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TMI Blog2018 (5) TMI 1311X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances, we hold that the assessee had furnished requisite evidences to prove that the payee had duly considered the subject mentioned receipt in his return of income and hence no disallowance u/s 40(a)(ia) of the Act could be inflicted on the same in the hands of the assessee payer Whether the provisions of section 40(a)(ia) of the Act could be invoked for short deduction of tax at source - Held that:- We find that this issue has been held in favour of the assessee by the co-ordinate bench decision of this tribunal in the case of DCIT vs S K Tekriwal (2012 (12) TMI 873 - CALCUTTA HIGH COURT) wherein it was held that in the case of short deduction of tax at source, no disallowance u/s 40(a)(ia) of the Act could be made in the hands of the assessee and the assessee could be proceeded against only under section 201 of the Act in such cases - Decided in favour of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... itors and accordingly issued notices u/s 133(6) of the Act to them. Out of 11 parties, the notices could be served only on 3 parties from whom no replies were received by the ld AO. The remaining notices sent to 8 parties returned unserved. The ld AO showcaused the assessee as to why the entire creditors balance outstanding in the sum of ₹ 1,08,65,202/- be not treated as deemed income u/s 41(1) of the Act on account of cessation of liabilities as there is no movement in the said parties account from 31.3.2009 onwards. The assessee replied that he is in the business of interior decorating and other similar types of job and for that purpose he wants sub-constract some other person for carrying out the job within West Bengal and outside the state. In the books of the assessee, some old creditors balances are outstanding and lying unadjusted due to non-aware of the present whereabouts of such creditors after a lapse of 4 to 5 years and whatever address are available with the assessee had been given by the suppliers at the time when the assessee had purchased material and / or taken labour from them. It was specifically brought to the notice of the ld AO that the assessee had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (iii) Shri Sarvjit Kumar Tiwary along with the details / documents from which the genuineness of the closing balance could be proved. The ld AO showcaused the assessee as to why the balances outstanding in their accounts be not treated as bogus liabilities. 3.3. The assessee submitted reply to this effect by furnishing few copies of the bills raised by M/s M.J.Contractor to the assessee and also the ledger copies of all the 4 parties before the ld AO. Regarding other 3 creditors, the assessee expressed his inability to produce the parties before the ld AO as the present whereabouts of such creditors are not known to the assessee. It was also specifically pointed out that the assessee had not written back the sundry creditors to his profit and loss account as liabilities no longer payable and accordingly there was no cessation of liabilities warranting invocation of deeming provisions of section 41(1) of the Act. 3.4. The ld AO observed from the copy of account of M/s M.J.Contractor from assessee's books, that during the financial year 2009-10, the total amount of labour and fabrication work shown of ₹ 28,75,064/- out of which TDS was ₹ 7,25,392/- and the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/- has been made u/s 41(1) of the Act by the ld AO. For the sake of convenience, the provisions of section 41(1) of the Act are reproduced below:- "Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year,- (a) the 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, the amount obtained by such person or the 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 the income of that previous year, whether the business or profession in respect of which the allowances or deduction has been made is in existence in that year or not; (b) the 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 the first- mentioned person or some benefit in respect of the trading liability referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Moreover, the assessee had not obtained any benefit in respect of these trading liabilities in view of the fact that he had duly acknowledged the debt payable to these creditors in his books. In this regard, we find that the reliance has been rightly placed by the ld AR on the decision of the Hon'ble Karnataka High Court in the case of CIT vs Alvares & Thomas reported in 239 Taxman 456 (Kar) on similar set of facts and circumstances had held as under:- The appellant-Revenue has preferred the present appeal by raising the following substantial question of law: "Whether under the facts and in the circumstances of the case, the Tribunal was right in law deleting the addition of ₹ 81,40,232 on account of cessation of liability under Section 41(1) being outstanding liability towards M/s. Durga Traders as claimed by the assessee when the assessee failed to prove the existence of the creditor and that the credit had insisted for the payment at pay point of time or initiated any legal action against the assessee, although the entry has been appearing in the books of the assessee for past 7 to 8 years and assessing authority rightly invoked provisions of sections 41(1) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not; or ** ** **" [Explanation 1 - For the purposes of this sub-section, the expression- loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts." (Underlining ours) 13. Explanation 1 which was inserted w.e.f. 1.4.1997 is not attracted to the present case since there was no writing off of the liability to pay the sundry creditors in the assessee's accounts. The question has to be considered de hors Explanation 1 to Section 41(1). In order to invoke clause (a) of Sec. 41(1) of the Act, it must be first established that the assessee had obtained some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as purchase price in computing the business income of the assessee. The second question is whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory transfer of the debts due to the employees, and that is how the board gets title to them. If then a debt subsists even after it is barred by limitation, the employer does not get, in law, a discharge therefrom. The modes in which an obligation under a contract becomes discharged are well-defined, and the bar of limitation is not one of them. The following passages in Anson's Law of Contract, 19th Edition, p. 383, are directly in point : "At Common Law lapse of time does not affect contractual rights. Such a right is of a permanent and indestructible character, unless either from the nature of the contract, or from its terms, it be limited in point of duration." But though the right possesses this permanent character, the remedies arising from its violation are withdrawn after a certain lapse of time; interest reipublicaeut si finis litium. The remedies are barred, though the right is not extinguished.' And if the law requires that a debtor should get a discharge before he can be compelled to pay, that requirement is not satisfied if he is merely told that requirement is the normal course he is not likely to be exposed to action by the creditor.&qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on a judgment of the Full Bench of the Gujarat High Court in CIT v. Bharat Iron & Steel Industries (1992) 105 CTR (Guj.) (FB) 331 : (1993) 199 ITR 67 (Guj)(FB). It was held by the Supreme Court that the Gujarat High Court was right in saying that in order to attract taxability under s. 41(1) the assessee should have obtained, whether in cash or in any other manner whatsoever, any amount in respect of the loss or expenditure earlier allowed as a deduction. This part of the reasoning, in the light of the amended cl. (a) of sub-s. (1) of s. 41 may not be relevant after substitution of the said clause by the Finance Act, 1992 w.e.f. 1st April, 1993, by which the words "some benefit in respect of such trading liability by way of remission or cessation thereof" were inserted. After the amendment, therefore, it is not necessary that in respect of a trading liability earlier allowed as a deduction, the assessee should have received any amount, in cash or otherwise, but it is necessary that the assessee should have received "some benefit" in respect of such trading liability. However, we have already seen that this benefit in respect of trading liability should be &quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Calcutta High Court in the judgment under appeal before them, and observed as under while upholding the judgment of the Calcutta High Court : "This judgment has been quoted by the High Court in the present case and followed. We have no hesitation to say that the reasoning is correct and we agree with the same. To reinforce the conclusion, the Supreme Court also noticed its earlier judgment in Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay AIR 1958 SC 328 wherein it was held that the expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt. 16. In our opinion, the judgment of the Supreme Court in CIT v. Sugauli Sugar Works (P.) Ltd. (supra) is a complete answer to the contention of the learned standing counsel. In the case before the Supreme Court for a period of almost 20 years the liability remained unpaid and this fact formed the basis of the contention of the Revenue before the Supreme Court to the effect that having regard to the long lapse of time and in the absence of any steps taken by the creditors to recover the amount, it must be held that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court which has been referred to by the Tribunal in case of CIT v. Shri Vardhman Overseas Ltd. [2011] 16 taxmann.com 350/[2012] 204 Taxman 524/343 ITR 408 cannot be applied to the facts of the present case since in the said decision, it was not a case where the party/creditor was not verifiable or that the address was not changed. He therefore, submitted that Court may consider the present appeal. 7. As in the above referred order of the Tribunal, the relevant portion of Section 41 is reproduced, we may not reproduce the same. But, the relevant aspect is that, there are two requirements for invoking the provision of Section 41. The Sine qua non is, the remission or cessation of the trading liability and the additional requirement is, some benefit in respect of such trade liability is taken by the Assessee. If the aforesaid conditions are satisfied, then only Section 41(1) could be invoked by the Assessing Officer. 8. Examining of the facts of the present case reveals that, it is not the case of the Department that, any benefit in respect of such trading liability was taken by the assessee but, the Revenue contends that since the burden was not discharged of existence of the lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h are not the fact situations in the present case. 12. Under the circumstances, the aforesaid decisions of High Court of Rajasthan and High Court of Punjab and Haryana cannot be applied to the facts of the case. 13. In view of the aforesaid, we find that when the issue is already covered by the decision of Delhi High Court, read with the reasons recorded by us hereinabove, it cannot be said that any substantial question of law would arise for consideration as sought to be canvassed. Hence, the present appeal is dismissed. (Bold letters provided by us) 5.1. Moreover, we find that in the decision of the Hon'ble Jurisdictional High Court in the case of Kesoram Industries & Cotton Mills Ltd vs CIT reported in 196 ITR 845 (Cal) which was heavily relied upon by the ld DR, the facts in that case were that the assessee had written back the unclaimed wages to its profit and loss account by an unilateral act on its part, which the Hon'ble Court held that the very unilateral act of writing back tantamounts to cessation of liability and accordingly the provisions of section 41(1) of the Act are attracted. But in the instant case, the assessee before us had not written back the sundry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only small payments were made to them as detailed supra and hence the balance outstanding in these accounts cannot be the subject matter of addition during the year under appeal. Accordingly , the Ground No. 3 raised by the assessee is allowed. 7. The last issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the disallowance made u/s 40(a)(ia) of the Act in the sum of ₹ 1,15,716/- relating to Adhir Kumar Mondal upon payment of labour and fabrication charges in the facts and circumstances of the case. 7.1. The brief facts of this issue is that the assessee had claimed an expenditure of ₹ 63,59,500/- under the head 'Labour & Fabrication Charges' during the year under consideration. The assessee submitted party wise details of labour and fabrication expenses and party wise details of TDS in all the four quarters. While comparing the party wise details with the TDS details, the ld AO noticed that the assessee had short deducted tax at source in respect of amount paid to Adhir Kumar Mondal to the tune of ₹ 1,15,716/-. The ld AO disallowed the same u/s 40(a)(ia) of the Act for short deduction of tax at source. In appeal, the ld CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed19:] From the bare reading of the conditions prescribed in proviso to section 201(1) of the Act above, we find that the legislature had no where provided that the payee should furnish his return of income u/s 139(1) of the Act. The condition only says section 139. It does not mention about section 139(1) of the Act. The return filed within the time limit prescribed u/s 139(4) of the Act is also a valid return as that leeway has been provided in the statute itself. It is not in dispute that the payee (i.e Adhir Kumar Mondal) had duly considered the subject mentioned payment made by the assessee in the return of income filed u/s 139 of the Act and had taken into account such sum for computing the income and had paid the taxes due on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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