ITAT deletes Addition by Holding Trading Liability to be existing liability as proceedings for Recoveries with respect of these amount was still in progress [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) deleted the addition by holding the trading liability to be an existing liability as proceedings for recoveries with respect of these amount was still in progress.

The assessee, 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.

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.

The department appealed against the order of CIT(A) and raised the issue 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.

The coram headed by the Vice President Pramod Kumar and Judicial Member, Saktijit Dey said that 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 at least in this year. Therefore, the tribunal approved the well reasoned finding given by the learned CIT(A) and declined to interfere in the matter.

“It’s a pity that sometimes the departmental appeals are filed without carefully looking at undisputed foundational facts in a routine manner. In the present case, even though the Assessing Officer is in appeal before us, the foundational facts are not even in disputes and these foundational facts indicate that there was no remission or cessation of liability in the relevant previous year. Yet, the Assessing Officer is on appeal before us. That does not make any sense. We only hope that the Income Tax Authorities are more careful in taking a call on which decisions need to be pursued in further appeals. We leave it at that for the time being,” the ITAT said.

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