9911796707
TMI Blog2010 (12) TMI 915X X X X Extracts X X X X X X X X Extracts X X X X ..... ity was carried out by the assessee, in view of heavy loss suffered by it from 31-3-1996 onwards. 3. On a detailed probe, the Assessing Officer noticed that the assessee has shown, in the balance sheet, outstanding liability under the head "current liabilities and provision" amounting to Rs. 4,55,05,753. Out of its liabilities, a sum of Rs. 4,49,71,451 was stated to be amount payable to sundry creditors i.e., M/s. Gold Crest Finance (India) Limited which is an associate concern of the assessee. Since the assessee was not carrying on any business but still declared outstanding liabilities, the assessee was asked to furnish details of this liability. In response thereto, the assessee submitted that during the financial years 1994-95 and 1995-96 it had taken over "lease rental liability" of various parties who had obtained assets on lease basis from M/s. Gold Crest Finance (India) Limited ("GFIL"). These liabilities were takenover from the respective lessees at a discounted value and were stated to be paid to M/s. GFIL on their face value. The difference between the discounted value and face value amounted to cost of obtaining face value to interest charged but are called disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) was that the assessee was engaged in the business of trading in shares and commodities and financing activities. Assessee had credited income of commodity trading in the P and L account. It is a fact that the sister concern of the assessee-company had leased certain assets to various companies whereby GFIL was to receive lease rentals of Rs. 29,68,72,262 from various lessees over a period of 5 years. The assessee, by virtue of entering into agreements with each of the lessees of the GFIL, obtained ready finance by discounting the lease rentals payable by the lessees to GFIL on internal rate of return basis and in return the assessee received funds of Rs. 19,27,35,576. Instead of lessees being liable to pay GFIL, the appellant was liable to pay GFIL Rs. 29,68,72,262. The assessee incurred expenditure by way of "discounting charges" of Rs. 10,41,36,686. The assessee has also made certain pre-payments of the lease rentals to GFIL on account of which the sister concern gave a rebate of Rs. 5,61,97,504. Thus the balance amount of finance charges payable was reduced to Rs. 4.79 crores which was claimed and allowed as deduction in the assessment orders for assessment years 1997-98 to 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears is not correct and proper. The provisions of section 41(1) would be attracted only in cases where there was an absolute cessation or remission of a liability. In case the liability is existing and is in the process of being discharged, provisions of section 41(1) cannot be attracted. In view of the aforesaid discussion, the addition of Rs. 4,49,71,451 under section 41(1) is deleted. It might also be discussed that the Assessing Officer has laid much emphasis on the fact that GFIL had written off the amount due from the appellant in their books of account. This issue would not be material in so far as the appellant's liability to GFIL stands duly confirmed in the account confirmation letter filed as also on account of the subsequent repayments made by the appellant to GFIL. The accounting treatment given by GFIL would not lead to any interference that the liability of the appellant ceased or stood remitted, especially having the facts of appellants case." 7. Aggrieved, Revenue is in appeal before us. Learned DR adverted our attention to the reasons given by the Assessing Officer to highlight that the provision of section 41(1) was invoked not only on account of the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged and thus there is no case for invoking the provisions of section 41(1) of the Act. Learned Counsel has also adverted our attention to the RBI guidelines, from page 34 of the paper book as well as page 58 of the paper book (schedule for payments), to submit that in the event of non-payment of two instalments by any entity, an asset has to be classified as "NPA" and all the income accruing has to be written-off till actual realisation of the same. Learned Counsel for the assessee has also relied upon the decision of Hon'ble Bombay High Court (in the case of SI Group India Ltd. v. Asstt. CIT [2010] 192 Taxman 91 in support of its contention that in order to invoke the provisions of section 41(1) of the Act it must be shown that there is a remission or cessation of a trading liability and consequently the benefit must ensure to the assessee and, in the absence of proving the same, provisions of section 41(1) cannot be invoked. Learned Counsel has also referred to the decision of ITAT 'H' Bench, Mumbai in assessee's own case for the assessment year 1998-99 (while dealing with the issue concerning deduction under section 36(1)(iii) and valuation of closing stock) wherein the Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion that it was only an arrangement between the assessee and its associate concern and by this arrangement assessee has debited a sum of Rs. 4.79 crores in its books of account and credited the liability which is no longer payable. Under these peculiar circumstances, in our considered opinion, the learned CIT(A) erred in taking into consideration the additional material without putting the same to the Assessing Officer. For example, the factum of partial discharge of liabilities in the subsequent years was not available with the Assessing Officer. 12. Since the transaction was with a sister concern and there is no basis for creating such liability, merely because a liability is created it would not have been accepted by CIT(A) as an existing liability, merely because part of the amount was shown to have been repaid in the subsequent years, after the Assessing Officer sought to invoke the provisions of section 41(1) of the Act in the assessment year 2003-04. In the interest of substantial justice, the learned CIT(A) ought to have remitted the matter to the file of the Assessing Officer for fresh examination of the facts with a direction to the Assessing Officer to fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and if it can be projected then there would have been some benefit to the assessee out of it, it can well be treated as a trading liability as otherwise merely because it was considered as a trading liability in the first year, it cannot continue to remain as a trading liability atleast in the year in which it was noticed that it was a colourable transaction. 15. Admittedly, the assessee had not been carrying on any business in the years under consideration and from the agreement entered into with the associate concern assessee appears to have not obtained any benefit from the time the agreement was entered into. It cannot be said that assessee was not aware of the activities of the sister concern and assessee cannot plead that it is naive to the fact that there are no chances of making fair profit. Therefore, it is for the assessee to highlight as to what prompted it to enter into such transaction and how it had benefited the assessee in any of these earlier years as well as in the years under consideration. The expression "cessation" or "remission" of liability was subject matter of consideration by various Courts and various principles were laid down which can act as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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