The Principal Commissioner of Income-tax-1 v. Adani Agro Pvt. Ltd
[Citation -2020-LL-0210-89]

Citation 2020-LL-0210-89
Appellant Name The Principal Commissioner of Income-tax-1
Respondent Name Adani Agro Pvt. Ltd.
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 10/02/2020
Assessment Year 2012-13
Judgment View Judgment
Keyword Tags remission or cessation of trading liability • expenditure incurred • closing balance • credit balance
Bot Summary: As said party is raising same bill for all the three Assessment Years outstanding balance would remain same every year and liability outstanding as on 31 March, 2012 is out of expenditure incurred in current year and not out of earlier Assessment Years hence such amount cannot be added under Section 41 of the Act. On careful consideration of entire facts, it is observed that Rajesh Mehta Associates is VAT consultants and said party is raising bill of Rs. 7, 500/every year and payment thereof is made in subsequent Assessment Year. Nitin S. Garg 208 taxman 16 has also held as under: Section 41 of the Income Tax Act, 1961 Remission or cessation of trading liability Assessment Year 2001 02 to 2003 04 and 2006 07 in course of assessment, Assessing Officer noticed from balance sheet that various creditors were very old and no interest had been paid on those various loans Assessing Officer gave various opportunities to assessee to furnish details of such creditors viz. Whether merely because liabilities were outstanding for last many years, it could not be inferred that said liabilities had ceased to exist. 6 The dictum of law as laid in Nitin Garg provides that once assessee had continued to show admitted amounts as liabilities in its balance sheet, the same could not be treated as a case of cessation of liabilities merely because liabilities were outstanding for last many years, it could not be inferred that such liabilities had ceased to exist. Rs.7500 as fee was granted as expenditure every year and paid in the subsequent year so that at the end of the year there remained a credit balance of Rs.7500 in respect of that particular year's consultancy fee which was provided in the books of accounts by the assessee. Merely because the liability has remained outstanding for more than three years and the same is not written back in profit and loss account, application of provisions of Section 41(1) of the Act, 1961 cannot be made to consider such liability as income of the year under consideration without there Page 5 of 6 Downloaded on : Mon Aug 24 11:45:48 IST 2020 C/TAXAP/886/2019 ORDER being any remission or cessation of liability.


C/TAXAP/886/2019 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 886 of 2019 PRINCIPAL COMMISSIONER OF INCOME TAX-1 Versus M/S ADANI AGRO PVT. LTD. Appearance: MRS MAUNA M BHATT(174) for Appellant(s) No. 1 for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 10/02/2020 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1 This Tax Appeal under Section 260A of Income Tax Act, 1961 [for short, 'the Act, 1961'] is at instance of Revenue and is directed against judgement and order passed by Income Tax Appellate Tribunal, 'D' Bench, Ahmedabad dated 28th June 2019 in ITA No.1771/Ahd/2016 for A.Y. 2012 13. 2 Revenue has proposed following two questions of law for consideration of this Court: [A] Whether Appellate Tribunal has erred in law and on facts in deleting disallowance of Rs.1,39,22,989/ made under Section 14A of Act r.w. Rule 8D of Rules? [B] Whether Appellate Tribunal has erred in law and on facts in deleting Page 1 of 6 Downloaded on : Mon Aug 24 11:45:48 IST 2020 C/TAXAP/886/2019 ORDER addition of Rs.7500/ made under Section 41(1) of Act on account of cessation of liability? 3 We are inclined to admit this Tax Appeal on first question of law as proposed by Revenue, but, with slight modification. We admit this Tax Appeal on following question of law: [A] In facts and circumstances of case, whether Tribunal has erred in disallowing Rs.1,39,22,989/ made under Section 14A of Act read with Rule 8D(2)(iii) of Rules? 4 So far as second question of law as proposed by Revenue is concerned, we take note of following findings recorded by CIT(A): 4.3 I have carefully considered Assessment Order and submission filed by Appellant. Assessing Officer has observed that Appellant has shown balance in account of Rajesh Mehta & Associates for Rs. 7, 500/for three years and as debt has become time barred, such amount was added under Section 41 ( 1 ) of Act. On other hand, Appellant has argued that it has been making payment of professional charges to said party every year and bill received is credited in his account every year and in subsequent year payment is made. As said party is raising same bill for all three Assessment Years outstanding balance would remain same every year and liability outstanding as on 31 March, 2012 is out of expenditure incurred in current year and not out of earlier Assessment Years hence such amount cannot be added under Section 41 ( 1 ) of Act. It was also stated that such amount was not written back in Profit & Loss Account hence even on that ground addition cannot be made. On careful consideration of entire facts, it is observed that Rajesh Mehta & Associates is VAT consultants and said party is raising bill of Rs. 7, 500/every year and payment thereof is made in subsequent Assessment Year. It is observed that said party has raised bill of Rs. 7, 500/for A.Y. 2011 12 for which provision is made by Appellant on 31th March, 2011 hence closing balance of said party as on 31th March, 2011 is Rs. 7, 500/ . Appellant has also made payment against such provision on 27 April, 2011. Subsequently, said party has raised similar bill for A. Y. 2012 13 hence Appellant made provision as on 31 March, 2012 for same amount and even said amount is paid in Page 2 of 6 Downloaded on : Mon Aug 24 11:45:48 IST 2020 C/TAXAP/886/2019 ORDER subsequent Assessment Year on 27th April, 2012. Thus, year end provision reflected against such party is not outstanding balance since three years as assumed by Assessing Officer hence even on Assessing Officer's stand, addition of Rs. 7, 500/cannot be made Even otherwise, it is observed that outstanding balance is creditors account are shown as liability in its books of account and such amount is not written back in Profit & Loss Account hence applying provisions of section 41( 1), no such addition can be even though debt is time barred or outstanding for more than three years. On identical facts, Hon ble Gujarat High Court in case of CIT v/s. Nitin S. Garg 208 taxman 16 has also held as under: Section 41 (1) of Income Tax Act, 1961 Remission or cessation of trading liability (Cessation of liability) Assessment Year 2001 02 to 2003 04 and 2006 07 in course of assessment, Assessing Officer noticed from balance sheet that various creditors were very old and no interest had been paid on those various loans Assessing Officer gave various opportunities to assessee to furnish details of such creditors viz., confirmation as well as creditworthiness but assessee failed to produce necessary information and details in that regard of aforesaid liabilities. On further appeal, Tribunal deleted addition on ground that assessee had continued to show admitted amounts as liabilities in its balance sheet and thus it could not be treated as case of cessation of liabilities. Whether merely because liabilities were outstanding for last many years, it could not be inferred that said liabilities had ceased to exist. Held, yes, whether even otherwise, since assessee had continued to show admitted amounts as liabilities in its balance sheet, Tribunal was justified in deleting impugned addition made by Assessing Officer Held yes (in favour of assessee) . Following decision of Hon ble Gujarat High Court referred supra, disallowance made Assessing Officer u/s. 41(1) for Rs. 7,500/ is deleted. This ground of appeal is allowed. 5 Thus, CIT(A) relied upon decision of this Court in case of CIT vs. Nitin S. Garg 208 Taxman 16 . Tribunal while affirming order passed by CIT(A) held as under: 14 After considering submissions of assessee, Ld. CIT(A) deleted addition by relying on decision of Hon'ble Gujarat High Court in case fo CIT vs. Nitin S. Garg 208 taxman 16(Guj). 16 Considered rival submissions and material available on record, Page 3 of 6 Downloaded on : Mon Aug 24 11:45:48 IST 2020 C/TAXAP/886/2019 ORDER Ld. DR has not made any effort to bring on record any cogent material and not made any elaborate submissions. In absence of submission and fact brought on record by assessee and ld. CIT(A) is considered and we are inclined to accept findings of Ld. CIT(A) based on facts available on record. Therefore ground raised by Revenue is accordingly dismissed. 6 dictum of law as laid in Nitin Garg (supra) provides that once assessee had continued to show admitted amounts as liabilities in its balance sheet, same could not be treated as case of cessation of liabilities merely because liabilities were outstanding for last many years, it could not be inferred that such liabilities had ceased to exist. 7 Therefore, when both authorities have arrived at finding of fact that liability was existing in books of accounts of assessee from year to year and liability of Rs.7500 represented consultancy fee pertaining to relevant year credited to account of consultant. Therefore, impression of Assessing Officer that such amount was outstanding for more than three years was erroneous. In fact, Rs.7500 as fee was granted as expenditure every year and paid in subsequent year so that at end of year there remained credit balance of Rs.7500 in respect of that particular year's consultancy fee which was provided in books of accounts by assessee. 8 In view of above finding of fact, provisions of Section 41(1) of Act, 1961 could not have been invoked as there is no remission of cessation of liability. 9 Section 41(1) of Act, 1961 reads as under: 41. Profits chargeable to tax (1) Where allowance or deduction has been made in assessment Page 4 of 6 Downloaded on : Mon Aug 24 11:45:48 IST 2020 C/TAXAP/886/2019 ORDER for any year in respect of loss, expenditure or trading liability incurred by assessee (hereinafter referred to as first mentioned person) and subsequently during any previous year, (a) 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, amount obtained by such person or 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 income of that previous year, whether business or profession in respect of which allowance or deduction has been made is in existence in that year or not; or (b) successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by first mentioned person or some benefit in respect of trading liability referred to in clause (a) by way of remission or cessation thereof, amount obtained by successor in business or value of benefit accruing to successor in business shall be deemed to be profits and gains of business or profession, and accordingly chargeable to incometax as income of that previous year. Explanation. For purposes of this sub section," successor in business" means (i) where there has been amalgamation of company with another company, amalgamated company; (ii) where first mentioned person is succeeded by any other person in that business or profession, other person; (iii) where firm carrying on business or profession is succeeded by another firm, other firm.] 10 As per aforesaid provisions of Section 41(1) of Act, 1961, there has to be remission or cessation of trading liability. Merely because liability has remained outstanding for more than three years and same is not written back in profit and loss account, application of provisions of Section 41(1) of Act, 1961 cannot be made to consider such liability as income of year under consideration without there Page 5 of 6 Downloaded on : Mon Aug 24 11:45:48 IST 2020 C/TAXAP/886/2019 ORDER being any remission or cessation of liability. 11 In view of foregoing, this appeal fails and dismissed so far as second question as proposed by Revenue is concerned. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) CHANDRESH Page 6 of 6 Downloaded on : Mon Aug 24 11:45:48 IST 2020 Principal Commissioner of Income-tax-1 v. Adani Agro Pvt. Ltd
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