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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI R.C. SHARMA & SHRI AMARJIT SINGH
PER R.C. Sharma, Accountant Member, This appeal filed by the Revenue is against the order of CIT(A) for assessment year 2007-08, in the matter of order passed u/s 143(3) r.w.s 147 of the Income Tax Act. ./2013 (Assessment Year : 2007-08)
In this appeal the Revenue is aggrieved for annualling the reopening of assessment and deletion of addition made on account of cessation of liability u/s 41(1) of the Income Tax Act.
Rival contentions have been heard and record perused. In this case scrutiny assessment u/s 143(3) was framed on 30.03.2012. Thereafter, assessment was re-opened on the plea that there was cessation of liability in respect of trade creditors of Rs. 99.88 Lacs. Accordingly, the AO made addition u/s 41(1) in the assessment framed u/s 143(3) r.w.s 147 of the Income Tax Act.
4. By the impugned order the CIT(A) held that there is a change in opinion, insofar as all the facts were clearly made before the AO at the time of original assessment and confirmation from all the creditors were filed. By relying on the decision of Bombay High Court in the case of Skol Breweries Ltd. Vs. Dy. CIT (2010) 236 CTR (Bom) 555] and the Hon’ble Gujarat High Court in the case of General Motors India (P) Ltd vs. DCIT (2013) 257 CTR (Guj) 123, the CIT(A) held that reopening was not valid. The CIT(A) also deleted the addition on merits after observing as under:-
“5.3.1. I have carefully and dispassionately considered the facts and circumstances of the case. Undisputed facts are that no new material has surfaced after the scrutiny assessment order passed u/s. 143(3) of the Act. In the case of M/s.Clea Plastic Pvt. Ltd. the opening balance was Rs. 71,99,8201- as on 01.08.1996 and was reduced to Rs. 5,40,225/- as on 31.03.2012. As per the Ld. CIT order in the earlier assessment year 1995-96 share application money of Rs. 55 lakhs was accepted. In the case of trade creditor M/s. Fiberweb (I) Ltd. the opening balance of Rs. 27,13,149/- as on 31.03.2007 was further reduced to Rs. 12,38,192/- as on 31.03.2012. This is a live current account. In the case of trade creditor M/s. Kaissan Plasto (P) Ltd. the balance as on 31.03.2012 has increased to Rs. 50,92,952/-. In the case of M/s. Kunstoffe Industries Ltd., an office premises was purchased for Rs. 21 lakhs on 02.01.1997 and the balance was reduced to Rs. 8,11,493/- as on 31.03.2007. In all cases of trade creditors confirmations were furnished before the LAO. In none of the aforesaid trade creditors cases liabilities had ceased. Therefore, there was no remission or cessation of liabilities. Hence, provisions of section 41 (1) of the Act were not applicable in this case. ./2013 (Assessment Year : 2007-08)
3 5.3.2. The remission of the liability arises when the creditor voluntarily gives up the claim. It is a positive act of the creditor. The cessation of the liability arises only when such liability ceases to exist in the eye of law for all intents and purposes [Liquidator, Mysore Agencies Pvt. Ltd. VS.CIT 1978 CTR (Kar) 284 : (1978) 114 ITR 853 (Kar) The cessation of the liability may occur either by reason of operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor, or a contract between the parties or by the discharge of the debt-the debtor making payment to his creditor [J.K. Chemicals Ltd. vs. CIT (1966) 62 ITR 34 (Bom) : It may occur as a ",result of judicial pronouncement absolving the owner of liability provided such pronouncement is final. It need' not occur by an overt act. It may also be presumed by the conduct of the parties [CIT vs. Aqarpara Co. Ltd. (1986) 55 CTR (Cal) 218 : (1986) 158 ITR 78 (Cal) :].Where the levy was struck down by the Court but the Government passed the validating Act reviving the levy, section 41(1) could not be invoked [ClT vs. Punjab Oil Mills 1975 CTR (P&H) 97 : (1976) 102 332 (P&H). Sec. 41(1) can be invoked only if the concerned liability of assessee has ceased finally and there is no possibility of its revival in future. When the assessee was contesting its liability to purchase-tax and cases were pending before Sales-tax authorities. The provision for purchase tax written back could not be brought to tax under s. 41(1) [ClT Vs. Kesaria Tea Co. Ltd. (2000) 161 CTR (Ker) 149 : (2000) 243 lTR 362 (Ker)].
5.3.3. It has been consistently held by the courts that in the facts of the present case, provisions of sec. 41(1) are not attracted. Unclaimed credit balances of creditors transferred to the accounts of partners [ClT vs. V.T. Kuttappa & Sons (1974) 96 lTR 327 ( Ker) Unclaimed dues of several parties arising out of trading transactions transferred from "unclaimed balances accounts" to "reserve for taxation account" [Gannon Dunkerley & Co. Ltd. Vs. ClT (1976) 102 lTR 428 (Bom). Unclaimed rent payable to landlord transferred to P&L A/c [Liquidator, Mysore Agencies Pvt. Ltd. vs. ClT (1978) 114 lTR 853 (Kar) Liabilities for expenses transferred from suspense account to capital reserve account [ClT vs. Sugauli Sugar Works (P) Ltd. (1983) 140 lTR 286 (Cal) This decision has been affirmed by the Supreme Court in ClT vs. Sugauli Sugar Works (P) Ltd. (1999) 152 CTR (SC) 46. Sundry trade liabilities transferred to P&L Alc [ClT vs. B.N. Elias & Co. Pvt. Ltd. (1986) 160 ITR 45 (Cal) provision for gratuity transferred to P&L A/c [ClT vs. Sadabhakti Prakashan Printing Press (P) Ltd. (1980) 125 lTR 326 (Bom) Unclaimed salary amount written off by the assessee [ClT Vs. Combined Transport Co. (P) Ltd. (1988) 74 CTR (MP) 140 : (1988) 174 lTR 528 (MP) Unclaimed liabilities under different heads of account transferred to General Reserve account [ClT vs. Iswari Khetan Sugar Mills Ltd. (1988) 172 lTR 430 (All). Unclaimed commission payable to a party debited to his account and credited to P&L A/c [ClT vs. Chase Bright Steel Ltd. (1989) 177 lTR 128 (Bom) Unclaimed advances received from customers [Bhagwat Prasad & Co. vs. ClT (1975) 99 ITR 111 (All). See also ClT VS.Modest Maritime Services (P) Ltd. (2011) 338 lTR 64 (Bom).
Having regard to the facts and circumstances of the case and in the light of aforesaid decisions, it is held that there is no positive act on the part of the creditors in the current year which would provide benefit to the appellant by way of remission of liability. Merely because certain amounts are outstanding for number of years, it will not be a case for holding that there is cessation or remission of liability. Strong reliance is placed on the ./2013 (Assessment Year : 2007-08)
4 decisions of Hon'ble Supreme Court in the case of CIT vs Sugauli Sugar Works (P) Ltd. 236 ITR 518 (SC). Hon'ble Bombay High Court's decision in the case of J K Chemicals Ltd. 62 ITR 34 (BOM) and CIT vs Bennett Coleman & Co. Ltd. 201 ITR 1021 and full bench of Hon'ble Gujarat High Court in the case of Bharat Iron and Steel Industries 198 ITR 67 (GUJ) (FB). Accordingly, grounds of appeal no. 2 and 3 are allowed. 7”
5. Against the above order of CIT(A), the Revenue is in further appeal before us.
6. We have considered the rival contentions and carefully gone through the orders of authorities below and found that in the course of original assessment proceedings, the assessee has filed confirmations from the creditors. The CIT(A) has given detailed finding to the effect that the liability has not ceased and there is no positive act on the part of the creditors in the current year which would provide benefit to the assessee by way of remission of liability. Merely because certain amounts are outstanding, it could not be a case for holding that there is a cessation or emission of liability as per the verdict of Hon'ble Supreme Court in the case of CIT vs Sugauli Sugar Works (P) Ltd. 236 ITR 518 (SC). Further the reopening was also not valid in view of the fact that the assessee has disclosed all the material facts during the course of scrutiny assessment u/s 143(3), thus there was merely a change of opinion. We hold so.
In the result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 20.11.2015