PER G.D.AGRAWAL, VP : This appeal by the assessee is directed against the order of learned CIT(A)-IV, New Delhi dated 5th February, 2013 for the AY 2007-
2. The only ground raised by the assessee reads as under:- Learned CIT(A) has erred on facts as well as in law in sustaining addition of Rs.7,94,592/- outstanding in the books in the name of Shri Banarsi Lal S/o Shri Laxman Das. Order of learned CIT(A) is against law having failed to deal with judgments given in written argument before him.
3. At the time of hearing before us, it is stated by the learned counsel that the Assessing Officer made the addition of `7,94,592/- in respect of the liability shown by the assessee in the name of Shri Banarsi Lal S/o Shri Laxman Das in its balance sheet. He submitted ITA-2020/Del/2013 2 that the liability is with regard to goods purchased by the assessee from this party in the earlier years and the credit was outstanding in the balance sheet of 31st March, 2007. He submitted that the assessee has not denied the liability. However, during assessment proceedings, the assessee could not produce the confirmation from the creditor because of unrest in Afghanistan at the relevant time. He stated that after the restoration of normalcy in Afghanistan, the assessee tried to trace the above party and since he was unable to trace the party, the assessee himself has written back the liability to its profit & loss account on 10.04.2012. He, therefore, submitted that as per Explanation (1) to Section 41(1), the writing back of the liability is to be treated as income of the previous year ended on 31st March, 2013. He also stated that the assessee has credited the above liability to the profit & loss account and will include in its income in the return which is likely to be filed shortly.
4. Learned DR, on the other hand, stated that the assessee has not furnished any evidence, correspondence or detail which may justify that the liability was existing as on 31st March, 2007 and has ceased only during the FY 2012-13. She further stated that during assessment proceedings, the Assessing Officer allowed opportunity to the assessee to furnish the confirmation from the creditor but the same was also not furnished. The purchase was made ten years back and the whereabouts of the creditor are not known, therefore, the Assessing Officer rightly treated that the liability has already ceased. By writing of the liability in the FY 2012-13, the assessee himself has admitted the cessation of liability but the assessee is only trying to postpone the payment of tax on such liability. She, therefore, submitted that the order of learned CIT(A) should be sustained. ITA-2020/Del/2013 3
5. We have carefully considered the arguments of both the sides and perused the material placed before us. After considering the arguments of both the sides and the facts of the case, it is evident that now the controversy is very narrow because it is the stand of both the parties that the liability has ceased. The only dispute is with regard to the year of cessation of liability. As per Assessing Officer, the liability ceased in the financial year ended on 31st March, 2007 while, as per assessee, liability ceased in the financial year ended on 31st March, 2013. The assessee has written back the liability in its books of account for the FY 2012-13. That Section 41(1) reads as under:-
41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently 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 remission or cessation thereof, the amount obtained by such person 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 previous 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 (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly ITA-2020/Del/2013 4 chargeable to income-tax as the income of that previous year. [Explanation 1.For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.] [Explanation 2].For the purposes of this sub-section, "successor in business" means,
(i) where there has been an amalgamation of a company with another company, the amalgamated company;
(ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person;
(iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm;] [(iv) where there has been a demerger, the resulting company.].
6. From the above, it is evident that main Section i.e. 41(1) would be applicable where the assessee has obtained some benefit in respect of any trading liability by way of remission or cessation thereof. It is a settled legal position that merely because a liability has become time barred or is outstanding for a longer period, it cannot be presumed that there is a remission or cessation of the liability. Explanation (1) to Section 41(1) is a deeming provision by which remission or cessation of liability would be presumed in the year in which the debtor has written off the liability in his books of account. In our opinion, in the case of the assessee, Explanation (1) to Section 41(1) would be squarely applicable for the FY 2012-13. Admittedly, there cannot be cessation of liability twice. Therefore, when as per Explanation (1) there would ITA-2020/Del/2013 5 be cessation of liability in the FY 2012-13 i.e. relevant to the assessment year 2013-14, in our opinion, the addition for the same cannot be made by presuming remission or cessation of liability in the year under consideration i.e. AY 2007-08. We, therefore, delete the addition of `7,94,592/- made by the Assessing Officer.
7. In the result, the appeal of the assessee is allowed. Decision pronounced in the open Court on 11th October, 2013. Sd/- Sd/- (I.C.SUDHIR) (G.D.AGRAWAL) JUDICIAL MEMBER VICE PRESIDENT Dated : 11.10.2013 Copy forwarded to: -
1. Appellant : Shri Sunil Kumar Bhatia, F-50, Kolhapur Road, Near Kamla Nagar, Delhi.
2. Respondent : Assistant Commissioner of Income Tax, Central Circle-17, New Delhi.
3. CIT
4. CIT(A)
5. DR, ITAT Assistant Registrar