DCIT 1(1)(1), MUMBAI vs. BIFORA WATCH COMANY LT, MUMBAI

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ITA 782/MUM/2016Status: DisposedITAT Mumbai09 February 2018AY 2011-123 pages

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

AI SummaryDismissed

What did the Tribunal hold?

The CIT(A) deleted the addition, holding that Section 41(1) applies to remission of trading liabilities debited in the Profit & Loss account, which was not the case here. The Tribunal upheld the CIT(A)'s decision.

What were the facts?

The assessee company had share capital advance and unsecured loans from directors outstanding for many years. The Assessing Officer treated these as income under Section 41(1) due to remission of liability.

What were the issues?

Whether outstanding share capital advance and unsecured loans from directors, not debited to the P&L account, can be treated as income under Section 41(1) due to cessation of liability.

Which sections of the Income-tax Act were involved?

Section 41(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI

Before: SHRI D.T. GARASIA & SHRI G. MANJUNATHA

For Appellant: Shri N.H. Gajria, A.R
For Respondent: Shri T.A. Khan, D.R
Hearing: 05.12.2017Pronounced: 09.02.2018

Per D.T. GARASIA, Judicial Member:

1.

The present appeal has been preferred by the Revenue against the order dated 30.11.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.

2.

The short facts of the case are that the assessee is engaged in the business of manufacturing of watches, components, cases and job work. The assessee company formed in the year 1982 and originally carrying on business of manufacturing of electronic watches.

2 M/s. Bifora Watch Company Ltd. Company has suffered heavy losses in manufacturing unit. Hence, the said division was shut down about 12 years back. In the balance sheet of the company the amount of Rs.2,80,00,000/- as share capital advance. The Assessing Officer (hereinafter referred to as the AO) added Rs.2,80,00,000/- to the income of the assessee and has also disallowed Rs.3,57,55,780/- being unsecured loan from directors under section 41(1) of the Act on account of remission of liability. The assessee’s books of account which is liability is outstanding since more than 20 years and company was unable to repaid the same. Therefore, the AO has treated this under section 41(1) of the Act.

3.

Matter carried to the Ld. CIT(A) and the Ld. CIT(A) has allowed the appeal of the assessee by observing as under: “5.9 I have gone through the assessment order dated 25.03.2014 wherein the AO has added a sum of Rs.2,80,00,000/- of share capital advance received from NRI promoters and Rs.3,57,55,780/- of unsecured loan received from Directors by invoking section 41(1) of the Income Tax-tax Act, 1961 stating the reasons that the above amounts continue to appear in the Balance sheet without any change for the past many years. The nature of addition i.e. loan from Directors of Rs. 3,57,55,780/- and share capital advance from NRI promoters of Rs. 2,80,00,000/- are found to be part of Balance Sheet and not been claimed as a expenditure in the P&L a/c. under the year questioned i.e. AY 2011-12 as held by the AG. As the section 4 1(1) deals with the remission or cessation in respect of loss or expenditure or some benefits in respect of such trading liability, which are debited in P&L A/c. And the addition made by the AO towards the share capital advance and unsecured loan received from the NRI promoters and Directors respectively is not fair and justifiable and accordingly I direct the AG to delete the above addition of Rs. 6,37,55,780/-.”

4.

We have heard the rival contentions of both the parties. Looking to the facts and circumstances of the case, we find that assessee company had submitted all the relevant records, audited

3 M/s. Bifora Watch Company Ltd. accounts ended as on 31.03.11. The acknowledgment of receipt of unsecured loan has been filed. The return of income for last 3 years are shown on pages 15 to 20, copy of accounts of unsecured loan from the parties from 2007-2015 are shown on pages 21 to 24, copy of the letter from Reserve Bank of India for permitting non resident company to invest in the company to be converted into shares in future. We find that we have also verified the same account and we are of the view that Ld. CIT(A) is justified in deleting the addition and our interference is not required.

5.

In the result, appeal of the Revenue is dismissed.

Order pronounced in the open court on 09.02.2018.

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