$~R-17
*    IN THE HIGH COURT OF DELHI AT NEW DELHI
%                         Date of Judgment: 17th January, 2018
+                 ITA 583/2005

       COMMISSIONER OF INCOME TAX DEL        ..... Appellant
                         Through Mr. Puneet Rai, Adv.

                                 versus

       M/S BANARAS HOUSE LTD.                             ..... Respondent
                        Through               None
       CORAM:

       HON'BLE MR. JUSTICE SANJIV KHANNA
       HON'BLE MR. JUSTICE CHANDER SHEKHAR

       SANJIV KHANNA, J. (ORAL)


               This appeal by the Revenue pertains to the Assessment Year
     1996-1997 and arises from the order of the ITAT dated 29.11.2004
     passed in ITA No. 2074/Del/2000 in the case of M/s Banaras House
     Ltd.

     2.        By order dated 02.08.2005, the appeal was admitted and the
     following substantial questions of law were framed:-

                 1) Whether on the facts and in the
                 circumstances of the case the Tribunal was
                 correct in law in holding that for the purposes
                 of applying explanation (baa) below Sub-
                 Section 4B of Section 80HHC and while
                 deducting 90% of the receipt by way of interest
                 from the profits of the business, it is only the
                 90% of the net interest remain after allowing a
                 set off of interest paid?
                 2) Whether the Ld. ITAT was correct in law
                 and in facts and circumstances of the case in
                 deleting the addition of Rs.18,90,273/- made by

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                  the A.O. by invoking the provisions of Section
                  41 (1) of the Act?"







     3.        We have heard counsel for the appellant but there is no
     appearance on behalf of the counsel for the respondent/assessee in
     spite of service.

     4.        The first question of law is covered by decision of this Court
     in Commissioner of Income Tax Etc. v. Shri Ram Honda Powers
     Equipment Ltd. (2007) 289 ITR 475 (Del) and the Supreme Court in
     ACG Associated Capsules P. Ltd. v. The Commissioner of Income
     Tax, Central-IV Mumbai (2012) 343 ITR (SC). The Assessing
     Officer will apply their ratio on applicability and effect of Explanation
     (baa) and compute deduction under Section 80 HHC of the Act.

     5.        The first question of law is answered accordingly.

     6.        We now turn to the second question. Assessee during the
     course of the assessment proceedings had furnished details of
     creditors.      The Assessing Officer made addition of Rs.18,90,273/-
     under Section 41(1) of the Act in case of old creditors i.e., where there
     was no transaction between the assessee and the creditors during the
     last three years or more. The Assessing Officer held that there has to
     be some time limit for the credit recorded to be carried forward.

     7.        The addition was partly confirmed by the Commissioner of
     Income Tax (Appeal), who had tallied the list of old creditors with
     payments by the assessee to these creditors in the subsequent years.
     The Assessing Officer was required to verify and rectify, if required.
     He observed that Rs.8,32,130/- had not still not been paid.








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     8. Income Tax Appellate Tribunal on the said issue held that the
     assessee had carried forward the balances from earlier years. Some
     credit balances were written off in the year in question and some in
     succeeding years. Further, when a liability was acknowledged by the
     debtor, it cannot be said that the claim of the creditor was barred by
     limitation. In case of 16 creditors, the credit balance was returned or
     adjusted for the next financial year. Provisions of Section 41(1) of the
     Act were not attracted.

     9. We do not see any error in the findings and reasons given by the
     Tribunal. The respondent assessee is a company and accounts were
     audited as per the mandate of the Companies Act. In the accounts, the
     respondent assessee had accepted and acknowledged its liability. The
     creditors can rely on the said acknowledgment. Even otherwise many
     of the creditors were paid, adjusted or eased in the subsequent years as
     accepted by the Commissioner of Income Tax (Appeals) and the
     Tribunal. No special facts or reasons were given by the Assessing
     Officer to hold and observe that the liabilities had ceased and amounts
     should be added under Section 41(1) of the Act.

     10.The second question is accordingly decided against the revenue
     and in favour of the assessee.

     11. The appeal is disposed of without any order as to costs.



                                                  SANJIV KHANNA, J



                                               CHANDER SHEKHAR, J

     JANUARY 17, 2018/b

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