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Income Tax Appellate Tribunal, RAJKOT
Before: SHRI RAJPAL YADAV & SHRI PRADIPKUMAR KEDIA
PER RAJPAL YADAV, JUDICIAL MEMBER : Assessee is appeal before the Tribunal against order of the ld.CIT(A)-I, Rajkot dated 21.3.2013 passed for the Asstt.Year 2004-05.
Sole grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.19.50 lakhs which was added by the AO with aid of section 41(1) of the Act on account of cessation of liability.
Brief facts of the case are that the assessee was an AOP, which came into existence for construction of residential complex viz. ‘Namrata Complex’. Construction of the complex was completed during the year ending on 31.3.2002. A sum of Rs.22.00 lakhs was stated
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to be existing liability standing in the name of contractor as on 31.3.2004. The ld.AO has concluded that liability has ceased, and therefore, he made addition of Rs.19.50 lakhs. Dispute travelled upto the Tribunal, which has remitted the issue back to the file of the AO for conducting proper inquiry. It emerges out from the record that liability of Rs.19.50 lakhs was outstanding against name of Shri Avchar Ramjibhai Parmar in the books of accounts of the assessee. Statement of Shri Avchar Ramjibhai Parmar was recorded by the AO, whose copy is available at page no.51 to 56 of the paper book. The AO was of the opinion that alleged contractor, Shri Avchar Ramjibhai Parmar has given statement in order to help assessee. Basically, according to the AO there was no liability existing in the name of Shri Avchar Ramjibhai Parmar, and addition of Rs.19.50 lakhs deserves to be made. Appeal to the CIT(A) did not bring any relief to the assessee.
The ld.counsel for the assessee while impugning the order of the ld.CIT(A) contended that in the books of accounts of the assessee liability has been shown as outstanding. It was not written off. The person who has to receive money from the assessee appeared before the authorities and deposed that he has to receive the money. He has further deposed, how the amounts have been received in the Asstt.Year 2008-09. The ld.counsel for the assessee took us through question no.1 and its answer given by Shri Avchar Ramjibhai Parmar in his statement recorded on 22.11.2011. According to this reply, a cheque of Rs.10 lakhs was given through HDFC Bank and Rs.7.75 lakhs was adjusted towards cost of flat taken from the assessee. When these facts were brought to the notice of the ld.CIT(A), the ld.CIT(A) has rejected the contentions of the assessee on the ground that Rs.10 lakh was deposited in the bank
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account of Shri Avchar Ramjibhai Parmar, which was opened in Pune but the amount was withdrawn at Rajkot. In this connection, the ld.counsel for the assessee took us through complete statement of Shri Avchar Ramjibhai Parmar and pointed out that how he has started construction activities. He specifically disclosed in reply to question no.2 that after 2001 he went to Pune and continued construction work. He has replied all the questions asked by the Revenue authorities in connection with the adjusted liability. Therefore, there is no evidence with the Revenue to suggest that liability has ceased. On the other hand, ld.DR relied upon the order of the AO.
With the assistance of the ld.representatives, we have gone through the record carefully. The section 41(1) applies where a trading liability was allowed as a deduction in an earlier year in computing the business income of the assessee and the assessee has obtained a benefit in respect of such trading liability in a later year by way of remission or cessation of the liability. In such a case the section says that whatever benefit has arisen to the assessee in the later year by way of remission or cessation of the liability will be brought to tax in that year. The principle behind the section is that the provision is intended to ensure that the assessee does not get away with a double benefit - once by way of deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with reference to the liability earlier allowed as a deduction. At this stage it is pertinent to take note of finding recorded by the Hon’ble Gujarat High Court in the case of CIT Vs. Bhoghilal Ramjibhai Atara, 43 taxmnan.com 55 (Guj). It reads as under:
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“8. We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) f the Act. This is one of the strange cases where even if the debt itself is found to be non- genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed.”
A perusal of the record would indicate that liability was existing in the accounts. It has not been written off. Doubt about its existence has been raised by the Revenue after appreciating the statement of Shri Avchar Ramjibhai Parmar. But a perusal of the statement of alleged contractor, it would reveal that he has specifically replied all the questions and deposed that liability was existing. He has to receive money from the assessee. He has in fact received money i.e. Rs.10 lakhs through account payee and Rs.7.75 lakhs as an adjustment in the cost of a flat. These adjustments have been made subsequent to this assessment year i.e. A.Y.2008-09. There is nothing in the possession of the Revenue
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to doubt the existence of the liability, more so, if the facts are being examined in the light of Hon’ble High Court’s decision in the case of CIT Vs. Bhogilal Ranjibhai Atara (supra). On due consideration of the above facts, we allow the present appeal and delete addition.
In the result, appeal of the assessee is allowed. Pronounced in the Open Court on 15th January, 2019.
Sd/- Sd/- (PRADIPKUMAR KEDIA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER