TMI Blog2017 (5) TMI 726X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit-" It may or may not be a benefit". Another question is whether the phrase "whether convertible into money or not" would normally mean something else than money. In our opinion, the conclusion of the Tribunal that section 28(iv) would not apply when the amount received is cash or is considered in terms of money, is correct, and the provisions of s 28 (iv) can never be made applicable to the facts of the present case, where excise refund was received by the assessee. - Decided in favour of assessee. - I.T.A. No.2392/Mum/2012 - - - Dated:- 11-5-2017 - SHRI D.T.GARASIA, JM AND SHRI RAJESH KUMAR, AM For The Appellant : Shri Hariom Tulsyan For The Respondent : Shri Suman Kumar ORDER PER RAJESH KUMAR, A. M: This is an appeal filed by the assessee against the order dated 17.1.2012 passed by the ld.CIT(A)-5, Mumbai, for the assessment year 2007-08. 2. Grounds of appeal taken by the assessee are as under : 1. In the facts and circumstances of the case and in law the Learned Commissioner of Income Tax Appeals 5, Mumbai [lithe CIT (A) ] erred in upholding the action of the Income Tax Officer 2(2) (3), Mumbai [ The A.O. ] in making an addition of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited accounts. The assessee furnished all the details as called for by the AO in respect of all branches except Calcutta Branch which could not be filed due to outbreak of fire on 17.11.1998 in the business premises in the Calcutta Branch. The assessee also tried to reconstruct the records but could not do so due to the constraint of manpower as most of the employees were terminated after blaze broke out and the position further deteriorated due to heavy downpour in Mumbai on 26.7.2005 and the said fact duly stated in Note no.12 of Schedule 19 (Note to balance sheet and profit and loss account) which is reproduced below: The company‟s old records were destroyed owing to heavy rains which took place in Mumbai on 26.7.2005 resulting in seepage in premises where the records were kept. The company is in process of reconstructing records to the extent possible The said fact was further brought out by giving public notice in the news paper about the destruction of documents in devastating floods on 5.8.2005 in Mumbai. Having dwelt upon the brief background now we will deal with the appeal ground-wise as under : 4. Grounds no.1 and 2 are interconnected and against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any interest or without making any recovery of the same during the passage of time. It is rather surprising that tile appellant has not been able to furnish even the name of the said creditors. In view of these facts and circumstances of the case and for the reasons as given by the AO in assessment order and remand report, the AO is justified in making addition of ₹ 1 ,79,53,595/- to the income of the appellant. [3.5.ii. The claim of the appellant by filing the additional ground for the corresponding deduction of unrecovered debtors of the amount of ₹ 1,80,72,562/-, is not correct in view of the provision of the I.T.Act any unrecoverable amount of debtors can be claimed as bad debts after actually writing off in the books of account u/s.36(vii) of the 1.T.Act. Therefore. the claim of the appellant deserves to be rejected and additional ground is accordingly dismissed 6. The ld. AR submitted before us that addition by AO u/s 41(1) of the Act in respect of sundry creditors as confirmed by the ld.CIT(A) were appearing in the company accounts for many years and these creditors related to Calcutta Branch. He further submitted that in the devastating fire which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see itself had treated the money as its own money and taken the amount to its profit and loss account. Whereas the facts in the present case were totally different. The assessee had not obtained waiver of these creditor and the creditors have no in no way given up their rights on these amount. The ld. AR further argued that merely because these creditors were very old would not be justification to treat as income. 7. In defence of his arguments the ld.AR heavily relied upon the following case laws: i) CIT V/s Sugauli Sugar Works (P) Ltd (236 ITR 518)(SC) ii) New Commercial Mills Co Ltd V/s DCIT 73 TTJ 893(Ahd) iii) CIT V/s Vardhman Overseas Ltd reported at 343 ITR 408 (Del) The ld.AR finally prayed that it was unequivocally clear that the in the balance sheet these amounts were outstanding for many years and therefore cannot be treated as ceased liability under the provisions of section 41(1) of the Act specially when the assessee was the corporate entity acknowledging these credits by showing the same in the balance sheet and thus conclusion drawn by the ld. CIT(A) was totally wrong and unwarranted in these view of the facts and should be reversed. In the alternativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany did not have any records to be furnished before the lower authorities. The addition made by the AO in the assessment proceedings qua these sundry credit balances were further confirmed by the ld.CIT(A). The assessee has been showing all these sundry creditors and sundry debtors in its balance sheet from 10 to 14 years which were filed before the various authorities and was also suffering losses year after year and as a result accumulated loss over the years were to the tune of ₹ 6.00 crores. Now, the issue before us whether the sundry creditors of ₹ 1,79,53,595/- which were continued to be shown as payable in the accounts of the company in respect of its Calcutta Branch could be added u/s 41(1) of the Act primarily for the reasons that the assessee failed to furnish details, addresses and confirmations of the said creditors whereas the company has filed all the details in respect of all other branches before the lower authorities. In our opinion, tax authorities cannot decide whether the liabilities have ceased specially when the same were being acknowledged by the assessee in its balance sheet. *In the case of Sugauli Sugar Works (P) Ltd (supra), the Honble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, generally income-tax is levied on taxable income earned by the assessee in financial year, where necessary, the Legislature has made an exception. An instance is to be found in section 41(1). At the relevant time, inter alia, provide that where an allowance or deduction has been made in the assessment for the year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year, the assessee has obtained whether in cash or in any other manner whatsoever any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or value of benefit accruing to him, shall be deemed to be profits and gains of business of profession and, accordingly, chargeable to income-tax as the income of that previous year. Thus, wherever there is remission of an amount or cessation of a trading liability, the amount received in the previous year can become assessable to tax. Hence the important words are remission and cessation‟. Remission‟ has to be granted by the creditors and the cessation of the liability may occur either by re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of the creditors. Section 18 of the Limitation Act, 1963 provides for effect of acknowledgement in writing. It says where before the expiration of the prescribed period for a suit in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, a fresh period of limitation shall commence from the time when the acknowledgement was so signed. In an early case, in England, in Jones v. Bellgrove Properties [1949] 2KB 700, it was held that a statement in a balance sheet of a company presented to a creditor- share holder of the company and duly signed by the directors constitutes an acknowledgement of the debt. In Mahabir Cold Storage v. CIT [1991] 188 ITR 91/56 Taxman 4ZF , the Supreme Court held: The entries in the books of accounts of the appellant would amount to an acknowledgement of the liability to Messrs. Prayagchand Hanumanmal within the meaning of Section 18 of the Limitation Act, 1963, and extend the period of limitation for the discharge of the liability as debt. 10. Upon perusal of the above decisions, it is clear that mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO, assessee preferred appeal on this issue before the ld.CIT(A) who also dismissed the claim of the assessee by observing holding as under( para 4.6):. 4.6 I have considered the submission and assessment order in regards to ground No.2 and ground NO.3. The AO made addition on tile basis of remarks made by the auditors of the appellant company and for the reason that the appellant failed to produce basic details. of these credits. Further, the AO placed reliance on Hon'ble Bombay High Court decision in the case of Solid Containers Ltd. (308 ITR 417) and Hon'ble Supreme Court in the case of TV. Sundaram Iyengar Sons Ltd ... (222 ITR 344 (Se)) The position remains the same even before me. The appellant failed to produce details of the said parties who as per claim of the appellant deposited such a huge sum with the appellant. Further, it seems no interest has been paid, and admittedly no portion of amount is returned to the said depositors. In view of the above reasons and fact and circumstances of the case position of law, the addition made by the AO is confirmed. These grounds are accordingly dismissed. 14. The ld. AR vehemently submitted before us that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these amounts should be written back and therefore the action of the ld. CIT(A) is not justified in upholding the order of the AO that these liabilities have ceased. The ld. AR, therefore, argued that there has been no inquiry and no subsequent development which required different stand therefore the principle of resjudicatta, the additions u/s 41(1) were unwarranted. The ld. AR relied upon the following decision CIT V/s Excel Industries Ltd (358 ITR 295), Radhasoamy Satsang V/s CIT (193 ITR 321 (SC), CIT V/s Gopal Purohit (34 DTR 52). The ld. AR submitted that these credit balances have been existing for several preceding years and after making due inquiries the revenue has accepted in assessment year 2003-04 and subsequent years. Since there was no development in the current assessment year and therefore the addition u/s 28(iv) was wholly unjustified and should be reversed. 16. The ld. DR on the other hand heavily relied upon the orders of authorities below and submitted that authorities below have rightly sustained the addition as made by the AO as the assessee could not submit the necessary details qua the addresses and PAN and confirmations thereof and therefore the liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) and including the value of such benefit or perquisite under the head Profits and gains of business or profession . It is only if the benefit or the perquisite is not in cash or money but is non-monetary benefit or non-monetary perquisite that the question of including the value of such benefit or perquisite would ever arise. Under these circumstances the Tribunal was right in rejecting the contention urged on behalf of the revenue that the amount of ₹ 15,964 should be brought to tax as value of any benefit or perquisite within the meaning of section 28 (iv). The Tribunal doubted whether the amount of ₹ 15 964 was any benefit- It may or may not be a benefit . Another question is whether the phrase whether convertible into money or not would normally mean something else than money. In our opinion, the conclusion of the Tribunal that section 28(iv) would not apply when the amount received is cash or is considered in terms of money, is correct, and the provisions of s 28 (iv) can never be made applicable to the facts of the present case, where excise refund was received by the assessee. *In the case of Iskraemeco Regent Ltd (supra), the Hon‟ble Madra High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me that are chargeable to income-tax under the head Profits and gains of business or profession‟ : Sub-section (iv ) of section 28 which has been taken in aid by the revenue to bring the amount in question to tax as business income reads as under: In other words,to apply these provisions the assessee should have appropriated the sums in question to its profit and loss account. Here is a case where the assessee has not appropriated any sums to its profit and loss account. In other words, the sum does not represent income not credited to the profit and loss account in the earlier years which the Hon‟ble Bombay High Court was concerned with. It is a case of sale of somebody‟s asset and not even a part of its regular business receipts. The question of its appropriation in the manner aforesaid has not also taken place. Therefore, it is difficult to apply the provisions of section 28(iv) to the facts of the case when the assessee has been acknowledging this outstanding amount as liabilities to its principal from year to year in its balance sheet. 18. We find that the case of the assessee is squarely covered by the ratio laid down by the above mentioned thre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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