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Income Tax Appellate Tribunal, ‘B‘ (SMC
Before: SHRI ABRAHAM P. GEORGE]
: 27-10-2017 सुनवाई क� तार�ख/Date of Hearing घोषणा क� तार�ख /Date of : 31-10-2017 Pronouncement आदेश / O R D E R
Assessee in this appeal assails an addition of Rs.12,02,153/- made u/s. 41(1) of the Income Tax Act, 1961 (in short ‘’the Act’’) which was confirmed by the ld. Commissioner of Income Tax (Appeals)-5, Chennai.
Assessee has filed an application seeking adjournment. 2.
However, I find that adjournments were granted a number of times earlier based on the request of assessee’s counsel. Now I do not find
ITA No. 787/Mds/2016 :- 2 -: any good reason shown in the petition seeking adjournment for allowing further time. Accordingly, petition for adjournment stands rejected.
Facts apropos are that assessee, proprietor of a concern, engaged in the business of manufacturing of Betalnut powder & Supari had filed his return of income for the impugned assessment year declaring an income of Rs.26,84,536/-. Assessee had also filed Audited Balance sheet, Profit and Loss account and audit report in form No.3CB and 3CD. In the Balance sheet assessee had shown a sum of Rs.12,02,153/- as opening sundry creditor balance in the name of ‘’M/s. Ravikumar and Company’’. As per the ld. Assessing Officer, M/s.
Ravikumar and Company was a proprietorship concern earlier run by assessee’s father which was now run by the assessee. Ld. Assessing Officer noted that assessee’s father had expired twelve years back and hence such trading liability was no longer required to be paid by the assessee. Assessee was required to explain why Sec.41(1) of the Income Tax Act, 1961 (in short ‘’the Act’’) should not be applied on such amount. Reply of the assessee was that there were a number of legal heirs to the business of the assessee’s father and liability to his father did not abate because of his death. However, ld. Assessing Officer was not impressed. According to him, assessee was not obliged to pay Rs.12,02,153/- due to M/s.Ravikumar and Company
ITA No. 787/Mds/2016 :- 3 -: since its proprietor who was assessee’s father had expired long back.
He applied Sec.41(1) of the Act and made an addition of Rs.12,02,153/-.
Aggrieved, assessee moved in appeal before the ld. Commissioner of Income Tax (Appeals). Argument of the assessee was that ld. Assessing Officer erroneously took a presumption of cessation of liability. According to him amount payable to the estate of his father did not abate due to influx of time. However, ld.CIT(A) was not impressed. According to him, at one point of time assessee had stated that assets and liability of the business of his father were not taken over by him on former’s death, whereas at another point of time, assessee stated that he had taken over the proprietorship of his father lock stock and barrel. He thus confirmed the addition made by the ld. Assessing Officer.
Now before me, the ld. Authorised Representative strongly 5. assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that Section 41(1) of the Act had no application on the facts of the case.
Per contra, ld. Departmental Representative strongly supported the orders of the authorities below.
ITA No. 787/Mds/2016 :- 4 -:
I have considered the rival contentions and perused the orders of the authorities below. Section 41(1) of the Act is reproduced hereunder:-
‘’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 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’’. First requirement to bring a sum to tax u/s.41(1) of the Act is that assessee concerned should have made a claim for an allowance or deduction in respect of loss or trading liability in any earlier assessment year. Since M/s. Ravikumar and Company, appeared as a trade creditor in assessee’s accounts this requirement, prime facie is ITA No. 787/Mds/2016 :- 5 -: satisfied. However, what I find is that assessee had no right, to write –back the amounts due to his father on the death of his father. Death of a creditor will not abate the debt due to him. Legal heirs of the creditor steps in the shoe of the creditor and can claim the debts due to him. Efflux of time will not result in such debt becoming income in the hands of the debtor. It may be true that creditor cannot file a suit for recovery. However, the debt remains due from the assessee to the legal heirs of the creditor and assessee’s relationship with the creditor does not change this legal consequence. That apart assessee had not made any unilateral write back of the sums. In my opinion, such sum could not be considered as income u/s.41(1) of the Act since there was no cessation of liability. The addition stands deleted.
In the result, appeal of the assessee is allowed. 8.