Heard Shri Shubham Agrawal, Learned Counsel For Theappellant And Shri Suyash Agrawal, Learned Counsel For Therespondent-Assessee v. Ito (Itat Delhi Isot 46 Delhi

Case :- INCOME TAX APPEAL No. - 224 of 2012 Appellant :- The Commissioner Of Income TaxRespondent :- M/S Vihsal Transormers And Swithgears Pvt. Ltd.Counsel for Appellant :- S.S.C. I.T.,Krishna Agarwal,Shubham AgrawalCounsel for Respondent :- Suyash Agarwal,R.R. Agarwal Hon'ble Bharati Sapru,J.Hon'ble Harsh Kumar,J. Heard Shri Shubham Agrawal, learned counsel for theappellant and Shri Suyash Agrawal, learned counsel for therespondent-assessee. This appeal under Section 260-A of the Income Tax,1961(hereinafter referred to as the 'Act') has been filed by thedepartment against the order of the Income Tax AppellateTribunal dated 19.08.2011 for the assessment year 2007-08.The questions of law sought to be answered are as hereunder: "(2) Whether the Hon'ble ITAT, erred in law in deleting the addition made in A.Y. 2007-08 onaccount of Sundry Creditory relying on the credit balances shown in A.Y. 2008-09 which werenot disputed by the department ignoring the law that the principle of res judicata is notapplicable in Income Tax. Further, once the addition on account of unexplained credit addedin A.Y. 2007-08 the same amount could not be added in A.Y. 2008-09 ? (3) Whether Hon'ble ITAT erred in law in deleting the addition made on account of unclaimedliability ignoring the fact that unclaimed credit liability which is barred by limitation and nopossibility of any claim in further is covered by Section 41(1) as it is held in Distince Propertyand Leasing Ltd. Vs. ITO (ITAT Delhi ISOT 46 Delhi). (4) Whether Hon'ble ITAT erred in law in deleting the addition on account of Bad Debts thejudgment of assessee should revel iirrecoverability of Debts from angle of Debtors and beforethat the assessee must honestly from an opinion that the Debt has become bad. As it is held invarious cases which are given as under- (iv) CIT vs. Coates of India Ltd. (Cal) 232 ITR 324 (v) Industrial Cables (I) Ltd. ACIT (ITAT) (CH) 97 ITR 267 (vi) CIT Financial Retail Services India Ltd. Vs. ACIT 2008-TIOL-05-ITAT MAD." Insofar as the question nos.2 and 3 are concerned the Tribunalhas made an observation in its judgment with regard to thedeletion of an addition of Rs.1,,63,53,539/- made by theAssessing Officer on account of sundry creditors. Thegrievance of the Assessing Officer was that the assessee had not filed any evidence before the Assessing Officer withregard to the actual existence of these liabilities or to showthat the liabilities existed. The question sought to be answeredis whether the provision of Section 41(1) of the Act could havebeen invoked. Section 41(1) of the Act reads as hereunder: "1) Where an allowance or deduction has been made in the assessment for any year in respectof loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as thefirst-mentioned person) and subsequently during any previous year – a. the first-mentioned person has obtained, whether in cash or in any other mannerwhatsoever, any amount in respect of such loss or expenditure or some benefit in respect ofsuch trading liability by way of remission or cessation thereof, the amount obtained by suchperson or the value of benefit accruing to him shall be deemed to be profits and gains ofbusiness or profession and accordingly chargeable to income-tax as the income of thatprevious year, whether the business or profession in respect of which the allowance ordeduction has been made is in existence in that year or not; or a. the first-mentioned person has obtained, whether in cash or in any other mannerwhatsoever, any amount in respect of such loss or expenditure or some benefit in respect ofsuch trading liability by way of remission or cessation thereof, the amount obtained by suchperson or the value of benefit accruing to him shall be deemed to be profits and gains ofbusiness or profession and accordingly chargeable to income-tax as the income of thatprevious year, whether the business or profession in respect of which the allowance ordeduction has been made is in existence in that year or not; or b. the successor in business has obtained, whether in cash or in any other mannerwhatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) byway of remission or cessation thereof, the amount obtained by the successor in business or thevalue of benefit accruing to the successor in business shall be deemed to be profits and gainsof the business or profession, and accordingly chargeable to income-tax as the income of thatprevious year. Explanation 1 - For the purposes of this subsection, the expression "loss or expenditure orsome benefit in respect of any such trading liability by way of remission or cessation thereof"shall include the remission or cessation of any liability by a unilateral act by the firstmentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. Explanation 2 - For the purposes of this subsection, "successor in business" means – i. where there has been an amalgamation of a company with another company, theamalgamated company; ii. where the first-mentioned person is succeeded by any other person in that business orprofession, the other person; iii. where a firm carrying on a business or profession is succeeded by another firm, the otherfirm; iv. where there has been a demerger, the resulting company. ...... In the present case there is nothing on record to show thatthere have been cessation of trading liability or that somebenefits have been taken in respect of the trading liability bythe assessee. The necessary ingredients for invoking the provisions of Section 141 are two folds; firstly, there shouldhave been a cessation of the trading liability and secondly thatsome benefit in respect of the trade liability had been taken bythe assessee. Out of total amount of Rs.1 crore and odd, approximately 86 lacs had still remained unrecoverable as the creditors wereuntraceable. This is the finding recorded. In any event, it couldnot be said that the liability had ceased or that any advantagehad been taken by the assessee on account of this. Learned counsel for the assessee has placed reliance on a decision of the Karnataka High Court where this very issuewas being considered in the case of Commissioner of IncomeTax, Bangalore Vs. Alvares & Thomas, reported in[2016]69 taxmann.com 257 (Karnataka), wherein the Courtcame to the conclusion that merely because creditor could notbe traced on date when verification was made, is not a groundto conclude that there cessation of liability because cessationof liability has to be cessation in law, of debt to be paid byassessee to the creditor and, therefore, Section 41(1) of the Actcould not have been invoked. The findings of fact being similar in the present case, thequestion nos.2 and 3 are answered in favour of the assesseeand against the department. Insofar as the question no.4 is concerned, the law is well settled by the Apex Court in the case of T.R.F. Ltd. Vs.Commissioner of Income Tax reported in 323 ITR 397(SC). The relevant para 4 is quoted hereunder: The findings of fact being similar in the present case, thequestion nos.2 and 3 are answered in favour of the assesseeand against the department. Insofar as the question no.4 is concerned, the law is well settled by the Apex Court in the case of T.R.F. Ltd. Vs.Commissioner of Income Tax reported in 323 ITR 397(SC). The relevant para 4 is quoted hereunder: " The position in law is well-settled. After 01.04.1989, it is not necessary for the assessee toestablish that the debt, in fact, has become irrecoverable. It is enough if the bad debt iswritten off as irrecoverable in the accounts of the assessee. However, in the present case, theAssessing Officer has not examined whether the debt has, in fact, been written off in accountsof the assessee. When bad debt occurs, the bad debt account is debited and the customer'saccount is credited, thus, closing the account of the customer. In the case of companies, theprovision is deducted from sundry debtors. As stated above, the Assessing Officer has notexamined whether, in fact, the bad debt or part thereof is written off in the accounts of theassessee. This exercise has not been undertaken by the Assessing officer. Hence, the matter isremitted to the Assessing Officer for de novo consideration of the above mentioned aspect andthat too only to the extent of the write off." Thus, the question no.4 is also answered in favour of theassessee and against the department. The appeal is accordingly dismissed. Order Date :- 9.3.2018pks