DCIT Vs Surbhit Impex Pvt. Ltd (ITAT Mumbai)
It is undisputed position that as on the relevant point of time, the proceedings against the assessee for recovery of these amounts were pending before the Hon’ble judicial forums. It was only on 29.01.2018, i.e., which much after the end of the relevant previous year, that Their Lordships of Hon’ble Bombay High Court dismissed the Winding up Petitions filed by these creditors in the judgments reported at Jiangsu Go Intl Group Hua Tai Import & export Co., China vs. Surbhit Impex Private Limited (CP 744 of 2014) dated December 21, 2017 and Zhejaing Hengdian Apeloa Imp & Exp Co Ltd. vs. Surbhit Impex Private Limited (CP 501 of 2015) dated January 29, 2018. Clearly, therefore, as on the relevant point, even the proceedings with respect to the recoveries of these amounts were pending in the judicial forums and by no stretch of logic, it can be said that these amounts ceased to be payable by the assessee. It is only elementary that in order to bring an amount to tax u/s.41(1)(a), three fundamental conditions are to be satisfied, but the very foundational condition is that there has to be benefit in respect of such trading liability by way of ‘remission and cessation’ and clearly that condition was not satisfied atleast in this year. We, therefore, approve the well reasoned finding given by the learned CIT(A) and decline to interfere in the matter.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. By way of this appeal, the Assessing Officer has challenged correctness of the order dated 03.12.2018 passed by the learned CIT(A)-14, Mumbai in the matter of assessment u/s.143(3) of the Income Tax Act, 1961, for the assessment year 2014-15.
2. The grievance raised by the appellant, by way of a question posted for our consideration, is as follows:
Whether on the facts and in the circumstances of the case and in law, ld. CIT(A) was correct in deleting the disallowance of Rs.3,13,65,360/- made by the Assessing Officer u/s.41(1)(a) of the Income Tax Act?
3. To adjudication on this appeal, only a few material facts needs to be taken note of. The assessee before us, inter alia, is a company engaged in the business of trading. During the course of assessment proceedings, the Assessing Officer noticed that the assessee owes Jiangsu Go Intl. Group Hua Tai Import & Export Co., China Rs.1,25,10,400/- and M/s. Zhejiang Hengdian Apeloa Imp. & Exp. Co. Ltd. Rs.1,88,54,960/-, respectively. It was noted that these credit entries are still to be paid. The details filed in the return of income and its annexure according to the Assessing Officer clearly shows that the liabilities are a trading liability, the assessee has purchased and sold the consignment and since the consignment was not of good quality, the payment is not made. It was for this reason that these two parties, as noted by the Assessing Officer, were shown as creditors. The Assessing Officer proposed to treat the same as ceased liabilities, but the assessee opposed the same on the ground that the liability has not ceased even though it is disputed. The Assessing Officer however proceeded to reject the submission made by the assessee and at these amounts aggregating to Rs.3,13,65,060/- to the income of the assessee u/s.41(1)(a) of the Act by observing, inter alia as follows:
a) The assessee has shown purchase of consignment from two different parties & sold it to one party named Actigen. It is unusual to understand, how both purchases from two separate party can be stated of inferior quality.
b) The import cost is a trading liability, which is taken as expenses in the books of earlier years, but till 2016 , the payment to the above creditors has not been done .
c) The assessee, states that due to the quality dispute, they do not intend to pay the creditor.
c) The assessee has unusual difference in quality of purchase & sale value, which is enumerated above in his trading activity .
Considering the above facts, Rs.3,13,65,060/- (Rs.1,25,10,400/- plus Rs.1,88,54,960/-), which is a trading liability & is not paid till date is treated as deemed income of business by cessation of trading liability u7s 41(l)(a) of I.T.Act.
(Addition of Rs.3,13,65,060/- u/s. 41(l)(a))
4. Aggrieved by the additions so made, the assessee carried the matter in appeal before the learned CIT(A). The learned CIT(A) took note of the submissions made by the assessee, as also the fact that the proceedings for recoveries with respect of these amounts were still in progress, as at the relevant point of time and, therefore, these amounts cannot be treated as ceased liability u/s.41(1)(a) of the Act. He deleted the impugned addition by holding it to be an existing liability. While doing so, the learned CIT(A) in his well reasoned order, observed as follows:
4.1 Decision
During the course of assessment proceedings it was noticed by the AO that the appellant had following trading liabilities in respect of which no payment was made by the appellant during the course of the relevant previous year and even until the time of assessment i.e. December 2016, the payments were outstanding as such: –
