The ACIT, Ahmedabad Circle-3,, Ahmedabad v. Madhur Shares & Stock Pvt.Ltd.,, Ahmedabad

ITA 108/AHD/2008 | 2001-2002
Pronouncement Date: 30-07-2010 | Result: Dismissed

Appeal Details

RSA Number 10820514 RSA 2008
Assessee PAN AABCM5449D
Bench Ahmedabad
Appeal Number ITA 108/AHD/2008
Duration Of Justice 2 year(s) 6 month(s) 26 day(s)
Appellant The ACIT, Ahmedabad Circle-3,, Ahmedabad
Respondent Madhur Shares & Stock Pvt.Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 30-07-2010
Date Of Final Hearing 21-07-2010
Next Hearing Date 21-07-2010
Assessment Year 2001-2002
Appeal Filed On 04-01-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND D.C. AGRAWAL AM) ITA NO.108/AHD/2008 A. Y.: 2001-02 THE A. C. I. T. CIRCLE-3 5 TH FLOOR INSURANCE BUILDING ASHRAM ROAD AHMEDABAD VS M/S. MADHUR SHARES & STOCK PVT. LTD. MADHUR COMPLEX STATIUM CIRCLE NAVRANGPURA AHMEDABAD 380 009 PA NO. AABCM 5449 D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI B. S. SANDHU DR RESPONDENT BY SHRI S. N. SOPARKAR AR O R D E R PER BHAVNESH SAINI JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-VI I AHMEDABAD DATED 08-10-2007 FOR THE ABOVE ASSESSMENT YEAR 2001-02 ON THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.12 85 72 428/- MADE U/S 41 (1) O F THE I T ACT BEING CESSATION OF THE LIABILITY DUE TO RAJESH ZAVERI STOCK BROKER PVT. LTD. 2. THE CIT (A) ERRED IN LAW AND ON FACTS IN DELETIN G THE ADDITION OF RS.5 08 80 650/- MADE U/S 41(1) OF THE I. T. ACT BEING CESSATION OF THE LIABILITY DUE TO GAUTAM JHAVERI. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND T HE MATERIALS AVAILABLE ON RECORD. 3. THE AO MADE THE ADDITIONS BY OBSERVING AS UNDER: IT IS VERY CLEAR FROM THE FILES THAT IN THE CASE R ECORDS OF RAJESH JHAVERI STOCK BROKER PVT. LTD. AN AMOUNT OF ITA NOS. 180/AHD/2008 ACIT CIR-3 AHMEDABAD VS M/S. MADHUR SHARES & STOC K PVT. 2 RS.12 85 72 428/- HAS BEEN CLAIMED AS BAD DEBTORS IN RESPECT OF M/S. MADHUR SHARES & STOCK PVT. LTD. WAS PROCESSED U/S 143(1) OF THE I. T. ACT. ON A LATER S TAGE WHEN THE SAME WAS NOTICED THE CASE OF RAJESH JHAVERI ST OCK BROKER PVT. LTD. WAS REOPENED U/S 147 OF THE I. T. ACT. THIS ACTION WAS CHALLENGED BY RAJESH JHAVERI STOCK BROKE R PVT. LTD. IN HIGH COURT AND THE SAME WAS IN FAVOUR OF TH E ASSESSEE. AGAINST THIS ORDER THE DEPARTMENT IS IN SUPREME COURT. HERE THE SAID DEBTS OF RS.12 85 72 428/- CA N BE EITHER CLASSIFIED AS BAD DEBTS TRADING LOSS OR SPECULATIO N LOSS. ONCE THE CASE IS PROCESSED U/S 143 (1) AND THE SAME IS A LLOWED WITHOUT MAKING ANY CHANGE IT AUTOMATICALLY QUALIFIE S TO BE TAXED IN THE HANDS OF THE BENEFICIARY. THE ASSESSEE HAS CONTENDED AGAIN AND AGAIN THAT RAJESH JHAVERI STOCK BROKER PVT. LTD. ARE EITHER DEBTOR AND THUS THEY DONT HAV E TO PAY ANY DEBTS TO THEM. ON PLAIN READING IT MAY BE SUMMARIZ ED THAT IN THIS INSTANCE M/S. MADHUR SHARES & STOCK PVT. L TD. IS THE BENEFICIARY AND THUS THE SAID AMOUNT OF RS.12 85 7 2 428/- IS ADDED TO THE TOTAL INCOME AS DEEMED INCOME OF THE ASSESSEE U9/S 41(1) OF THE I. T. ACT. REGARDING THE SECOND POINT WHERE GAUTAM N. JHAVERI S CASE WAS FINALIZED U/S 143(3) OF THE I. T. ACT AND THE C LAIM OF THE BAD DEBTS WERE DISALLOWED. THUS THE ASSESSEE WAS O UT OF THE PURVIEW OF SEC. 41(1). BUT ON 27.10.2004 CIT(A) H AS IN HIS APPELLATE ORDER GIVEN A CATEGORICAL FINDINGS THAT T HE TRANSACTION BETWEEN M/S. MADHUR SHARE AND STOCK P. LTD. AND SHRI GAUTAM N. JHAVERI WERE GENUINE AND ACCORDI NGLY ALLOWED THE CLAIM OF THE LOSS. THE CIT(A) VIDE 6.15 OF HIS APPELLATE ORDER HAS CONCLUDED THAT THE ACTUAL CLAIM SHOULD BE ALLOWED AS TRADING LOSS U/S 28 (I) SHOULD BE RS.5 0 8 80 650/- (51 17 37 165 46 08 56 515)/-). THE ASSESSEE CONT ENDED HERE TOO THAT IN THEIR BOOKS OF ACCOUNTS THE SAME E NTRY IS NOT THERE AND THE SAME WAS WRITTEN OFF WITHOUT THEIR KN OWLEDGE. IN VIEW OF THE FACTS MENTIONED IN THE ORDER OF THE CIT(A) I HOLD THAT THE AMOUNT OF RS.5 08 80 650/- IS TRADING LOSS U/S 28(I) IN THE CASE OF SHRI GAUTAM N. JHAVBERI FOR WHICH TH E ASSESSEE IS THE BENEFICIARY. THUS THE SAID AMOUNT OF RS.5 08 80.650/- IS ADDED TO THE TOTAL INCOME AS D EEMED INCOME OF THE ASSESSEE AS PER SEC. 41(1) OF THE I. T. ACT ON PROTECTIVE BASIS. 4. THE ASSESSEE CHALLENGED THE ABOVE ADDITIONS BEFO RE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT THE AO HAS NOT PRO VIDED COPIES OF THE ASSESSMENT AND APPELLATE ORDERS OF THE SAID PARTIES . IN THE CASE OF RAJESH ITA NOS. 180/AHD/2008 ACIT CIR-3 AHMEDABAD VS M/S. MADHUR SHARES & STOC K PVT. 3 JHAVERI STOCK BROKERS PVT. LTD. ITS CLAIM WAS ALLOW ED WITHOUT SCRUTINY U/S 143(1) OF THE IT ACT AND IN CASE OF GAUTAM JHAV ERI CLAIM WAS ACCEPTED AS BUSINESS LOSS AND NOT AS BAD DEBT. THER EFORE PROVISIONS OF SECTION 41(1) OF THE IT ACT IN THE CASE OF THE ASSE SSEE WOULD NOT APPLY. THE AO SOUGHT CLARIFICATION ON THIS ISSUE AND THE A SSESSEE FILED DETAILED REPLY BEFORE THE AO AND THE AO WAS SATISFIED WITH T HE EXPLANATION OF THE ASSESSEE THAT THE ASSESSEE HAD TRANSACTION WITH THE SAID PARTIES. ACCORDINGLY THE AO DID NOT DISALLOW OR MADE ANY AD DITION IN RESPECT OF THE SAID TRANSACTION. IT WAS FURTHER SUBMITTED THAT IN FACT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE THE SAID PARTIES ARE SHOWN AS DEBTORS AND DEBT IS DUE FROM THEM WHICH COULD BE SEEN FROM THE BALAN CE SHEET AND GROUPING WHICH FORM PART OF THE ASSESSMENT RECORD. THE ASSESSEE ALSO ISSUED RECOVERY NOTICES AND FILED RECOVERY SUITS AG AINST THE SAID PARTIES AND DOCUMENTS HAVE ALREADY BEEN PLACED ON RECORD. I T WAS SUBMITTED THAT WHEN THERE IS NO CREDIT BALANCE OR WHEN THE PA RTIES CONCERN ARE THE DEBTORS OF THE ASSESSEE THE QUESTION OF APPLYING T HE PROVISIONS OF SECTION 41(1) OF THE IT ACT WOULD NOT ARISE AS THERE WAS NO LIABILITY AND THEREFORE THERE CANNOT BE ANY CESSATION THEREOF. IT WAS FURTH ER SUBMITTED THAT FOR APPLYING THE PROVISIONS OF SECTION 41(1) OF THE IT ACT THERE HAS TO BE A LIABILITY RECORDED IN THE BOOKS OF ACCOUNT AND MUST HAVE BEEN WRITTEN OFF THE SAID LIABILITY IN THE PROFIT & LOSS ACCOUNT. HO WEVER IN THE CASE OF THE ASSESSEE THE DEBT IS DUE FROM THE SAID PARTIES TH E SAME HAS BEEN RECORDED IN THE BOOKS OF ACCOUNT AND THE SAME HAS N OT BEEN WRITTEN BACK IN THE BOOKS OF ACCOUNT. IN THE ABSENCE OF ANY SUCH WRITE BACK IN THE BOOKS OF ACCOUNT IT IS NOT OPEN TO ADD THESE A MOUNTS AS CESSATION OF LIABILITY U/S 41(1) OF THE IT ACT. IT WAS FURTHER S UBMITTED THAT FOR APPLYING THE ABOVE PROVISIONS IT IS NECESSARY THAT AN ALLOWA NCE OR DEDUCTION HAS BEEN GRANTED DURING THE COURSE OF ASSESSMENT FOR AN Y EARLIER YEARS IN RESPECT OF LOSS EXPENDITURE OR TRADING LIABILITY W HICH IS INCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR THE ASSESSEE OBTAINS BENEFIT BY WAY OF REMISSION OR CESSATION OF SUCH LIABILITY. IN THE ITA NOS. 180/AHD/2008 ACIT CIR-3 AHMEDABAD VS M/S. MADHUR SHARES & STOC K PVT. 4 FACTS OF THE PRESENT CASE IT IS ADMITTED POSITION T HAT THERE HAD BEEN NO ALLOWANCE OF DEDUCTION IN ANY OF THE PRECEDING YEAR S AS ADVANCES RECEIVED IS NEITHER ALLOWED AS ALLOWANCE NOR AS DED UCTION. IT WAS FURTHER SUBMITTED THAT SINCE THE ORDERS IN THE CASE OF THE ABOVE PARTIES HAVE NOT BEEN SUPPLIED TO THE ASSESSEE THEREFORE THE ASSES SEE WAS DENIED PROPER OPPORTUNITY OF BEING HEARD. THE ASSESSMENT ORDER IS THEREFORE FRAMED IN GROSS VIOLATION OF PRINCIPLE OF NATURAL JUSTICE AND IS LIABLE TO BE QUASHED. 5. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND THE MATERIALS AVAILABLE ON RECORD DELETED THE A DDITION. HIS FINDINGS IN PARA 5 ARE REPRODUCED AS UNDER: 5. I HAVE CONSIDERED ISSUE CAREFULLY. SO FAR AS TH ESE TWO ITEMS ARE CONCERNED IT IS NOTICED THAT THERE IS A DISPUTE GOING ON BETWEEN THE TWO PARTIES. THE ASSESSEE IS CLAIMIN G THAT IT HAS TO RECOVER AMOUNTS FROM RAJESH JHAVERI STOCK BR OKER PVT. LTD. AND FROM SHRI GAUTAM N. JHAVERI. WHILE IT IS T HE CLAIM OF THOSE TWO PARTIES THAT THEY HAVE TO RECOVER THE AMO UNT. BOTH THE PARTIES ARE PURSUING LEGAL PROCEEDINGS AGAINST EACH OTHER IN THE COURTS OF LAW. THEREFORE UNLESS THOSE CASES ARE DECIDED BY VARIOUS COURTS IT CANNOT BE SAID THAT THERE IS ANY CESSATION OF LIABILITY. IN FACT IT IS THE CLAIM OF THE ASSES SEE THAT HE HAS TO RECOVER SUBSTANTIAL AMOUNTS FROM BOTH THESE PARTIES . APART FROM THAT IT IS SEEN THAT IN CASE OF RAJESH JHAVERI STOCK BROKERS PVT. LTD. ASSESSMENT WAS REOPENED BY THE AO AND SUCH REOPENING WAS CHALLENGED BEFORE THE HIGHER AUT HORITIES AND THE HONBLE SUPREME COURT VIDE ITS ORDER REPORT ED IN 291 ITR 100 HAS HELD THAT SUCH REOPENING IS VALID. THER EFORE IT IS STILL UNCLEAR WHETHER THE CLAIM OF BAD DEBT WOULD B E ALLOWED IN THE HANDS OF RAJESH JHAVERI STOCK BROKER PVT. LT D. OR NOT. SIMILARLY IN CASE OF GAUTAM N. JHAVERI WHERE CIT(A ) HAS ALLOWED THE AMOUNT AS BAD DEBT AND THE DEPARTMENT I S IN APPEAL AND INCOME HAS BEEN TAXED ON PROTECTIVE BASI S. THERE ALSO THE MATTER IS NOT CLEAR. APART FROM THAT SINC E THOSE PARTIES ARE STILL PURSUING RECOVERY AGAINST THE ASS ESSEE IT CANNOT BE SAID THAT LIABILITY HAS CEASED. IF THEY W IN THE ASSESSEE WILL HAVE TO PAY THE AMOUNT. APART FROM TH AT SINCE THE AMOUNT HAS NOT BEEN WRITTEN BACK BY THE ASSESSE E IT CANNOT BE SAID THAT THERE WAS ANY CESSATION OF LIAB ILITY. THE ASSESSEE COULD NOT HAVE WRITTEN BACK THESE AMOUNTS BECAUSE ACCORDING TO THE ASSESSEES BOOK HE HAD TO RECOVER THE ITA NOS. 180/AHD/2008 ACIT CIR-3 AHMEDABAD VS M/S. MADHUR SHARES & STOC K PVT. 5 AMOUNTS FROM THESE TWO PERSONS RATHER THAN PAYING A NY AMOUNT TO THEM. IT IS NOTICED FROM THE COPY OF ACCO UNT THAT THE DIFFERENCE HAS ARISEN BECAUSE OF SOME ENTRIES MADE BY M/S. RAJESH JHAVERI STOCK BROKER PVT. LTD. AND SHRI GAUT AM N. JHAVERI AT THE FAG END OF THE YEAR IN THE NAME OF T HE ASSESSEE AND THESE ENTRIES HAVE NOT BEEN ACCEPTED BY THE ASS ESSEE. SINCE THESE ENTRIES ARE NOT ACCEPTED BY THE ASSESSE E THE ASSESSEE HAS TO RECOVER MONEY FROM THESE TWO PERSON S AND IT IS PURSUING RECOVERY BY FILING CASES. THEREFORE TH E INCOME CANNOT BE TREATED AS DEEMED INCOME U/S 41 (1) OF TH E ACT. APART FROM THAT BEFORE SECTION 41(1) COULD BE INVOK ED IT IS NECESSARY THAT AN ALLOWANCE OR DEDUCTION HAS BEEN G RANT4ED FOR THE SAME AMOUNT IN ANY EARLIER YEARS IN RESPECT OF LOSS EXPENDITURE OR TRADI0NG LIABILITY. EVEN THIS CONDIT ION IS NOT SATISFIED. THEREFORE BOTH THE ADDITIONS MADE U/S 4 1 (1) ARE DIRECTED TO BE DELETED. 6. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SAME SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD. SECTION 41 (1) (A) OF THE IT ACT READS A S UNDER: 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS EXP ENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HERE INAFTER REFERRED TO AS THE FIRST-MENTIONED PERSON) AND SUBS EQUENTLY DURING ANY PREVIOUS YEAR ( 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 REMISSI ON OR CESSATION THEREOF THE AMOUNT OBTAINED BY SUCH PERS ON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEME D TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACC ORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREV IOUS 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 ITA NOS. 180/AHD/2008 ACIT CIR-3 AHMEDABAD VS M/S. MADHUR SHARES & STOC K PVT. 6 7.1 HONBLE MADRAS HIGH COURT IN THE CASE OF TAMILN ADU WAREHOUSING CORPORATION 292 ITR 310 HELD AS UNDER: THE ASSESSEE FILED ITS RETURN FOR THE ASSESSMENT Y EAR 1989-90 AND ASSESSMENT ERAS COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT 1961. THE ASSESSEE HA D SURRENDERED THE GROUP GRATUITY SCHEME WITH LIC AND RECEIVED A SUM OF RS.8 22 925/- DURING THE YEAR REL EVANT TO THE ASSESSMENT YEAR 1989-90. AS THERE WAS NO PRO PER ENQUIRY MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT COMPLETED ON JANUARY 21 1992 THE COMMISSIONER PASSED ORDER UNDER SECTION 263 OF THE ACT AND SET ASIDE THE ASSESSMENT WITH A DIRECTION TO TH E ASSESSING OFFICER TO ASSESS THE SAID AMOUNT UNDER SECTION 41(1) OF THE ACT FOR THE ASSESSMENT YEAR 19 89- 90. THE TRIBUNAL SET AIDE THE ORDER OF THE COMMISSIONER. ON APPEAL TO THE HIGH COURT: HELD THAT THE ASSESSEE HAD CONTINUED TO SHOW THE ADMITTED AMOUNT OF RS.8 22 925 AS LIABILITY IN THE BALANCE-SHEET. THE UNDISPUTED FACT WAS THAT IT WAS A LIABILITY REFLECTED IN THE BALANCE-SHEET. ONCE IT W AS SHOWN AS LIABILITY BY THE ASSESSEE THE COMMISSIONE R WAS WRONG IN HOLDING THAT IT WAS ASSESSABLE UNDER SECTION 41(1) OF THE ACT. UNLESS AND UNTIL THERE IS A CESSATION OF LIABILITY SECTION 41 IS NOT APPLICABL E. 7.2 HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CA SE OF SMT. SITA DEVI JUNEJA 189 TAXMAN 96 HELD AS UNDER: IT IS THE CONCEDED POSITION THAT IN THE ASSESSEES BALANCE SHEET THE AFORESAID LIABILITIES HAVE BEEN S HOWN WHICH ARE PAYABLE TO THE SUNDRY CREDITORS. SUCH LIABILITIES SHOWN IN THE BALANCE SHEET INDICATE T HE ACKNOWLEDGEMENT OF THE DEBTS PAYABLE BY THE ASSESSE E. MERELY BECAUSE SUCH LIABILITY IS OUTSTANDING FOR T HE LAST SIX YEARS IT CANNOT BE PRESUMED THAT THE SAID LIABILITIES HAVE CEASED TO EXIST. IT IS ALSO CONCED ED POSITIN THAT THERE IS NO BILATERAL ACT OF THE ASSES SEE AND THE CREDITORS WHICH INDICATES THAT THE SAID LIABIL ITIES HAVE CEASED TO EXIST. IN ABSENCE OF ANY BILATERAL A CT THE SAID LIABILITIES COULD NOT HAVE BEEN TREATED TO HAV E CEASED. ITA NOS. 180/AHD/2008 ACIT CIR-3 AHMEDABAD VS M/S. MADHUR SHARES & STOC K PVT. 7 7.3 ITAT AHMEDABAD BENCH IN THE CASE OF N. R. CHAUH AN ORDER DATED 23-01-2009 HELD AS UNDER: THE LD. COUNSEL FOR THE ASSESSEE SPECIFICALLY DRAW N OUR ATTENTION TO THE ACCOUNT COPIES AND STATED THAT THE SE ARE OUTSTANDING AS ON DATE AND THIS AMOUNT ARE NOT WRITTEN OFF IN THE BOOKS OF ACCOUNT. ACCORDINGLY T HE SAME CANNOT BE ADDED U/S. 41(1) OF THE ACT AS THE LIABILITY OF OUTSTANDING AND THE PARTIES ARE IN EXI STENCE. WE ARE IN FULL AGREEMENT WITH THE ARGUMENT OF THE L D. COUNSEL FOR THE ASSESSEE AS IS SEEN FROM THE DOCUM ENTS AND PAPERS FILED BEFORE US THAT THE PARTIES DO EXIS T AND THESE AMOUNTS ARE OUTSTANDING IN THE BOOKS OF THE ASSESSEE AS PAYABLE. IN VIEW OF THESE FACTS AND CIRCUMSTANCES WE FEEL THAT THESE AMOUNTS CANNOT BE ADDED EITHER U/S. 68 OR 41(1) OF THE ACT. WE DELETE THE ADDITION AND THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. 7.4 ITAT LUCKNOW BENCH IN THE CASE OF DCIT VS ALLIE D LEATHER FINISHERS (P) LTD. 32 SOT 549 HELD AS UNDER: 21.7 A LIABILITY COULD NOT BE TREATED AS A CESSATION IF IT WAS BEING MERELY CARRIED FORWARD FO R YEARS. A NON-GENUINE NON-TRADING LIABILITY STANDING IN THE BALANCE SHEET CAN BE TAXED BUT UNDER SECTION 68 IF IT CAME IN THE BOOKS IN THE CURRENT YEAR. IF SUCH N ON- GENUINE NON-TRADING LIABILITY CAME IN THE BOOKS IN AN EARLIER YEAR THAN SAME CANNOT BE TAXED IN THE CURRE NT YEAR EVEN UNDER SECTION 68. A NON-GENUINE TRADING LIABILITY CAN BE CONSIDERED IN THE CURRENT YEAR IF IT IS RELATED TO CURRENT YEARS TRADING/MANUFACTURING OR PROFIT & LOSS ACCOUNT BUT NOT UNDER SECTION 41(1) O R UNDER SECTION 68. IT CAN BE CONSIDERED ONLY UNDER SECTION 28 I.E. IT CAN BE CONSIDERED FOR DISALLOWA NCE WHILE EXAMINING THE CLAIM OF EXPENSES OR OUTGOINGS AGAINST REVENUE RECEIPTS. CURRENT YEARS GENUINE TRADING LIABILITIES WAVED/REMITTED OR CEASED TO EX IST IN THE CURRENT YEAR ITSELF WILL NOT FORM PART OF TRADING/MANUFACTURING OR P/L ACCOUNT EXCEPT A NOTE APPENDED TO THEM AS DISCLOSURE OF INFORMATION. ITA NOS. 180/AHD/2008 ACIT CIR-3 AHMEDABAD VS M/S. MADHUR SHARES & STOC K PVT. 8 21.10 EVEN IN A CASE WHERE A LIABILITY CEASED TO EXIST DUE TO LIMITATION I.E. THE CLAIM OF THE CREDI TOR IS BARRED BY LIMITATION UNDER LIMITATION ACT OF 1963 BUT IF THE LIABILITY SUBSIST OR HAS NOT BEEN WRITTEN OF F BY THE ASSESSEE OR THE ASSESSEE DOES NOT ABSOLVE HIMSELF FROM THE LIABILITY THOUGH NOT LEGALLY ENFORCEABLE IT C ANNOT BE TAXED UNDER SECTION 41(1). 7.5 ITAT MUMBAI BENCH IN THE CASE OF ACIT VS VIP IN DUSTRIES 30 SOT 254 HELD AS UNDER: SECTION 41(1) IS ATTRACTED WHEN THERE IS CESSATION FOR REMISSION OF A TRADING LIABILITY. SIMPLY BECAUSE A PERIOD OF THREE YEARS HAS EXPIRED AND THE CREDITOR CANNOT LAWFULLY ENFORCE HIS CLAIM IT DOES NOT MEAN THAT THERE IS A CESSATION OR REMISSION OF LIABILITY. THE RE MAY BE SEVERAL SITUATIONS WHEN THE MONEY IS NOT CLAIMED OR PAID BY ONE PARTY TO ANOTHER WITHIN THREE YEARS AND THEREAFTER THE CLAIM IS MADE AND HONOURED BY THE OT HER. SO SIMPLY BECAUSE A PARTICULAR AMOUNT IS OUTSTANDI NG FOR A PERIOD OF MORE THAN THREE YEARS THAT DOES NO T CONSTITUTE INCOME UNDER SECTION 41(1). 8. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE ABOVE PROVISIONS AND THE DECISION REFERRED TO ABOVE IT I S CLEAR THAT PROVISIONS OF SECTION 41(1) OF THE IT ACT WOULD NOT APPLY IN THIS CASE. THE ASSESSEE IN ITS BOOKS OF ACCOUNT HAS SHOWN THESE PARTIES AS DEB TORS FOR WHICH THE ASSESSEE FILED SUFFICIENT MATERIAL BEFORE THE AUTHO RITIES BELOW. THEREFORE THERE WAS NO CREDIT BALANCE APPEARING AGAINST THE A FORESAID PARTIES AND AS SUCH THERE WAS NO LIABILITY IN THE ACCOUNTS OF T HE ASSESSEE. THEREFORE THERE CANNOT BE ANY CESSATION OF LIABILITY. THE ASS ESSEE NOT ONLY HAS SHOWN AMOUNT RECOVERABLE FROM THESE PARTIES BUT HAS ALSO PURSUED LEGAL REMEDY AGAINST THAT IN THE COURT OF LAW. THEREFORE IT CANNOT BE SAID THAT LIABILITY IS CEASED. ULTIMATELY THE OUTCOME OF THE LITIGATIONS WOULD PROVE AS TO WHICH OF THE AMOUNT THE ASSESSEE SHALL HAVE T O RECOVER FROM THEM. THEREFORE THERE WAS NO QUESTION OF WRITING BACK AN Y AMOUNT IN THE BOOKS OF ACCOUNT AND AS SUCH IT CANNOT BE SAID THAT THERE WAS ANY CESSATION OF LIABILITY. THE AO ENTIRELY DEPENDED UP ON THE COPIES OF ITA NOS. 180/AHD/2008 ACIT CIR-3 AHMEDABAD VS M/S. MADHUR SHARES & STOC K PVT. 9 ACCOUNTS WHICH WERE NOTED FROM THE ORDERS OF THE PA RTIES MENTIONED ABOVE WHICH HAVE NOT BEEN ACCEPTED BY THE ASSESSEE BECAUSE THE ASSESSEE CLAIMED THAT IT HAS TO RECOVER THE AMOUNTS FROM THEM. THE AO DID NOT SUPPLY COPIES OF THE ORDERS TO THE ASSESSEE . THEREFORE ASSESSMENT ORDER IS CLEARLY PASSED IN VIOLATION OF PRINCIPLE OF NATURAL JUSTICE. IT IS ALSO CLEAR THAT THE ASSESSEE HAS CON TINUED TO SHOW THE DEBTORS IN THE BOOKS OF ACCOUNT. THEREFORE THE SAM E CANNOT BE TREATED AS CESSATION OF LIABILITY. SECTION 41(1) OF THE IT ACT IS ATTRACTED WHEN THERE IS A CESSATION OR REMISSION OF TRADING LIABIL ITY. IN THIS CASE IT IS ADMITTED POSITION THAT THERE HAD BEEN NO ALLOWANCE OR DEDUCTION IN ANY PRECEDING YEAR AS ADVANCE RECEIVED IS NEITHER ALLOW ED AS ALLOWANCE NOR AS DEDUCTION. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION IN EARLIER Y EARS BECAUSE IT WAS THE AMOUNT CLAIMED FROM THE DEBTORS. THEREFORE BEF ORE APPLYING THE PROVISIONS OF SECTION 41(1) OF THE IT ACT THE AO S HALL HAVE TO PROVE THE NECESSARY INGREDIENTS OF THE ABOVE SECTION IN ORDER TO FASTEN THE LIABILITY UPON THE ASSESSEE. 9. CONSIDERING THE FACTS OF THE CASE WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS JUSTIFIED IN HOLDING THAT THE PR OVISIONS OF SECTION 41 (1) OF THE IT ACT COULD NOT BE INVOKED IN THIS CASE . WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT( A). WE CONFIRM HIS FINDINGS AND DISMISS THESE GROUNDS OF APPEAL OF THE REVENUE. 10. AS A RESULT THE APPEAL OF THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30-07-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 30-07-2010 LAKSHMIKANT/- ITA NOS. 180/AHD/2008 ACIT CIR-3 AHMEDABAD VS M/S. MADHUR SHARES & STOC K PVT. 10 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD