Victor Cycle (P) Ltd. Vs. Asstt. Cit - Court Judgment

Excerpt:
the appeal filed by the assessee and cross-appeal filed by the revenue and the cross-objection filed by the assessee arising therefrom were heard together and are being disposed of vide this consolidated order, as all these arise from the single order passed by the commissioner (appeals) in appeal no. 436/it/1998-99, dated 3-5-1999, for the sake of convenience.in its appeal, the assessee has taken following effective ground of appeal "l. that the learned commissioner (appeals) has erred in upholding the disallowance. of depreciation as made by the assistant commissioner to the tune of rs. 1,23,750. " the revenue in its appeal has taken following effective ground of appeal "1(a) the learned commissioner (appeals), on facts as well as in law, has erred in deleting the addition of rs. 17,22,858 made by the assessing officer under section 41(l)(a) of the income tax act, 1961." in the cross-objection the assessee has supported the order of the commissioner (appeals) deleting the addition made by the assessing officer under section 41(l)(a) of the income tax act.first we shall take up the issue inolved in the ground of appeal taken by the assessee in its appeal. the relevant and material facts for the disposal of this ground of appeal are that the assessee has claimed depreciation of rs. 1,23,750 on the machine purchased during the year.the assessing officer noticed that though the machine was purchased on 20-3-1996 but the gate-pass entry showed that the same entered the business premises of the assessee on 8-4-1996. the assessing officer, therefore, disallowed the depreciation claimed by the assessee on the reasoning that the machine was not put to use during the year under consideration, rejecting the contention of the assessee that the machine was purchased on 20-3-1996 and the same was brought to the business premises of the assessee on the very same day but the bill for the machinery was lying with the gate-keeper and was only handed over by him later on 8-4-1996.on appeal before the commissioner (appeals), the assessee reiterated the submission made before the assessing officer. the commissioner (appeals) upheld the order of the assessing officer while making following observation in the order : "6. as far as this ground of appeal is concerned, though the appellant has evidence with it that the supplier of the machine has given delivery of the said machinery on 20-3-1996, the gate-pass of the appellant concern showed the entry of the machine on 8-4-1996. this is one of the basic evidence which goes against the appellant and it has not been able to rebut it. merely stating that there was mistake on the part of the gate keeper is not enough. hence, no depreciation would be allowable on this machinery for this year as it does not appear to have been put to use during this year." now aggrieved with the order of the commissioner (appeals), the assessee in appeal before us again reiterated the submission before us which he made before the tax authorities below and submitted that they were not justified in disallowing the claim.on the other hand, the learned departmental representative for the revenue placing reliance on the reasoning given in the order of tax authorities below, submitted that the appeal filed by the assessee is liable to be rejected in the absence of evidence being produced by him for substantiating its claim that the machinery purchased on 20-3-1996, entered the premises on the same day and was put to use in the assessment year under consideration.the undisputed facts are that as per the purchase bill, the machinery was purchased on 20-3-1996, and as per the gate-pass entry made on this bill as 8-4-1996, the machine entered the business premises of the assessee on 8-4-1996. the gate-pass entry made on this bill on 8-4-1996, is the entry recorded by the gate-keeper of the assessee's business premises. it means that this documentary evidence of the assessee cannot be discarded merely because now the assessee has taken a stand that there was a mistake on the part of the gate-keeper, who made the entry on 8-4-1996, though the machinery entered the premises on 20-3-1996. the basic evidence, i.e., the gate-pass, dated 8-4-1996, which goes against the assessee has not been rebutted by the assessee by any cogent evidence by proving that the machinery purchased on 20-3-1996, actually entered the business premises of the assessee on 20-3-1996, as claimed by the assessee. since the machinery is not proved by the assessee to have entered the premises on 20-3-1996 or in the year under consideration, the consequence of the same is that it can be safely presumed that the machinery purchased on 20-3-1996 was not put to use in the assessment year under consideration. so the depreciation claimed by the assessee was not allowable in the assessment year under consideration and the tax authorities below have rightly disallowed the same. the order of the commissioner (appeals) in this regard is upheld. accordingly, the ground of appeal taken by the assessee is rejected.. now we shall take up the appeal filed by the revenue and the crossobjection filed by the assessee. the relevant and material facts for the disposal of this ground of appeal and the cross-objection are that the assessing officer made an addition of rs. 17,22,858 on account of credits as appearing in the balance sheet of the appellant as on 31-3-1996. brief facts as per order of the assessing officer are that the appellant has shown certain amounts as payable in respect of various parties as on 31-3-1996. the appellant was asked to produce the parties against whom such credits had been shown and as the concerned persons were not produced, the assessing officer added the following sums to the total income of the appellant under section 41(l)(a) by relying on the decision of calcutta high court in the case of cit v.general industries society ltd. (1994) 207 itr 169 (cal) : aggrieved with the orderof the assessing officer, the assessee filed an appeal before the commissioner (appeals) and contended that the assessing officer was not justified in making the above addition under section 41(l)(a) as. addition under this section can only be made where there is remission or cessation of liability and in appellant's case there was no such remission or cessation of liability. it is further stated that the abovesaid liabilities were outstanding for the last 4 years which have been accepted as such by the department. these are not new credits. it is argued that on the basis of similar facts, the department had made additions in many other cases and the tribunal, chandigarh bench, had deleted such additions. in the case of dy. cit v.c.l. jain woollen mills (ita no. 193/chd/1989), it was held by the tribunal that if the advances were not genuine then the real course would be to disallow the same in the base year when these advances were reflected for the first time in the books of the assessee and it was held therein that addition cannot be made under section 41(1)(a) as there is no cessation of liabilities at all. it is further explained that the judgment of the calcutta high court relied upon by the assessing officer is not at ail relevant to the present case. in that judgment, the issue does not relate to section 41(l)(a), rather it related to granting of approval for the purposes of section 80-0.after considering the submission of the assessee, the commissioner (appeals) deleted the impugned addition while making following observation in her order : "the decisions of various high courts are quite uniform on this issue.it has been held that addition under section 41(l)(a) cannot take place as long as the assessee does not deny his liability to pay the amount.the basic requirement is that the assessee should accept the liability and should not act in a manner which suggests that the liability is denied or that jhe appellant does not accept it. the bombay high court in its decision in the case of cit v. chougule & co. (p) ltd, (1991) 92 ctr (bom) 35 went so far as to hold that even in a case where unclaimed liabilities had been written back to the p&l a/c, the amount cannot be brought to tax in the absence of any material brought on record suggesting that the assessee had no intention of honouring the debt after writing back the unclaimed liability to p&l a/c and this was the finding of the tribunal and the high court found no reason to interfere in such a finding. in this case, the liabilities existed in the accounts of the appellant and had not been written back. the appellant had never denied its liability and accepted that the payments have to be made to the concerned parties, just because the appellant could not produce the parties against whom such credits have been shown would not indicate that there has been any remission or cessation of liabilities.in fact, it is not for the appellant to "produce the parties". if any enquiries are to be made, it is for the assessing officer to make enquiries from the concerned parties and invoke the provisions of the act which required such parties to provide information required. no case has been made out of cessation of liability and addition made under section 41(l) cannot be sustained and the appellant would be entitled to relief of rs. 17,22,868.before us, the learned departmental representative for the revenue, except placing reliance on the reasoning given in the order of the assessing officer, was not able to rebut the factual observations made in the order of the commissioner (appeals), nor was able to point out any case law wherein, in identical facts and circumstances, contrary view has been taken.on the other hand, learned authorised representative for the assessee firstly placed reliance on the reasoning given in the order of commissioner (appeals) and secondly placing reliance on the various decisions of the tribunal and the bombay high court, submitted that in identical facts and circumstances, the issue, as arising in the instant ground of appeal taken by the revenue, came up for consideration before these authorities and the same was decided in favour of the assessee and against the revenue : (i) paramount machine tools corpn. v. income tax officer (ita no.308/chd/1990)dy. cit v. c.l. jain woollen mills, ludhiana (iii) shiplay hosiery & textiles v. income tax officer (ita no.1019/chd/1988) their lordships of bornbay high court held that "liability of the assessee does not cease merely because the liability has become barred by limitation. no profits chargeable to tax under section 4 1 (1) can accrue on that basis." we have considered the rival submissions of both the parties, perused the record and carefully gone through the orders of tax authorities below and the case law cited by the learned authorised representative for. the assessee.in the instant case, the liabilities in question are outstanding for the past 4 years and the same have been accepted as such by the department. there is no material on record that the assessee had no intention of honouring the debt. in the instant case, the liabilities existed in the accounts of the assessee and the same have not been written off by the assessee. the assessee has never denied its liability and has accepted that it has to make the payments to the concerned parties. no cessation of liabilities or remittance thereof is indicated. hence, we are of the opinion that the commissioner (appeals), on the basis of decisions (supra) cited by the learned authorised representative before us as well as before the commissioner (appeals), has rightly deleted the impugned addition because in the decisions (supra) also, in identical facts, the additions made by the assessing officer under section 41(l) have been deleted. accordingly, we uphold the decision of the commissioner (appeals) in this regard and the ground of appeal taken by the revenue is rejected.consequent upon our finding given hereinabove upholding the order of commissioner (appeals) in deleting the impugned addition under section 41(l) of the income tax act, made by the assessing officer, the cross-objection filed by the assessee, in support of the order of commissioner (appeals) does not survive as the same has become infructuous. accordingly, we dismiss the cross-objection filed by the assessee as having become infructuous.in the result, the appeal and cross-objection filed by the assessee and the appeal filed by the revenue are dismissed.

Judgment:
The appeal filed by the assessee and cross-appeal filed by the revenue and the cross-objection filed by the assessee arising therefrom were heard together and are being disposed of vide this consolidated order, as all these arise from the single order passed by the Commissioner (Appeals) in appeal No. 436/IT/1998-99, dated 3-5-1999, for the sake of convenience.

In its appeal, the assessee has taken following effective ground of appeal "l. That the learned Commissioner (Appeals) has erred in upholding the disallowance. of depreciation as made by the Assistant Commissioner to the tune of Rs. 1,23,750. " The revenue in its appeal has taken following effective ground of appeal "1(a) The learned Commissioner (Appeals), on facts as well as in law, has erred in deleting the addition of Rs. 17,22,858 made by the assessing officer under section 41(l)(a) of the Income Tax Act, 1961." In the cross-objection the assessee has supported the order of the Commissioner (Appeals) deleting the addition made by the assessing officer under section 41(l)(a) of the Income Tax Act.

First we shall take up the issue inolved in the ground of appeal taken by the assessee in its appeal. The relevant and material facts for the disposal of this ground of appeal are that the assessee has claimed depreciation of Rs. 1,23,750 on the machine purchased during the year.

The assessing officer noticed that though the machine was purchased on 20-3-1996 but the gate-pass entry showed that the same entered the business premises of the assessee on 8-4-1996. The assessing officer, therefore, disallowed the depreciation claimed by the assessee on the reasoning that the machine was not put to use during the year under consideration, rejecting the contention of the assessee that the machine was purchased on 20-3-1996 and the same was brought to the business premises of the assessee on the very same day but the bill for the machinery was lying with the gate-keeper and was only handed over by him later on 8-4-1996.

On appeal before the Commissioner (Appeals), the assessee reiterated the submission made before the assessing officer. The Commissioner (Appeals) upheld the order of the assessing officer while making following observation in the order : "6. As far as this ground of appeal is concerned, though the appellant has evidence with it that the supplier of the machine has given delivery of the said machinery on 20-3-1996, the gate-pass of the appellant concern showed the entry of the machine on 8-4-1996. This is one of the basic evidence which goes against the appellant and it has not been able to rebut it. Merely stating that there was mistake on the part of the gate keeper is not enough. Hence, no depreciation would be allowable on this machinery for this year as it does not appear to have been put to use during this year." Now aggrieved with the order of the Commissioner (Appeals), the assessee in appeal before us again reiterated the submission before us which he made before the tax authorities below and submitted that they were not justified in disallowing the claim.

On the other hand, the learned Departmental Representative for the revenue placing reliance on the reasoning given in the order of tax authorities below, submitted that the appeal filed by the assessee is liable to be rejected in the absence of evidence being produced by him for substantiating its claim that the machinery purchased on 20-3-1996, entered the premises on the same day and was put to use in the assessment year under consideration.

The undisputed facts are that as per the purchase bill, the machinery was purchased on 20-3-1996, and as per the gate-pass entry made on this bill as 8-4-1996, the machine entered the business premises of the assessee on 8-4-1996. The gate-pass entry made on this bill on 8-4-1996, is the entry recorded by the gate-keeper of the assessee's business premises. It means that this documentary evidence of the assessee cannot be discarded merely because now the assessee has taken a stand that there was a mistake on the part of the gate-keeper, who made the entry on 8-4-1996, though the machinery entered the premises on 20-3-1996. The basic evidence, i.e., the gate-pass, dated 8-4-1996, which goes against the assessee has not been rebutted by the assessee by any cogent evidence by proving that the machinery purchased on 20-3-1996, actually entered the business premises of the assessee on 20-3-1996, as claimed by the assessee. Since the machinery is not proved by the assessee to have entered the premises on 20-3-1996 or in the year under consideration, the consequence of the same is that it can be safely presumed that the machinery purchased on 20-3-1996 was not put to use in the assessment year under consideration. So the depreciation claimed by the assessee was not allowable in the assessment year under consideration and the tax authorities below have rightly disallowed the same. The order of the Commissioner (Appeals) in this regard is upheld. Accordingly, the ground of appeal taken by the assessee is rejected.

. Now we shall take up the appeal filed by the revenue and the crossobjection filed by the assessee. The relevant and material facts for the disposal of this ground of appeal and the cross-objection are that the assessing officer made an addition of Rs. 17,22,858 on account of credits as appearing in the balance sheet of the appellant as on 31-3-1996. Brief facts as per order of the assessing officer are that the appellant has shown certain amounts as payable in respect of various parties as on 31-3-1996. The appellant was asked to produce the parties against whom such credits had been shown and as the concerned persons were not produced, the assessing officer added the following sums to the total income of the appellant under section 41(l)(a) by relying on the decision of Calcutta High Court in the case of CIT v.General Industries Society Ltd. (1994) 207 ITR 169 (Cal) : Aggrieved with the orderof the assessing officer, the assessee filed an appeal before the Commissioner (Appeals) and contended that the assessing officer was not justified in making the above addition under section 41(l)(a) as. addition under this section can only be made where there is remission or cessation of liability and in appellant's case there was no such remission or cessation of liability. It is further stated that the abovesaid liabilities were outstanding for the last 4 years which have been accepted as such by the department. These are not new credits. It is argued that on the basis of similar facts, the department had made additions in many other cases and the Tribunal, Chandigarh Bench, had deleted such additions. In the case of Dy. CIT v.C.L. Jain Woollen Mills (ITA No. 193/Chd/1989), it was held by the Tribunal that if the advances were not genuine then the real course would be to disallow the same in the base year when these advances were reflected for the first time in the books of the assessee and it was held therein that addition cannot be made under section 41(1)(a) as there is no cessation of liabilities at all. It is further explained that the judgment of the Calcutta High Court relied upon by the assessing officer is not at ail relevant to the present case. In that judgment, the issue does not relate to section 41(l)(a), rather it related to granting of approval for the purposes of section 80-0.

After considering the submission of the assessee, the Commissioner (Appeals) deleted the impugned addition while making following observation in her order : "The decisions of various High Courts are quite uniform on this issue.

It has been held that addition under section 41(l)(a) cannot take place as long as the assessee does not deny his liability to pay the amount.

The basic requirement is that the assessee should accept the liability and should not act in a manner which suggests that the liability is denied or that Jhe appellant does not accept it. The Bombay High Court in its decision in the case of CIT v. Chougule & Co. (P) Ltd, (1991) 92 CTR (Bom) 35 went so far as to hold that even in a case where unclaimed liabilities had been written back to the P&L a/c, the amount cannot be brought to tax in the absence of any material brought on record suggesting that the assessee had no intention of honouring the debt after writing back the unclaimed liability to P&L a/c and this was the finding of the Tribunal and the High Court found no reason to interfere in such a finding. In this case, the liabilities existed in the accounts of the appellant and had not been written back. The appellant had never denied its liability and accepted that the payments have to be made to the concerned parties, Just because the appellant could not produce the parties against whom such credits have been shown would not indicate that there has been any remission or cessation of liabilities.

In fact, it is not for the appellant to "produce the parties". If any enquiries are to be made, it is for the assessing officer to make enquiries from the concerned parties and invoke the provisions of the Act which required such parties to provide information required. No case has been made out of cessation of liability and addition made under section 41(l) cannot be sustained and the appellant would be entitled to relief of Rs. 17,22,868.

Before us, the learned Departmental Representative for the revenue, except placing reliance on the reasoning given in the order of the assessing officer, was not able to rebut the factual observations made in the order of the Commissioner (Appeals), nor was able to point out any case law wherein, in identical facts and circumstances, contrary view has been taken.

On the other hand, learned authorised representative for the assessee firstly placed reliance on the reasoning given in the order of Commissioner (Appeals) and secondly placing reliance on the various decisions of the Tribunal and the Bombay High Court, submitted that in identical facts and circumstances, the issue, as arising in the instant ground of appeal taken by the revenue, came up for consideration before these authorities and the same was decided in favour of the assessee and against the revenue : (i) Paramount Machine Tools Corpn. v. Income Tax Officer (ITA No.308/Chd/1990)Dy. CIT v. C.L. Jain Woollen Mills, Ludhiana (iii) Shiplay Hosiery & Textiles v. Income Tax Officer (ITA No.1019/Chd/1988) Their Lordships of Bornbay High Court held that "Liability of the assessee does not cease merely because the liability has become barred by limitation. No profits chargeable to tax under section 4 1 (1) can accrue on that basis." We have considered the rival submissions of both the parties, perused the record and carefully gone through the orders of tax authorities below and the case law cited by the learned Authorised Representative for. the assessee.

In the instant case, the liabilities in question are outstanding for the past 4 years and the same have been accepted as such by the department. There is no material on record that the assessee had no intention of honouring the debt. In the instant case, the liabilities existed in the accounts of the assessee and the same have not been written off by the assessee. The assessee has never denied its liability and has accepted that it has to make the payments to the concerned parties. No cessation of liabilities or remittance thereof is indicated. Hence, we are of the opinion that the Commissioner (Appeals), on the basis of decisions (supra) cited by the learned authorised representative before us as well as before the Commissioner (Appeals), has rightly deleted the impugned addition because in the decisions (supra) also, in identical facts, the additions made by the assessing officer under section 41(l) have been deleted. Accordingly, we uphold the decision of the Commissioner (Appeals) in this regard and the ground of appeal taken by the revenue is rejected.

Consequent upon our finding given hereinabove upholding the order of Commissioner (Appeals) in deleting the impugned addition under section 41(l) of the Income Tax Act, made by the assessing officer, the cross-objection filed by the assessee, in support of the order of Commissioner (Appeals) does not survive as the same has become infructuous. Accordingly, we dismiss the cross-objection filed by the assessee as having become infructuous.

In the result, the appeal and cross-objection filed by the assessee and the appeal filed by the revenue are dismissed.