2013 (1) TMI 536 - HC - Income Tax

Addition on account of diesel expenses Bogus purchase Cash Purchase Held that - Assessee has submit the confirmatory letter given by the officer in charge of Bharat Petroleum Limited stating that diesel worth Rs. 82,20,254/- was supplied by it to the assessee. The confirmatory letter issued by BPCL clearly mentioned that the bills issued to the assessee have also been verified before issuance of the certificate. Considering the fact that the petrol pump of Bharat Petroleum Limited was run by the company itself. Therefore, certificate could not be doubted. In favour of assessee Addition made u/s. 41(1) - Cessation of trading liability A.O. added the old creditor standing in the books as income under the provisions of section 41(1) Held that - The liability of the assessee has ceased to exist in the year under consideration, either by operation of law, or by mutual contract between the parties. There in no declaration by the assessee that it does not intend to honour its liabilities nor is there any discharge of the debt. In the aforesaid premises, as no event had taken place in the year under consideration to indicate remission or cessation of the liabilities in question, the provisions of section 41(1) could not have been invoked. No question of law involved - Decides against revenue

Summary

Issues Involved:
1. Deletion of addition of Rs. 35,84,077/- made on account of diesel expenses paid in cash.
2. Deletion of addition made under section 41(1) of Rs. 96,50,432/-.

Issue-wise Detailed Analysis:

Issue 1: Deletion of Addition of Rs. 35,84,077/- on Account of Diesel Expenses Paid in Cash

The appellant revenue questioned the Tribunal's decision to delete the addition of Rs. 35,84,077/- made by the Assessing Officer (AO) on account of diesel expenses paid in cash to Bharat Petroleum, Sanchor. The AO suspected the genuineness of these cash payments and considered them as bogus purchases, adding the amount back to the assessee's income. However, the Commissioner (Appeals) deleted this addition after obtaining a remand report and considering all materials, including a confirmatory letter from Bharat Petroleum Limited (BPL) verifying the diesel supply and bills. The Tribunal upheld the Commissioner (Appeals)'s decision, concluding that the evidence, including the confirmatory letter, validated the transactions and that the petrol pump was run by the company itself, making the certificate's contents credible.

The High Court noted that the Tribunal's decision was based on concurrent findings of fact and that the appellant could not present any contrary evidence to dislodge these findings. The court affirmed that the Tribunal's view was reasonable and not perverse, thus rejecting this ground of appeal.

Issue 2: Deletion of Addition Made Under Section 41(1) of Rs. 96,50,432/-

The second issue pertained to the addition of Rs. 96,50,432/- under section 41(1) of the Income Tax Act, 1961, related to cessation of liability. The AO added this amount as income, observing that the assessee had not paid certain creditors for several years, implying cessation of liability. The Commissioner (Appeals) restricted this addition to Rs. 18,27,608/-, granting relief for the remaining amount. Both the revenue and the assessee appealed to the Tribunal, which upheld the Commissioner (Appeals)'s decision, relying on a precedent that cessation of liability under section 41(1) requires a specific event, such as expiry of limitation, a court decree, or a mutual contract.

The High Court elaborated on section 41(1), explaining that it requires an allowance or deduction made in respect of a trading liability to be subsequently remitted or ceased in a previous year. The court referenced the Supreme Court's decision in CIT v. Sugauli Sugar Works (P.) Ltd., which held that mere passage of time does not constitute cessation of liability. The court emphasized that there must be a positive act, such as a unilateral act of writing off the liability or a declaration by the debtor not to honor the liability, neither of which occurred in this case. Consequently, the Tribunal correctly concluded that section 41(1) was not applicable as no such event took place in the year under consideration.

The High Court found no legal error in the Tribunal's reasoning and dismissed the appeal, noting the absence of any question of law arising from the Tribunal's order.