Deepak Petrochem Ltd.,, Baroda v. The ACIT., Circle-1(1),, Baroda

ITA 1465/AHD/2007 | 2003-2004
Pronouncement Date: 01-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 146520514 RSA 2007
Assessee PAN AAACD7462L
Bench Ahmedabad
Appeal Number ITA 1465/AHD/2007
Duration Of Justice 2 year(s) 11 month(s) 19 day(s)
Appellant Deepak Petrochem Ltd.,, Baroda
Respondent The ACIT., Circle-1(1),, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 01-04-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 01-04-2010
Date Of Final Hearing 30-03-2010
Next Hearing Date 30-03-2010
Assessment Year 2003-2004
Appeal Filed On 12-04-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND N. S. SAINI AM) ITA NO.1465/AHD/2007 A. Y.: 2003-04 DEEPAK PETROCHEM LTD. 303 B. N. CHAMBERS R.C. DUTT ROAD BARODA PA NO. AAACD 7462L VS THE A. C. I. T. CIRCLE 1 (1) AAYAKAR BHAVAN BARODA (APPELLANT) (RESPONDENT) APPELLANT BY SMT. URVASHI SODHAN AR RESPONDENT BY KUMAR HRISHIKESH DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST ORDER OF THE CIT(A)-I BARODA DATED 06-02- 2007 FOR ASSESSMENT YEAR 2003-04. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. 3. GROUND NO.1 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 1. THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW AN D ON FACTS IN CONFIRMING ACTION OF THE AO IN DISALLOWING DEDUCTION CLAIMED IN RESPECT OF INTEREST PAID ON GU JARAT SALES TAX & CENTRAL SALES TAX FOR LATE FILING OF SA LES TAX RETURNS BY HOLDING IT TO BE PENAL IN NATURE THOUGH COMPENSATORY IN NATURE. UNDER THE FACTS AND THE CIRCUMSTANCES OF THE CASE LD. CIT (A) OUGHT TO HAV E ALLOWED THE SAID EXPENSE U/S 37(1) OF THE ACT. 3. THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED DE DUCTION IN RESPECT OF INTEREST PAID ON GUJARAT SALES TAX AND C ENTRAL SALES TAX FOR ITA NO.1465/AHD/2007 DEEPAK PETROCHEM LTD. 2 LATE FILING OF SALES TAX RETURN AMOUNTING TO RS.7 3 2 812/-. THE ASSESSEE CLAIMED THIS AS BEING COMPENSATORY IN NATURE AND EX PLAINED THAT SALES TAX COMMISSIONER GUJARAT HAD ISSUED A PRESS NOTE R EGARDING INTEREST ON PENALTY FOR SALES TAX PAYMENT FOR THE PERIOD 01-04- 1992 TO 31-08-2001 DECLARING 50% RELIEF IN THE AMOUNT OF INTEREST AND PENALTY IF THE PAYMENTS WERE MADE BEFORE 30-09-2002. IT PRODUCED THE CHALLA NS EVIDENCING THE PAYMENT BUT FAILED TO FURNISH ANY ORDER OF THE SALE S TAX AUTHORITIES SHOWING THE ASSESSMENT OF SALES TAX LIABILITY ON WH ICH INTEREST AND OTHER DEMANDS WERE RAISED. IN THESE CIRCUMSTANCES THE AO CONCLUDED THAT THE INTEREST PAID WAS TOWARDS THE DEFAULT COMMITTED BY THE ASSESSEE UNDER THE SALES TAX ACT AND THEREFORE WAS NOT COMPENSAT ORY IN NATURE AND THEREFORE DISALLOWED THE SAME BEING PENAL IN NATUR E FOR DEFAULT COMMITTED BY THE ASSESSEE. 4. THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEF ORE THE AO AND RELIED UPON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF LACHMANDAS MATHURADAS VS CIT 254 ITR 799 (SC) AND I N THE CASE OF TRIVENI ENGINEERING WORKS LTD. VS CIT 144 ITR 732 ( SC) CLAIMING THAT IN THESE CASES COURTS HAVE HELD THAT WHERE PAYMENT OF ARREARS IS COMPENSATORY IN NATURE AND NOT PENAL THE SAME SHOU LD BE ALLOWED U/S 37(1) OF THE ACT. THE LEARNED CIT(A) HOWEVER NOTED THAT THE ASSESSEE HAS NOT FILED COPY OF THE SALES TAX ASSESS MENT ORDER VIDE WHICH DEMAND HAS BEEN RAISED ON WHICH INTEREST HAS BEEN P AID. IT WAS NOT FILED BEFORE THE AO AS WELL AS BEFORE THE LEARNED CIT(A). THE ASSESSEE HAS ALSO NOT SHOWN WITH REFERENCE TO PARTICULAR PROVISIONS O F GUJARAT SALES TAX ACT AND CENTRAL SALES TAX ACT THAT PAYMENT OF INTER EST IS ONLY COMPENSATORY IN NATURE. THE LEARNED CIT(A) ACCORDIN GLY CONFIRMED THE ADDITION BECAUSE NO ATTEMPT HAS BEEN MADE BY THE AS SESSEE TO PROVE ITS CASE AS PER LAW. ITA NO.1465/AHD/2007 DEEPAK PETROCHEM LTD. 3 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FILED THE COP IES OF THE CHALLANS AND THE BILLS THROUGH WHICH INTEREST HAS BEEN PAID. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN CASE ONE MORE OP PORTUNITY IS GIVEN TO THE ASSESSEE THE ASSESSEE COULD HAVE PRODUCED THE SALES TAX ASSESSMENT ORDER AND THE RELEVANT PROVISIONS TO SHOW THAT AMOU NT PAID WAS COMPENSATORY IN NATURE AND WAS NOT PENAL IN NATURE. THE LEARNED COUNSEL FOR THE ASSESSEE THEREFORE SUBMITTED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE AO FOR RECONSIDERATION. ON THE OTHER HAND THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIE S BELOW. 6. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE MATTER AND EVE N THE MATTER DOES NOT REQUIRE ANY RECONSIDERATION AT THE LEVEL OF THE AO. THE ASSESSEE CLAIMED BEFORE THE AUTHORITIES BELOW THAT INTEREST WAS PAID UNDER GUJARAT SALES TAX AND CENTRAL SALES TAX FOR LATE FILING OF SALES TAX RETURN. THE ASSESSEE FURTHER CLAIMED DEDUCTION OF THE ABOVE AMOUNT BECAU SE IT WAS PAID DUE TO THE SCHEME FLOATED BY THE SALES TAX COMMISSIONER . THOUGH THE ASSESSEE PRODUCED THE CHALLANS OF PAYMENT OF INTERE ST BUT THE ASSESSEE ADMITTEDLY DID NOT PRODUCE ANY ORDER OF THE SALES T AX AUTHORITIES THROUGH WHICH THE ASSESSEE WAS PUT ON LIABILITY AND DEMAND WAS RAISED. SINCE THE ASSESSEE CLAIMED DEDUCTION OF THE EXPENDI TURE THEREFORE ONUS IS UPON THE ASSESSEE TO PROVE THAT DEDUCTION IS ALL OWABLE TO THE ASSESSEE IN ACCORDANCE WITH LAW. SINCE THE ASSESSEE DID NOT PRODUCE THE RELEVANT EVIDENCE AND MATERIAL BEFORE THE AUTHORITIES BELOW AND THE ASSESSEE ALSO FAILED TO PROVE THAT THE INTEREST WAS COMPENSATORY IN NATURE ONLY THE AUTHORITIES BELOW WERE JUSTIFIED IN REJECTING THE C LAIM OF THE ASSESSEE. EVEN AT THE SECOND APPELLATE STAGE THE ASSESSEE DI D NOT PRODUCE ANY SALES TAX ORDER THROUGH WHICH DEMAND WAS RAISED AGA INST THE ASSESSEE FOR PAYMENT OF INTEREST. THEREFORE THERE IS NO NEE D EVEN TO REMAND THE MATTER TO THE FILE OF THE AO FOR FRESH CONSIDERATIO N. IN THE ABSENCE OF ITA NO.1465/AHD/2007 DEEPAK PETROCHEM LTD. 4 ADEQUATE MATERIAL ON RECORD WE DO NOT FIND ANY JUS TIFICATION TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW WE CONFIR M THEIR FINDINGS AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. 7. GROUND NO.2 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 2. THE LD. CIT (A) HAS ERRED IN LAW AND ON THE FAC TS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN MAKING ADDITIONS OF RS.84 53 663/- ON ACCOUNT OF CESSATION OF LIABILITIES BY APPLYING THE PROVISIONS OF SECTION 4 1(1) OF THE ACT. BOTH THE LOWER AUTHORITIES HAVE NOT FULLY APPRECIATED THE FACT THAT THE APPELLANT DUE TO FINA NCIAL DIFFICULTIES HAVE NOT BEEN ABLE TO PAY OFF THE SAME WHICH STILL EXISTS IN THE BOOKS OF ACCOUNTS. THE LD . CIT(A) OUGHT TO HAVE DELETED THE ADDITION WHEN AO WITHOUT BRINGING ANYTHING ON RECORD TO PROVE THAT THE SAID LIABILITIES HAVE SEIZED MADE THE ADDITIONS. 8. THE AO OBSERVED THAT CERTAIN CREDITS HAD BEEN OU TSTANDING FOR MORE THAN 3 YEARS. SHOW CAUSE WAS ISSUED AS TO WHY THESE CREDITS BE NOT TREATED AS CESSATION OF LIABILITIES U/S 41(1) OF TH E ACT AND BE NOT ADDED TO THE TOTAL INCOME. THE ASSESSEE EXPLAINED THAT IT WA S DUE TO POOR FINANCIAL CONDITION OF THE COMPANY THAT IT COULD NOT PAY THES E CREDITORS. IT WAS FURTHER EXPLAINED THAT IT APPLIED FOR LICENSE TO CI VIL SUPPLY DEPARTMENT IN 1996 BUT THE DEPARTMENT DID NOT DECIDE THE ISSUE TI LL END OF 1999 WHEN SUDDENLY IT DECIDED TO TAKE ACTION AGAINST THE COMP ANY FOR NOT POSSESSING THE LICENSE AND FORCIBLY CLOSED THE UNIT . THE COMPANY COULD GET THE LICENSE IN OCTOBER 2005 AFTER LONG BATTLE. DURING THESE INTERVENING YEARS THE ASSESSEE COMPANY LOST ITS FIN ANCIAL STRENGTH. HOWEVER THE CREDITORS SUPPORTED THE ASSESSEE AND D ID NOT TAKE ANY LEGAL ACTION FOR RECOVERY OF THEIR DUES. THE ASSESSEE SER IOUSLY DESIRED TO MAKE THE PAYMENT TO THE CREDITORS. THE ASSESSEE HOWEVER COULD NOT FILE ANY CONFIRMATION FROM THE CREDITORS. THE AO ACCORDINGLY OBSERVED THAT SINCE THE STATUTORY PERIOD OF 3 YEARS WAS OVER AND NO CON FIRMATION IS FILED THEREFORE THERE ARE NO CHANCES OF POSSIBLE RECOVER Y OF THE DEBTS FROM THE ITA NO.1465/AHD/2007 DEEPAK PETROCHEM LTD. 5 ASSESSEE. SINCE THE ASSESSEE FAILED TO FURNISH EVID ENCE TO SUPPORT THE LIABILITIES THEREFORE THE AO CONCLUDED THAT IT WA S A CLEAR CASE OF CESSATION OF LIABILITIES AND TAXED THE AMOUNT OF RS .84 53 663/- U/S 41(1) OF THE IT ACT. 9. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND THE SAME SUBMISSIONS WERE REITERATED. IT WAS SUBMITTED THAT THERE WAS NO CESSATION OF LIABILITY MERELY BECAUSE NO PAYMENT HA S BEEN MADE TO THE CREDITORS. IT WAS SUBMITTED THAT THE AO HAS NOT BRO UGHT ANY EVIDENCE ON RECORD THAT THESE AMOUNTS WERE NOT PAYABLE BY THE A SSESSEE. IT WAS EXPLAINED THAT AO MERELY PRESUMED CESSATION OF LIAB ILITY ON WHICH 3 YEARS EXPIRED AND NO RECOVERY PROCEEDINGS ARE INITIATED B Y THE ASSESSEES CREDITORS . THE ASSESSEE RELIED UPON THE DECISION IN THE CASE O F KOHINOOR MILLS CO. LTD. VS CIT 49 ITR 578 IN WHICH IT WAS HELD THAT MERELY BECAUSE THE REMEDY OF THE CREDITORS TO RECOVER THE AMOUNT IS BA RED THE ASSESSEES LIABILITY DID NOT CEASE AND THAT THEREF ORE THE AMOUNT WAS NOT TAXABLE. IT WAS THEREFORE PRAYED THAT THE ADDITION MAY BE DELETED. 10. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HOWEVER CONFIRMED THE ADDITION. HIS FINDINGS IN PA RA 6 OF THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: 6. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS SEEN THAT THE ASSESSING OFFICER HAS BEEN ABLE TO SHOW REASONA BLY WELL THAT THE APPELLANT COMPANY HAS NO INTENTION TO PAY OF THIS CREDIT. ON THE OTHER HAND THE APPELLANT IS OF THE VIEW THAT IT HAS NOT DENIED THE LIABILITY AND THE ASSESSING OFFI CER IS REQUIRED TO GIVE A FINDING OF FACT THAT THE APPELLA NT HAS NO INTENTION TO HONOUR THE LIABILITY. IN THIS CONTEXT IT IS OBSERVED THAT IF IT WERE LEFT TO THE APPELLANT IT MAY NOT D ECLARE ITS INTENTION EXPRESSLY AND MAY CONTINUE TO CIRCUMVENT THE PROVISIONS OF SEC. 41(1). IT IS PERTINENT TO NOTE T HAT THE ASSESSING OFFICER HAS POINTED OUT THAT THE APPELLAN T HAS FAILED TO SHOW ANY DESIRE OR ANY ATTEMPT ON ITS PART TO AT LEAST OBTAIN A CONFIRMATION OF THE OUTSTANDING AMOUNTS FR OM THE ITA NO.1465/AHD/2007 DEEPAK PETROCHEM LTD. 6 CREDITORS. THE ASSESSING OFFICER HAS ALSO REASONED THAT THE CREDITOR SHOULD BE KEEN AND WILLING TO CONFIRM THES E AMOUNTS DUE TO THEIR ANXIETY AND DESIRE TO RECOVER THE SAME FROM THE APPELLANT COMPANY MORE SO WHEN MORE THAN 3 YEARS H AVE ELAPSED. THE ASSESSING OFFICER HAS ALSO OBSERVED TH AT NONE OF THE CREDITORS HAVE BEEN SHOWN TO HAVE FILED A RECOV ERY SUIT. THE APPELLANT HAS ALSO FAILED TO SHOW ANY CORRESPON DENCE WRITTEN BY THE CREDITOR TO THE APPELLANT REGARDING THEIR EFFORT AT REMINDING THE APPELLANT FOR SUCH PAYMENTS. ALL THES E CIRCUMSTANCES CLEARLY SHOW THAT THE CREDITORS ARE N OT KEEN TO RECOVER THE MONEY AND THE APPELLANT IS ALSO IN NO H URRY TO MAKE THE PAYMENTS. IF IT DOES NOT DECLARE THAT IT D OES NOT WANT TO PAY AS PER THE APPELLANTS ARGUMENTS IT W ILL CONTINUE TO CIRCUMVENT THE PROVISIONS OF SEC. 41(1) OF THE A CT. IT IS PERTINENT TO NOTE THAT EVEN BEFORE ME AT THE APPELL ATE STAGE THE APPELLANT HAD FAILED TO PRODUCE ANY SUCH EVIDEN CE KNOWING FULLY WELL THAT THE ASSESSING OFFICER HAD T AKEN AN ADVERSE VIEW IN THE MATTER. UNDER THE CIRCUMSTANCES THE ARGUMENTS TAKEN UP BY THE APPELLANT ARE HELD TO BE UNSUBSTANTIATED AND ILL-FOUNDED AND ARE THEREFORE DISMISSED. THE ACTION OF THE ASSESSING OFFICER IN MAKING THE A DDITION OF RS.84 35 663/- IS CONFIRMED. 11. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND F ILED PAPER BOOK WHICH WAS FILED BEFORE THE LEARNED CIT(A) TO SHOW T HAT THE BALANCE SHEET OF THE ASSESSEE ENDING ON 31 ST MARCH 2003 HAS SHOWN SUNDRY CREDITORS AMOUNTING TO RS.1 00 08 609/- WHICH IS ALSO NOTICED BY THE AO IN PARA 4.1 OF THE ASSESSMENT ORDER. THE LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT CONDITIONS OF SECTION 41(1) (A) ARE NOT SATISFIED IN THIS CASE. THEREFORE ADDITION IS CLEARLY UNJUSTIFIED. T HE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE WAS CONSI DERED BY ITAT AHMEDABAD BENCH IN THE CASE OF SHRI RAJESH MUKUNDLA L SHAH VS ITO IN ITA NOS. 424 AND 609/AHD/2006 AND ENTIRE ADDITION H AS BEEN DELETED ON THE IDENTICAL ISSUE VIDE ORDER DATED 08-01-2010. COPY OF THE ORDER IS PLACED ON RECORD. ON THE OTHER HAND THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. ITA NO.1465/AHD/2007 DEEPAK PETROCHEM LTD. 7 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE SUNDRY CREDITORS ON WHICH THE AO MADE THE ABOVE ADDITION WITH THE HELP OF SECTION 41(1) OF THE IT ACT ARE APPEARING IN THE BALANCE SHEET OF TH E ASSESSEE AS ON 31-03-2003 RELEVANT TO THE ASSESSMENT YEAR UNDER AP PEAL. ITAT AHMEDABAD BENCH IN THE CASE OF SHRI RAJESH MUKUNDLA L SHAH (SUPRA) CONSIDERING THE PROVISIONS OF SECTION 41(1) (A) OF THE IT ACT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE FINDINGS OF TH E TRIBUNAL IN PARA 9 ARE REPRODUCED AS UNDER: 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON . THE PROVISIONS OF SEC. 41(1)(A) STIPULATE THAT WHERE A N ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR AN Y YEAR IN RESPECT OF LOSS EXPENDITURE OR TRADING LIABILITY I NCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR THE ASSESSEE OBTAINS WHETHER IN CASH OR IN ANY OTHER MA NNER WHATSOEVER ANY AMOUNT IN RESPECT OF SUCH LOSS OR E XPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILIT Y BY WAY OF REMISSION OR CESSATION THEREOF THE AMOUNT OBTAINED 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 PREV IOUS YEAR WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WH ICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENC E IN THAT YEAR OR NOT. THE LD. CIT(A) WITHOUT EVEN ADVERTING TO THE DECISIONS CITED ON BEHALF OF THE ASSESSEE SUSTAIN ED THE ADDITION MADE BY THE AO U/S 41(1) OF THE ACT. UNDIS PUTEDLY THE ASSESSEE DID NOT RECEIVE ANY BENEFIT NOR THE AM OUNT HAS BEEN TRANSFERRED TO PROFIT AND LOSS ACCOUNT AND THU S THE AMOUNT DID NOT BECOME THE ASSESSEE'S OWN MONEY. IN THESE CIRCUMSTANCES AS CONCLUDED BY THE HONBLE JURISDIC TIONAL HIGH COURT IN BHARAT IRON AND STEEL INDUSTRIES (SUP RA) THE PROVISIONS OF SEC. 41(1)(A) ARE NOT ATTRACTED. 9.1 HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CIT VS. SILVER COTTON MILLS CO. LTD. 254 ITR 728(GUJ) HELD THAT SIMPLY BECAUSE THE PERIOD OF LIMITATION HAD COME TO AN END FOR THE PURPOSE OF FILING A SUIT FOR RECOVERY OF THE SAID A MOUNT OR FOR TAKING APPROPRIATE ACTION AGAINST THE ASSESSEE IT CANNOT BE SAID THAT THERE WAS A CESSATION OF LIABILITY. THE L IABILITY STILL ITA NO.1465/AHD/2007 DEEPAK PETROCHEM LTD. 8 REMAINS THOUGH IT MAY NOT BE ENFORCEABLE AT LAW ON ACCOUNT OF THE PROVISIONS OF THE LAW OF LIMITATION. RELYIN G UPON THE DECISION IN THE CASE OF SUGAULI SUGAR WORKS (P.) LT D. [1999] 236 ITR 518 .SC) HONBLE JURISDICTIONAL HIGH COURT FURTHER HELD THAT UNLESS THERE IS A CESSATION OF LIABILITY OR THERE IS A REMISSION OF LIABILITY BY THE CREDITOR THE LIABILI TY SUBSISTS AND THEREFORE EVEN IF THE ENTRIES ARE MADE TO WRITE BA CK THE EXPENDITURE THE AMOUNT SO WRITTEN BACK CANNOT BE A DDED IN THE INCOME OF THE ASSESSEE AS PER THE PROVISIONS OF SECTION 41(1) OF THE ACT. 9.2 HONBLE BOMBAY HIGH COURT IN ANOTHER CASE OF CIT VS. CHASE BRIGHT STEEL LTD. 177 ITR 128(BOMBAY) WHILE R ELYING UPON THEIR JUDGMENT IN J. K. CHEMICALS LTD. VS. CI T [1966] 62 ITR 34 HELD THAT T HE LIABILITY OF AN ASSESSEE DOES NOT CEASE MERELY BECAUSE THE LIABILITY HAS BECOME BARRE D BY LIMITATION. THE LIABILITY CEASES WHEN IT HAS BECOME BARRED BY LIMITATION AND THE ASSESSEE HAS UNEQUIVOCALLY EXPRE SSED ITS INTENTION NOT TO HONOUR THE LIABILITY EVEN WHEN DEM ANDED. 9.3 HONBLE SUPREME COURT IN THE CASE OF BOMBAY DYEING & MANUFACTURING CO. LTD. V. STATE OF BOMBAY AIR 1958 SC 328 IN PARA 23 OF THEIR DECISION OBSERVED AS FOLLOWS : 23. IT HAS BEEN ALREADY MENTIONED THAT WHEN A DEBT BECOMES TIME BARRED IT DOES NOT BECOME EXTINGUISHE D BUT ONLY UNENFORCEABLE IN A COURT OF LAW. 9.4 HONBLE SUPREME COURT IN THE CASE OF SUGAU LI SUGAR WORKS (P.) LTD. [1999] 236 ITR 518 HELD THAT UNLESS THERE IS A CESSATION OF LIABILITY INCOME CANNOT BE ADDED AS P ER THE PROVISIONS OF SECTION 41(1) OF THE ACT. SIMILARLY HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CHETAN CH EMICALS PVT. LTD. 267 ITR 770 (GUJ) HELD THAT: ON A READING OF THE PROVISIONS IT IS APPARENT THA T BEFORE THE SECTION CAN BE INVOKED IT IS NECESSARY THAT AN ALLOWANCE OR A DEDUCTION HAS BEEN GRANTED DURING THE COURSE OF ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS EXPENDITURE OR TRADING WHICH IS INCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR THE ASSESSEE OBTAINS WHETHER IN CASH OR IN ANY OTH ER MANNER ANY AMOUNT IN RESPECT OF SUCH TRADING LIABI LITY BY WAY OF REMISSION OR CESSATION OF SUCH LIABILITY. IN THAT CASE EITHER THE AMOUNT OBTAINED BY THE ASSESS EE OR THE VALUE OF THE BENEFIT OCCURRING TO THE ASSESS EE CAN ITA NO.1465/AHD/2007 DEEPAK PETROCHEM LTD. 9 BE DEEMED TO THE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND CAN BE BROUGHT TO TAX AS INCOME OF T HE PREVIOUS YEAR IN WHICH SUCH AMOUNT OR BENEFIT IS OBTAINED. IN THE FACTS OF THE CASE ON HAND WITHOUT ENTERING INTO THE ASPECT AS TO WHETHER THE LIABILIT Y TO REPAY THE LOANS WOULD BE A TRADING LIABILITY OR NOT IT IS AN ADMITTED POSITION THAT THERE HAD BEEN NO ALLOWAN CE OR DEDUCTION IN ANY OF THE PRECEDING YEARS AND HEN CE THERE IS NO QUESTION OF APPLYING THE PROVISION AS S UCH. SECTION 28 OF THE ACT DEALS WITH PROFITS AND GAINS OF BUSINESS OR PROFESSION AND CLAUSE (IV) THEREOF SAYS THAT THE VALUE OF ANY BENEFIT OR PERQUISITE WHETHER CONVERTIBLE INTO MONEY OR NOT ARISING FROM BUSINES S OR THE EXERCISE OF A PROFESSION SHALL BE CHARGEABLE AS INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINES S OR PROFESSION. IN THE FACTS OF THE PRESENT CASE IT C ANNOT BE SAID THAT THE ASSESSEE-COMPANY WAS CARRYING ON BUSINESS OF OBTAINING LOANS AND THAT THE REMISSION OF SUCH LOANS BY THE CREDITORS OF THE COMPANY WAS A BENEFIT ARISING FROM SUCH BUSINESS. 9.5 IN THE LIGHT OF VIEW TAKEN BY THE HONBLE SUP REME COURT AND JURISDICTIONAL HIGH COURT IN THE AFORESAID DECI SIONS IT IS APPARENT THAT UNLESS THERE IS A CESSATION OF LIABIL ITY OR THERE IS A REMISSION OF LIABILITY BY THE CREDITOR THE LIABI LITY SUBSISTS AND THEREFORE EVEN IF THE ENTRIES ARE MADE TO WRI TE BACK THE EXPENDITURE THE AMOUNT SO WRITTEN BACK CANNOT BE A DDED IN THE INCOME OF THE ASSESSEE AS PER THE PROVISIONS OF SECTION 41(1) OF THE ACT. IN THE INSTANT CASE THERE IS NOT HING TO SUGGEST THAT THE ASSESSEE HAS OBTAINED ANY BENEFIT EITHER B Y WAY OF REMISSION OR CESSATION OF ANY LIABILITY WHILE THE A FORESAID LIABILITIES ARE CONTINUALLY ADMITTED BY THE ASSESSE E IN THEIR BALANCE SHEET. IN THESE CIRCUMSTANCES WE HAVE NO ALTERNATIVE BUT TO VACATE THE FINDINGS OF THE LD. C IT(A) AND DELETE THE ADDITION SUSTAINED BY THE LD. CIT(A) . THEREFORE GROUND NOS. GROUND NOS. 3 TO 5 IN THE APPEAL OF THE ASSESSEE ARE ALLOWED WHILE GROUND NOS. 1 & 2 IN THE APPEAL O F THE REVENUE ARE DISMISSED. 13. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CI T VS TAMILNADU WAREHOUSING CORPORATION 292 ITR 310 (MAD.) HELD AS UNDER: THE ASSESSEE FILED ITS RETURN FOR THE ASSESSMENT Y EAR 1989-90 AND ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ITA NO.1465/AHD/2007 DEEPAK PETROCHEM LTD. 10 OF THE INCOME-TAX ACT 1961. THE ASSESSEE HAD SURRE NDERED THE GROUP GRATUITY SCHEME WITH LIC AND RECEIVED A S UM OF RS.8 22 925 DURING THE YEAR RELEVANT TO THE ASSESSM ENT YEAR 1989-90. AS THERE WAS NO PROPER ENQUIRY MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT COMPLETED ON JA NUARY 21 1992 THE COMMISSIONER PASSED ORDER UNDER SECTI ON 263 OF THE ACT AND SET ASIDE THE ASSESSMENT WITH A DIR ECTION TO THE ASSESSING OFFICER TO ASSESS THE SAID AMOUNT UND ER SECTION 41(1) OF THE ACT FOR ASSESSMENT YEAR 1989-90. THE T RIBUNAL SET ASIDE THE ORDER OF THE COMMISSIONER. ON APPEAL TO T HE 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 LIABIL ITY REFLECTED IN THE BALANCE-SHEET. ONCE IT WAS SHOWN AS LIABILIT Y BY8 THE ASSESSEE THE COMMISSIONER WAS WRONG IN HOLDING THA T IT WAS ASSESSABLE UNDER SECTION 41(1) OF THE ACT. UNLESS A ND UNTIL THERE IS A CESSATION OF LIABILITY SECTION 41 IS NO T APPLICABLE. 14. CONSIDERING THE ABOVE FACTS AND THE DECISIONS R EFERRED TO ABOVE IT IS CLEAR THAT THE AMOUNTS HAVE BEEN SHOWN AS LIABIL ITY IN THE BALANCE SHEET AND NO EVIDENCE OF CESSATION OF LIABILITY HAS BEEN BROUGHT ON RECORD. THEREFORE THE AMOUNT IN QUESTION IS NOT AS SESSABLE U/S 41(1) OF THE IT ACT. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION ON THIS ISSUE. 15. CHARGING OF INTEREST IS CONSEQUENTIAL IN NATURE AND IS NOT ARGUED BY THE LEARNED COUNSEL FOR THE ASSESSEE. SAME IS AC CORDINGLY DISMISSED. 16. AS A RESULT THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED ON 01- 04-2010 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 01-04-2010 LAKSHM IKANT/- ITA NO.1465/AHD/2007 DEEPAK PETROCHEM LTD. 11 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