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Facts
The assessee filed its return of income for AY 2015-16, and the AO made additions totaling Rs. 55,98,824/-, including additions under Section 41(1) for cessation of liability and Section 69 for undisclosed investment. The CIT(A) partly allowed the appeal, upholding Rs. 44,300/- but deleting Rs. 8,72,569/-. The assessee appealed further against the additions of Rs. 42,07,739/- under Section 41(1) and Rs. 3,04,473/- under Section 69.
Held
The Tribunal condoned the delay in filing the appeal. It held that the addition of Rs. 42,07,739/- under Section 41(1) was invalid as the liability was disclosed and not extinguished, citing High Court judgments and its own precedent. The addition of Rs. 3,04,473/- under Section 69 for demand drafts for land registration was also deleted, as the investment was duly accounted for as fixed assets.
Key Issues
1. Condonation of delay in filing the appeal. 2. Validity of addition u/s 41(1) for cessation of liability. 3. Validity of addition u/s 69 for undisclosed investment in demand drafts.
Sections Cited
41(1), 69, 56(2)(vii), 143(2), 142(1), 129
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM: This is an appeal preferred by assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 23.06.2023 for the AY 2015-16.
Assessment Year: 2015-16 Prabir Roy Chowdhury 2. At the outset, there is a delay of 161 days in filing the appeal. The Ld. Counsel for the assessee filed an affidavit and explained the reasons for delay in filing the appeal. The Ld. D.R did not raise any objection for this delay. On perusal of the affidavit filed by the assessee, the reason finds to be genuine and bonafide and not intentional. Therefore, we condone the delay and admit the appeal for hearing.
Brief facts of the case of the assessee is that the assessee filed its return of income declaring total income of Rs. 49,01,900/- for AY 2015-16. The case of the assessee was selected for limited scrutiny, notice u/s 143(2) was issued, subsequently notice u/s 142(1) read with Section 129 of the Act was issued. The case was heard and after that the AO has made following additions which are as follows: i) Addition u/s 41(1) of the Act Rs. 50,80,308/- ii) Addition u/s 69 of the Act Rs. 3,28,516/- iii) Addition u/s 56(2)(vii) of the Act Rs. 1,90,000/- Total addition Rs. 55,98,824/-
The assessee has preferred an appeal before the Ld. CIT(A) wherein the appeal of the assessee has been partly allowed by upholding the order of AO towards addition of Rs. 44,300/- but deleted the addition of Rs. 8,72,569/- .
Being aggrieved and dissatisfied with the order, the assessee has preferred the present appeal before us.
The Ld. Counsel of the assessee challenges the impugned order, there was submitting that the addition of Rs. 42,07,739/- u/s 41(1) is bad in law as there was no cessation of liabilities and further addition of Rs. 3,04,473/- as undisclosed investment baseless as such amount is reflected in the balance sheet. The Ld. Counsel submitted that liability was duly disclosed in the books of account of the assessee. The ld. Counsel further submits that section 41(1) of the Act cannot be invoked where the assessee has not written back this amount in the books of accounts. He has cited decision of the Assessment Year: 2015-16 Prabir Roy Chowdhury Hon’ble Gujarat High Court passed in Dattatray Poultry Breeding Pvt. Ltd. vs. ACIT. The Ld. Counsel further submits that for AY 2012-13 in the own case of assessee the ITAT, Kolkata Bench has decided the specific issue of old liability and creditors were examined and AO did not raise any issue or any suspicion about the list of creditors except for certain payables. The Ld. A.R further submits that when the assessee acknowledged its liability successively over several years such as addition u/s 41(1) is baseless and no legs to stand alone. The Ld. Counsel further submits that the addition of Rs. 30,473/- as an undisclosed investment is completely baseless as during the year the assessee had purchased the demand draft of Rs. 3,04,473/- for registration of land at Hatiara and the property was got registration on 2nd July, 2015 i.e in the next financial year. The Ld. A.R further submits that it was accounted for under Fixed assets in that order itself. He has filed ledger and number of demand draft and details.
Contrary to that the Ld. DR supports the impugned order.
Upon hearing the submission of the ld. Counsel of the respective party, we have perused the case of the assessee and order of AO and Ld. CIT(A) and find that the first ground of the dispute is regarding the addition of Rs. 42,07,739/- u/s 41(1) of the Act. It is pertinent to mention herein that the liability was duly disclosed in the books of account of the assessee. The assessee in its explanation vide letter dated 11.12.2017 is clearly submitted that outstanding balance of M/s Baba Panchanan Construction & Suppliers was lying since FY 2011-12. It has also been stated by the assessee that amount has not been paid due to supply of bad materials. We have gone through the cited decision of the Hon’ble Gujarat High Court in the case of Dattatray Poultry Breeding Pvt. Ltd. (supra) wherein it has been held that while the assessee has continued to declare the trading liability in its books of accounts no benefit can be said to have been obtained in respect of such trading liability by way of remission or cessation thereof and thus the requirement of Section 41(1) is not satisfied. We have also gone through the judgment passed by Hon’ble Calcutta High Court in the case of Goodricke Group Ltd. vs. CIT in [2011] 5 TMI 127 wherein the Hon’ble High Court of Calcutta has held thus:
Assessment Year: 2015-16 Prabir Roy Chowdhury “Deemed income on account of extinguished or remitted liability- cheques were not presented by the creditors during the validity period-ITAT treated the amount due to creditors as extinguished liability and hence deemed income u/s 41(1)- in view of decision of Apex Court in Commissioner of Income Tax vs. T.V. Sundram Iyengar and Sons Ltd (1996-TMI-5532-Supreme Court) held that :- In the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt is barred and has become unenforceable. There may be circumstances which may enable the creditor to come with a proceedings for enforcement of the debt even after expiry of the normal period of limitation as provided in the Limitation Act. – the views taken by the Tribunal are totally opposite the ones taken by the Supreme Court mentioned above and consequently are not tenable. The order of the tribunal below is thus, set aside and the AO is directed to delete the aforesaid amount involved from the income of the assessee for the relevant year – Decided in favour of assessee.”
We further find that for AY 2012-13 in the assessee’s own case ITAT, Kolkata Bench has decided the specific issue of old liabilities and creditors were examined and AO did not raise any doubt or suspicion about the list of creditors except for certain payables. Hence, once such assessment is complete the revenue authorities cannot in a subsequent year take a diametrically opposite view and consider the same to be ingenuine. Keeping in view, the facts of the case as well as judgment of Hon’ble Gujarat High Court the addition u/s 41(1) is hereby to be bad and illegal. Accordingly, amount of Rs. 4,20739/- as made u/s 41(1) is directed to be deleted.
With regard to second grounds of appeal, we find that the assessee had purchased a demand draft of Rs. 3,04,473/- for registration of land at Hatia, and list has been furnished which are as follows:
Assessment Year: 2015-16 Prabir Roy Chowdhury 10. It is pertinent to mention that demand draft for registration has been spent by the assessee for FY 2014-15, it was accounted for under fixed asset held for that year. Hence we are in this view that section 69 does not apply because all investment has duly recorded in the books of account. Accordingly, addition under this head made and directed to be deleted. In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 17th January, 2025
Sd/- Sd/- (Rajesh Kumar/राजेश कुमार) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 17th January, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- Prabir Roy Chowdhury, BF-14, Salt Lake, Bidhannagar, CC Block, North 24 Parganas, Kolkata-700064 2. Respondent – DCIT, Circle-10(1), Kolkata 3. Ld. CIT(A)-NFAC, Delhi 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)