41(1) of the Income Tax Act, 1961 inspite of the AO having failed to prove that liability has ceased to exist and the appellant has claimed the amount as an expenditure when the liability was created.
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Any other ground which may be raise at the time of hearing.”
Briefly stated, the assessee company which is a franchisee of Apollo Hospital & Lifestyle Ltd., and also engaged in the business of trading in medicines had e-filed its return of income for A.Y. 2007-08 on 31.10.2007, declaring a business loss of (Rs. 27,89,110/-). Return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assesseee was selected for scrutiny assessment under Sec.143(2) of the Act.
During the course of the assessment proceedings the A.O called upon the assessee to furnish copies of account of its creditors viz. (i) M/s Aakshi Electrical Sys Pvt. Ltd. : Rs. 6,98,007/-; and (ii) M/s Hitachi Home & Life Solutions (India) Ltd. : Rs.50,000/-. On a perusal of the copies of accounts of the aforementioned parties, it was observed by the A.O that the aforesaid balances were reflected as such in the respective accounts of the aforementioned parties on 01.04.2006. Statement of the assesses account as appearing in the books of account of M/s Hitachi Home & Life Solutions (India) Ltd. for the period 14.03.2005 to 18.09.2006 revealed a ‘credit’ of Rs. 50,000/- on 14.03.2005 and a corresponding ‘debit’ of the same amount of 27.07.2005, and the account was found to have been squared up on 18.09.2006. As against the aforesaid, the account of the aforesaid party i.e. M/s Hitachi Home & Life Solutions (India) Ltd. in the books of account of the assessee reflected a credit of Rs. 50,000/- on 31.03.2007. On a perusal of the account of the aforesaid party, it was observed by the A.O that the assessee had purchased air conditioners from the said party i.e. M/s Hitachi Home & Life Solutions (India) Ltd., pursuant whereto there were credit entries of Rs. 1,39,411/- and Rs. 66,700/- on 23.04.2005 and 04.05.2005, respectively, against which there were corresponding debits of the amounts that were paid by the assessee by demand drafts. On being queried as regards the liability of Rs. 50,000/- that was appearing in the account of the aforementioned party in the books of account of the assessee, specifically when the same had been squared up by the said party i.e. M/s Hitachi Home & Life Solutions (India) Ltd., it was submitted by the assessee that the aforesaid amount was an advance that was given by the promoter from his own account, which on having been received back from the aforesaid party stood reflected as a credit in the books of account of the assessee. However, the A.O was not P a g e | 3 ITA No. 191/Asr./2016 A.Y. 2007-08 M/S GMG Healthcare Pvt.Ltd. Vs. ACIT
inclined to accept the aforesaid claim of the assessee, and treated the aforesaid outstanding liability of Rs. 50,000/- in the books of account of the assessee as a ceased liability under Sec.41(1) of the Act.
On being queried as regards the credit appearing in the account of M/s Aakshi Electrical Sys Pvt. Ltd. of Rs. 6,98,007/-, it was submitted by the assessee that the balance standing in the account of the aforesaid party was a disputed amount and the party had been asked to rectify the defects in its bills. However, as the assessee failed to substantiate the aforesaid facts so averred by it, therefore, the A.O also treated the same as a ceased liability under Sec. 41(1) of the Act.
On the basis of his aforesaid deliberations the A.O after making the aforestated additions under Sec. 41(1) of the Act, therein scaled down the loss of the assessee to an amount of Rs. 20,41,100/-
Aggrieved, the assessee assailed the assessment order before the CIT(A). However, not finding favour with the contentions advanced by the assessee, the CIT(A) upheld the additions made by the A.O under Sec. 41(1) of the Act and dismissed the appeal.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that the assessee despite having been put to notice about the hearing of the appeal had however failed to put up an appearance before us. Accordingly, in the backdrop of the aforesaid facts, we are constrained to proceed with and dispose off the appeal as per Rule 24 of the Appellate Tribunal Rules, 1963, after hearing the respondent revenue and perusing the orders of the lowers authorities.
The Learned Departmental Representative (for short ‘D.R’) relied on the orders of the lower authorities. It was submitted by the Ld. D.R that as the assessee had failed to substantiate the subsistence of the impugned liabilities towards the aforementioned creditors, therefore, the lower authorities had rightly held the same as ceased liabilities within a meaning of Sec. 41(1) of the Act.
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We have heard the Ld. D.R and also perused the orders of the lower authorities. As is discernible from the records, we find that it has consistently been the claim of the assessee that the outstanding credit balance of Rs. 50,000/- in the name of M/s Hitachi Home & Life Solutions (India) Ltd. was an advance that was initially given by the director of the assessee company from his own sources to the aforesaid party for supply of air conditioners. It has been the claim of the assessee that the entry as regards the advance paid by the director on behalf of the assessee company had remained omitted to be recorded in its books of account. Accordingly, it is stated by the assessee that when the said party had returned the aforesaid amount of Rs. 50,000/-, the same in the absence of a corresponding ‘debit’, therein continued to be reflected as a ‘credit balance’ in the books of account of the assessee company. As observed by us hereinabove, it remains as a matter of fact that the assessee had purchased air conditioners from the aforementioned party i.e. M/s Hitachi Home & Life Solutions (India) Ltd., pursuant whereto the credit entries along with the corresponding debit entries are found recorded in its books of account. Be that as it may, in a case where the deduction has been made in the assessment for any year in respect of any trading liability incurred by the assessee, and subsequently during any previous year the assessee had obtained some benefit in respect of such trading liability by way of remission or cessation thereof, the benefit accruing to the assessee shall be deemed to be the profits and gains of its business or profession and accordingly chargeable to income tax as its deemed income of that previous year within the meaning of Sec. 41(1) of the Act. But then, we hold a strong conviction that the A.O while making an addition under Sec. 41(1) remains under a statutory obligation to point out as to what benefit the assessee had obtained in respect of the trading liability during a specific year under consideration. In the current fact situation of the aforesaid issue before us, we find that the A.O had not been able to dislodge the claim of the assessee that the amount of Rs. 50,000/- reflected as an outstanding liability in the account of the aforesaid party i.e. M/s Hitachi Home & Life Solutions (India) Ltd., was towards the repayment of the advance that was given by its director to the aforementioned party for purchase of air conditioners. In our considered view, the A.O before bringing the aforesaid amount within the sweep of Sec.41(1) of the Act, was obligated to have cumulatively satisfied two fold requirements viz. (i) that, an allowance or deduction had been made in the assessment for any year in respect of the trading liability under consideration; and (ii) that, subsequently during any previous year the assessee had obtained
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some benefit in respect of such trading liability by way of remission or cessation thereof. Now, in the case before us, the A.O had failed to establish that any deduction for the liability of Rs. 50,000/- reflected against the aforesaid party viz. M/s Hitachi Home & Life Solutions (India) Ltd., was ever claimed by the assessee. As such, in our considered view, in the absence of satisfaction of the aforesaid basic condition for invoking the provisions of Sec.41(1) of the Act, the outstanding liability of the assessee towards the aforesaid party could not have summarily been treated as a ceased liability, as the same would otherwise frustrate the clear mandate of the said statutory provision. In fact, we may herein observe, that the fact that the books of account of the aforementioned party viz. M/s Hitachi Home & Life Solutions (India) Ltd. reveals a completed transaction i.e. credit of Rs. 50,000/- on 14.03.2005, and a corresponding debit of the same amount of Rs. 50,000/- on 27.07.2005, therein lends due credence to the aforesaid explanation of the assessee as regards the nature of the transaction under consideration. Apart from that, we are unable to comprehend that in case the A.O had any doubts as regards the veracity of the aforesaid claim of the assessee then what stopped him from verifying the factual position by calling for the requisite details from the aforementioned party? Be that as it may, on the basis of the aforesaid facts, we are of the considered view that de hors satisfaction of the requisite conditions for characterising the aforesaid outstanding liability of the assessee as a ceased liability within the meaning of Sec. 41(1) of the Act, the addition of Rs. 50,000/- therein made cannot be sustained and is liable to be vacated. The Grounds of Appeal Nos. 1 & 2 are allowed.
We shall now advert to the characterization of the outstanding liability of Rs. 6,98,007/- in the name of M/s Aakshi Electrical Sys Pvt. Ltd., as a ceased liability within the meaning of Sec. 41(1) of the Act. As is discernible from the orders of the lower authorities, it has been the claim of the assessee before them that it had given a contract for electrical installations in its hospital to M/s Aakshi Electrical Sys Pvt. Ltd., in lieu whereof amount was advanced to the latter. It is stated by the assessee, that after the complete bills were received from the aforementioned party i.e. M/s Aakshi Electrical Sys Pvt. Ltd., the same were capitalized and no expenditure except depreciation was claimed on the same. However, as the fittings and installation were not found up to the mark, therefore, the outstanding payment to the aforesaid contractor i.e. M/s Aakshi Electrical Sys Pvt. Ltd. is stated to have been withheld by the P a g e | 6 ITA No. 191/Asr./2016 A.Y. 2007-08 M/S GMG Healthcare Pvt.Ltd. Vs. ACIT
assessee. Accordingly, it was the claim of the assessee before the lower authorities that the amount reflected in the account of the aforementioned party was a disputed outstanding liability. It was the claim of the assessee, that the amount outstanding towards the aforementioned party could not be treated as a ceased liability within a meaning of Sec. 41(1) of the Act for two fold reasons viz.(i) that, the amount had been spent for electrical fittings and installation which had been capitalized and no expenditure except depreciation was charged to the profit and loss account; and (ii) that, the liability outstanding towards the aforementioned party though disputed had however not ceased. As is discernible from the orders of the lower authorities, we find that they had summarily brushed aside the aforesaid claim of the assessee, and without looking into the fact situation pertaining to the outstanding liability of the assessee towards the aforesaid party viz. M/s Aakshi Electrical Sys Pvt. Ltd., therein summarily brought the same within the meaning of a ceased liability under Sec.41(1) of the Act.
We have given a thoughtful consideration to the fact situation pertaining to the issue under consideration i.e. treating of the outstanding liability of the assessee towards M/s Aakshi Electrical Sys Pvt. Ltd., as a ceased liability within the meaning of Sec. 41(1) of the Act. As observed by us at length hereinabove, for invoking the deeming provisions of Sec. 41(1) of the Act, the A.O is obligated to show that the liability under consideration had been claimed as a deduction by the assessee, and subsequently during any previous year, the assessee had obtained some benefit in respect of such trading liability by way of remission or cessation thereof. In our considered view, the A.O had failed to discharge the ‘onus’ that was cast upon him as regards proving the satisfaction of the aforesaid requisite conditions prior to invoking of the provisions of Sec.41(1) of the Act. Not only that, we find that even otherwise there is nothing discernible from the record which could persuade us to conclude that the benefit, if any, obtained by the assessee by way of remission of cessation of the aforesaid liability could be related to the year under consideration. As such, we find that the lower authorities had shirked from making necessary verifications, which could have safely be done by calling for the requisite details from the aforementioned party i.e. M/s Aakshi Electrical Sys Pvt. Ltd. But then, we also cannot remain oblivious of the fact that the assessee had also failed to do the bare minimum in order to establish that the liability towards the aforementioned party, though disputed, was however outstanding. Apart from that, except for harping on the fact that the P a g e | 7 ITA No. 191/Asr./2016 A.Y. 2007-08 M/S GMG Healthcare Pvt.Ltd. Vs. ACIT
payment to the aforementioned party was towards an advance in lieu of a contract for installations to be carried out in a hospital i.e. a capital expenditure, nothing had been placed on record by the assessee which could irrefutably substantiate the said factual position to the hilt. In the backdrop of the aforesaid facts, we are of the considered view that in all fairness the matter requires to be restored to the file of the A.O for fresh adjudication. Needless to say, the assessee shall in the course of the ‘set aside’ proceedings remain at a liberty to substantiate its claim that the liability outstanding towards the aforementioned party i.e. M/s Aakshi Electrical Sys Pvt. Ltd. does not fall within the meaning of a ceased liability under Sec. 41(1) of the Act. The Ground of Appeal No. 3 is allowed for statistical purposes.
The Ground of Appeal No. 4 being general is dismissed.
Before parting, we may herein deal with a procedural issue that though the hearing of the captioned appeal was concluded on 06/02/2020, however, this order is being pronounced much after the expiry of 90 days from the date of conclusion of hearing. We find that Rule 34(5) of the Income-tax Appellate Tribunal Rules, 1962, which envisages the procedure for pronouncement of orders, provides as follows: (5) The pronouncement may be in any of the following manners:— (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement. In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board. As such, “ordinarily” the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression “ordinarily” has been used in the said rule itself. This rule was inserted as a result of directions of Hon’ble High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein it was inter alia, observed as under:
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“We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment”. In the rule so framed, as a result of these directions, the expression “ordinarily” has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether or not the passing of this order, beyond a period of ninety days in the case before us was necessitated by any “extraordinary” circumstances.
We find that the aforesaid issue after exhaustive deliberations had been answered by a coordinate bench of the Tribunal viz. ITAT, Mumbai ‘F’ Bench in DCIT, Central Circle-3(2), Mumbai Vs. JSW Limited & Ors. [ITA No. 6264/Mum/18; dated 14/05/2020, wherein it was observed as under:
“Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon’ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. The epidemic situation being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon’ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that “In case the limitation expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the juri ictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown”. Hon’ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, “It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”, and also observed that “arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020”. It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus “should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure…”. The term ‘force majeure’ has been defined in Black’s Law Dictionary, as ‘an event or effect that can be neither anticipated nor controlled’ When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an “ordinary” period.
In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while
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interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon’ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon’ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made time bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by the Hon’ble High Court and Hon’ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case.” We have given a thoughtful consideration to the aforesaid observations of the tribunal and finding ourselves to be in agreement with the same, therein respectfully follow the same. As such, we are of the considered view that the period during which the lockout was in force shall stand excluded for the purpose of working out the time limit for pronouncement orders, as envisaged in Rule 34(5) of the Appellate Tribunal Rules, 1963. 16. Resultantly, the appeal filed by the assessee is allowed in terms of our aforesaid observations.
Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board. (L. P. Sahu) JUDICIAL MEMBER Date 30.06.2020
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