THE CITY THEATRES PVT. LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX

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ITA/276/2010HC KeralaKLHC01026968201013 November 2018Author: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON6 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal decided that since the assessee's returns were based on a cash basis of accounting, the disallowance of Rs. 37,01,588/- as cessation of liability under Section 41(1) was justified. The Tribunal reasoned that for liabilities deleted by the first appellate authority, where no confirmation was provided by the assessee, the Department was not obligated to prove their existence. Given that these liabilities were old and the limitation period for recovery had expired, it was incumbent upon the assessee to prove their continued existence, which they failed to do. Similarly, regarding the provision for rent, no payment was made in the relevant previous year, and the assessee could not establish such payment. Therefore, the allowance could only be claimed upon actual payment. The High Court found no reason to interfere with the Tribunal's findings, considering the issues to be primarily factual and related to the cash basis of accounting. The appeal was consequently rejected.

What were the facts?

The assessee, The City Theatres Pvt. Ltd., filed an appeal before the High Court of Kerala against an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench, for the assessment year 2004-05. The ITAT had allowed the Department's appeal and rejected the assessee's appeal. The assessee's initial appeal to the first appellate authority resulted in the deletion of certain additions and confirmation of others. The present appeal by the assessee challenges the ITAT's decision to allow the Department's appeal, which had reversed the first appellate authority's findings on certain aspects. The dispute involves additions made by the revenue concerning existing liabilities not proved by the assessee and a provision for rent not paid.

What were the issues?

The Tribunal had to decide three questions of law: 1. Whether the Tribunal was justified in disallowing Rs. 37,01,588/- as cessation of liability under Section 41(1) of the Income Tax Act. 2. Whether the Tribunal was justified in concluding that a liability had ceased to exist when it was not settled. 3. Whether the Tribunal was justified in disallowing the provision for dues on Kuthakapattom land. The assessee contended that the Tribunal erred in its findings. The revenue argued that the assessee failed to prove the existence of liabilities and that payments for rent and Kuthakapattom land were not made in the relevant previous year. The Tribunal's decision was based on actual payments made in the previous year, particularly for liabilities and rent.

Which sections of the Income-tax Act were involved?

Section 41(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 13TH DAY OF NOVEMBER 2018 / 22ND KARTHIKA, 1940 ITA.No. 276 of 2010 AGAINST THE ORDER/JUDGMENT IN ITA 917/2007 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 25-03-2009 APPELLANT/S: THE CITY THEATRES PVT. LTD. NEW THEATRE BUILDING, P.SUBRAMANIAM ROAD, THAMPANOOR, THIRUVANANTHAPURAM-14 REPRESENTED BY ITS MANAGING DIRECTOR, MR.S.MURUGAN. BY ADVS. SRI.E.K.NANDAKUMAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATH RESPONDENT/S: DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2(1), THIRUVANANTHAPURAM. OTHER PRESENT: SRI PKR MENON SR FOR GOI TAXES THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.11.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA No.276/2010 2

J U D G M E N T Vinod Chandran, J

The appeal by the assessee against the order of the Tribunal. The subject assessment year is 2004-05. The appeal before the first Appellate Authority ended in deletion of certain items and confirmation of other additions. Both Department and the assessee were in appeal before the Tribunal. The Department appeal is allowed and the assessee's appeal is rejected. The present ITA arises from the order of the Tribunal allowing the Departmental appeal. The question of law raised is of two counts; one with respect to the existing liabilities as seen from the returns being not proved or confirmation produced before the Assessing Officer. The next issue is on the provision for rent made by the assessee in the books of accounts, but however, not paid in the previous year relevant to the subject assessment year. The questions of law raised are as follows: i. Whether on the facts and in the circumstances of the case, the Tribunal was justified in disallowing Rs.37,01,588/- as cessation of liability under Sect 41(1) of the Income Tax Act? ii, Whether on the facts and in the circumstances of the case, the Tribunal was justified in coming to the conclusion that the liability has ceased to exist when it was not settled? iii. Whether on the facts and circumstances of the case the Tribunal was justified in disallowing provision for dues on Kuthakapattom land?

2.

We see that the Tribunal has dealt with the issue on the basis of actual payment effected in the previous year. We do not see any reason to interfere with such findings especially when the returns filed are based on accounts maintained on cash basis. As to the liabilities deleted by the First Appellate Authority for which no confirmation was offered by the assessee, the Tribunal found that the Department cannot be asked to prove the existing liabilities. All the said liabilities were existing for long years and the normal period of limitation for filing a suit for recovery had also expired. In such circumstances, it was for the assessee to have confirmed the liabilities having been existing as on that date, which the assessee failed to prove. On the question of lease rent also there was no payment made and assessee could not establish it as paid in the previous year relevant to the subject assessment year. In such circumstances the assessee could only claim such allowance at the time when the actual payment is made proving the said payment. We do not find any reason to interfere with the order of the Tribunal in the said assessment year. The issues raised being on facts we refuse to answer the questions of law and reject the appeal. No order as to costs. K. Vinod Chandran, Judge Ashok Menon, Judge jma

Appendix — schedule of exhibits
APPENDIX PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER FOR 2004-05 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 28.12.2006. ANNEXURE B TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT DATED 7.6.2017. ANNEXURE C TRUE COPY OF THE TRIBUNAL ORDER DATED 25.3.2009 ISSUED TO THE APPELLANT. ANNEXURE D TRUE COPY OF THE JUDGMENT OF THE HONOURABLE HIGH COURT IN WPC NO.31647 OF 2007 DATED 25.10.2007.

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