UB AIR P.LTD,MUMBAI vs. DCIT 5(3), MUMBAI

The Ld. A.O. however, without appreciating the facts and circumstances of the case passed the impugned assessment order dated 19.03.2013 under section 143(3) of the Act determining total income of the Appellant at Rs. 1,73,63,470/- by disallowing the outstanding liability of Rs.99,00,000/- invoking the provisions of section 41(1) of the Act. The Appellant being aggrieved by the above preferred the present appeal before your Honours. The Appellant craves leave of your Honours to deal with this issue paragraph wise as under: 6. Disallowance made under section 41(1) of the Act is unjustified Rs99,OO,000/- i. The Ld. A.O. has discussed this issue in paragraph 5 - 5.5 at pages 2 - 5 of the assessment order. In the paragraph 5.1 of the assessment order the Ld. A.O. has observation with respect to the outstanding liability amounting to Rs. 99,00,000/- from the Assessment Year 2002-03 and the same are being carried on as outstanding liabilities from year to year. The Ld. A.O. has further mentioned about the query raised to the Appellant to furnish the relevant details. The Appellant submits that the statement made by the Ld. A.O. in this paragraph is factually correct. Hence, the Appellant does not want to make comment on the same as of now. However, no adverse inference can be drawn against the Appellant, relying on the contents of this paragraph of the assessment order. ii. In paragraph 5.2 of the assessment order, the Ld. A.O. has reproduced the submissions made by the Appellant vide its letter dated 05.03.2013. The Appellant heavily relies on the same. The Appellant further submits that the provision of section 41(1) of the M/s. UB Air Pvt. Ltd. Act is not at all applicable to the facts of its case. Hence, the disallowance made by invoking the provisions of section 41(1) of the Act is not at all justified and the same may be deleted. iii. In paragraph 5.3 at page 3 of the assessment order, the Ld. A.O. has proceeded to make the disallowance under section 41(1) of the Act. The Appellant craves leave of your Honours to deal with the same as under. a. With respect to the contents of sub-paragraph (i) of the assessment order, the Appellant submits that during the course of the assessment proceedings it has explained to the Ld. A.O. that due to sudden departure of the accounts personnel, without proper handing over, it has not been able to identify the outstanding liability amounting to Rs. 99,00,000/-. However, subsequently the Appellant was able to identify that out of the total outstanding liability of Rs.99,00,000/-, an amount of Rs.91,00,000/- pertains to the fuel charges. As the Appellant has only been able to identify the same during the accounting year ending on 31.03.2012, it has passed the necessary entry in the F.Y. 2011-12 pertaining to A.Y. 2012-13. The Appellant has also offered the amount of the amount of Rs.99,00,000/- for taxation in the A. Y. 2012-13. The ledger account of aviation fuel charges is enclosed at pages 3-5 of the Paper Book as well as the return of income for A.Y. 2012-13 showing the same income have offered for tax is enclosed at page 49 of the Paper Book. Thus, treating an amount of Rs.99,00,000/- as ceased liability under section 41(1) of the Act is not at all justified and the same may be deleted. b. In sub-paragraph (ii) of the assessment order, the Ld. A.O., has mentioned that there has been no transaction in these accounts for the last six years and more. The Appellant submits that the statement made by the Ld. A.O. in this sub-paragraph (ii) is factually correct. However, your Honours will appreciate that the Appellant is going through very bad phase. The persons who are handing the accounts of the Appellant have left the services without giving any notice and without proper handing over of work. It was only during the F.Y. 2011-12 the Appellant came to know that out of outstanding liability of Rs. 99,00,000/-, an amount of Rs. 91,00,000/- pertains to aviation fuel charges. The Appellant, therefore, in the F.Y. 2011-12 pertaining to A. Y. 2012- 13 passed the necessary entries and also offered the same to tax. Hence, treating the entire amount of Rs. 99,00,000/- as ceased liability under section 41(1) of the Act is unjustified and the same may be deleted. c. With respect to the contents of sub-paragraph (iii) of paragraph 5.3 of the assessment order, the Appellant submits that subsequent to the passing of the assessment order, the Appellant has filed its return of income for A.Y. 2012-13 and offered the entire amount of Rs.99,00,000/- to tax Please see page no. 49 of the Paper Book.

The Appellant, further, submits that merely because the amount is outstanding for more than three years, the same cannot be a basis for making addition under section 41(1) of the Act. The Appellant to support the above contention rely on the recent decision of Hon'ble Gujarat High Court in the case of CIT vs. Puridevi Mahendrakumar Chaudhary [2014] 221 Taxman 375 (Gujarat) wherein the court has held that where assessee had outstanding creditors for goods and Assessing Officer made addition in income of assessee under section 41(1) on basis that with respect to 14 creditors liability was outstanding for more than three years, Assessing Officer was not justified in his view.

The Appellant further rely on the decision of Hon'ble Gujarat High Court in the case of CIT vs. Bhogilal Ramibhai Atara [2004] 222 Taxman 313 (Gujarat) wherein the Hon'ble High Court has deleted the addition made by invoking the provisions of section 41(1) of the Act by observing that where assessee in return of income for assessment year 2007-08 had shown certain amount by way of M/s. UB Air Pvt. Ltd. his debts and Assessing Officer applying provisions of section 41(1) added back said amount in income of assessee as deemed income, since there was nothing on record to suggest that there was remission or cessation of liability that too during assessment year 2007-08, above amount could not be added back in income of assessee.” 2.2.2 Before us, the learned A.R. of the assessee, when queried, admitted that the assessee’s submission before the authorities below that these outstanding creditors balances of `99 lakhs were written back and offered for tax in its return of income for A.Y. 2012-13 (supra) was not correct. It was also contended that the creditors were pursuing their outstanding amounts but, on being queried, admitted that no legal proceedings were initiated by creditors for recovery, nor was any correspondence in this regard filed. The learned A.R., however, contends that since the said figure of outstanding liabilities for aviation fuel is still acknowledged as an outstanding debt/liability in assessee’s books of account for this year, there is no remission or cessation of liability and therefore the provisions of section 41(1) of the Act could not be invoked in the case on hand in the year under consideration. In support of this proposition, the learned A.R. of the assessee placed reliance on the decision of the Hon'ble Delhi High Court in the case of Shri Vardhaman Overseas Ltd. (2002) 343 ITR 408 (Delhi). It was prayed that the assessee’s appeal be allowed. 2.3 Per contra, the learned D.R. strongly supported the orders of the authorities below. According to the learned D.R., the assessee itself has admitted that to the extent of `8 lakhs the outstanding liabilities were not reconcilable. In respect of the balance `91 lakhs, no confirmations from parties/creditors or details were furnished to prove/establish the identity of the parties. It was also submitted that the statement of the assessee that it has written back and offered to tax the outstanding liabilities of `91 lakhs in the return of income for A.Y. 2012-13, was found to be false on verification by the AO. It was submitted that even if the provisions of section 41(1) of the Act are found not applicable to the said outstanding liabilities, they are still to be disallowed as unproved credits as existence of the same are not proved with any material evidence; like fuel bills, names M/s. UB Air Pvt. Ltd. of parties from whom purchased, confirmation from those parties of outstanding amounts and therefore it can be fairly concluded that there was no genuine outstanding liabilities of `99 lakhs which the assessee will never be called upon to pay. 2.4.1 We have heard the rival contentions and perused and carefully considered the material on record including the judicial pronouncements cited. As per the facts on record; it is seen that in the course of assessment proceedings the Assessing Officer (AO) required the assessee to prove the genuineness of liabilities amounting to `99 lakhs which were being shown as outstanding, failing which the same would be brought to tax under section 41(1) of the Act. In response thereto, the assessee submitted that an amount of `91 lakhs pertained to fuel bills, but admitted that it could not reconcile the balance `8 lakhs and that the same amount of `99 lakhs was offered to tax in A.Y. 2012-13. The explanations put forth did not find favour with the AO. Observing, inter alia, that the assessee’s return of income for A.Y. 2012-13 though due, was not filed, the AO also noted that even though ample opportunities were offered to the assessee, no details of who constituted the parties pertaining to the outstanding liabilities, their details and their confirmation of these transactions, credit worthiness, etc. was produced by the assessee and even the ledger accounts were incomplete, and proceeded to hold that as the assessee actually did not establish that it owed any money to anybody on this account, brought the same to tax in the assessee’s hands under section 41(1) of the Act. 2.4.2 On appeal, the assessee while submitting that the outstanding liabilities of `91 lakhs were on account of aviation fuel, stated that it was not able to reconcile the balance of `8 lakhs. According to the assessee, these outstanding liabilities pertained to earlier years and the entire amount of `99 lakhs were written back and offered to tax in A.Y. 2012-13 and therefore since the AO’s invoking of section 41(1) in this year is not justified, the addition made thereunder is to be deleted. The learned CIT(A), after considering the assessee’s submissions rejected the assessee’s contentions holding as under: - M/s. UB Air Pvt. Ltd. “5. I have carefully and dispassionately considered the facts and circumstances of the case, statement of facts, relevant assessment order, written submissions, relied upon case laws and the arguments made by the learned A.R. of the assessee before the undersigned. It is noted that neither at the time of assessment stage nor during the appeal proceedings, inspite the specific query in this regard, the appellant has been able to provide even the basic details such as the fuel bills etc., payment of which was shown still outstanding by the appellant. Under these circumstances, it can e fairly concluded that there was no genuine outstanding and there is no possibility of any payment from the appellant to these very old outstanding credits. Under these circumstances, the action of the AO in treating the very old credits as ceased liability appears to be justified, hence the same is confirmed. It is further noted that by surrendering the aforesaid sum in subsequent year the appellant has also admitted that the liability in question is not genuine one, however such surrender in subsequent year just appears an afterthought which is much after the detection of this bogus liability by the A.O., hence on this ground no relief can be provided to the appellant. Accordingly the addition made by the A.O. is confirmed.” 2.4.3 On a careful appreciation of the facts and circumstances of the case, submission put forth and the judicial pronouncements cited, as discussed above, we concur with the observations of the learned CIT(A) that before the authorities below, inspite of being specifically required to, the assessee has not been able to furnish any basic material evidence to establish that the alleged fuel purchases were ever made by it in the past. The assessee itself accepted that `8 lakhs thereof could not be reconciled by it. Even bills for purchase thereof, confirmations from so called creditors in respect of outstanding balances were never furnished. That the said amounts were outstanding liabilities of the earlier years is also not established by the assessee. We also note that the averments by the assessee that it had written back and offered these amounts of `99 lakhs for taxation in the A.Y. 2012-13, was found to be factually incorrect by the AO and this fact was admitted to be so by the learned A.R. in proceedings before us, i.e. that these amounts were not written back/offered to tax in the assessee’s return of income for A.Y. 2012-13. In this factual matrix of the case, we agree with the learned CIT(A) that it can be concluded that there is no genuine outstanding liability on account of aviation fuel and therefore no likelihood of any amount being paid on this account in the future and