NATIONAL BUILDING CORPORATION,BHIWANDI vs. ADDL CIT RG 19(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM (A.Y:2010-11) M/s National Building Corporation Addl. Commissioner of Income Tax 385C Giriraj Apartments, Range 19(1) Vs. Linking RD, Khar (W) Matru Mandir, Tardeo RD Mumbai-400 052 Mumbai-400 007 .. Appellant Respondent PAN No. AACFN9129P .. Shri Percy J. Pardiwala, AR Assessee by Revenue by .. Shri M.C. Omi Ningshen, DR .. Date of hearing 15-03-2017 Date of pronouncement .. 15-03-2017 O R D E R PER MAHAVIR SINGH, JM:

This appeal by the assessee is arising out of the order of CIT(A)-34, Mumbai, in appeal No. CIT(A)-34/ACIT-19(1)/IT-2/13-14 dated 03-02-2015. The Assessment was framed by Addl. CIT – Range 19(1), Mumbai for the A.Y. 2010-11 vide order dated 26-02-2013passed under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

“1 The Learned CIT(A) is not justified in confirming addition of Rs. 31,88,521/- holding that the explanation offered by the assessee is "make believe" argument having no evidenciery value in spite of the fact that sufficient documentary evidence was produced both

M/s National Building Corporation; AY:10-11) before Assessing Officer as well Learned CIT(A) in support of Assessee's claim.

2. The Learned CIT (A) has erred in confirming the addition of Rs. 31,88,521/- made without considering the facts as well law on the point of applicability of provisions of sec. 41(1) of the I.T. act, 1961.

3. Without prejudice to the above,

The Learned CIT (A) has erred in confirming the addition in entirety without appreciating the factual submissions made before him that a part of the said amount has already been offered for tax in subsequent years, thereby confirming the taxability of same amount more than once which is not permissible under the law.”

M/s National Building Corporation; AY:10-11) creditors have ceased to exist and accordingly he had a sum of Rs. 31,88,325/- by observing in Para 4.10 as under: - “4.10 In view of the facts and circumstances of our case and the decisions of various courts as cited above, the liabilities shown in the books of accounts against the creditors of Rs. 48,50,875/- which is not claimed for several years and assessee has failed to prove the genuineness of the credit balances have ceased to exist. The assessee has already written off credit balances of Rs. 16,62,350/- in the return of income filed for AY 2011-12. Therefore, the balance liability shown under the head creditors amounting to Rs. 31,88,525/- is brought to tax u/s.41(1) of the I.T. Act" in this assessment year.”

Aggrieved, now assessee preferred the appeal before CIT(A), who also confirmed the action of the AO vide para 4.4.3 as under: - “4.4.3 In view of the facts discussed above, it is not understood as to why small amounts in the name of fourteen parties, who carried out small work for the appellant have been kept and shown outstanding for a long period of time and, when the appellant on its own has stated that some of the parties have written directly to it stating that they have not received letters from the Income-tax Dept. and have acknowledged that amount is outstanding in their name for a very long period of time and the amount is payable by the appellant to them, why none of them has stated as to why these small amounts are outstanding for a long period of time and why they have not asked for payment of these amounts. Moreover, the appellant has not filed any evidence to show that disputes and differences with the respective contractors and suppliers were there and, if it was because of excess billing, it has not furnished the details as to what was the Page 3 of 8

M/s National Building Corporation; AY:10-11) excess billing by the above persons and, it is also surprising that none of the individual persons has in his letter to the appellant, has stated that the amount is outstanding because of excess billing made to them or the quality of work done by the them was unsatisfactory. I, therefore, hold that the appellant has in his entire submission made a make believe argument which has no evidentiary value and does not explain the amount of Rs.31,88,525/-outstanding in its books of account which have not been written off till asst. year 2011-12 and the reasons furnished also do not justify the existence of this amount in the books of accounts of the appellant, as on 31.03.2010. I, therefore, confirm the addition of the amount of Rs.3 1,88,521 being the liability which is not existing during the year and accordingly add the above amount to the income. The first two grounds of appeal, are thus, dismissed.”

Aggrieved, now assessee is in second appeal before Tribunal.

M/s National Building Corporation; AY:10-11) account of that year. Further, a sum of Rs. 5.90 lakhs in AY 2015-16 and balance sum of Rs. 16,62,350/- in the F.Y. 2011-12 is credited to the Profit and Loss account of the respective year and offered to tax. The assessee also claimed that the amounts paid to the creditor during this period is Rs. 7,82,044/-. According to him, the amount was very much outstanding during the A.Y. 2010-11. The assessee has not made any write of this amount nor claimed any benefit out of the same. The learned Counsel for the assessee drew our attention to the provision of section 41(1) of the Act and argued that the same have application only if (i) an allowance or deduction had been made, in the computation of profits and gains of a business or profession, in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and (ii) Subsequently during any previous year the assessee had 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.

(i) In the assessment of an assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him.

(ii) (a) Any amount is obtained in respect of such loss or expenditure, or (b) Any benefit is obtained in respect of such trading liability by way of remission or cessation thereof.

(iii) Such amount or benefit is obtained by the assessee, and (iv) Such amount or benefit is obtained in a subsequent year

M/s National Building Corporation; AY:10-11)

From the above deeming provisions of section 41(1) of the Act it is clear that this provisions has two effects, namely:-

(i) That although ordinarily the amount of remission or cessation, etc., would not be profits and gains, it has to be regarded as such profits and gains, and (ii) Such an amount so forgiven by way of remission or cessation, etc., has to be regarded as profits and gains of business or profession accruing or arising in the previous year wherein it is obtained.

In either of these events happened, the deeming provision enacted in the closing part of section 41(1) of the Act comes into play. Accordingly, the amount obtained by the assessee or value of benefit accruing to him is deemed to be the profits and gains of business or profession and it becomes chargeable to tax as the income of that previous year relevant to the assessment year under consideration. In the present case before us, admittedly in the year under consideration i.e. the assessment year 2010-11 by way of remission or cessation no gain has accrued or arisen to the assessee in the given facts and circumstances of the case. Admittedly, as given in the chart above by the assessee before us, the assessee had already declared the credit to the Profit and Loss Account on account of cessation of liability under cessation of liability u/s 41(1) of the Act on account of sundry creditors and offered to tax. The learned Counsel for the assessee fairly agreed that this fact can be verified by the AO. In view of the above given facts and the fact that assessee’s Counsel fairly agreed for verification of factum of offering of this amount of sundry creditors as income in their respective years, the AO can verify the same. However, in this year no addition can be made u/s 41(1) of the Act and we delete the addition and allow the appeal of the assessee on this issue.

M/s National Building Corporation; AY:10-11)

“4. The learned CIT(A) has erred in confirming the disallowance of Rs. 6,27,772/- being total foreign travel expenses incurred in entirety merely on the ground that because of partner has visited U.S.A alongwith his wife & minor son makes it clear that the foreign visit was not at all for the purpose of business without giving any reason as to why submissions made justifying the expense is not acceptable..”

“I have duly considered the above submission of the appellant and find that except for taking arguments on paper, the appellant has not furnished any clinching evidence to show that the foreign visit was undertaken by the partners for the purpose of business. The appellant itself is conceding in the without prejudice submissions that possibility of element of personal nature involved in foreign travel expenses can be there and therefore, 10 to 15 per cent expenses can be disallowed. The fact that the partners visited U.S. alongwith the wife of one of the partners and minor son of a partner, is proof enough to show that the there was no business connection involved in the visits of the partners. Moreover, the appellant itself has stated that there is no running project and it is considering purchase of a plot. In view of the same, I do not find any merit in the submission of the appellant and dismiss this ground of appeal.”

M/s National Building Corporation; AY:10-11) partners. Matter is remanded back to the file of the AO. This issue of assessee’s appeal is partly allowed.