The Tribunal, By Placing Reliance On The Decision In The Case Of Cit v. G.k.patel And Company, (2013)212 Taxmann 384 (Guj), Held As Under

C/TAXAP/241/2019 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 241 of 2019 ============================================================================== PRINCIPAL COMMISSIONER OF INCOME TAX - 4 VersusVISHAL PLASTOMERS PVT. LTD. ============================================================================== Appearance:MR. M.R. BHATT, SR. ADVOCATE with MRS. MAUNA M. BHATT for the Appellantfor the Opponent(s) No. 1 ============================================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALAandHONOURABLE MR.JUSTICE A.C. RAO Date : 09/07/2019 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1.This Tax Appeal under Section 260A of the Income Tax Act, 1961, is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal “D” Bench, Ahmedabad, in the ITA No.1774/AHD/2014 dated 26th October 2018 dated 26th October 2018 for the Assessment Year 2007-08. 2.The Revenue has proposed the following question of law : “Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of CITA deleting the addition of Rs.3,58,39,862/- made on account of disallowance under section 41(1) of the Income Tax Act ?” 3.The Tribunal, by placing reliance on the decision in the case of CIT v. G.K.Patel and Company, (2013)212 Taxmann 384 (Guj), held as under : “Having regard to the facts and circumstances of the case, we find that merely because the liabilities are outstanding for a long period of time the same cannot be said to be ceased to exist. Neither the Ld. Assessing Officer has proved that the assessee has obtained the benefit of the said liabilities by way of remission or cessation thereof. The judgments cited above have decided the same issue involved in this matter as discussed. We, therefore, find no infirmity in the order passed by the Ld. CIT(A) and respectfully following the judgments, we decline to interfere with the same. This ground of appeal preferred by the Revenue is thus dismissed.” 4.In G.K.Patel (supra), this Court took the view as under : “To the extent the said decision holds that a unilateral act on the part of the debtor cannot bring about a cessation of his liability, the same would not be applicable to the facts of the present case, in view of the insertion of Explanation 1. However, at the cost of repetition it may be stated that in this case there is no unilateral act on the part of the debtor so as to bring about a cessation of its liability. Therefore, the other part of the decision would still apply to the facts of the present case, namely that the cessation of liability has to be either by reason of operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor, or a contract between the parties, or by discharge of the debt – the debtor making payment thereof to his creditor. In the present case, admittedly there in no declaration by the assessee that it does not intend to honour its liabilities nor is there any discharge of the debt. In the aforesaid premises, as no event had taken place in the year under consideration to indicate remission or cessation of the liabilities in question, the provisions of section 41(1) of the Act could not have been invoked. The reasoning adopted by the Tribunal while holding that section 41(1) would not be applicable to the facts of the present case is in line with the principles enunciated in the above decision. The Tribunal, therefore, committed no legal error so as to give rise to any question of law warranting interference by this court.” present case, admittedly there in no declaration by the assessee that it does not intend to honour its liabilities nor is there any discharge of the debt. In the aforesaid premises, as no event had taken place in the year under consideration to indicate remission or cessation of the liabilities in question, the provisions of section 41(1) of the Act could not have been invoked. The reasoning adopted by the Tribunal while holding that section 41(1) would not be applicable to the facts of the present case is in line with the principles enunciated in the above decision. The Tribunal, therefore, committed no legal error so as to give rise to any question of law warranting interference by this court.” 5.This Court, in the case of Commissioner of Income Tax - III v. Bhogilal Ramjibhai Atara (Tax Appeal No.588 of 2013, decided on 4th February 2014), held as under : “We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex-parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) f the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed.” 6.In view of the aforesaid, we do not find any error, much less an error of law, in the impugned order passed by the Tribunal. 7.In the result, this Appeal fails and is hereby dismissed. (J. B. PARDIWALA, J.) (A. C. RAO, J.)