PENINSULA PROPERTIES,MUMBAI vs. DCIT CENTRAL CIRCLE 5(2), MUMBAI

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ITA 735/MUM/2022Status: DisposedITAT Mumbai29 August 2022AY 2018-197 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that merely because a liability is barred by limitation does not automatically make it income under Section 41(1). Following the Bombay High Court's decision in PCIT vs. Batliboi Environmental Engineering Ltd., the addition was deleted.

What were the facts?

The Assessing Officer (AO) added outstanding creditors over three years amounting to Rs. 2,31,525/- to the assessee's total income under Section 41(1) of the Income Tax Act, 1961. The assessee argued that the liabilities were not written back and some payments were made subsequently.

What were the issues?

Whether outstanding trade liabilities barred by limitation can be added to income under Section 41(1) without being written back by the assessee.

Which sections of the Income-tax Act were involved?

Section 41(1),Section 143(3),Section 250

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI

For Respondent: Mr. Praveen Shekhar, DR
Hearing: 02.08.2022Pronounced: 29.08.2022
1.

This appeal is filed by assessee against the order passed u/s 250 of the income tax act 1961 by the Commissioner of income tax, appeal – 53, Mumbai dated 22/2/2022 for assessment year 2018 – 19 wherein the appeal filed by the assessee against the assessment order passed u/s 143 (3) of the act dated 18th of March 2021 by assistant Commissioner of income tax central circle 5 (2), Mumbai (the learned AO) was dismissed.

2.

The assessee has raised following grounds of appeal:-

The assessee craves leave to add, amend and /or alter any of the above grounds of appeal.”

3.

Assessee is a partnership firm engaged in the business of contractors, developers of land and construction of building, dealer in real estate and commission agent. It filed its return of income on 31/10/2018 at the total income of ₹ 278,002,094/–. During the year, the assessee has declared income from business and house property.

4.

As the return was picked up for scrutiny, In assessment proceedings the learned assessing officer found that there are 8 parties whose amounts are outstanding since June 2017 and December 2017 amounting to ₹ 231,524/ –. The assessee was asked to substantiate and explain the

6. The learned CIT – A considered the explanation of the assessee but held that assessee has not produced any proof of payment to even the three parties and no confirmation with respect to the balance parties were furnished. Even during the appellate proceedings, the assessee has not the genuineness of the trading liability of the creditors. The onus was on the assessee to prove the genuineness of the sundry creditors and this primary onus has not been discharged by the assessee. He therefore relying upon the decision of 26 taxmann.com 109 (Delhi) confirmed the addition of ₹ 231,545/– u/s 41 (1) of the act.

7.

Assessee, aggrieved with the above order has preferred this appeal however at the time of hearing none appeared, therefore, the appeal of the assessee is decided on the merits of the case as per information available on record.

8.

The learned departmental representative vehemently supported the orders of the lower authorities.

9.

We have considered the arguments of the learned departmental representative as well as the orders of lower authorities. The facts clearly shows that the return of “5. As regards second question of law is concerned, it was argued by the Appellant- Revenue that since the Respondent-Assessee had around 25 creditors whose payments were outstanding for more than three years and some transactions which are eight to nine years old, the same were barred by the provisions of the Limitation Act, 1963 and, therefore, they will have to be treated as Assessee's income and to be added under

6.

The Delhi High Court in the case of Jain Exports (P.) Ltd. (supra) has relied upon the decisions of the Supreme Court in the case of Bombay Dyeing and Manufacturing Co. Ltd. v. State of Bombay AIR 1958 SC 328 and CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 102 Taxman 713/236 ITR 518. In Sugauli Sugar Works (P.) Ltd. (supra), the Supreme Court has referred to the decision of the Division Bench of this Court in the case of Kohinoor Mills Co. Ltd. v. CIT [1963] 49 ITR 578. The Delhi High Court, after following these decisions concluded that merely because the liability is barred by limitation, it does not cease to be a debt. This view is also taken by this Court in the case of CIT v. Indian Rayon and Industries Ltd. [2011] 336 ITR 479. Therefore, the submission made by the Appellant that because the liability is barred by the period of limitation the same would be treated as income and added under section 41(1) of the Act cannot be accepted as no other decision contrary to the above is shown to us. Thus, the second question of law does not survive for consideration.”

11.

Accordingly, we allow solitary ground of appeal of the assessee and direct the learned AO to delete the addition of ₹ 231,525/–.

12.

Appeal of the assessee is allowed.

Order pronounced in the open court on 29.08.2022.

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