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Income Tax Appellate Tribunal, “C” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Ramlal Negi (JM)
O R D E R Per B.R. Baskaran (AM) : Both the appeals filed by the Revenue are directed against the orders passed by the learned CIT(A)-2, Mumbai. Appeal numbered as 992/Mum/2017 relates to penalty proceedings pertaining to A.Y. 2011-12. Appeal numbered as 993/Mum/2017 relates to quantum assessment proceedings pertaining to A.Y. 2013-14. Both the appeals were heard together and hence they are being disposed of by this common order, for the sake of convenience.
We shall first take the appeal filed by the Revenue for A.Y. 2013-14 in the quantum assessment proceedings. Solitary issue urged therein is whether the learned CIT(A) was justified in deleting the addition of ` 215.17 lakhs made by the Assessing Officer u/s. 41(1) of the Act.
We have heard the parties and perused the record. The assessee- company was engaged in the business of manufacture of chemicals in pesticides. The company stopped its operation in 2004 due to losses and the factory is in possession of Gujarat Industrial Investment Corporation Limited.
2 M/s. Chemstar Organics (India) Ltd. The Ld A.R also stated that the BIFR proceedings are going on for revival of the company. The Assessing Officer noticed that the assessee was showing trade payables aggregating to ` 215.17 lakhs as on 31.3.2013. He noticed that same figure is being carried forward from earlier years for several years. Hence the Assessing Officer asked the assessee to furnish complete address, PAN and ledger account of the trade creditors. The Assessing Officer also asked the assessee to furnish copies of bills raised by the parties. The assessee expressed its inability to furnish the details. It submitted that the materials were supplied by them in earlier years and many of the creditors have filed legal case against the assessee-company. It was submitted that the outstanding creditors’ balances are reviewed every year and also written off, wherever it is found that the creditor balances are not payable. Since the assessee did not furnish the details called for and did not prove that the liability towards trade payables still subsists, the Assessing Officer took the view that these trade payables are no longer payable. Accordingly he took the view that same has become income in the hands of the assessee u/s. 41(1) of the Act. Accordingly, he assessed the above said amount of ` 215.17 lakhs as income of the assessee u/s. 41(1) of the Act. The learned CIT(A) deleted the same and hence the Revenue has filed this appeal before us.
The Learned DR submitted that the learned CIT(A) has followed the decision rendered by the ITAT in the case of Perfect Paradise Emporium Pvt. Ltd. Vs. ITO (ITA No. 159/Del/2011 dated 22.4.2015). The Learned DR submitted that the said decision was dealing with the case of addition made u/s. 41(1) of the Act and the Tribunal also discussed about the applicability of section 68 of the Act. The above said decision was rendered on the principle that there was no cessation or remission of liability during that year. The learned DR submitted that, in the instant case, the facts are different, i.e., the assessee has closed down its business operations in 2004 and these trade payables are shown as outstanding since 2004. Since almost nine years have passed from the date of closure of business unit, the Assessing Officer has asked the assessee to prove that the liability towards trade payables still
3 M/s. Chemstar Organics (India) Ltd. subsists. Since the assessee has failed to prove the same, the Assessing Officer has assessed the trade payables as income of the assessee u/s. 41(1) of the Act as he took the view that there was no subsisting liability towards trade payables.
On the contrary, the learned AR submitted that provisions of section 41(1) of the Act can be invoked only if there is cessation or remission of liability. He submitted that the Assessing Officer has not shown that liability has ceased to exist in the instant case. Accordingly, he contended that the Assessing Officer was not justified in assessing the above said amount as income of the assessee u/s. 41(1) of the Act. In this regard, learned AR placed reliance on the decision dated 19.6.2018 passed by the Coordinate Bench in the case of M/s. BDA Steel Ltd. (ITA No. 2201/Mum/2016).
We have heard the rival contentions and perused the record. It is an admitted fact that the assessee has closed its business operations in 2004. The impugned trade liability aggregating to ` 215.17 lakhs is outstanding since a long time, may be since 2004 onwards. Hence, the Assessing Officer has asked the Assessing Officer to furnish details relating to trade payables namely complete address, PAN, ledger account, copies of parties and copies of bills etc. We noticed that the assessee has not furnished details so called for by the Assessing Officer. There is no dispute with the contentions of the assessee that the provisions of section 41(1) of the Act shall be attracted only if, there is cessation or remission of trade liability. However, at the same time, we are of the view that it is also the equal responsibility of the assessee to prove that the liability towards trade payables still subsists.
In our view, the assessing officer was justified in asking the assessee to prove the subsistence of liability towards the trade payables. This is in view of the fact that these trade payables are outstanding for more than nine years. It is in the common knowledge of everyone that a prudent businessman will not remain silent against his trade receivable i.e. he should be making all possible
4 M/s. Chemstar Organics (India) Ltd. efforts to realize the amount due to him. When this fact was pointed out to learned AR, he submitted that some of the creditors have initiated legal proceedings against the assessee. If any of the creditors have initiated legal proceedings, said fact would prove the subsistence of liability towards that creditor. However, we notice that the assessee has not furnished relevant details in this regard. Accordingly, in the natural justice, the bench expressed the view that the assessee may be provided with one more opportunity to prove the subsistence of liability in respect of trade payables shown in the books of account. Both the parties agreed to the same. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and restore the same to the file of the Assessing Officer with the direction to examine this issue by duly considering information and explanations that may be furnished by the assessee in order to prove the subsistence of liability and take appropriate decision in accordance with the law. The assessee is also directed to furnish relevant details that may be called for by the assessee by the Assessing Officer and also such other details that may be required to prove subsistence of liability of the assessee towards trade payables.
We shall now take up the appeal filed by the Revenue for A.Y. 2011-12. In this appeal, the Revenue is aggrieved by the decision of the learned CIT(A) in deleting the penalty of ` 48.27 lakhs levied by the Assessing Officer u/s. 271(1)(c) of the Act.
We have heard the parties on this issue and perused the record. In the return of income, the assessee had claimed depreciation of ` 142.02 lakhs. Since, the assessee did not carry on business and since the assets were in the possession of Gujarat Industries Corporation Limited and not with the assessee, the Assessing Officer took the view that the assessee could not have realized assets during the year under consideration. Accordingly, he disallowed the claim of depreciation of ` 142.02 lakhs. The Assessing Officer also initiated penalty proceedings u/s. 271(1)(c) of the Act for furnishing inaccurate
5 M/s. Chemstar Organics (India) Ltd. particulars of income. The learned CIT(A) deleted the same and hence the Revenue has filed this appeal before us.
The Learned DR contended that the depreciation can be claimed only if the assets were put to use for the purpose of business. However, the assessee has claimed depreciation even though the assets were not put to use for the purpose of business, i.e., the assessee had stopped business in 2004 itself. Accordingly, the AO disallowed the claim of depreciation and the claim so made resulted in furnishing of inaccurate particulars of income. Accordingly the Ld D.R submitted that the Assessing Officer was justified in levying penalty u/s 271(1)(c) of the Act thereon.
On the contrary, learned AR submitted that the assessee is BIFR- company and it was taking steps to revive its operations. Since machineries were ready to use, the assessee claimed depreciation on those machineries. He submitted that there are certain case laws who allows depreciation on assets which are ready to use. The Learned AR further submitted that the assessee has not furnished any inaccurate particulars as contended by learned DR. All relevant particulars were filed properly before the Assessing Officer. It is a case of disallowance of claim made by the assessee. Hence the learned CIT(A) has deleted the penalty by following the decision rendered by Hon'ble Supreme Court in the case of Reliance Petro Products Ltd. (322 ITR 158). Accordingly, he submitted that the order passed by the learned CIT(A) does not call for any interference.
Having heard the rival contentions, we are of the view that the order passed by the learned CIT(A) does not call for any interference. The assessee has claimed depreciation on the assets on the reasoning that the assets are ready to put to use. It is the contention of the assessee that it has filed petition with BIFR and was expecting favourable order for revival of its operations and hence it has claimed deprecation on the assets. The Learned AR further submitted that the assessee has furnished full details relating to depreciation.
6 M/s. Chemstar Organics (India) Ltd. Hence the disallowance made by the Assessing Officer is the case of non- acceptance of claim made by the assessee and accordingly, the same would not lead to levy of penalty as per decision rendered by Hon'ble Supreme Court in the case of Reliance Petro Products Ltd. (supra). We noticed that the learned CIT(A) has followed the above said decision rendered by Hon'ble Supreme Court. Under these set of facts, we are of the view that the learned CIT(A) was justified in deleting the impugned penalty.
The Learned AR further submitted that the assessee has raised a legal ground under Rule 27 of the Appellate Tribunal Rules, 1963. He submitted that penalty proceeding initiated by the Assessing Officer is void ab initio, since the penalty notice issued by the Assessing Officer was not signed by the AO. He submitted that an unsigned notice cannot be said to be in substance and effect in conformity with and according to intent and purpose of Act. Since, we have confirmed the order of the learned CIT(A) in granting relief to the assessee, we do not find it necessary to adjudicate legal ground urged by the assessee.
In the result, appeal of the Revenue in is treated as allowed and appeal of the Revenue in is dismissed. Order has been pronounced in the Court on 7.9.2018.