INTERNAITIONAL CLOTHING INDUSTRIES LTD, MUMBAI v. DCIT CIR 9(2), MUMBAI

ITA 5923/MUM/2009 | 2006-2007
Pronouncement Date: 28-01-2011 | Result: Allowed

Appeal Details

RSA Number 592319914 RSA 2009
Assessee PAN AAACI0333B
Bench Mumbai
Appeal Number ITA 5923/MUM/2009
Duration Of Justice 1 year(s) 2 month(s) 21 day(s)
Appellant INTERNAITIONAL CLOTHING INDUSTRIES LTD, MUMBAI
Respondent DCIT CIR 9(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted I
Tribunal Order Date 28-01-2011
Date Of Final Hearing 20-01-2011
Next Hearing Date 20-01-2011
Assessment Year 2006-2007
Appeal Filed On 06-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH BEFORE SHRI D.K.AGARWAL JUDICIAL MEMBER & SHRI T.R.SOOD ACCOUNTANT MEMBER I.T.A.NO.5923/MUM/2009 A.Y 2006-07 INTERNATIONAL CLOTHING INDS. LTD. SHIRT HOUSE 87 GOVT. INDUSTRIAL ESTATE KANDIVALI (WEST) MUMBAI 400 067. PAN: AAACI 0333 B VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 9 (2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIMAL PUNMIYA. RESPONDENT BY : SHRI SANJEEV DUTT. O R D E R PER T.R.SOOD AM: IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUND: 1. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT[APPEAL] ERRED IN CONFIRMING THE ADDITION OF THE SUNDRY CREDITORS OF ` `` ` .3 04 98 763/- U/S.41[1]. YOUR APPELLANT PRAY THAT THE ADDITION BE DELETED. 2. AFTER HEARING BOTH THE PARTIES WE FIND THAT DU RING ASSESSMENT PROCEEDINGS AO NOTICED FROM THE BALANCE-SHEET THAT A SUM OF RS.3 04 98 753/- WAS BEING SHOWN UNDER THE HEAD CU RRENT LIABILITY IN THE NAMES OF VARIOUS SUNDRY CREDITORS. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS WHICH WERE ACCORDINGLY FURNIS HED. THE AO NOTICED THAT THE ASSESSEE HAD LEGAL DISPUTES WITH MANY CRED ITORS FOR WHICH SOME DOCUMENTARY EVIDENCE WAS ALSO AVAILABLE. IT WA S FURTHER NOTICED THAT ALL THESE CREDITS WERE OUTSTANDING FOR MORE TH AN THREE YEARS. SINCE THE CREDITS WERE OUTSTANDING FOR MORE THAN THREE YE ARS AND THERE WERE DISPUTES ALSO AO WAS OF THE VIEW THAT LIABILIT Y IN RESPECT OF THESE 2 CREDITORS HAS CEASED AND ACCORDINGLY HE SUBJECTED T HIS AMOUNT TO INCOME OF THE ASSESSEE U/S.41[1]. 3. BEFORE THE CIT(A) IT WAS MAINLY SUBMITTED THAT THERE WAS NO INTENTION NOT TO PAY THESE CREDITORS AND DISPUTES A ROSE BECAUSE ASSESSEE HAD ISSUED CERTAIN CHEQUES WHICH HAD BOUNC ED BECAUSE OF INADEQUATE FUNDS. RELIANCE WAS ALSO PLACED ON THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SUGALI SUGAR WORKS LTD. 236 ITR 528. THE LD. CIT(A) AFTER CONSIDERING THE R IVAL SUBMISSIONS DECIDED THE ISSUE AGAINST THE ASSESSEE. THE MAIN RE ASON GIVEN BY THE LD. CIT(A) CONTAINED IN THE FOLLOWING PARAS: 3.3.6 LET US WHAT HAS HAPPENED IN THE CASE ON THE HAND. THE APPELLANT ADMITS THAT RELEVANT PROVISION TO RESOLVE THE DISPUTE IS SECTION 41[1] OF THE ACT. OBVIOUSLY IT IS NOT IN DISPUTE TH AT THE IMPUGNED SUM REPRESENTS OUTSTANDING LIABILITIES AND FORMS PART O F THE OUTSTANDING LIABILITIES OF THE GOODS AND EXPENSES SHOWN IN THE BALANCE SHEET. FURTHER IT IS NOT A CASE WHERE SUCH LIABILITIES HAV E BEEN REFUNDED OR PAID BACK. THUS THE QUESTION TO DECIDE HERE IS WHET HER THE APPELLANT HAS DERIVED ANY BENEFIT OR ANY BENEFIT HAS ACCRUED TO IT ON ACCOUNT OF CESSATION OR REMISSION OF THOSE LIABILITIES IN ORDE R TO TREAT AS INCOME U/S.41[1][A]. IN THESE CIRCUMSTANCES THERE IS NO RE LEVANCE OF THE CASE LAWS RELIED UPON BY THE APPELLANT WHICH WERE DECIDE D IN THE CONTEXT WHETHER ANY AMOUNT WAS OBTAINED IN RESPECT OF LOSS OR EXPENDITURE ALLOWED AS EXPENDITURE IN EARLIER YEARS. THE CASE O F THE APPELLANT CONCERNS DERIVING ANY BENEFIT ON ACCOUNT OF REMISSI ON OR CESSATION OF A TRADING LIABILITY. THERE IS NO DISPUTE THAT THE APP ELLANT HAS NOT WRITTEN BACK THE IMPUGNED SUM EITHER IN THE P &L A/C OR IN ANY OTHER MANNER. THE APPELLANT CONTENDS THAT THE LIABILITIES ARE EXI STING AND SUBSISTING. IT CONTENDS IN CONTRADICTION TO THE CLAIM OF THE AO TH AT IT IS NOT IN LITIGATION WITH THE CONCERNED CREDITORS AND INSTEAD IT STATES THAT ONLY THE LOAN CREDITORS AND NOT THE TRADE CREDITORS ARE LITI GATING WITH IT. 3.3.7 IT IS TO BE NOTED THAT IN ORDER TO SHOW THAT THE LIABILITIES HAVE CEASED TO EXIST OR REMITTED IT IS NOT NECESSARY THA T THE APPELLANT SHOULD NECESSARILY WRITE THEM BACK IN ACCOUNTS IN ANY MANN ER [SEE CIT VS. MARKANDA VANASPATI MILLS LIMITED 311 ITR 306 P&H]. IT IS SEEN THAT THE APPELLANT IS NOT IN LITIGATION WITH THE TRADE C REDITORS. IT IS NOT IN DISPUTE THAT THE LIABILITIES WERE ALLOWED AS BUSINE SS DEDUCTION IN EARLIER YEARS. IT IS ALSO NOT IN DISPUTE THAT THE LIABILIT IES HAVE BEEN OUTSTANDING FOR MORE THAN 3 YEARS AND THE CREDITORS ARE BARRED UNDER THE LIMITATION ACT FROM ENFORCING RECOVERY FROM THE APPELLANT. THE APPELLANT DOES NOT CLAIM THAT THE CREDITORS HAVE BEEN INSISTING ON REPAYMENTS OF THE 3 DEBTS AND IF YES NO EVIDENCE HAS BEEN PRODUCED TO S HOW THAT. AS CAN BE SEEN FROM DISCUSSIONS EARLIER THAT THE APPELLANT HA S DISBANDED ITS BUSINESS. IT HAS DISPOSED OFF NOT ONLY ITS PLANT & MACHINERIES BUT ALSO ALL INVENTORIES OF RAW MATERIALS AND FINISHED GOODS . THE PROFIT & LOSS ACCOUNT SHOWS THAT IT HAS EVEN CREDITED THE P& L A/ C WITH BALANCES WRITTEN OFF AMOUNTING TO ` `` ` .4792358. FURTHER EVEN AFTER RECEIPT OF OVER CHARGES AND COMPENSATION OF ` `` ` .1 21 693 AND ` `` ` .14 86 000 RESPECTIVELY AS CREDITED TO THE P &L A/C IT HAS NOT REPAID TO AN Y OF THE CREDITORS. IN SUM FOR ALL PRACTICAL PURPOSES THE OPERATIONS OF TH E APPELLANT HAVE CEASED TO EXIST. IN THESE CIRCUMSTANCES IT CANNOT BE SAID THAT THE APPELLANT STILL WISHES TO MEET ITS LIABILITIES. IF YES IT DOES NOT EXPLAIN AS TO WHEN AND HOW. AS POINTED OUT EARLIER IT IS NOT N ECESSARY TO SHOW THAT A LIABILITY IN THESE CIRCUMSTANCES CAN REMIT OR CEA SE TO EXIST ONLY WHEN THE APPELLANT WRITES BACK THE IMPUGNED SUMS. FOR AL L PRACTICAL PURPOSES THE LIABILITIES DOES NOT EXIST AS THE APPE LLANT HAS NOT DEMONSTRATED THAT IT STILL OWES MONEY TO THE CREDIT ORS. THE FACT THAT THE CREDITORS HAVE NOT SUED THE APPELLANT FOR RECOVERY THAT THERE IS NO EVIDENCE THAT THEY STILL INSIST ON PAYMENT BY THE A PPELLANT THAT THE APPELLANT ITSELF HAS WRITTEN BACK SUBSTANTIAL SUM O F OTHER LIABILITY AND THAT THE APPELLANT HAS GIVEN UP ITS BUSINESS OPERAT IONS BY DISPOSING THE INCOME EARNING APPARATUS (PLANT & MACHINERY) AND AL L INVENTORIES SHOW THAT THE IMPUGNED LIABILITY HAS REMITTED OR CE ASED TO EXIST IN THE YEAR UNDER CONSIDERATION AND THE BENEFIT HAS ACCRUE D TO THE APPELLANT BY WAY OF NOT PAYING THEM OFF. THE IMPUGNED SUM TH EREFORE REPRESENTS LIABILITY WHICH HAS REMITTED OR CEASED T O EXIST DURING THE YEAR UNDER CONSIDERATION. IT HAS RIGHTLY BEEN ADDED AS INCOME OF THE APPELLANT UNDER SECTION 41[1]. I THEREFORE CONFIR M THE ACTION OF THE AO. IN THE RESULT THE GROUND IS DISMISSED. 4. BEFORE US LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS HAVING PROBLEMS IN THE BUSINESS AND TH E BUSINESS WAS RUNNING ON LOSSES AND THAT IS WHY ASSESSEE WAS NOT IN A POSITION TO PAY THE CREDITORS AND THE SAME WERE BEING CARRIED OVER FOR MORE THAN THREE YEARS. THERE WAS NO DISPUTE AS SUCH BUT IN SO ME CASES THE ASSESSEE HAD ISSUED CHEQUES WHICH WERE BOUNCED BECA USE OF INADEQUATE FUNDS AND SUCH CREDITORS HAD FILED COMPL AINTS AGAINST THE ASSESSEE. HE SUBMITTED THAT THERE WAS INTENTION TO PAY THE AMOUNTS AND IN FACT IN SOME OF THE CASES SOME AMOUNTS HAVE BEEN PAID AND IN THIS REFERENCE HE REFERRED TO THE COPIES OF LEDGER ACCOUNT AT PAGES 137 4 TO 154 OF THE PAPER BOOK WHEREIN IN MANY CASES SOME PAYMENTS HAVE BEEN MADE ON VARIOUS DATES. 5. HE FURTHER SUBMITTED THAT PROVISIONS OF SEC.41[1 ] COULD NOT BE INVOKED BECAUSE IN THE CASE BEFORE US ASSESSEE HAS NEVER WRITTEN OFF THESE AMOUNTS AND THEY WERE NEVER TRANSFERRED TO TH E PROFIT & LOSS ACCOUNT. THE ASSESSEES INABILITY TO PAY THE CREDIT ORS CANNOT LEAD TO THE CONCLUSION THAT THERE WAS NO INTENTION TO PAY. HE A LSO RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. CHASTE BRIGHT STEEL LTD. 177 ITR 128 AND OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DALMIA FINANCE LTD. [I.T.A.NO. 833 OF 2010 COPY OF WHICH IS FILED ON RECORD]. 6. ON THE OTHER HAND LD.DR SUBMITTED THAT ASSESSEE HAD CLOSED ITS BUSINESS AND IT HAD EVEN DISPOSED OF ITS INVENT ORY AND PLANT AND MACHINERY ALSO. THIS CLEARLY SHOWS THAT THE BUSINES S WAS ON THE VERGE OF CLOSURE AND ASSESSEE HAD NO INTENTION TO PAY BAC K SUCH CREDITORS. MOREOVER NO EVIDENCE WAS PRODUCED TO SHOW THAT SUC H CREDITORS HAD MADE ANY DEMAND ON THE ASSESSEE EVEN TILL DATE. HE FURTHER ARGUED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF C IT VS. CHASTE BRIGHT STEEL LTD. [SUPRA] HAS CLEARLY HELD THAT ONC E A DEBT HAD BECOME TIME BARRED THEN IT CAN BE SAID THAT SUCH LIABILIT Y HAD CEASED TO EXIST AND THEREFORE THESE LIABILITIES HAD CEASED TO EXI ST AND SEC.41[1] HAS BEEN ATTRACTED. HE ALSO RELIED ON THE DECISION OF D ELHI BENCH OF THE TRIBUNAL IN THE CASE OF DISTINCTIVE PROPERTIES & LE ASING LTD. VS. ITO 1 SOT 460 AND HINDUSTAN COMPUTERS LTD. VS. ITO 38 TTJ 222. 5 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND FORCE IN THE SUBMISSIONS OF THE LD.COUNSEL OF THE A SSESSEE. IT IS CLEAR FROM THE ASSESSMENT ORDER THAT THE SUM OF RS.3 094 98 753/- HAS BEEN SHOWN AS OUTSTANDING AS SUNDRY CREDITORS. WHICH MEA NS THE SAME HAS NOT BEEN WRITTEN OFF BY THE ASSESSEE AND IS BEING S HOWN AS OUTSTANDING LIABILITY. WE FURTHER FUND THAT THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CHASE BRIGHT STEEL LTD . [SUPRA] HAS DISCUSSED THE ISSUE IN DETAIL AND HAD OBSERVED AT P AGED 134 AS UNDER: TO SUM UP SO FAR AS THIS COURT IS CONCERNED THE SETTLED LEGAL POSITION APPEARS TO BE WHAT WAS STATED BY THIS COURT IN ITS JUDGMENT IN J. K. CHEMICALS LTD.'S CASE (SUPRA). THE 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 L IMITATION AND THE ASSESSEE HAS UNEQUIVOCALLY EXPRESSED ITS INTENTION NOT TO HONOUR THE LIABILITY EVEN WHEN DEMANDED. ESSENTIALLY THEREFOR E IT WILL ALWAYS BE A QUESTION OF FACT WHETHER OR NOT THE ASSESSEE HAS EX PRESSED UNEQUIVOCALLY HIS INTENTION NOT TO HONOUR THE LIABI LITY AFTER IT HAS BECOME BARRED BY LIMITATION. IN A GIVEN SET OF FACT S A FINDING EITHER MAY BE POSSIBLE. IN THE INSTANT CASE THE DEPARTMEN TAL AUTHORITIES HAVE ASSUMED THAT THE ASSESSEE HAD NO INTENTION OF HONOU RING THE LIABILITY ON DEMAND FROM THE MERE FACT OF THE ASSESSEE'S WRITING OFF THE LIABILITY AND CREDITING THE AMOUNT TO THE PROFIT AND LOSS APPROPR IATION ACCOUNT. THE TRIBUNAL HAS HELD THAT THE LIABILITY DID NOT CEASE. WE HAVE TO ANSWER THE QUESTION ON BASIS OF THE FACTS FOUND. IN THE CI RCUMSTANCES SO FAR AS THIS CASE IS CONCERNED IT WILL NOT BE POSSIBLE FOR THIS COURT TO INTERFERE. FROM THE ABOVE IT IS CLEAR THAT THE LIABILITY CANNO T BE SAID TO HAVE CEASED MERELY BECAUSE THE SAME BECAME TIME BARRED. FROM THE COPY OF ACCOUNTS OF VARIOUS CREDITORS AT PAGES 137 TO 15 4 OF THE PAPER BOOK IT BECOMES CLEAR THAT PAYMENTS HAD BEEN MADE IN CER TAIN CASES. IT IS ALSO FOUND THAT SOME OF THE AMOUNTS HAVE BEEN WRITT EN OFF ALSO E.G. IN THE CASE OF CARGOMAR BOMBAY PAVT. LTD. (CLG) AMOUNT ING TO ` `` ` .46 871/- [PG.138] ORBIT FREIGHT & LOGISTICS AMOUNTING TO ` `` ` .98 227.30 [PG.142] TAGORE SALES (BUTTON) AMOUNTING TO ` `` ` .16 603.30 [PG.146]. THEREFORE 6 IT IS CLEAR THAT THE INTENTION OF THE ASSESSEE WAS TO PAY THE CREDITORS AND WHEREVER THE AMOUNT WAS NOT PAYABLE AT ALL THE SAME HAD BEEN WRITTEN OFF IN LATER YEAR. PERHAPS THE DEPARTMENT C OULD ASSESS THE SAME TO THE PROFIT U/S.41[1] IN SUCH LATER YEAR. AS LONG AS THE AMOUNT IS SHOWN OUTSTANDING AND THE SAME HAS NOT BEEN WRIT TEN OFF IT CANNOT BE SAID THAT THE LIABILITY HAS CEASED. THEREFORE W E SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE ADDITION. 8. IN THE RESULT ASSESSEES APPEAL IS ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF JANUARY 2011. SD/- SD/- (D.K.AGARWAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 28 TH JANUARY 2011. P/-*