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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy & Sri Aby T. Varkey
Appearances by: Shri N.M. Bhansali, Advocate, appeared on behalf of the assessee. Shri Sanker Halder, Addl. CIT Sr. D/R, appearing on behalf of the Revenue. Date of concluding the hearing : November 13th, 2018 Date of pronouncing the order : November 28th, 2018 ORDER Per J. Sudhakar Reddy, AM :-
This appeal filed by the revenue is directed against the order of the Learned Commissioner of Income Tax -4, Kolkata, (hereinafter the “ld.CIT(A)”), passed u/s. 250 of the Income Tax Act, 1961 (the ‘Act’), dt. 21/12/2015, for the Assessment Year 2012- 13.
After hearing rival contentions, we find that the Assessing Officer in this case has made an addition u/s 41(1) of the Act of outstanding share application money. The Assessing Officer observed that the shares in question were not allotted since 31/03/2014. The assessee company was asked to show as to why this share application money, which is admittedly received during the Assessment Year 2003-04 & 2004-05, should not be added. After considering the reply of the assessee, the Assessing Officer held that there is cessation of liability and hence made an addition u/s 41(1) of the Act.
2.1. On appeal, the ld. CIT(A) deleted the addition in question by holding as follows:-
“4.2. I have considered the submission of the appellant's AR in the backdrop of the assessment order. I have also perused through the documentary evidences as submitted in this regard. Primarily, it is argued that there was no deduction claimed in any of the earlier years as per the provisions of section 41 (1) of the Act. When there was no such claim made, then, there was no question of invoking the provision of section 41 (1). Considering the facts of the matter, I do agree with the AR that when there was no claim of deduction in the matter in any earlier year, then the disallowance u/s 41 (1) could not be resorted to. The AO has gone about explaining that ultimately the appellant had made cessation to its liability on account of the share application money made by M/s Aakin Holdings Ltd. In this regard, the cardinal factor to be seen is whether there was any actual cessation of the said liability with material evidence. I find that the liability had not ceased when by a letter dated 16.04.2012, the share applicant in question had requested the assessee company to return its share application money sent in the year 2002 & 2003. The same was also before the AO as discussed in the assessment order. The basic criterion in the matter is whether the liability still exists in the accounts of the assessee or not for the year under consideration. If the same exists then the provision of section 41 (1) of the Act would not be operational in the facts and circumstances. The AO has not made a finding with any material evidence that the appellant has written off the liability in its books. Taking a holistic view in the matter at hand and after considering the entire spectrum of the issue, I am not inclined to endorse the action of the AO in making the impugned addition when the liability still existed as discussed supra. In the facts and circumstances of the matter, the addition made by the AO on the issue is hereby directed to be deleted. The AO directed accordingly. [This ground is allowed]”
We find no infirmity in this finding of the ld. CIT(A). Section 41(1) of the Act, reads as follows:- 1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year – a. the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or b. the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was 3 Assessment Year: 2012-13 M/s. Comfort (India) Ltd incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.(Emphasis Ours). 3.1. In the case on hand, there is no instance of allowance or deduction made in any assessment in respect of loss, expenditure or trading liability incurred by the assessee. This was a case of share application money received which is a capital receipt. Hence, the addition u/s 41(1) of the Act, has been wrongly resorted to by the Assessing Officer. Under these facts and circumstances, we uphold the order of the ld. CIT(A) and dismiss the appeal of the revenue.
In the result, appeal of the revenue is dismissed. 4.
Kolkata, the 28th day of November, 2018.