ACIT, New Delhi v. M/s S. Kumar & Sons HUF, New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH G NEW DELHI BENCH G NEW DELHI BENCH G NEW DELHI BENCH G BEFORE SHRI I. P. BANSAL JUDICIAL MEMBER AND SHRI K. D. RANJAN ACCOUTANT MEMBER ITA NO. 5424/DEL/2010 (ASSESSMENT YEAR 2007-08) ACIT CIRCLE 24(1) VS. M/S. S. KUMAR & SONS HUF NEW DELHI A-2/133 SAFDARJUNG ENCLAVE NEW DELHI (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AAIHS1601R APPELLANT BY: SHRI RAVI RAMCHANDRAN DR RESPONDENT BY: SHRI M M SHARMA AR ORDER ORDER ORDER ORDER PER K. D. RANJAN AM: PER K. D. RANJAN AM: PER K. D. RANJAN AM: PER K. D. RANJAN AM: 1. THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YE AR 2007-08 ARISES OUT OF THE ORDER OF LD. CIT(A) XXIII NEW DE LHI. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: 1) ON THE FACTS AND ON CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DELETIN G HT DISALLOWANCE OF ` 15 69 683/- MADE BY THE A.O. TREA TING THE EXPORT ADVANCES REFLECTED IN THE NAME OF M/S. RIGA SHIPRA CONSTRUCTION & M/S. DANUBANIA BURCHREST AS SEIZED L IABILITY U/S 41(1) OF THE I. T. ACT. 2) ON THE FACTS AND ON CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DELETIN G THE DISALLOWANCE OF ` 2 95 180/- MADE BY THE A.O. TREAT ING THE AMOUNT PAYABLE TO CREDITOR AS SEIZED LIABILITY U/S 41(1) OF THE I. T. ACT. 2. THE ONLY ISSUE FOR CONSIDERATION INVOLVED IN THE GROUNDS OF APPEAL RELATES TO TREATING THE EXPORT ADVANCES IN T HE NAME OF M/S. REGA SHIPRA CONSTRUCTION AND M/S. DHANUBANIA BURCHR EST AND DISALLOWANCE OF AMOUNT PAYABLE TO CREDITORS U/S 41( 1) OF THE ACT. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT FOLLOWI NG AMOUNTS I.T.A. NO. 5424/DEL/2010 2 WERE OUTSTANDING FORM THESE PARTIES FROM THE ASSESS MENT YEAR 1991-92. I) RIGA SHIPRA CONSTRUCTION ` 10 67 050/- II) EAGLE STEELWIRE & CONDUCT ` 02 95 185/- III) DANUBANIAS BURCHREST ` 05 02 632/- SINCE THE LIABILITY WAS OUTSTANDING FOR A LONG TIME OF ABOUT 15 YEARS THE A.O. BROUGHT TO TAX THE AMOUNTS OUTSTANDING IN THE NAMES OF ABOVE PARTIES UNDER THE PROVISIONS OF SECTION 41(1) OF THE ACT. 4. DURING THE COURSE OF APPELLATE PROCEEDINGS IN RE SPECT OF THE AMOUNT RECEIVED FROM RIG SHIPRA CONSTRUCTION AND DA NUBANIA BUCHREST IT WAS SUBMITTED THAT THESE AMOUNTS WERE R ECEIVED AS ADVANCES AGAINST EXPORT FROM FOREIGN PARTIES IN EAR LIER YEARS AND THE COPIES OF ACCOUNTS OF THESE PARTIES IN THE BOOK S OF ACCOUNTS OF THE ASSESSEE HAVE ALSO BEEN FURNISHED ALONG WITH CO MPLETE ADDRESSES OF THE PARTIES AVAILABLE TO THE ASSESSEE. THE ASSESSEE WAS CONTINUED TO ADMIT THESE AMOUNTS AS LIABILITY I N THE BOOKS OF ACCOUNTS AND WAS TRYING TO OBTAIN FRESH EXPORT ORDE RS FROM THESE PARTIES. IT WAS FURTHER SUBMITTED THAT THE A.O. HA D NOT FOUND ANY DISCREPANCY IN THE CLAIM OF THE ASSESSEE AND HAS NO T BOUGHT OUT ON RECORD ANY MATERIAL TO SHOW THAT THESE AMOUNTS WERE NOT RECEIVED AS ADVANCES AGAINST EXPORT. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE AGAINST THESE ADVAN CES AND THEREFORE PROVISIONS OF SECTION 41(1) WERE NOT APP LICABLE. 5. LD. CIT(A) ACCEPTED THE CONTENTION OF THE ASSESS EE. HE ALSO NOTED THAT EXPIRY OF THE PERIOD OF LIMITATION UNDER LIMITATION ACT WOULD NOT EXTINGUISH THE DEBT BUT IT ONLY PREVENTED THE ASSESSEE FROM ENFORCING THE DEBT. THEREFORE THE LIABILITY TO PAY WILL CEASE ONLY WHEN THE SAME IS TREATED AS WRITTEN OFF IN THE BOOKS OF ACCOUNTS. SECONDLY AN AMOUNT TO QUALIFY AS INCOME UNDER THE DEEMING PROVISIONS OF SECTION 41(1) SHOULD HAVE BEE N CLAIMED AS I.T.A. NO. 5424/DEL/2010 3 EXPENDITURE IN EARLIER YEARS. SINCE THE ASSESSEE C ONTINUED TO SHOW THESE AMOUNTS AS PAYABLE IN THE BOOKS OF ACCOUNTS THE REQUISITE CONDITION TO BE FULFILLED AS PRESCRIBED U/S 41(1) W AS ABSENT IN THE CASE OF THE ASSESSEE. HENCE IT HAS BEEN HELD THAT THE A.O. WAS NOT JUSTIFIED IN MAKING THE ADDITION. 6. AS REGARDS THE ADDITION OF ` 2 95 180/- THE A.O . HAD DISALLOWED THE AMOUNT AS CONFIRMATION WAS NOT FILED SHOWING OUTSTANDING TOWARDS EAGLE STEELS WIRES CONDUCT. DU RING THE COURSE OF APPELLATE PROCEEDINGS THE COUNSEL FOR THE ASSES SEE SUBMITTED THAT ASSESSEE WAS TRYING TO OBTAIN THE CONFIRMATION FROM ABOVE MENTIONED PARTIES BUT COULD NOT COMPLY WITH THE REQ UIREMENT WITHIN THE STIPULATED TIME. HOWEVER IT WAS REITERATED TH AT THE AMOUNT IN QUESTION REMAINED LIABILITY OF THE ASSESSEE AND ACC ORDINGLY HAS BEEN REFLECTED IN ITS BOOKS OF ACCOUNTS. THE LIABI LITY TO PAY THE AMOUNT HAD NOT CEASED TO EXIST. THEREFORE THE LIA BILITY WILL CEASE ONLY WHEN THE SAME IS TREATED AS WRITTEN OFF IN HIS BOOKS OF ACCOUNTS. CIT(A) ACCORDINGLY HELD THAT PROVISIONS OF SECTION 41(1) WERE NOT APPLICABLE. HE DELETED BOTH THE ADDITIONS . 7. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE THR OUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STAT ED ABOVE IT IS CLEAR THAT THE AMOUNTS WERE OUTSTANDING IN THE BOOK S OF ACCOUNTS OF THE ASSESSEE FOR A QUITE LONG TIME. THE ASSESSEE H AD NOT WRITTEN OFF THE AMOUNTS IN ITS BOOKS OF ACCOUNTS. UNDER SECTION 41(1) WHERE ANY ALLOWANCE OF DEDUCTION HAS BEEN MADE IN THE ASS ESSMENT YEAR FOR ANY YEAR IN RESPECT OF LOSS EXPENDITURE OR TRA DING LIABILITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING AN Y PREVIOUS YEAR THE ASSESSEE HAS OBTAINED WHETHER IN CASH OR IN KIND OR IN ANY OTHER MANNER WHATSOEVER ANY AMOUNT IN RESPECT OF SU CH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF CESSATION THEREOF THE AMOUNT OBTAINED BY SU CH PERSONS OR THE VALUE OF BENEFIT ACCRUED TO IT SHALL BE DEEMED TO BE PROFIT AND I.T.A. NO. 5424/DEL/2010 4 GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHA RGEABLE TO TAX AS INCOME OF THE PREVIOUS YEAR. FROM THE PROVISI ONS OF SECTION 41(1) IT IS CLEAR THAT IN ORDER TO APPLY THE PROVIS IONS OF SECTION 41(1) THE AMOUNT SOUGHT TO BE TAXED AS INCOME SHOULD HAVE BEEN ALLOWED AS DEDUCTION OR ALLOWANCE IN RESPECT OF LOSS EXPEN DITURE OR TRADING LIABILITY. UNLESS THE AMOUNT HAS BEEN CLAIMED AS D EDUCTION PROVISIONS OF SECTION 41(1) CANNOT BE APPLIED. MOR EOVER THE ASSESSEE IS SHOWING LIABILITY WHICH HAS NOT CEASED TO EXIST AND THEREFORE IT CANNOT BE TREATED INCOME UNILATERALLY . SECONDLY THESE AMOUNTS WERE NOT CLAIMED AS DEDUCTION IN ANY OF THE EARLIER YEARS. THEREFORE IN OUR CONSIDERED OPINION LD .CIT(A) WA S JUSTIFIED IN DELETING THE ADDITION. HENCE WE DO NOT FIND ANY I NFIRMITY IN THE ORDER PASSED BY LD. CIT(A) DELETING THE ADDITION. 8. IN THE RESULT APPEAL FILED BY THE REVENUE IS DI SMISSED. 9. PRONOUNCED IN THE OPEN COURT ON 18 TH FEB. 2011. SD./- SD./- (I. P. BANSAL) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 18 TH FEB. 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI