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Income Tax Appellate Tribunal, DELHI BENCH “F”, NEW DELHI
Before: SHRI R. K. PANDA & SMT. BEENA A. PILLAI
O R D E R
PER R. K. PANDA, AM :
1. This appeal filed by the assessee is directed against the order dated 29.12.2010 of the CIT(A)- XXI, New Delhi relating to assessment year 2004-05.
In grounds no.1 and 2, the assessee has challenged the order of the ld. CIT(A) in confirming the addition of Rs.16,53,488/- u/s 41(1) of the I.T. Act. 3. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing of concrete at Centralized Batching Plants, transporting the same to various job sites though Transit Mixers and also manufacture of concrete Block and Pavers etc. It filed its return of income on 30.10.2004 declaring loss of Rs.4,75,627/-. During the course of assessment proceedings, the Assessing Officer vide note sheet entry dated 17.10.2006 asked the assessee to file confirmed copy of ledger account in respect of following parties :-
A. S. Carrier 260380 2. Akshada Transport 1244088 3. Ashtech Marketing Pvt. Ltd. 2520385 4. Devi Stone Crushing Co. 61580 5. Laxhmi Carriers 721716 6. Malik Associates 104541 8. S.B. Linker Bldg. Material Carriers 20125 9. Suraj Bhan 638556 10. Tula Ram Yadav 2306859 Total 11122920
These ten parties were selected out of a list of 379 sundry creditors to test check the genuineness of these balances. The assessee filed confirmation letters of some of the parties. The Assessing Officer analyzed the same and came to the conclusion that the assessee was not able to prove the liability in the shape of credit balance or part of credit balance standing in respect of parties nos.1 to 6 and 9 by filing either confirmation or explaining the difference in the confirmed balances totaling to Rs.16,53,488/-. The Assessing Officer accordingly made addition of the same by invoking the provisions of section 41(1) of the I.T. Act.
In appeal, the ld. CIT(A) upheld the action of the Assessing Officer.
Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal.
Ld. counsel for the assessee at the time of hearing drew the attention of the Bench to the payments made subsequently to the above parties and submitted that the assessee has not written off the amount in its books of account. Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Hotline Electronics Ltd. vide order dated 23.12.2011, he submitted that the Hon'ble High Court in the said decision has held that when the assessee claims that the debts are subsisting and it continues to be liable to pay the creditors, it is not open to the income tax authorities to draw the conclusion that the creditors have remitted the liability or that the liability has otherwise ceased without evidence or material when the assessee acknowledges a liability in the balance sheet and Explanation- 1 is not applicable. Since the Assessing Officer in that case had not brought on record any evidence or material including any statement from the creditors that the debts had been extinguished and the liability of the assessee to pay them has ceased, provisions of section 41(1)(a) cannot be invoked. He submitted that the case of the assessee is squarely covered by the above decision of the Jurisdictional High Court. Therefore, the order of the ld. CIT(A) should be set- aside and the ground raised by the assessee should be allowed.
Ld. DR on the other hand heavily relied on the order of the ld. CIT(A).
We have considered the rival arguments made by both the sides, perused the orders of the authorities below and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer invoking the provisions of section 41(1) made addition of Rs.16,53,488/- in respect of seven parties on the ground that the assessee was not able to prove the liability in the shape of credit balance or part of credit balance standing in their names either by filing the confirmations or by explaining the difference in the confirmation balances. The ld. CIT(A) sustained the addition made by the Assessing Officer. It is the submission of the ld. counsel for the assessee that the assessee has subsequently made payment to the above parties and none of the parties have written off the amount in their books of account. The assessee has not written off the same in its books of account and the liability was subsisting on 31.03.2004. Therefore, we are of the considered opinion that in view of the decision of the Hon’ble Delhi High Court in the case of Hotline Electronics Ltd. (supra) which in turn has relied on the decision of the Hon’ble Supreme Court in the case of CIT vs. Sugauli Sugar Works (P) Ltd. reported in 236 ITR 518, the provisions of section 41(1) are not applicable to the facts of the present case. We, therefore, set-aside the order of the ld. CIT(A) and the grounds raised by the assessee are allowed.
In ground no.3, the assessee has challenged the order of the ld. CIT(A) in confirming the disallowance of Rs.94,56,604/- made by the Assessing Officer by rejecting the claim of deferred revenue expenditure.
Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed that the assessee has claimed an amount of Rs.94,56,604/- in the Profit & Loss Account as deferred revenue expenditure.
On being questioned by the Assessing Officer to justify and explain the nature of such expenses it was explained by the assessee that these expenses were not incurred in this year but were brought forward from last year. The assessee filed the branch-wise expenses that were incurred. It was further explained that the said expenditure includes various costs towards the temporary construction of site, plant shed, stores for storing raw material, boundary walls, etc. In view of the accounting policy, an amount of Rs.94,56,614/- has been written off during the year should be allowed. It was submitted that the said construction expenses incurred on temporary construction at various sites office is being spread over a period of five years and the amount of Rs.64,56,614/- pertains to the impugned assessment year. It was further submitted that the company is following this practice since inception and every year, the amount so claimed has been allowed by the income-tax department in order passed u/s 143(3) of the I.T. Act.
However, the Assessing Officer was not satisfied with the explanation given by the assessee. He held that merely because it was allowed in the past, the same cannot be a ground to allow the same in this year. According to him, the principles of res-judicata do not apply to the income-tax proceedings.
Relying on various decisions and observing that the assessee has maintained its accounts on mercantile basis and the liability in respect of the expenditure has not been incurred for the year under consideration, the Assessing Officer made addition of Rs.94,56,604/- to the total income of the assessee.
In appeal, the ld. CIT(A) upheld the action of the Assessing Officer.
Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal.
We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the ld. CIT(A) and Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case had incurred certain expenses at the two sites and such expenses have been spread over a period of five years.
In the past such expenses were allowed. In order passed u/s 143(3) in the assessment year 1996-97 such expenditure was disallowed by the Assessing Officer, which was allowed by the ld. CIT(A). The Revenue did not file any appeal before the Tribunal meaning thereby it has accepted such deferred revenue expenditure. This fact is mentioned by the Assessing Officer in the body of the assessment order. It is also a fact that in subsequent year also the Assessing Officer has accepted such deferred revenue expenditure. Therefore, even though the principle of res-judicata do not apply to the income-tax proceedings, however, following the rule of consistency, we are of the considered opinion that in the instant case disallowance of such deferred revenue expenditure is not justified. We, therefore, set-aside the order of the ld. CIT(A) and direct the Assessing Officer to allow the claim of Rs.94,56,604/-.
The ground no.4 was not pressed by the ld. counsel for the assessee for which ld. DR has no objection. Accordingly, the same is dismissed as not pressed.
Ground no.5 being general in nature is dismissed.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open Court on this 23rd February, 2018.