ITO Vs Maharashtra State Co-operative, Consumers Federation Ltd. (ITAT Mumbai) -Whether CIT(A) was not justified in deleting the addition of Rs. 10,00,000/ – made by the AO under sect ion 41(1) of the Act . Assessee is an AOP being the Apex body of consumers co-operative societies in the State of Maharashtra. Its business is divided in 8 Divisional Offices and 13 Apna Bhandars which are retail out lets of federations. The federation is Semi – Government body sponsored and fully supported by the State Government federations.
On scrutiny of details, the AO observed that the Apex body has shown liability of Rs.10,85,531/- pending for more than 5 years and the same has not been claimed by the creditors, therefore, the AO presumed that the liability to pay the creditors has since ceased and accordingly he treated Rs.10,85,531/ – as profit chargeable to tax under section 41(1) of the Act and added to the total income of the assessee.
CIT(A) while observing that there is no proof that the appellant obtained any benefit in respect of these creditors, the liability has not been written back by the appellant , there is no remission of liability and following the decision of the Hon’ble Supreme Court in the case of Commissioner of Income-tax V/s Sugauli Sugar Works (P.) Ltd. deleted the addition of Rs. 10,00,000/ – made by the AO.
SC in the case of Sugauli Sugar Works (P.) held “The principle that 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 has been well settled. If that principle is applied, it is clear that mere entry in the books of account of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the section….”.
Case law Details-
ITO vs Maharashtra State Co-operative, Consumers Federation Ltd.
ITA No. 5828/Mum/2008
Assessment Year: 2005- 06)
ITA No. 6128/Mum/2008
Dated: 24th Aug 2011