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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: Shri J. Sudhakar Reddy]
Date of concluding the hearing : December 11th, 2019 Date of pronouncing the order : December 31st, 2019 ORDER
Per J. Sudhakar Reddy, AM:
This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-14, Kolkata [‘CIT(A)’ for short] dated 30.09.2016 u/s 250 of the Income Tax Act, 1961 (‘the Act’ for short) for AY 2001-02.
The ld. Counsel for the assessee submitted that, an ex-parte order was passed by the ld. CIT(A) and that legally the addition on account of cessation of liabilities cannot be sustained and the issue was covered in his favour by the decision of the jurisdictional High Court in the case of Goodricke Group Limited vs. CIT, Kolkata in of 2004 dated 18.05.2011. Thus he submits that the issue may be disposed off on merits. 3. The ld. DR submitted that the issue may be restored to the file of the ld. CIT(A) as an ex-parte order was passed by both the authorities. 4. After hearing rival contentions I observe that the AO came to a conclusion that the entire figure of Sundry Creditors shown in the Balance sheet dated 31.03.2001 of ₹44,49,203/- have ceased to exist and that the assessee has no liability to pay these counts. He came to a conclusion that there was a cessation of liabilities as on Assessment Year: 2001-02 Manu Debnath. 31.03.2001, for the reason that proper details have not been given by the assessee to him and that consequently the addition can be made u/s 41(1) of the Act.
The Hon’ble jurisdictional High Court in the case of Goodricke Group Limited (supra) has at page 12 held as follows:
“In the case of Commissioner of Income-tax Vs. T. V. Sundaram Iyengar and Sons Ltd. (222 ITR 344) relied upon by Mr. Bhowmick appearing for the Revenue, the principle that was enunciated has been reflected from the following observations made therein: “In other words, the principle appears to be that it an amount is received in course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, common sense demands that the amount should be treated as income of the assessee.” (Emphasis given by us). In the case before us, it has not been established that for non-encashment of the cheques in question, the money involved has become the money of the assessee because of limitation or by any other statutory or contractual right. Incidentally, it may be mentioned here that the aforesaid decision in the case of T. V. Sundaram Iyengar and Sons Ltd. (supra), was also relied upon by the learned counsel for the Revenue in the case of M/s. Kesaria Tea Co. Ltd (supra) and the Supreme Court in paragraph 6 of the judgment dealt with the decision by making the following observations: “The decision of this Court in Commissioner of Income-tax v. T. V. Sundaram Iyengar and Sons Ltd. (222 ITR 344) has been cited by the learned counsel for the appellant. We find no relevance of this decision to the determination of the question involved in the present case. The factual matrix and the provision of law considered therein is entirely different.” We also propose to adopt the same observations in the above decision. Moreover, as pointed out in the case of Suguli Sugar Works (P) Ltd. (supra), vide the last five lines of the paragraph 6 of the judgment, the question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but has to be decided only if the creditor is before the concerned authority. 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 proceeding for enforcement of the debt even after expiry of the normal period of limitation as provided in the Limitation Act. We, thus, find that 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 Assessing Officer is directed to delete the aforesaid amount involved from the income of the assessee for the relevant year.”
Following the propositions of law laid down in this case law and perusing the same facts of the case, the addition made u/s 41(1) is hereby deleted.
The second issue is ad-hoc disallowance of labour and consultancy charges. The AO has disallowed the claim of ₹2,63,000/- and the claim of ₹69,000/- made by the assessee under the head ‘labour and consultancy charges’ on ad-hoc basis.
Assessment Year: 2001-02 Manu Debnath. 8. I am of the opinion that interest of justice would be met in the disallowance is restricted to 15% of the amount claimed. The balance claim is hereby allowed. This ground of the appeal is allowed in part. 9. In the result, the appeal of the assessee is allowed in part. Kolkata, the 31st December, 2019.