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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI ANIL CHATURVEDI, AM & SHRI PARTHA SARATHI CHAUDHURY, JM
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM :
This appeal preferred by the Revenue emanates from the order of the Ld. CIT(Appeals)-2, Kolhapur dated 21.12.2016 for the assessment year 2012-13 as per the grounds of appeal on record.
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The crux of the grievance of the Revenue is with regard to the deletion of addition of Rs.4,43,07,446/- on account of cessation of liability u/s.41(1) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) without giving reasonable opportunity to the Assessing Officer as per Income Tax Rules, 1962 to examine/rebut additional evidences.
The brief facts of this case are that the assessee is engaged in the business of wholesale sugar trading, share trading & commission agency, commodity exchange & trading etc. and filed the return of income for assessment year 2012-13 on 28.09.2012 declaring the total income of Rs.37,03,432/-. The Assessing Officer noted that the assessee has shown certain sundry creditors to the tune of Rs 4,43,07,446/-. The Assessing Officer attempted to issue notice u/s. 133(6) of the Act to these creditors but the notices were either not served or were not complied with. The Assessing Officer has detailed the situation of issue of notices and their compliance in para 4.5 on page 16 of his order. Due to the non compliance on part of the creditors, the Assessing Officer issued show cause notice as to why the outstanding credit balance in name of seven creditors should not be added to her income as cessation of liability u/s.41(1) of the Act. In response to the said notice, the assessee submitted that she has made payment to the aforesaid creditors in next financial year and filed the detailed ledger extract showing proof of the payment. However, this did not find favour with the Assessing Officer who added these creditors amounting to Rs.4.43 Crores to the income of the assessee mainly on account of Cessation of Liability u/s.41(1) of the Act.
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The Ld. CIT(Appeals) has decided this issue at Para 5 of his order wherein he has observed following points :
(i) That the entire ledger account was filed before the Assessing Officer wherein it is evident that the assessee has made payments to the creditors in the next financial year and filed proof of payments. (ii) That as and when the payments were made, transactions were offered for taxation in that particular year. (iii) The assessee has not claimed any expense as payable to these parties and therefore the same cannot be assessed as cessation of liability u/s.41(1) of the Act as the section starts with the words “Where an allowance or deduction is made……….”. There is no such allowance or deduction made which contra reflects in payable to these parties.
The Ld. CIT(Appeals), therefore, as per reasons appearing in his order which is on record had provided relief to the assessee.
The Ld. DR at the time of hearing, submitted that there were additional evidences accepted by the Ld. CIT(Appeals) in contravention of Rule 46A of the IT Rules, 1962. It was the contentions of the Ld. DR that these additional evidences were not forwarded to the Assessing Officer for his comments and the Ld. CIT(Appeals) accepted those additional evidences and granted relief to the assessee.
Per contra, the Ld. AR of the assessee vehemently argued that there were no additional evidences that were produced before the Ld. CIT(Appeals). In fact, the entire ledger account has been produced before the Assessing Officer along with proof of payments. The Ld. CIT(Appeals) analyzed only the facts and circumstances that there was no allowance or deduction claimed by the assessee and these payments were made to the creditors in the
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subsequent year and similarly, was offered for taxation in that year. Therefore, there was no cessation of liability u/s.41(1) of the Act which par-se is not applicable to the assessee which correctly observed by the Ld. CIT(Appeals). The Ld. AR has placed reliance on the order of the Hon‟ble Jurisdictional High Court in the case of Pr. Commissioner of Income Tax Vs. Pukhraj S. Jain, ITA No.1288 of 2016 wherein the question was as follows:
“2. Whether on the facts and circumstances of the case and in Law, the Hon. ITAT was justified in upholding the decision of the Ld. CIT(A) wherein the addition by the A.O., by invoking section 41 of the I T Act, 1961 was deleted ?
The Hon‟ble Jurisdictional High Court answered this question by observing as under:
“4. It is well settled through series of judgments that merely because a debt has not been repaid for over three years, would not automatically imply cessation of liability. Exhaustion of period of limitation may prevent filing of recovery proceedings in a Court of law, nevertheless it cannot be stated by itself that the liability to repay the amount had ceased. Going by this logic itself, the Assessing Officer, in our opinion, committed an error invoking Section 41(1) of the Act. Further the assessee had produced additional evidence on record before the Appellate Authority after following the procedure and pointed out that substantial portion of the debt was cleared in later assessment years. 5. We do not find any error in the decision of the Tribunal. Income Tax Appeal is dismissed.”
We have perused the case records and heard the rival contentions. We have also analyzed the facts and circumstances in this case and considered the judicial pronouncements placed before us. We have also given considerable thought to the findings of the Ld. CIT(Appeals) and on perusal of the order, it is evident that it is not a case of cessation of liability and even the application of section 41(1) of the Act was not correct in the case of the
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assessee. There has been no allowance or deduction claimed by the assessee and we take guidance from the decision of the Hon‟ble Jurisdictional High Court in ITA No.1288 of 2016 (supra.) on this issue wherein the Hon‟ble High Court had held that the Tribunal was justified in upholding the decision of the Ld. CIT(Appeals) wherein addition by the Assessing Officer invoking section 41 of the Act was deleted and the Revenue‟s appeal was dismissed. That further as demonstrated on record in the order of the Ld. CIT(Appeals) that the payments were made in the subsequent year and similarly offered to tax and therefore, there was no loss to the revenue.
In view of the examination of facts on record and judicial pronouncement, we do not find any infirmity with the findings of the Ld. CIT(Appeals) and relief provided to the assessee by the Ld. CIT(Appeals) is hereby sustained.
In the result, appeal of the Revenue is dismissed.
Order pronounced on 19th day of December, 2019.
Sd/- Sd/- ANIL CHATURVEDI PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER
ऩुणे / Pune; ददनाांक / Dated : 19th December, 2019. SB
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आदेश की प्रनिलऱपप अग्रेपषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. 3. The CIT(Appeals)-2, Kolhapur. 4. The Pr. CIT-2, Kolhapur. , आयकर अऩीऱीय अधधकरण, “बी” बेंच, 5. ववभागीय प्रतततनधध ऩुणे / DR, ITAT, “B” Bench, Pune. गार्ड फ़ाइऱ / Guard File. 6.
// True Copy // आदेशानुसार / BY ORDER,
तनजी सधचव / Private Secretary आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune.
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Date 1 Draft dictated on 19.12.2019 Sr.PS/PS 2 Draft placed before author 19.12.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order