TMI Blog2018 (5) TMI 1311X X X X Extracts X X X X X X X X Extracts X X X X ..... rove that the payee had duly considered the subject mentioned receipt in his return of income and hence no disallowance u/s 40(a)(ia) of the Act could be inflicted on the same in the hands of the assessee payer Whether the provisions of section 40(a)(ia) of the Act could be invoked for short deduction of tax at source - Held that:- We find that this issue has been held in favour of the assessee by the co-ordinate bench decision of this tribunal in the case of DCIT vs S K Tekriwal (2012 (12) TMI 873 - CALCUTTA HIGH COURT) wherein it was held that in the case of short deduction of tax at source, no disallowance u/s 40(a)(ia) of the Act could be made in the hands of the assessee and the assessee could be proceeded against only under section 201 of the Act in such cases - Decided in favour of assessee - I.T.A No. 403/Kol/2017 - - - Dated:- 4-5-2018 - Hon ble Shri S.S. Godara, JM And Shri M.Balaganesh, AM For the Appellant : Shri P. K. Himmatsinghka, AR For the Respondent : Shri Sallong Yaden, Addl. CIT ORDER Per M.Balaganesh, AM 1. This appeal by the assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-15, Kolkata [in short the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors and accordingly issued notices u/s 133(6) of the Act to them. Out of 11 parties, the notices could be served only on 3 parties from whom no replies were received by the ld AO. The remaining notices sent to 8 parties returned unserved. The ld AO showcaused the assessee as to why the entire creditors balance outstanding in the sum of ₹ 1,08,65,202/- be not treated as deemed income u/s 41(1) of the Act on account of cessation of liabilities as there is no movement in the said parties account from 31.3.2009 onwards. The assessee replied that he is in the business of interior decorating and other similar types of job and for that purpose he wants sub-constract some other person for carrying out the job within West Bengal and outside the state. In the books of the assessee, some old creditors balances are outstanding and lying unadjusted due to non-aware of the present whereabouts of such creditors after a lapse of 4 to 5 years and whatever address are available with the assessee had been given by the suppliers at the time when the assessee had purchased material and / or taken labour from them. It was specifically brought to the notice of the ld AO that the assessee had not w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39,23,208 The ld AO observed that M/s M.J.Contractor who had filed the reply on 16.1.2015 wherein it had confirmed the transaction of ₹ 4,000/- executed during the year but did not confirm the balance of receivable amount at the starting and at the end of the year. Based on this, the ld AO treated the said creditor i.e M/s M.J.Contractor as a bogus creditor. 3.2.1. The assessee was also granted opportunity to produce the remaining three parties namely (i) Shri Brahmadeb Das ; (ii) M/s Intrex and (iii) Shri Sarvjit Kumar Tiwary along with the details / documents from which the genuineness of the closing balance could be proved. The ld AO showcaused the assessee as to why the balances outstanding in their accounts be not treated as bogus liabilities. 3.3. The assessee submitted reply to this effect by furnishing few copies of the bills raised by M/s M.J.Contractor to the assessee and also the ledger copies of all the 4 parties before the ld AO. Regarding other 3 creditors, the assessee expressed his inability to produce the parties before the ld AO as the present whereabouts of such creditors are not known to the assessee. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of liability can take place, therefore, the addition so made by the AO and confirmed by the Ld. CIT(A) is bad in law and liable to be cancelled. 3. That under the facts and circumstances of the case, Ld. CIT(A) was wrong in confirming the addition of ₹ 29,49,535/- as bogus sundry creditors u/s 41(1) of IT Act despite there is no cessation of liability, which is completely wrong, arbitrary, unjustified and illegal. 5. We have heard the rival submissions and perused the materials available on record. The addition in the sum of ₹ 1,08,65,202/- has been made u/s 41(1) of the Act by the ld AO. For the sake of convenience, the provisions of section 41(1) of the Act are reproduced below:- Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year,- (a) the first- mentioned person 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 such pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the creditors liability to be discharged in future. Hence there cannot be any cessation of liability as on 31.3.2012. Moreover, in order to invoke the provisions of section 41(1) of the Act, there should be a clear finding to prove that the liabilities had ceased to exist during the previous year relevant to Asst Year 2012-13 (i.e the year under appeal). We find that no such finding is recorded by both the authorities below. In the absence of such crucial finding, invocation of provisions of section 41(1) of the Act as deemed income does not arise in the hands of the assessee. Moreover, the assessee had not obtained any benefit in respect of these trading liabilities in view of the fact that he had duly acknowledged the debt payable to these creditors in his books. In this regard, we find that the reliance has been rightly placed by the ld AR on the decision of the Hon ble Karnataka High Court in the case of CIT vs Alvares Thomas reported in 239 Taxman 456 (Kar) on similar set of facts and circumstances had held as under:- The appellant-Revenue has preferred the present appeal by raising the following substantial question of law: Whether under the facts and in the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first-mentioned person 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 such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or ** ** ** [Explanation 1 - For the purposes of this sub-section, the expression- loss or expenditure or some 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 first mentioned 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. (Underlining ours) 13. Explanation 1 which was inserted w.e.f. 1.4.1997 is not attracted to the present case since there was no writing off of the liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur opinion, this rule should be applied to the interpretation and understanding of the words remission and cessation used in the section. 13. In Bombay Dyeing Mfg. Co. Ltd. v. State of Bombay AIR 1958 SC 328 the legal position was summarized by T.L. Venkatarama Aiyar, J., in the following manner : It has been already mentioned that when a debt becomes time-barred, it does not become extinguished but only unenforceable in a Court of law. Indeed, it is on that footing that there can be statutory transfer of the debts due to the employees, and that is how the board gets title to them. If then a debt subsists even after it is barred by limitation, the employer does not get, in law, a discharge therefrom. The modes in which an obligation under a contract becomes discharged are well-defined, and the bar of limitation is not one of them. The following passages in Anson's Law of Contract, 19th Edition, p. 383, are directly in point : At Common Law lapse of time does not affect contractual rights. Such a right is of a permanent and indestructible character, unless either from the nature of the contract, or from its terms, it be limited in point of duration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same. To recapitulate, the learned standing counsel contended before us that since a period of more than 4 years has admittedly elapsed from the debt on which the debts were incurred and since the creditors had not taken any steps to recover the amount, there was a cessation of the debts which brought the matter under s. 41(1). Turning back to the judgment of the Supreme Court, we find that the judgment of the Calcutta High Court under appeal was affirmed for two reasons. The first reason was based on a judgment of the Full Bench of the Gujarat High Court in CIT v. Bharat Iron Steel Industries (1992) 105 CTR (Guj.) (FB) 331 : (1993) 199 ITR 67 (Guj)(FB). It was held by the Supreme Court that the Gujarat High Court was right in saying that in order to attract taxability under s. 41(1) the assessee should have obtained, whether in cash or in any other manner whatsoever, any amount in respect of the loss or expenditure earlier allowed as a deduction. This part of the reasoning, in the light of the amended cl. (a) of sub-s. (1) of s. 41 may not be relevant after substitution of the said clause by the Finance Act, 1992 w.e.f. 1st April, 1993, by which the words some benefit in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. In the instant case, the liability being one relating to wages, salaries and bonus due by an employer to his employees in an industry, the provisions of the Industrial Disputes Act also are attracted and for the recovery of the dues from the employer, under s. 33C(2) of the Industrial Disputes Act, no bar of limitation comes in the way of the employees. 15. The Supreme Court noticed that the above observations of the Bombay High Court were quoted by the Calcutta High Court in the judgment under appeal before them, and observed as under while upholding the judgment of the Calcutta High Court : This judgment has been quoted by the High Court in the present case and followed. We have no hesitation to say that the reasoning is correct and we agree with the same. To reinforce the conclusion, the Supreme Court also noticed its earlier judgment in Bombay Dyeing Mfg. Co. Ltd. v. State of Bombay AIR 1958 SC 328 wherein it was held that the expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt. 16. In our opinion, the judgment of the Supreme Court in CIT v. Suga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 225 Taxman 67 respectively. He also relied upon the provisions of Section 41 of the Income Tax Act. 5. The principal contention is that unless the burden is discharged with regard to the existence of the liability by the assessee, it is open for the Revenue to invoke the provisions of Section 41(1) of the Act and to make addition on the premise that, the liability has ceased to pay the amount of the creditor. 6. In his submission, the decision of Delhi High Court which has been referred to by the Tribunal in case of CIT v. Shri Vardhman Overseas Ltd. [2011] 16 taxmann.com 350/[2012] 204 Taxman 524/343 ITR 408 cannot be applied to the facts of the present case since in the said decision, it was not a case where the party/creditor was not verifiable or that the address was not changed. He therefore, submitted that Court may consider the present appeal. 7. As in the above referred order of the Tribunal, the relevant portion of Section 41 is reproduced, we may not reproduce the same. But, the relevant aspect is that, there are two requirements for invoking the provision of Section 41. The Sine qua non is, the remission or cessation of the trading liability and the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajasthan High Court in the case of Rama Steel Rolling Mills General Engg. Works (supra), the question examined was with regard to discharge of the liability, whether by remission or cessation was not concluded but was rather referred to the assessing authority for fresh assessment. In the decision of High Court of Punjab and Haryana in case of Mrs. Adarsh Sood (supra), there were entries shown in the books of account of the assessee as not in the nature of debts but as credits. Such are not the fact situations in the present case. 12. Under the circumstances, the aforesaid decisions of High Court of Rajasthan and High Court of Punjab and Haryana cannot be applied to the facts of the case. 13. In view of the aforesaid, we find that when the issue is already covered by the decision of Delhi High Court, read with the reasons recorded by us hereinabove, it cannot be said that any substantial question of law would arise for consideration as sought to be canvassed. Hence, the present appeal is dismissed. (Bold letters provided by us) 5.1. Moreover, we find that in the decision of the Hon ble Jurisdictional High Court in the case of Kesoram Industries Cotton Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and especially in view of the fact that one of the parties M/s M.J.Contractor had duly responded to notice u/s 133(6) of the Act before the ld AO by confirming the transactions and in respect of Shri Brahmadeb Das, the notice u/s 133(6) of the Act was duly served on the said supplier, it cannot be said that those suppliers are non-existent and bogus. We find that the assessee had placed all the relevant materials before the lower authorities to drive home the point that the sundry creditors shown in the name of these three parties are indeed genuine and transactions were done during the year with them. These facts were not appreciated by the ld AO while treating these creditors as bogus. It is not in dispute that these 3 creditors balances were brought forward from previous year and during the year , only small payments were made to them as detailed supra and hence the balance outstanding in these accounts cannot be the subject matter of addition during the year under appeal. Accordingly , the Ground No. 3 raised by the assessee is allowed. 7. The last issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the disallowance made u/s 40(a)(ia) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the assessee in his return of income filed on 23.3.2013. The ld CITA had held that since the return was filed belatedly u/s 139(4) of the Act by the payee (i.e Adhir Kumar Mondal), the conditions prescribed in proviso to section 201(1) of the Act were not satisfied and accordingly the assessee is to be treated as assessee in default. In this regard, the conditions prescribed in proviso to section 201(1) of the Act are reproduced below for the sake of convenience:- Section 201 Consequences of failure to deduct or pay (1) 18[Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this eff ..... X X X X Extracts X X X X X X X X Extracts X X X X
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