Commissioner Of Income Tax vs Harpal Singh Chadha
2010 Latest Caselaw 5235 Del

*           IN THE HIGH COURT OF DELHI AT NEW DELHI

+                       (ITA No.243 of 2009)

%                                     Date of order: 18th November,2010


COMMISSIONER OF INCOME TAX                              . . . APPELLANT

                        Through :            Ms. Prem Lata Bansal, Advocate,


                                VERSUS


HARPAL SINGH CHADHA                                      . . .RESPONDENT
                        Through:             Mr.S.K. Khanna, Advocate


CORAM :-

     HON'BLE MR. JUSTICE A.K. SIKRI
     HON'BLE MR. JUSTICE SURESH KAIT

     1.     Whether Reporters of Local newspapers may be allowed
            to see the Judgment?
     2.     To be referred to the Reporter or not?
     3.     Whether the Judgment should be reported in the Digest?


A.K. SIKRI, J. (ORAL)

1. This appeal pertains to the assessment year 2001-02. While

making the assessment, the Assessing Officer made various

additions in his assessment order dated 31st March, 2004. However,

in the present, we are concerned with the two additions which are

dealt with as under:-

(1) The Assessing Officer had noticed that an amount of `

1,46,01,227/- had been shown by the assessee

outstanding against 24 creditors in the Balance Sheet of

the proprietary concern of the assessee namely M/s

Pioneer International. He also noticed that these

balances were outstanding for more than three years. In

the past three years, no correspondence was made by the

assessee or by the said purported sundry creditors. The

assessee could not furnish their addresses thereof. On

this basis, the Assessing Officer concluded that there was

no intention on the part of the assessee to pay the

amount as this had become time-barred. He accordingly

added the aforesaid amount to the income of the

assessee under Section 41 of the Act. The CIT (A) deleted

this addition. The ITAT has upheld the order of the CIT

(A). The Tribunal has stated that the liabilities were old

and there was no transaction in the accounts for the last

three years and, therefore, these liabilities had become

barred by limitation. However, opined the Tribunal, that

this would not mean that liability ceased to exist in the

eyes of law and merely because the debt was time

barred it would not lead to a conclusion that there was

remission or cessation of the liabilities leading to some

benefits in respect of the liability. On this basis, the ITAT

held that the provisions contained in Explanation 1,

Section 41 of the Act would not be applicable to the facts

of the present case.

We are of the opinion that though the conclusion of the Tribunal

is correct but the reason in support thereof is not entirely correct. It

is an admitted case that the liability was shown in the books of

accounts/Balance sheet of the assessee even in the year under

question. Once the liability of bad debt to the creditors is

acknowledged in the books of accounts made by the assessee

himself, it had not become time barred. Such an acknowledgment in

the books of accounts would be a sufficient acknowledgment as per

Section 18 of the Limitation Act and, therefore, this

acknowledgement would extend the period of limitation by a further

period of three years from the date of the acknowledgment. Thus, it

cannot be said that the liability had become time barred. Moreover,

it also cannot be said that the assessee had no intention to pay the

amount when the assessee had itself acknowledged this liability in

his books of accounts. Therefore, explanation 1 of Section 41 could

not be invoked and the addition made. Thus we upheld the order of

the Tribunal, but on different grounds.

(2) The second addition which was made by the Assessing

Officer was in the sum of ` 18,97,526/- which was

introduced in the capital account of the assessee during

the accounting year. According to the Assessing Officer,

the assessee could not give any satisfactory explanation

and, therefore, it was added in the income of the

assessee. The CIT (A) sustained the addition to the extent

of ` 9 lacs and deleted the balance addition of ` 9,97,526.

While coming to this conclusion, the CIT (A) went into the

capital account of the appellant and also examined the

withdrawals of various dates and deposits therein. It was

found that withdrawals were made from the bank account

maintained by the assessee company in the Punjab

National Bank. The statement of account was also

produced. On that basis, the CIT (A) was satisfied that

the assessee was able to explain the source of additions

of capital account to the extent of ` 9,97,526/-. The

addition of ` 9 lacs was sustained and the explanation of

the assessee that it was loan taken from one Mrs. Om Vati

was not accepted. The CIT after examining the accounts

observed as under:-

"I have gone through the capital accounts furnished by the appellant which was also furnished before the AO. All the additions to the capital account have been transfer entries from their account at Punjab National Bank being about ` 16 lakhs and the balance ` 3.62 lakhs is transferred from Bank of India account. Withdrawals from the capital account to Punjab National Bank account is approximately ` 13.50 lakhs. According the appellant they have taken a loan of ` 9 lakhs from Mrs. Om Vati Gupta by cheque. They have filed copies of cheques and pay in slips. However, no confirmation from Mrs. Om Vati Gupta has been filed. Hence this contention of the appellant that ` 9 lakhs has been received from Mrs. Om Vati Gupta cannot be accepted. Hence out of total addition of ` 18,97,526/- made in the capital account, the assessee's explanation regarding ` 9,97,526/- is acceptable considering the fact that there are contra entries of withdrawals and additions from the capital account alongwith net addition to the capital account of ` 5,37,526/- are explained as withdrawals and additions from the Punjab National Bank and Bank of India account copies of

which were filed before the AO also. However, the entry of ` 9 lakh which is alleged to be a loan from Mrs. Om Vati Gupta stands unexplained in absence of any explanation or proof apart from the bank pay in slips. Out of addition of ` 18,97,526/- addition to the extent of ` 9 lakh is sustained and the balance of ` 9,97,526/- stands deleted".

2. The ITAT has confirmed the aforesaid finding of fact. We are of

the opinion that no question of law arise. This appeal is according

dismissed.

(A.K. SIKRI) JUDGE

(SURESH KAIT) JUDGE NOVEMBER 18, 2010 SKB