Genre Exports P. Ltd, Mumbai vs Assessee

BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM) सव ी बी.आर.बा करन, लेखा सद य एवं ववेक वमा , या यक सद य के सम

आयकर अपील सं./I.T.A. No.1763/Mum/2012 ( नधा रण वष / Assessment Year : 2003-04 )

M/s Genre Exports Private बनाम/ Income Tax Officer 2(1)(4), Limited, Vs. Aayakar Bhavan, M K Road, 11, Orient Insurance Bldg, Mumbai-400020 31, Dr.V.B.Gandhi Marg, Mumbai-400023 (अपीलाथ! /Appellant) .. ("#यथ! / Respondent)

थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :AAACG5395H

अपीलाथ! ओर से /Appellant by : Dr.K Shivram "#यथ! क& ओर से/Respondent by: Shri Pavan Kumar Birla

सन ु वाई क& तार*ख / Date of Hearing : 10.2.2015 घोषणा क& तार*ख /Date of Pronouncement :18.2.2015

आदे श / O R D E R

Per B.R.BASKARAN, Accountant Member:

The appeal filed by the assessee is directed against the order dated

15.12.2011 passed by Ld CIT(A)-4, Mumbai confirming the assessment of

Rs.1.00 crore made by the AO u/s 41(1) of the Income Tax Act, 1961 (the

Act.

2. We have heard the parties and perused the record. The facts that

are relevant are that the assessee had taken an advance of Rs.1.00 crore

from M/s United Breweries Ltd for supplying a product named "hop

extract" over a period of time. However, the assessee failed to supply the I.T.A. No.1763/Mum/2012 2

hop extract and also failed to repay the advance. The AO made inquiries

from M/s United Breweries Ltd and found that the said company has

written off the advance paid by it to the assessee as irrecoverable.

Accordingly the AO, by placing reliance on the decision of Hon'ble Supreme

Court rendered in the case of CIT Vs. T.V. Sundaram Iyengar and sons

(222 ITR 344), assessed the above said advance of Rs.1.00 crore as

income of the assessee by way of remission of liability by invoking the

provisions of sec. 41(1) of the Act. The ld. CIT(A) also confirmed the

same and hence the assessee has filed this appeal before us.

3. During the course of hearing before us, the ld. AR contended that

the assessee is still showing the amount of Rs.1.00 crore as its liability and

hence it cannot be said that there was cessation of liability. The ld. AR

further submitted that the provisions of sec. 41(1) shall apply one if any

allowance or deduction is claimed in respect of Rs.1.00 crores. However,

the assessee has not claimed any allowance or deduction in respect of the

amount of Rs.1.00 crore and hence the tax authorities have erred in law in

applying the provisions of sec. 41(1) of the Act.

4. On the contrary, the ld. DR strongly defended the orders of ld.

CIT(A).

5. It is an undisputed fact that the assessee has received the amount

of Rs.1.00 crore for supply of materials to M/s United Breweries Limited.

Though the Ld A.R contended that it was a Capital receipt, yet it is seen I.T.A. No.1763/Mum/2012 3

that the amount received by the assessee, being for supply of materials,

would constitute a trading receipt only, since the same would get adjusted

against the supply of materials to M/s United Breweries Ltd. We notice

that the tax authorities has followed the decision rendered by the Hon'ble

Supreme Court in the case of CIT V/s T V Sundaram Iyengar and Sons Ltd

(supra). The principle laid down by the Hon'ble Supreme Court in the

above said case are extracted below :

". The principle laid down by Atkinson, J., applies in full force to the facts of this case. If a commonsense view of the matter is taken, the assessee, because of the trading operation, had become richer by the amount which it transferred to its profit and loss account. The moneys had arisen out of ordinary trading transactions. Although the amounts received originally was not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time barred and the amount attained a totally different quality. It became a definite trade surplus, Atkinson, J. pointed out that in Tattersall's case (1939) 7 ITR 316 (CA) no trading asset was created. Mere change of method of book-keeping had taken place. But, where a new asset came into being automatically by operation of law, common sense demanded that the amount should be entered in the profit and loss account for the year and be treated as taxable income. In other words, the principle appears to be that if an amount is received in course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, commonsense demands that the amount should be treated as income of the assessee."

Thus, it can be seen that the Hon'ble Supreme Court has held that if the

amount received in the course of trading transaction even though it is not

taxable in the year of receipt as being revenue character, the amount I.T.A. No.1763/Mum/2012 4

changes is character when it become assessee's own money because of

limitation or by any other statutory of contractual right. It is further held

that when such thing happens, commonsense demands that the amount

should be treated as income of the assessee.

6. Before us, the Ld A.R tried to distinguish the decision of Hon'ble

Supreme Court rendered in the case of T.V. Sundaram Iyengar and sons

(supra) by submitting that the assessee therein had credited its Profit and

Loss account with the unclaimed liabilities and the assessee herein did not

do so, but continue to show the amount of Rs.1.00 crore as liability only.

In our view, the entries passed in the books of account is only one of the

criteria to determine the nature of Trading liability, i.e., whether the

character of the same has undergone a change or not and the same

cannot be considered to be the sole criteria or the ratio of the decision of

Hon'ble Supreme Court.

7. In the instant case, the assessee has furnished a copy of the "Journal

voucher" dated 31.3.2003 bearing No.KF/JV/244 prepared by M/s United

Breweries Ltd (Holding) Limited, Bangalore at page no. 34 of the paper

book. A perusal of the said documents would show that M/s United

Brewaries (Holdings) Limited had initially created a provision for writing off

the advance amount of Rs.1.00 crore given to the assessee in an earlier

year. However, as on 31.3.2003, M/s United Breweries (Holdings) Limited

has ultimately written off the amount of Rs.1.00 crore as bad debts, I.T.A. No.1763/Mum/2012 5

meaning thereby the impugned amount of Rs. one crore has been waived

off by M/s United Breweries Limited. Thus, by virtue of writing off of the

advance by the payer, the assessee has become richer by that amount,

meaning thereby, the character of the trading liability has undergone a

change and it has become income in the hands of the assessee. Hence,

we are of the view that the tax authorities are justified in assessing the

amount of Rs.1.00 crore by applying the principle laid down by the Hon'ble

Supreme Court in the case of T V Sundaram Iyengar and Sons Ltd (supra).

8. Even though the AO has made a reference to the provisions of

section 41(1) of the Act, in our view, it may not be relevant for bringing

the amount of Rs.1.00 crore as income of the assessee, since under

general principles, i.e., by applying the principle laid down in the case of T

V Sundaram Iyengar and Sons Ltd (supra), the same has become the

income of the assessee. Accordingly, we uphold the order passed by the

ld. CIT(A) on this issue.

9. In the result, the appeal of the assessee is dismissed.

The above order was pronounced in the open court on 18th Feb,2015.

घोषणा खुले यायालय म- .दनांकः 18th Feb,2015 को क& गई ।

sd sd

( ववेक वमा / VIVEK VARMA) (बी.आर.बा करन / B.R. BASKARAN) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER

मब ुं ई Mumbai: 18th Feb,2015.

व. न.स./ SRL , Sr. PS I.T.A. No.1763/Mum/2012 6

आदे श क !त#ल$प अ%े$षत/Copy of the Order forwarded to :

1. अपीलाथ! / The Appellant

2. "#यथ! / The Respondent.

3. आयकर आय3 ु त(अपील) / The CIT(A)- concerned

4. आयकर आय3 ु त / CIT concerned

5. वभागीय " त न5ध, आयकर अपील*य अ5धकरण, मब ुं ई / DR, ITAT, Mumbai concerned

6. गाड फाईल / Guard file.

आदे शानस ु ार/ BY ORDER, true copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील*य अ5धकरण, मुंबई /ITAT, Mumbai