Commissioner Of Income Tax, Faridabad v. Satish Kumar Mittal , J

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No. 619 of 2009DATE OF DECISION : 02.12.2009 Commissioner of Income Tax, Faridabad Versus Smt. Sita Devi Juneja .... APPELLANT ..... RESPONDENT CORAM :- HON'BLE MR. JUSTICE SATISH KUMAR MITTAL HON'BLE MR. JUSTICE MEHINDER SINGH SULLAR Present:Ms. Urvashi Dhugga, Advocate,for the appellant-revenue.for the appellant-revenue. * * * SATISH KUMAR MITTAL , J. The revenue has filed this appeal under Section 260-A of theIncome Tax Act, 1961 (hereinafter referred to as `the Act'), against the orderdated 26.3.2009, passed by the Income Tax Appellate Tribunal, DelhiBench `G' Delhi (hereinafter referred to as `the ITAT') in ITA No. 18 (Del)2008, pertaining to the assessment year 2004-05, while raising the followingsubstantial questions of law : (i)Whether on the facts and circumstances of the case, thelearned ITAT was justified in law in confirming the orderof CIT (A) deleting the addition of Rs. 1,47,71,696/-made on account of cessation of liability despite the factthat the liabilities were outstanding for a period of morethan six years and on inquiry conducted by the AssessingOfficer creditors were untraceable and also the assesseelearned ITAT was justified in law in confirming the orderof CIT (A) deleting the addition of Rs. 1,47,71,696/-made on account of cessation of liability despite the factthat the liabilities were outstanding for a period of morethan six years and on inquiry conducted by the AssessingOfficer creditors were untraceable and also the assessee failed to produce the creditors, their Income Taxparticulars and even present address of the creditorsdespite opportunity being afforded to the assessee? (ii) Whether on the facts and circumstances of the case andin law, the learned ITAT was right in holding that“confirmations from the creditors were produced, whichwere not doubted” despite the fact that the AssessingOfficer in his assessment order has observed that thoughcopies of accounts of sundry creditors appearing in thebooks of the assessee signed by the concerned creditorswere filed by the assessee, the assessee herself admittedduring the assessment proceedings that she had lostcontact with the creditors and their latest addresses arebeing located and further, the addresses of creditors andtheir PANs were also not given during the assessmentproceedings?in law, the learned ITAT was right in holding that“confirmations from the creditors were produced, whichwere not doubted” despite the fact that the AssessingOfficer in his assessment order has observed that thoughcopies of accounts of sundry creditors appearing in thebooks of the assessee signed by the concerned creditorswere filed by the assessee, the assessee herself admittedduring the assessment proceedings that she had lostcontact with the creditors and their latest addresses arebeing located and further, the addresses of creditors andtheir PANs were also not given during the assessmentproceedings? (iii)Whether the learned ITAT was right in holding that notrading liability existed in the case which was necessaryto attract Section 41 (1), thereby totally disregarding thebasic facts of the case that the conditions necessary forinvoking Section 41 (1) were fulfilled, since theAssessing Officer had invoked these provisions in theassessee's case where there were cessation of liability bytrade creditors with regard to their trading dues ortrading liability owed to the assessee for goods supplied?trading liability existed in the case which was necessaryto attract Section 41 (1), thereby totally disregarding thebasic facts of the case that the conditions necessary forinvoking Section 41 (1) were fulfilled, since theAssessing Officer had invoked these provisions in theassessee's case where there were cessation of liability bytrade creditors with regard to their trading dues ortrading liability owed to the assessee for goods supplied? In the present case, the Assessing Officer made an addition ofRs.1,47,71,696/- on account of outstanding sundry credit balances as on31.3.2004, while holding that liability in respect of these creditors hadceased to exist and as such, it had become liable to be treated as deemed income under Section 41 (1), Explanation-I of the Act. On appeal filed bythe assessee, the CIT (A) partly allowed the appeal and the aforesaidaddition was deleted, while coming to the conclusion that in the facts andcircumstances of the case, the Assessing Officer has wrongly invoked theprovision of Section 41 (1), Explanation-I of the Act. It has been observedthat in the instant case, there was no unilateral cessation or remission ofliabilities of Rs. 1,47,71,696/-, therefore, the provision of Explanation-I toSection 41 (1) of the Act is not attracted. It was further observed that if theincome is to be assessed under Section 41 (1) of the Act, the burden is onthe revenue to prove this income, whereas the Assessing Officer has failedto give any finding in his assessment order regarding the mandatoryrequirement of Section 41 (1) of the Act. The Assessing Officer has also notgiven any finding regarding obtaining of any benefit of these tradingliabilities in the earlier year. Against the order of the CIT (A), the revenue filed appeal,which has been dismissed by the ITAT, while observing as under :- “It was for the AO to show that the liabilities in question hadceased to exist. In fact, these liabilities were payable to theassessee and unless demonstrated, they were to be shown asoutstanding. These liabilities were appearing in the assessee'sbalance-sheet, indication acknowledgment of the debts payableby the assessee, as has been held in “CIT v. Tamil NaduWarehousing Corpn.” 292 ITR 310 (Mad), and “Ambika MillsLtd. v. CIT” 54 ITR 167 (Guj.). As such, these liabilities couldnot have been treated to have ceased and so, invocation of the provisions of Section 41 (1) was not at all called for. Moreover,as held by the Hon'ble Supreme Court in “Sugauli Sugar Worksv. CIT” 236 ITR 518 (SC), the cessation of the liability cancome about only by a bilateral act and not unilateral act. In thepresent case, the assessee treated the liability as existing.Further, section 41 (1) of the Act provides for a deemingfiction, as per which an amount not having the nature of incomeis treated as income. That being so, the burden of proving thefiction is in the department. Sans the discharging of thisburden, the addition cannot be made. Here, the AO has notmade out any case of applicability of section 41 (1). To attractsection 41 (1), there must exist a trading liability, regard, whichthe deduction had been claimed and allowed. No such tradingliability had been proved herein. The addition was clearly madeon the basis of mere presumptions, conjectures and surmises.The AO failed to show that in any earlier year, allowance ofdeduction had been made in respect of any trading liabilityincurred by the assessee, nor was it proved that any benefit wasobtained by the assessee concerning such trading liability byway of remission or cessation thereof during the concernedyear. There thus, did not accrue any benefit to the assesseewhich could be deemed to be the profits or gains of theassessee's business which would otherwise not be the assessee'sincome. The assessment order, as such, is directly against thedecision of the Hon'ble Supreme Court in the case of “ChiefCommissioner of Income Tax v. Kesaria Tea Co. Ltd.” (2002)254 ITR 434 (SC).” After hearing learned counsel for the appellant and goingthrough the impugned order, we do not find any merit in the instant appeal.It is the conceded position that in the assessee's balance sheet, the aforesaid After hearing learned counsel for the appellant and goingthrough the impugned order, we do not find any merit in the instant appeal.It is the conceded position that in the assessee's balance sheet, the aforesaid liabilities have been shown, which are payable to the sundry creditors. Suchliabilities, shown in the balance sheet, indicate the acknowledgment of thedebts payable by the assessee. Merely because such liability is outstandingfor the last six years, it cannot be presumed that the said liabilities haveceased to exist. It is also conceded position that there is no bilateral act ofthe assessee and the creditors, which indicates that the said liabilities haveceased to exist. In absence of any bilateral act, the said liabilities could nothave been treated to have ceased. In view of these facts, the CIT (A) as wellas the ITAT have rightly come to the conclusion that the Assessing Officerhas wrongly invoked the Explanation-I of Section 41 (1) of the Act andmade the aforesaid addition on the basis of presumption, conjectures andsurmises. It has been further found that the Assessing Officer failed to showthat in any earlier year, allowance of deduction had been in respect of anytrading liability incurred by the assessee. It was also not proved that anybenefit was obtained by the assessee concerning such trading liability byway of remission or cessation thereof during the concerned year. Thus, theredid not accrue any benefit to the assessee which could be deemed to be theprofit or gain of the assessee's business, which would otherwise not be theassessee's income. It has been further found as fact that the assessee hadfiled the copies of accounts of sundry creditors signed by the concernedcreditors. In view of this fact, in our opinion, the ITAT has rightly come tothe conclusion that confirmation from the creditors were produced. In view of the above, we do not find any illegality in the ITA No. 619 of 2009 impugned order passed by the ITAT and in our opinion, no substantialquestions of law, as raised by the revenue in this appeal, arise from the orderof the ITAT. Dismissed. ( SATISH KUMAR MITTAL )JUDGE December 02, 2009 ( MEHINDER SINGH SULLAR )ndjJUDGE