Vidur Vishnu Bhogilal, Mumbai vs Assessee

/Assessee by : Shri J.P.Bairagra /Revenue by : Shri Pawan Kumar Beerla

Date of Hearing : 13/01/2015 Date of Pronouncement : 25/02/2015 ORDER

PER R.C.SHARMA (A.M.) :

This is an appeal filed by the assessee against the order of CIT(A)

dated 25-8-2011, for the assessment year 2007-08, in the matter of order

passed u/s.143(3) of the I.T.Act.

2. In this appeal the assessee is aggrieved by the order of CIT(A)

confirming the addition of Rs.11,91,796/-.

3. Rival contentions have been heard and record perused. From the

record, we found that the assessee had, in the past, 'taken a loan of

Rs.11,91,796/- from M/s. Parekh Investment in his proprietary concern

M/s. Bhogilal & Sons. The AO has noted in para 4.2 of his order that the

liability on account of the said loan is outstanding since 2 ITA No.7966/2011

assessment year 2002-03. The said loan was interest-free. On being

asked by the AO to explain the nature of outstanding liability in the

absence of any business activity, the assessee explained that the

aforesaid loan was taken for the purchase of shares of Interface Finance

Ltd. The AO further noted that the assessee informed that the assessee's

proprietary concern M/s. Bhogilal & Sons was not engaged in the trading

of shares and it was trading in Rock Salt.

4. It was contended by the ld. AR that the AO in para 4.1 of his order

has held that, as the loan was obtained for the purchase of shares and

the assessee was not dealing in shares, obviously the liability is on capital

account for investment in shares. The assessee had never claimed the

said liability as a trading liability. It is submitted that the issue whether the

liability is on capital account or it is a trading liability, has by itself no

bearing for making the impugned addition.

5. From the record, we found that it is not a trading liability as held by

the AO, there can be no allowance or deduction in the past assessments

and no remission or cessation of liability in the year under consideration

within the meaning of Sec. 41(1) so as to attract its operation. Moreover,

the question of remission of a liability arises when the creditor gives up

the claims, which is not the case. The AO has himself noted in para 3 and

4.2 of his order that the loan is taken in the earlier years even prior to

discontinuation of business and said liability is outstanding since asst.

year 2002-03. It is not the case of the AO that the impugned addition is

being made u/s. 68 of the Act. If confirmation from the creditor in respect

of the loan obtained is not obtained by a tax payer, the addition u/s. 68 3 ITA No.7966/2011

could perhaps be made in the year in which the loan is first obtained by

holding that it is unexplained cash credit.

6. Reliance was placed on the decision of the Mumbai Tribunal in the

case of DSA ENGINE RS (BOMBAY) v. ITa - 30 SOT 31 (Mum), wherein

the AO has made the addition of outstanding Sundry Creditors u/ s. 41 (1)

without writing off the outstanding Sundry Creditors in the books of

account and without any evidence, treating the said liability as ceased to

exist. The Tribunal held that -

"(i) Mere fact that liabilities were outstanding for more than three years and were time barred was not sufficient ground for addition u/s. 41(1) of the I.T. Act.

(ii) For treating the liability as income u/s.41(1), even though they are outstanding in the books of the assessee, the onus is on the revenue to prove that the liabilities have ceased to exist and, there was no possibility of their realization.

(iii) Further, Explanation to Section introduced by the Finance Act, 1996 w.e.f. 1-4-1997 is applicable only if the outstanding amount is unilaterally written off in the books of account."

Further reliance was placed on the decision of the Hon. Bombay High

Court in the case of Mahindra & Mahindra Ltd Vs. CIT (BOM) (2003) 261

ITR 501. In support of the proposition that even if the said loan is not

payable, the same is neither taxable u/s. 28(iv) nor u/s. 41.

7. In view of the above discussion, respectfully following the decision

of the Hon'ble jurisdictional High Court in the case of Mahindra &

Mahindra Ltd. (supra), we do not find any merit in the addition of

Rs.11,91,796/- made by the AO

8. In the result, appeal of the assessee is allowed.

4 ITA No.7966/2011

Order pronounced in the open court on this 25th Feb.2015.

Sd/- Sd/- ( ) ( ) (VIVEK VARMA) (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER Mumbai; Dated 25/02/2015 /pkm, PS

Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. / The CIT(A), Mumbai. / BY ORDER, 4. / CIT 5. / DR, ITAT, Mumbai

6. Guard file.

//True Copy// (Asstt. Registrar) / ITAT, Mumbai