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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI B.R.BASKARAN, AM & SHRI AMARJIT SINGH, JM
आदेश / O R D E R
PER AMARJIT SINGH, JM:
This order shall disposed of both the appeals filed by the assessee as well as by the revenue against the order dated 09.03.2012 passed by the Commissioner of Income Tax (Appeals) 6, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2008-09. These appeals are taken up together being the parties are the same and the matter of controversy can conveniently be adjudicated by a single order.
2. The assessee has raised the following grounds of appeal:-
"1. For that on the facts and in the circumstances of the case the Ld. Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.1,83,848/- u/s. 41(1) of the Income Tax Act, 1961 towards amount payable to Rashtriya Ispat Nigam Ltd. Rs.1,55,991/- and Prithvi Construction Co. Rs.27,857/- on account of confirmation having not been produced and this action of the Ld Commissioner of Income Tax (Appeals) is arbitrary, unjustified, unwarranted and illegal.
For that on the facts and in the circumstances of the case the Ld. Commissioner of Income Tax (Appeals) failed to appreciate the fact that liabilities reflected in the balance sheet of the Appellant Company cannot be presumed as cessation of liabilities merely because the liabilities are outstanding for a long period of time and the action of the &4056/M/12 A.Y. 2008-09
CIT(A) in confirming the addition was based on surmises and conjectures. 3. For that on the facts and in the circumstances of the case the addition of Rs1,83,848/- u/s. 41(1) of the Income Tax act, 1961 is liable to be deleted.”
The revenue has raised the following grounds of appeal:-
"1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting the disallowance of Rs.38,30,671/- without appreciating the fact that there is no business activity since 1997 and the expenses which had been allowed as deduction on account of fixed expenditure required for survival of the company. 2. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored.
The brief facts of the case are that the assessee filed return of his income on 29.09.2008 declaring total income to the tune of Rs.23,18,828/-. The return was processed u/s.143(1) of the Income Tax Act, 1961 ( in short “the Act”). The case was selected for scrutiny and notices u/s.142(1) and 143(2) of the Act were issued and served upon the assessee. Thereafter the assessment was completed by assessing the total loss to the tune of Rs.17,11,890/-. The Assessing Officer made an addition u/s.41(1) of the act as cessation of liability and the said action was confirmed by the CIT(A), therefore &4056/M/12 A.Y. 2008-09 the assessee has filed the present appeal before us. So far as the appeal of the revenue is concerned, the revenue is dissatisfied to delete the disallowance of Rs.38,30,671/-. Hence, the revenue is in appeal on this point before us.
I.T.A. 3865/MUM/2012(Assessee’s Appeal):-
Issue no.1 to 3 are interconnected therefore are being taken up together for adjudication. Under these issues the assessee has challenged the confirmation of addition of Rs.1,83,848/- u/s.41(1) of the Act. The assessee was under obligation to pay an amount to the tune of Rs1,55,991/- to Rashtriya Ispat Nigam Ltd. and to pay an amount of Rs.27,857/- to Prithvi Construction Co. The said amount was outstanding in the books of the assessee in the previous year. The representative of the assessee has argued that the amount in question stood as liability in the books of accounts which has not been written off and at this stage it could not be said that the same has been seized or exist therefore addition u/s.41(1) of the Act is not required to be made. In support of this contention the assessee placed reliance on the Income Tax Officer Vs. Aasia Business Venture (P.) Ltd. [2014] 41 taxmann.com 84 (Mumbai-Tribunal and DCIT Vs. Allied Leather Finishers (P.) Ltd. [2009] 32 SOT 549 (Lukh.) and ITO Vs. Shri Dhanjay M. Pandey and ITO Vs. Bhavesh Prints (P.) Ltd. [2011] (12 taxmann.com 46) and CIT Vs. Jain Exports (P.) Ltd. [2013] 35 taxmann.com 540 (Delhi HC) and CIT Vs. Nitin S. &4056/M/12 A.Y. 2008-09 Garg [2012] 22 taxmann.com 59 (Guj)(HC) and ITO Vs. Maharashtra State Co-operative, Consumers Federation Ltd. [2011] 13 taxman etc. However, on the other hand learned representative of the department has relied upon the order passed by the CIT(A). Before discussing further it is necessary to advert the section 41(1) of the Act on record:-
(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure of trading liability incurred by the assessee (hereinafter referred to as the first mentioned person) and subsequently during any previous –
(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 &4056/M/12 A.Y. 2008-09
(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.
[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.
5.1 In view of the above said sections the following the conditions should be fulfilled before application of the provision under section 41(1), r.w. explanation 1 of the Act. &4056/M/12 A.Y. 2008-09 i) In the assessment of an assessee allowance or deduction has been made in respect loss, expenditure or trading liability incurred by him; ii) Any amount is obtained, whether in cash or in any other manner whatsoever, in respect of such trading liability by way of remission or cessation thereof; iii) Such amount or benefit is obtained by the assessee or the successor in business (with effect from 1.4.1993); iv) Such amount or benefit is obtained in a subsequent year, whether business or profession in respect of which the deduction or allowance has been made, is in existence in that year or not. v) There could be a remission or cessation of any trading liability by a unilateral act of the assessee by way of writing off such liability in his accounts [Explanation 1 to section 41(1) with effect from 01.04.1997)
5.2 Now coming to the case in hand, it is apparent that the case of the assessee is not within the ambit of remission or cessation liability exist upon the assessee which is not waived by the assessee as well as the creditors. In view of the said circumstances and relying upon law settled in Income Tax Officer Vs. Aasia Business Venture (P.) Ltd. [2014] 41 taxmann.com 84 (Mumbai-Tribunal and DCIT Vs. Allied Leather Finishers (P.) Ltd. [2009] 32 SOT 549 (Lukh.) and ITO Vs. &4056/M/12 A.Y. 2008-09 Shri Dhanjay M. Pandey and ITO Vs. Bhavesh Prints (P.) Ltd. [2011] (12 taxmann.com 46) and CIT Vs. Jain Exports (P.) Ltd. [2013] 35 taxmann.com 540 (Delhi HC) and CIT Vs. Nitin S. Garg [2012] 22 taxmann.com 59 (Guj)(HC) and ITO Vs. Maharashtra State Co-operative, Consumers Federation Ltd. [2011] 13 taxman etc.. We are of the view that the said amount is not required to be added to the income of assessee u/s.41(1) of the Act. Therefore, these issues are decided in favour of the assessee against the revenue.
I.T.A. 4056/MUM/2012(Revenue’s Appeal):-
Under this issue the revenue has contested the disallowance of Rs.38,30,671/-. The assessee claimed the expenditure to the tune of Rs.56,25,245/-. The Assessing Officer was of the view that the business was not running therefore disallowed the expenditure to the tune of Rs.38,30,671/- which has been allowed by the CIT(A), therefore, the revenue has filed the present appeal before us. Before going further it is necessary to advert the finding of the CIT(A) on record:-
“3.3 I have gone through the order of the AO and the submission of the appellant. The reason given by AO for disallowing expenses is that “there is no business activity since 1997. The assessee has not given any justification for incurring these expenses in the absence of business activity during the &4056/M/12 A.Y. 2008-09 year.” But the AO himself takes about turn and allowed expenses of Rs.17,94,574/-. Just as the AO, allowed expenses on account of interest & finance, depreciation, rate & taxes and audit fees totaling Rs.17,94,594/-, the personnel expenses, administrative and general expenses (the AO by mistake has written “Advance & General Expenses” at Page 3 of his order) and depreciation are also incurred for the purpose of business of the company, hence these expenses are allowable. Grounds 4 & 5 are allowed.
6.1 On appraisal of the above mentioned finding, it is apparent that the Assessing Officer has allowed the expenditure to the tune of Rs.17,94,594/- on account of interest, finance, depreciation, rate and taxes and audit fees whereas denied the administrative and general expenses and depreciation which has been allowed by the CIT(A). The said expenses are in the nature of preserved and protected the assets of the company and according to the section 37 of the Act the expenses incurred to preservation and protected the assets of the company are liable to be deducted. In support of this contention we also found support of CIT Vs. Malayalam Plantations Limited (1964) 53 ITR 140(SC) and CIT Vs. Birla Cotton Spinning & Weaving Mills Ltd. (1971) 82 ITR 166 (SC) and CIT Vs. R.B.Bansilal Abirchand Firm (1971) 79 ITR 104 (Bom HC( and Hindustan Chemical Works Limited Vs. CIT (1980) 124 ITR 561 (Bom. HC) etc. Therefore, in &4056/M/12 A.Y. 2008-09 view of the said circumstances we are of the view that the CIT(A) has passed the order judiciously and correctly which does not require to be interfere with at this appellate stage. Accordingly this issue is decided in favour of assessee and against the revenue
In the result, the appeal filed by the assessee is hereby allowed 7. and appeal filed by the revenue is hereby dismissed.
Order pronounced in the open court on 22nd June, 2016.