IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "B" NEW DELHI)
BEFORE SHRI G.D. AGRAWAL, HON'BLE VICE-PRESIDENT
AND SHRI RAJPAL YADAV: HON'BLE JUDICIAL MEMBER
ITA No. 4646/Del/2010
Assessment Year: 2002-03
Assistant Commissioner of IT, Vs. M/s. Delhi State Mineral
Circle 10(1), Development Corporation Ltd.,
New Delhi. N-36, Bombay Life Building,
Connaught Place, N.Delhi.
(PAN: AAACD1236E)
(Appellant) (Respondent)
Appellant by: Shri Vikas Suryavanshi, Sr. DR
Respondent by: Shri RS Singhvi, CA
ORDER
PER RAJPAL YADAV: JUDICIAL MEMBER
The revenue is in appeal before us against the order of Learned
CIT(Appeals) dated 23.08.2010 passed for assessment year 2002-03. The
grievance of the revenue is that Learned CIT(Appeals) has erred in deleting
the additions made by the Assessing Officer with the aid of section 41(1) of
the Income-tax Act, 1961.
2. The brief facts of the case are that the assessee is a corporation owned
by the State Government of Delhi. It has filed its return of income on 30th
October 2002 declaring nil income. An assessment order was passed under
section 143(3) on 18.2.2005. The assessee has shown existing liability.
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Learned Assessing Officer harbored a belief that these liabilities have
ceased to exist and, therefore, additions to be made. He made the following
the additions:
i) Rs.16,25,575- the liability representing interest payable to
DSIDC;
ii) Rs.9,16,951- liability representing royalty payable to the State
Government;
iii) Rs.3,52,278 - salary payable by the assessee;
iv) Rs.3,76,507 representing expenses payable by the assessee.
3. Dissatisfied with the additions, assessee carried the matter in appeal
before the Learned CIT(Appeals). Learned first appellate authority has
deleted the additions on the ground that liability to pay did not cease to exist
and no addition can be made under sec. 41(1) of the Income-tax Act, 1961.
4. Before us, Learned DR relied upon the order of the Assessing Officer
whereas the learned counsel for the assessee relied upon the order of the
Learned CIT(Appeals). He further pointed out that the issue in dispute is
squarely covered in favour of the assessee by the decision of Hon'ble
jurisdictional High Court rendered in the case of CIT vs. Shri Vardhman
Overseas Ltd. Reported in 69 DTR (Del.) 379.
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5. We have heard the rival contentions and gone through the record
carefully. Before learned first appellate authority, assessee has filed written
submissions wherein it has explained the nature of each liability and how it
is still in existence. The submissions made by the assessee have been
reproduced by the learned first appellate authority and the same read as
under:
"a) Interest liability of M/s. DSIDC 16,25,572/-
This liability is not in the nature of trading liability of the
company as the liability is relating to loan taken from Government of
India by M/s. DSIDC which was at that time a merged entity with
DSMDC. However, when DSMDC was demerged into an
independent entity, the assets and liability represented by loan and
interest were transferred to DSMDC along with the corresponding
liability and same is still appearing in the books of account of
DSMDC. The DSMDC has no business activities as mining
operations in Delhi were prohibited by Delhi Administration and it
has again been decided to merge DSMDC with DSIDC. The merger
proceedings are in progress and necessary approval has been accorded
by Board of both the companies and the matter is at the final stage and
accordingly the action of the Assessing Officer in treating the same as
cessation of liability in terms of provisions of sec. 41(1) is highly
uncalled for and arbitrary and against the legal principles as clarified
above.
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This is not a case of trading liability and even otherwise the assessee
has not obtained any benefit for claim of deduction and further the
assessee has not written back the amount as non payable in the books
of account and as such provisions of sec. 41(1) are not applicable. The
outstanding balance being relating to the Government undertaking,
there is no case of any presumption or adverse inference.
b) Royalty Payable (Court permit fee) Rs. 9,16,951/-
The Assessing Officer has not understood the nature and character of
liability and parties involved in the matter. It has been observed and
accepted by the Assessing Officer himself that the royalty is payable
to Delhi Government and as such there cannot be any presumption
that there was any remission or cessation. Further, as against
provisions of the liability, the assessee himself has made advance
payments towards this liability to the extent of Rs.2,46,608 and the
balance of liability is to be paid after proper reconciliation. In fact, the
Assessing Officer himself has observed that the liability is deemed to
be not payable and there is no specific finding that same is not
payable at all or same has been written back. The finding of the
Assessing Officer is without proper appreciation of facts and based on
presumption and surmises. The legal principle explained above shall
be relevant in respect of this item also and accordingly the addition
made by the Assessing Officer is not justified and sustainable.
c) Salary payable to employees Rs.3,52.278/-
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This amount is relating to salary payable to the employees' pending
final settlement of accounts. The liability on account of salary to
employees is a statutory obligations of the employer and when the
claim in respect of the liability has been allowed, there cannot be any
presumption that same is not payable or assessee has obtained any
remission or cessation. The presumption of Assessing Officer that
same is deemed to be not payable is highly uncalled for and same is
contrary to requirement of provisions of sec. 41(1). In the light of
legal principles explained above, the Assessing Officer is not justified
to make addition in respect of the same by invoking provisions of sec.
41(1).
d) Expenses payable and other liabilities Rs.3,76,507/-
In respect of this item also the Assessing Officer has made
presumption that same is deemed to be not payable and applied
provisions of sec. 41(1). In this connection, we are pleased to give the
details of outstanding liability as on 31.3.2002 and the fact that each
of the item of liability was examined and assessee itself has written
back the liability to the extent of Rs.7,91,054 as not payable and same
was already declared as income. However, the balance liability was
considered by the management as existing and payable and as such it
is not for the Assessing Officer to make presumption that same is not
payable. This is a case of Government Company and appraisal is
made at every stage in respect of each item of liability and it is on the
basis of final decision or approval based on facts of the case that
appropriate decision is taken. The action of the Assessing Officer
being illegal, arbitrary and contrary to provisions of sec. 41(1) and
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principle laid down by various legal authorities explained above and
as such there is no basis for any such addition.
The appellant made another submission vide letter dated 28.4.06 vide
which copy of account in respect of such outstanding balances have
been filed. It was further submitted that DSMDC Ltd. is an associate
concern of Delhi State Industrial Dev. Corporation Ltd. (DSIDC Ltd.)
and same is in the process of merger with DSIDC Ltd."
6. Hon'ble Delhi High Court in the case of Vardhman Overseas Ltd.
(supra) has observed that section 41(1) has been incorporated in the Act to
cover a particular facts situation. Section applies where a trading liability
was allowed as a deduction in earlier years in computing the business
income of the assessee and the assessee has obtained a benefit in respect of
such trading liability in later year by way of remission or cessation of the
liability. In such a case, the section says that whatever benefit has arisen to
the assessee in the later year by way of remission of the liability will be
brought to tax in that year. The principle behind the section is that a
provision intended to ensure that the assessee does not get away with a
double befit once by way of a deduction in an earlier assessment year and
again by not being taxed on the benefit received by him in a later year with
reference to the liability earlier allowed as a deduction. In this case, four
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years have elapsed and the Assessing Officer took a view that the liability
has ceased to exist. It was held that merely elapse of four years is not
sufficient to say that the liability ceased to exist unless it has been written
back in the books of account. In the present case also, the assessee has not
written back the liability and Assessing Officer failed to demonstrate that
liability has ceased. Learned first appellate authority while deleting the
addition put reliance upon the judgment of the Hon'ble Supreme Court in the
case of CIT vs. Kesaria Tea Co. Ltd. Reported in 254 ITR 435 and CIT vs.
Sugauli Works Ltd. Reported in 236 ITR 518. According to these
judgments, unless the liabilities are written off in the books of account,
provisions of section 41(1) cannot be applied. On due consideration of the
order of the Learned CIT(Appeals) in the light of authoritative
pronouncements of the Hon'ble Supreme Court as well as of Hon'ble Delhi
High Court, we do not see any reason to interfere in the order of the Learned
CIT(Appeals). In view of the above discussion, the appeal of the revenue is
dismissed.
Decision pronounced in the open court on 22.06.2012
Sd/- Sd/-
( G.D. AGRAWAL ) ( RAJPAL YADAV )
VICE-PRESIDENT JUDICIAL MEMBER
Dated: 22/06/2012
Mohan Lal
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Copy forwarded to:
1) Appellant
2) Respondent
3) CIT
4) CIT(Appeals)
5) DR:ITAT
ASSISTANT REGISTRAR
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