Eastern Overseas Corporation, Mumbai vs Department Of Income Tax

आयकर अपीलीय अिधकरण, अिधकरण "ई ई" खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - 'E' BENCH सव ौी जोिग दर िसंह, याियक सदःय एवं राजे ि, लेखा सदःय Before S/Sh.Joginder Singh, Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.3463/Mum/2013,िनधा िनधा रण वष /Assessment Year-2004-05 ACIT -17(2), R.No.217, 2nd Floor, बनाम M/s. Eastern Overseas Piramal Chambers, Mumbai 400012 v/s. Corporation, PO Box, 6666 Josephine, Ground floor, 44 St. Andrews Road, Bandra West Mumbai -400050 (अपीलाथ& /Assessee) (ू(यथ& / Respondent) राजःव क) ओर से/ Revenue by : Shri Neil Philip (DR) िनधा +रती ओर से/Assessee by :Shri Milind V. Sahasrabudhe (AR) सुनवाई क) तार-ख/ Date of Hearing :1 2 -02-2015 घोषणा क) तार-ख / Date of Pronouncement :12 -02 -2015 आयकर अ िधिनयम, िधिनयम 1961 क) धारा 254(1) के अ तग त आदे श Order u/s.254(1)of the Income-tax Act,1961(Act) Per Rajendra, A.M.लेखा सदःय राजे ि के अनुसार:

Challenging the order dt. 19.02.2013of the CIT(A)-29,Mumbai,Assessing officer (AO) has raised following Grounds of Appeal:

1."In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty of Rs. 17,62,165/- levied u/s 271(1) (C) even though concealment and filling of inaccurate particulars of income have been established during the assessment proceedings and the quantum additions have also been confirmed by the Ld. CIT(A)."

2.The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored.

3.The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."

Assessee-firm,engaged in the business of supplying and importing of power projects equipments , filed its return of income on 29.10.2004,declaring total income of Rs.1.92 Crores.The AO finalised the assessment u/s.143(3)of the Act,on29.11.2006,determining the total income at Rs.2,54,64, 400/- .During the assessment proceedings,the AO made an addition of Rs.33,18,894/-(Rs.19.91 lakhs+ Rs.13.27 lakhs)on account of cessation of liability of advance from following two parties:

i.Electric Store Division,Govt of Nagaland ii.Meghalaya Non Conservation Energy Development Agecny.

2.During the assessment proceedings it was noticed by the AO that assessee showed advances received from various parties at Annexure A to the balance sheet.He asked the assesee to co-relate the advances shown as liability with the ongoing projects appearing in annexure D' of the asset side of the balance sheet.The assessee explained that the advances received except two advances were against the ongoing projects in the State of Mizoram.The AO observed that the assesee's ongoing projects during the relevant year were located in Mizoram whereas the above advances were shown from Govt. of Nagaland & Meghalaya.When the assessee was confronted with this point by the AO,he agreed that the amount of liabilities appearing against the above two parties could be treated as cessation of liability and be taxed during the A.Y.2004-05.The AO made addition of Rs.33,18,894/- to the income of the assessee on account of cessation of liabilities.Aggrieved by the order of the AO, the assessee filed appeal on this ground with the First Appellate Authority(FAA),who held that it was following project completion method for accounting income from its projects and as during the year no income from the relevant project had been declared,that expenditure should be capitalised and claimed 2 ITA/3463/Mum/2013/EOC-AY.2004-05

against the relevant income when offered to tax.Similarly,during the assessment proceedings the AO asked the assessee to explain the sundry creditors of Rs.15,93,063/-shown at the liabilities side of the balance sheet. In response the assessee stated that none of the creditors had been settled in subsequent years and the liability remained at the same amount. Later on the assessee agreed that the amount of liabilities appearing as sundry creditors could be treated as cessation of liability.Accordingly,the AO made the addition of Rs.15,93, 063/-on account of sundry creditors as cessation of liabilities.The AO issued notice u/s. 274 r.w.s.271(1)(c)of the Act and imposed penalty of Rs.17,62,165/-u/s.271(1)(c)of the Act for furnish

-ing inaccurate particulars of income.

3.Aggrieved by the order of the AO,the assessee filed appeal before the FAA.It was contended before him that that both the additions were made on account of cessation of liabilities with specific comment in assessment order that as and when any of the liability was paid, the deduction of the same should be allowed,that the reasons why each of the liabilities were regarded as being continued were duly furnished during the assessment proceedings,that inspite of those submissions the additions were made on the ground of low probability of payment,that additions were presumptive in nature and could not be regarded as furnishing of inaccurate particulars.It was further argued that matter of Advance from Meghalaya Non Conservation Energy Development Agency Rs.13,36,286/- was sub-judice in Bombay High Court,that litigation originated in the year 1993 but just because it was old it could not be said that liability had ceased to exist,that the amount continued to be liability till final disposal of the case,that addition had been made on the grounds of low probability of likelyhood of ultimate payment arising therefrom,that sundry creditor Shakti Energy India P.Ltd. Rs.3,05,495/- had been settled with payment of Rs.3 lakhs in subsequent year,that there was no conclusive finding that liability did not exist,that assessment order itself contained direction that the assessee can claim the amounts actually paid in subsequent years to be an expenditure in year of payment clearly demonstrated the fact that the grounds existed for belief that some of the liabilities treated as cessation would have to be paid in subsequent years.

After considering the submissions of the assessee,assessment and penalty orders,he held that the AO had made additions on account of cessation of liability,that all the facts related to the transaction with the relevant parties were disclosed by the assessee in the return of income,that in business it was not necessary that all the transaction were taken to a logical end within a given time frame,that nothing related to the transaction in question was hidden from the AO,that it was a case where the business transaction could not be completed conclusively,that the AO himself had mentioned while completing the assessment that the assessee could claim the amounts actually paid in subsequent year in case of the liability was materialised in future,that the addition was not conclusive,that it was only presumptive addition,that one of the reasons for making addition was that none of those liabilities were settled in subsequent years,that in the case of one of the creditors liability was actually settled in the following AY.,that that the AO had followed that order of the FAA holding that the disputed amounts were not of revenue nature and same should be capitalised as the assessee was following project completion method(PCM),that there was no dispute about the occurrence of expenditure and only nature of expenditure was doubted,that consent of the assessee for addition or disallowance did not automatically point towards concealment.The FAA relied upon the cases of Dr.Sameer Kant Agarwal,(113TTJ252),Smt.Sandhya Varma(114TTJ933),Suresh Chand Mittal(241ITR 124) and Reliance Petroproducts Pvt.Ltd.(322ITR158).

4.Before us,the Departmental Representative(DR)contented that additions made by the AO were upheld by the FAA,that the assessee did not agitate the issues before the Tribunal.Authorised Representative(AR)argued that certain documents could not be produced before the AO as the bank locker where the papers were kept was damaged in flood,that certificate of the bank was available at page no.4 of the paper book,that the AO himself had directed the assessee to claim the amounts 2 3 ITA/3463/Mum/2013/EOC-AY.2004-05

actually paid in subsequent years to be an expenditure in year of payment,that there was no evidence that the advance or the creditors had become non-payable in the under appeal.He relied upon the case of VIP Industries Ltd.(122TTJ289).

5.We have heard the rival submissions and perused the material before us.We find that the AO had made additions to the income of the assessee on two counts namely cessation of liability and sundry creditors,that the assessee agreed for the additions during assessment proceddings,that the FAA had held that the assessee was following PCM and should have treated the expenditure in dispute as capital expenditure,that still one matter-advance from Meghalaya Non Conservation Energy Development Agecny-is pending with Hon'ble High court,that in very next AY. creditor-liability, amounting to Rs.3 lacs,was settled.

It is said that addition made during assessment proceedings do not lead to automatic levy of concealment proceedings.If the assessee discloses all the necessary facts in the return and additions are made by the AO and confirmed by the FAA it would not mean that the assessee has furnished inaccurate particulars of income.In the case under consideration all the details about the cessation of liability were made available by the assessee.The FAA was of the opinion that the expenditure should have been claimed under the head capital gains.Thus,there was no dispute about the correctness of the entries in the books of accounts.There was dispute about the nature of the disputed amount.In our opinion,in such cases it cannot be held that the assessee had concealed the particulars of income or had furnished inaccurate particulars.We have gone through the copy of the suit still pending with the civil court.These factors endorse the view of the FAA that dispute had not reached finality and till that time it cannot be termed a case of concealing particular of income.It is said that business activities do not follow calendar and they have their own pace,own code of conduct.The AO cannot decide the pace of commercial activities.In the matter of VIP Industries Ltd.(supra)similar issued had arisen.Deciding the appeal the Tribunal held as under:

"14. The second component of this ground is against the deletion of penalty on the addition under s. 41(1) on cessation of liability. The assessee was called upon to explain sundry creditors along with the ageing of outstanding for more than three years. A sum of Rs. 18.20 lakhs was found to be due in the account of M/s Reliance Industries Ltd. for more than three years. The assessee agreed to the proposal of the AO for writing back of this amount in this year and consequently offering it for taxation subject to the condition that it shall claim deduction whenever in future the amount becomes payable. Under these circumstances, the AO made addition and levied the penalty, which came to be deleted in the first appeal.

15. Having heard the rival submissions and perused the relevant material on record we again notice that there is no concealment of income by the assessee on this issue. Strictly speaking, s. 41(1) is attracted when there is cessation or 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. Suppose, in the fourth year or thereafter, the creditor demands the money and the assessee agrees to pay, which is otherwise rightfully payable to him based on a genuine and existing liability, can it be said that the assessee should be prevented from making the payment because the lawfully enforceable right vested in the creditor does not exist ? In our considered opinion, the answer is in negative. There 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 other. So, simply because a particular amount is outstanding for a period of more than three years, that does not constitute income under s. 41(1). The act of the assessee in agreeing for the inclusion of such amount in the total income during the course of assessment, subject to the condition that the deduction will be claimed as and when the amount is paid to the third parties, manifests that the assessee had not concealed its income or furnished inaccurate particulars of its income for which he could be visited with the penalty. The discussion made supra qua the confirmation of deletion of penalty on deduction claimed by the assessee under s. 35 holds good here also. Thus, we approve the view taken by the learned CIT(A)."

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Considering the above discussion,we are of the opinion that the order of the FAA does not suffer from any legal infirmity. So,considering the peculiar facts and circumstances of the case,we are confirming his orders.Effective ground of appeal is decided against the AO.

As a result, appeal filed by the AO stands dismissed.

फलतः िनधा +रती अिधकार- 3ारा दा4खल क) गई अपील नामंजूर क) जाती है .

Order pronounced in the open court on 12,February,2015.

आदे श क) घोषणा खुले यायालय म7 8दनांक 12,फरवर-,2015 को क) गई ।

Sd/- Sd/- (जोिग दर िसंह /JOGINDER SINGH) (राजे ि / RAJENDRA) याियक सदःय / JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER मुंबई/Mumbai,8दनांक/Date: 12.02.2015 SK आदे श क) ूितिल>प अमे>षत/Copy षत of the Order forwarded to : 1. /अपीलाथ& 2. Respondent /ू(यथ&

3.The concerned CIT(A)/संब@ अपीलीय आयकर आयुA, 4.The concerned CIT /संब@ आयकर आयुA

5. DR "E" Bench, ITAT, Mumbai />वभागीय ूितिनिध ई खंडपीठ,आ.अ. याया.मुब ं ई

6. Guard File/गाड फाईल स(या>पत ूित //True Copy//

आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai

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