Parminder Pal Singh, Batala vs Department Of Income Tax

Income Tax Officer, vs. Sh.Parminder Pal Singh, Prop. Ward-2(4), Batala. Guru Nanak Watch & Electronics, Batala. (Appellant) (Respondent)

Appellant by:Sh.Tarsem Lal, DR Respondent by:Sh.R.C.Chopra, CA

Date of hearing:29/01/2015 Date of pronouncement:26/02/2015

ORDER

PER B.P.JAIN,AM:

This appeal of the Revenue arises from the order of the CIT(A),

Jammu, dated 10.03.2014 for the assessment year 2006-07. The Revenue

has raised the following grounds of appeal:

"1. On the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in law while deleting the addition of Rs.12,17,890/- made by the AO on account of cessation of trade liability and ignoring the fact that the liability shown by the assessee in his books does not by itself go to prove that there was any actual liability.

2 ITA No.375(Asr)/2014 2. The appellant craves leaves to amend or add any or more ground(s) of appeal."

2. The brief facts of the case are that the AO had added Rs.11,23,710/-

as cessation of liability due to M/s. Sameer Associates (P) Ltd. u/s 41(1) of

the Act, on the basis of the reasons that the debt had become legally barred

by limitation and there were no transaction of purchase or payment since

long. The assessee misled the department by giving the latest address of the

party for the reasons which are fully understandable. The department has

discharged its onus, if any, by writing at the address of the party as given by

the assessee to the department. The department has also conducted inquiries

through its field staff. The assessee was duly confronted with the material

information regarding shifting of the party from Mohali to Delhi and even

then the assessee did not give any latest address of the party. Legally, when

a debit becomes barred by limitation no liability means cessation of liability.

It is a fact that the assessee has shown the liability in his books of account

does not by itself go to prove that there was any actual liability.

3. The Ld. CIT(A) followed the decision of the Hon'ble Supreme Court,

in the case of Mahabir Cold Storage vs. CIT 188 ITR 91, where it has been

held that "the entries in the books of account of the appellant would amount

to an acknowledgment of the liability within the meaning of section 18 of

the limitation Act, 1962, and extend the period of limitation for the 3 ITA No.375(Asr)/2014

discharge of the liability as debit." Similar view taken by the Hon'ble Delhi

High Court, in the case of CIT vs. Vardman Overseas Ltd. ITA No.774/2009

dated 23.12.2011. The Ld. CIT(A) observed that the goods worth

Rs.7,50,000/- were given back to the party and VAT credit in this regard

was reversed. Accordingly, the ld. CIT(A) was of the view that the addition

u/s 41(1) of the Act was not tenable as unilateral action cannot bring

about a cessation or remission of the liability because it can occur either by

operation of law or the debtor unequivocally declaring his intention, or by a

contract between the parties or by discharge of the debt, which is not

present in the case and accordingly, the Ld. CIT(A) deleted the addition so

made by the AO.

4. The Ld. DR, relied upon the order of the Assessing Officer, whereas

the ld. Counsel for the assessee, Mr. R.C.Chopra, CA, relied upon the

submissions made before the AO and the ld. CIT(A) and the order of the ld. CIT(A).

5. We have heard the rival contentions and perused the facts of the case.

The undisputed facts in the present case are that the balance outstanding as

at 31.03.2002 payable to M/s. Sameer Associates (P) Ltd., was

Rs.11,23,710/-. It was submitted before the AO that the goods worth

Rs.7,50,000/- were returned to the party in the month of April, 2007. There

was a dispute with the party with regard to its quality and dispute remained 4 ITA No.375(Asr)/2014

unresolved. At the outset, the AO has not considered that goods worth

Rs.7,50,000/- were returned in April, 2007 and the explanation given by the

assessee that there was a dispute with M/s. Sameer Associates (P) Ltd. with

regard to the quality and the assessee was ready to settle the matter.

However, the AO made a presumption that actually there was no liability

due to M/s. Sameer Associates (P) Ltd., which has ceased to exist. Since

debt had become barred by limitation and the assessee had misled the

department by not giving the latest address in this regard. We find no

infirmity in the order of the ld. CIT(A), who has followed the decision of

Hon'ble Supreme Court, in the case of Mahabir Cold Storage vs. CIT

(supra) and decision of Hon'ble Delhi High Court, in the case of CIT vs.

Vardman Overseas Ltd. (supra), where it has been held that "entries in the

books of account of the assessee would amount to acknowledgment of

liability u/s 18 of the Limitation Act, 1963 and extend the period

limitation for the discharge of the liability as debt. Accordingly, the finding

of the AO that the debt is barred by limitation do not find favour to the

revenue, especially when the goods worth Rs.7,50,000/- were given back to

Sameer Associates (P) Ltd., and no adverse material has been brought on

record by the department. Also, the assessee whether in cash or in any

other manner whatsoever has not obtained any benefit of such trading 5 ITA No.375(Asr)/2014

liability by way of remission or cessation thereof. Therefore, such a liability

cannot take the character of deemed income chargeable under the head

'Profits and gains of business or Profession u/s 41(1). Our views find

support from the decision of various courts of law, as under:

i) Kohinoor Mills Co. Ltd. vs. CIT (1963) 49 ITR 578 (Bom.)

ii) J.K. Chemicals Ltd. vs. CIT (1966) 62 ITR 34 (Bom.)

iii) Baroda Trades Ltd. v. CIT (1965) 57 ITR 490, 497 (Guj)

iv) Gannon Dunkerley & Co. v. CIT (1976) 102 ITR 428 (Bom.)

v) Liquidator, Mysore P. Ltd. v. CIT (1978) 114 ITR 853 (Karn.)

vi) CIT v. B.N. Elias & Co. Pvt. Ltd. (1986) 160 ITR 45 (Cal)

vii) CIT v. Pre-stressed Concrete Co. (S.I. ) Pr. Ltd. (1986) 162 ITR 314 (Mad.)

viii) CIT v. Chase Bright Steel Ltd. (1989) 177 ITR 128, 134 (Bom).

ix) Ambica Mills Ltd. v. CIT (1964) 54 ITR 167 (Guj)

x) Sadabhakti Prakashan Printing Press P. Ltd. (1966) 62 ITR 35, 41 (Bom).

xi) CIT v. Sugauli Sugar Works P. Ltd. (1983) 140 ITR 286 (Cal.)

6. Therefore, in the facts and circumstances of the present case and the

decisions of various courts of law referred to hereinabove, we are of the

view that any unclaimed liability which is shown as subsisting debt in the

annual balance sheet of the assessee, such action on the part of the assessee

amounts to acknowledgment by the assessee within the meaning of section 6 ITA No.375(Asr)/2014

19 of the Limitation Act, 1908 corresponding to section 18 of the Limitation

Act, 1963 and the assessee is not liable to attract the provision of section

41(1) of the Act. Thus, in the facts and circumstances of the present case, we

find no infirmity in the order of the ld. CIT(A), who has rightly deleted the

addition so made by the AO. Hence, the sole ground raised by the revenue

is dismissed.

7. In the result, the appeal filed by the revenue in ITA No.375(Asr)/2014

is dismissed.

Order pronounced in the open court on 26th February, 2015.

Sd/- Sd/- (A.D.JAIN) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 26th February, 2015 /SKR/ Copy of the order forwarded to:

1. The Assessee:Sh.Parminder Pal Singh, Batala

2. The ITO Ward 2(4), Batala.

3. The CIT(A), Asr.

4. The CIT, Asr.

5. The SR DR, ITAT, Amritsar.

True copy By order

(Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.