DCIT, CIR-10(2), KOLKATA, KOLKATA vs. M/S SONODYNE TELEVISION CO. LTD., KOLKATA

Per Waseem Ahmed, AM This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-4, Kolkata [in short the ld CIT(A)] dated 01.12.2015 against the order passed by the DCIT, Circle-10, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 25.02.2014 for the Assessment Year 2011-12.

2 ITA No.330/Kol/2016 M/s Sonodyne Television Co. Ltd. A.Yr. 2011-12

3 ITA No.330/Kol/2016 M/s Sonodyne Television Co. Ltd. A.Yr. 2011-12 creditors was carried over from the earlier years. As such the liability on account of sundry creditors was not written off in the books of accounts. The Ld. CIT(A) after considering the submission of the assessee deleted the addition made by the AO by observing as under: “5.2. I have considered the submission of the AR of the appellant in the backdrop of the assessment order. I have also taken note of the various judicial decisions referred to by the AR in support of his stand. The short issue at hand is whether the provisions of Section 41(1) of the Act would be attracted or not in the appellant’s case given on its facts and circumstances. It is the contention of the appellant that the trading liabilities were never written off contrary to the conclusion drawn by the AO, whereby, it was observed that there was cessation of the said liability by the assessee and thereby attracting the provisions of section 41(1) of the Act. Under the provisions of section 41(1) of the Act the liabilities once ceases and there is remission of the liability can it be only written off. The appellant has all along has maintained that there is no remission or cessation of the liability and that the creditors are traceable and there is every hope for recovery of the monies from them. In that case the liability cannot be considered to be ceased. The decisions of the Hon'ble Supreme Court in the case of Commissioner of Income Tax vs. Sugauli Sugar Works (P) ltd. 236 ITR 518 as relied upon by the appellant is important as in that case the principle laid down is that the test limitation of liability cannot be decided by the assessee itself but in the presence of the creditor. In the case of the appellant the creditors have never discharged their onus or refused to pay the appellants. Further, the decision of the Gujarat High Court in the case of CIT vs. Bhogilal Ramjibhai Atara (Appeal No. 588 of 2013), as relied upon by the appellant has gone to the extent of holding that even if the creditors are not genuine then section 41(1) shall not apply. Considering the totality of the facts and circumstances of the case, the additions made by the AO u/s 41(1) for Rs. 59,75,631/- stands deleted. As a result, this ground of appeal is disposed of as allowed.”

Being aggrieved by the order of Ld. CIT(A) the revenue is in second appeal before us. 6. The Ld. DR before us submitted that the addresses of the sundry creditors were not furnished at the time assessment. Thus, no verification of the creditors was made to establish the genuineness. Therefore, the assessee is not liable to make the payment of sundry creditors. The Ld. DR vehemently supported the order of AO whereas the Ld. AR filed the paper book which is running from pages 1 to 45 and drew our attention on the provisions of section 41(1) of the Act which reads as under:- "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,- 3

4 ITA No.330/Kol/2016 M/s Sonodyne Television Co. Ltd. A.Yr. 2011-12 (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" .... Explanation 1. - For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts." On perusal of the aforesaid section it could be seen that the following two conditions need to be fulfilled in order to treat cessation of liability as income under section 41 (1) of the Act in the year of cessation of liability: a) Assessee has to avail an allowance or deduction in any earlier year in respect of loss, expenditure or trading liability and b) In subsequent year the assessee has obtained cash or any other benefit in respect of such loss, expenditure and trading liability by way of remission or cessation of liability. In other words, if an assessee incurred any loss, expenditure or trading liability in respect of any year and subsequently has obtained cash or any other benefit in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, then, the amount of cash /benefit so received shall be treated as income in the year of receipt or cessation of liability.

In instant case, the respondent had continued the liability in respect of balance payable to creditors in the audited accounts and had not written back the same to the Profit & Loss accounts for the relevant year. Hence, condition (b) above has not been fulfilled in this case since the respondent had not received during the relevant year any cash or any

5 ITA No.330/Kol/2016 M/s Sonodyne Television Co. Ltd. A.Yr. 2011-12 other benefit in respect of loss/expenditure and trading liability by way of remission or cessation of liability. Hence, the provision of section 41(1) of the Act is not applicable in the instant case for the relevant year. In this regard it is pertinent to note that the balance of sundry creditors as on 31-03-2011 and as on 31-03-2012 stood at Rs. 69,74,245/- as evident from the audited financial statement. Thus, the closing liabilities for creditors as on 31-03-2011 have been continued to the immediately next year as the opening liabilities for creditors on 01-04- 2011. The said fact was also stated before the AO during the course of assessment proceedings. But the AO without appreciating the aforesaid facts has added back sundry creditors amounting to Rs. 59,75,631/- unilaterally under the provisions of section 41 (1) of the Act which is wholly unjustified. The Ld. AR relied on the order of Ld. CIT(A). 7. We have heard the rival submissions, perused the relevant finding given in the impugned order as well as the material on record. The sole basis for taxing the amount of Rs. 59,75,631/- by the Assessing Officer under section 41(1) is that the genuineness of sundry creditors was not established as the assessee failed to furnish the addresses of creditors. Before we deal with the issue involved here, it would be relevant to quote the relevant section 41(1), which reads as under:—

"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" .... Explanation 1. - For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in

6 ITA No.330/Kol/2016 M/s Sonodyne Television Co. Ltd. A.Yr. 2011-12 business under clause (b) of that sub-section by way of writing off such liability in his accounts."

A plain look at the above statutory provision makes it clear that an amount to be taxed under this sub-section, it is imperative that any allowance or deduction has been made in the assessment for any year either in respect of loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, and in case such benefit is arrived, then value of benefit accrued to him is deemed to be the profits and gains of the business or profession, which is chargeable to income-tax as the income of that previous year, that is, in the year in which benefit such derived by the assessee. Explanation 1 provides that loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation shall be includible by a unilateral act by the first person who is assessee, i.e., debtor. There is no stipulation of such unilateral act by the creditor. Here in the instant case, Explanation 1 cannot be held to be attracted at all, since there was no writing-off of the liability by the assessee to pay to the creditors in the assessee's account.

In the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Nitin. S. Garg reported in 208 taxman 16 (Guj), it was held that addition u/s 41(1) can be made only when it is found that there was a remission and/or cessation of the liability. The relevant extract of the order is reproduced below:-

“It is not been established that the assessee has written off the outstanding liabilities in the books of account. The Appellate Tribunal is justified in taking the view that as assessee had continued to show the admitted amounts as liabilities in its balance sheet the same cannot be treated as assessment of liabilities. Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have seized to exist. The Appellate Tribunal has rightly observed that the AO shall have to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof which is not the case before us. Merely because the assessee obtained benefit of reduction in the earlier years and balance is carried forward in the subsequent year, it would not prove that the trading liabilities of the assessee have become non existent. – Commissioner of Income-tax, Calcutta vs. Sugauli Sugar Works (P) Ltd reported in AIR 1999 SC 1144 followed” 6

7 ITA No.330/Kol/2016 M/s Sonodyne Television Co. Ltd. A.Yr. 2011-12 In the instant case, there is no ambiguity that the assessee has not written off the sundry creditors pertaining to the television division though the same was shut down long time ago. But the balance of sundry creditors is very much reflecting in the books of the assessee. These sundry creditors were brought forward from the earlier years which imply that these were accepted in the earlier years. Thus non-furnishing of address of such sundry creditors cannot be the reason for invoking the provision of section 41(1) of the Act. Hence, the ground of appeal filed by the Revenue is dismissed.

8 ITA No.330/Kol/2016 M/s Sonodyne Television Co. Ltd. A.Yr. 2011-12 the AO is directed to delete the addition made. As a result, this ground of appeal is allowed.”

Being aggrieved by the order of the Ld. CIT(A) the Revenue is in second appeal before us. 11. The Ld. DR before us submitted that the additional documents were filed before the Ld. CIT(A) in contravention to the provision of the Rule 46A of the Income Tax Rules. Thus the impugned issue needs to be restored back to the file of the AO for fresh adjudication. On the other hand, the Ld. AR submitted that the reconciliation statement was filed before the lower authorities which are placed at page 14 of the paper book. However, the Ld. AR fairly considered that the reconciliation statement in respect of each and every fixed deposit was not furnished before the AO and the same was filed before the Ld. CIT(A). However, the reconciliation statement as filed before the Ld. CIT(A) does not amount to additional document and therefore, the same is not required to be sent back to the AO for fresh adjudication. The Ld. AR in support his claim as relied on the order of Hon’ble ITAT in the case of DCIT vs. Swift Freight India Limited reported in 58 Taxmann.com 105 wherein it was held as under: “As it is clear from the record which was considered by the Commissioner (Appeals) that the same is not an additional evidence but the breakup of gross receipts and various expenditure were furnished after taking the same from the record already available before the Assessing Officer. Therefore, there is no merit or substance in the objection raised by the revenue, that Commissioner (Appeals) has violated the provisions of rule 46A while considering the breakup of receipts and expenses. It is pertinent to note that when the gross receipts of the assessee is much more than the receipts shown as per TDS certificate then there is no question of showing less receipt by the assessee. Accordingly, in the facts and circumstances of the case there is no error or illegality in the order of the Commissioner (Appeals) qua this issue.”

The Ld. AR relied on the order of Ld. CIT(A). 12. We have heard the rival contentions of both the parties and perused and carefully considered the materials on record; including the judicial pronouncements cited and placed reliance upon. In the instant case, the difference was observed by the AO 8

9 ITA No.330/Kol/2016 M/s Sonodyne Television Co. Ltd. A.Yr. 2011-12 between the interest income offered to tax and income reflected in form 26AS. The undisputed facts are given hereunder : 1. The assessee has shown less amount of interest income for Rs. 9,20,443.89 only in its income tax return. 2. The amount of interest income as discussed above has been duly offered to tax in the subsequent assessment year i.e. 2011-12.

12.1 We also note that a detailed reconciliation statement was filed by the assessee before the Ld. CIT(A) on the basis of which the relief was given. But the same does not amount to additional evidence in view of the order of Mumbai Tribunal in the case of Swift Freight India Limited (Supra). Thus we hold that no additional document was filed before the Ld. CIT(A). The Ld. DR has not brought anything on record contrary to the finding of the Ld. CIT(A). Thus, we hold that no additional document was admitted by the Ld. CIT(A) in contravention to the provision of the Rule 46A of the Income Tax Rules. Hence, we respectfully following the consistent view of the Tribunal decline to interfere with the order passed by the Ld. CIT(A) on this account and accordingly the ground take by Revenue is regretted. 13. The third issue raised by the Revenue in this appeal is that the Ld. CIT(A) erred in deleting the addition made by the AO for Rs. 3,56,340/- on account of undisclosed rental income. 14. The AO during the assessment proceedings observed that two parties namely Nokia India Pvt. Ltd. and Nokia Siemens Network Pvt. Ltd. has deducted the tax in the name of the assessee u/s 194J of the Act for Rs. 25,000/- and Rs.11,634/- respectively. But the corresponding income of Rs. 2,50,000/- and Rs.1,16,340/- as shown in Form 26AS was not offered to tax by the assessee in its income tax return. Therefore, the AO treated the same as undisclosed income and added to the total income of the assessee under the head income from other sources.

10 ITA No.330/Kol/2016 M/s Sonodyne Television Co. Ltd. A.Yr. 2011-12 15. Aggrieved assessee preferred an appeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that it has not received any income as discussed above from the aforesaid parties during the year. Accordingly, no credit of TDS amounting to Rs.33,634/- was taken by the assessee while filing its income tax return. Therefore, no addition for the aforesaid income can be added in the hands of the assessee. The Ld. CIT(A) after considering the submissions of the assessee deleted the addition made by the AO by observing as under:- “8.2. I have considered the submission of the appellant’s AR and perused the materials on record. The affidavit of the appellant has been placed on record and clearly the appellant did not receive the impugned amounts as stated by the AO. The AO has made the additions on the basis of Form 26AS wherein such amounts were reflected as income on which TDS was deducted in favour of the appellant. The appellant has all throughout maintained that no such income of Rs. 3,36,340/- was ever received. The appellant has let out its properties at Millennium I.T. Park, Salt Lake, Kolkata to a number of tenants, two of them being Nokia India Private Limited (TAN: DELN05529G) and Nokia Siemens Network Private Limited (TAN: DELN08029A). The aforementioned tenants have inadvertently credited TDS amounting to Rs. 25,000/- and Rs.11,634/- under the provisions of section 194J of the Act corresponding to income of Rs.2,50,000/- and Rs. 1,16,340/- respectively which was shown in form 26AS for the captioned assessment year. The appellant neither has ever received. The appellant has let out its properties at Millennium I.T. Park, Salt Lake, Kolkata to a number of tenants, two of them being Nokia India Private Limited and Nokia Siemens Network Private Limited. The aforementioned tenants have inadvertently credited TDS amounting to Rs. 25,000/- and Rs. 11,634/- respectively which was shown in Form 26AS for the captioned assessment year. The appellant neither has taken credit of the income nor the credit of the TDS and it was only a mistake that the tenants had deposited TDS u/s 194J which has been clarified in the affidavit. On the above facts the AO is directed to delete the addition made of Rs. 3,36,340/-. As a result, this ground of appeal is allowed.”

The Revenue, being aggrieved , is in appeal before us. 16. Before us the ld. DR submitted that the relief has been granted by ld. CIT(A) on the basis of affidavit furnished before him. However, the said affidavit was never referred to the AO for his comment. Therefore, the matter should be restored back to the file of AO for fresh adjudication. The ld. DR relied on the order of the AO. On the other hand the ld. AR submitted that TDS on the aforesaid amount were inadvertently deduced and deposited in the respondent’s account as the same was

11 ITA No.330/Kol/2016 M/s Sonodyne Television Co. Ltd. A.Yr. 2011-12 appearing in Form No. 26AS for the relevant year. The respondent as neither actually received nor earned any such amount from the tenants as stated above during the previous year relevant to assessment year under consideration. In this regard it is humbly submitted that during the relevant year the respondent had not provided any professional services to the aforesaid tenants as such, the question of receiving any payment in lieu of professional services does not arise. The respondent had also not taken the TDS credit of Rs.33,634/- in the return of income for the relevant year which were inadvertently credited by the aforesaid tenants, as evident from Form No.26AS. Hence, it is humbly submitted that the amount of Rs.3,36,340/- should not be treated as income of the respondent for the relevant year since the respondent had not earned the said income during the instant year. In this regard, it is further submitted that, the respondent had filed an affidavit (copy filed in paper book at 39) duly notarized before the Ld. CIT(A) to confirm that the aforesaid amount which was alleged to have been concealed was not received by the respondent at any time during the relevant year or thereafter. The same conclusively establishes the fact that the respondent had not received the said amount during the relevant year. Hence, the question of considering the same as income is wholly unjustified.

12 ITA No.330/Kol/2016 M/s Sonodyne Television Co. Ltd. A.Yr. 2011-12 order of Mumbai Tribunal in the case of Swift Freight India Limited (Supra). Thus, we hold that no additional document was filed before the Ld. CIT(A). Thus, in view of the above, we do not find any infirmity in the order of Ld. CIT(A). Hence, the ground of appeal raised by the Revenue is dismissed. 19. In the result, Revenue’s appeal stands dismissed. Order pronounced in the Court on 31.01.2018 Sd/- Sd/- [S.S. Viswanethra Ravi] [Waseem Ahmed ] Judicial Member Accountant Member Dated : 31.01.2018 SB, Sr. PS Copy of the order forwarded to: 1. DCIT, Circle-10(2), Kolkata, P-7, Chowringhee Square, 3rd Floor, Kolkata-700069. 2. M/s Sonodyne Television co. Ltd., 138, Block-G, New Alipore, Kolkata-700053. 3.C.I.T.- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard file

/True Copy/ By Order Senior Private Secretary Head of Office/D.D.O., ITAT, Kolkata Benches