ITO vs. Sajjankumar Didwani (ITAT Mumbai)

DATE: May 28, 2014 (Date of pronouncement)
DATE: October 26, 2014 (Date of publication)
AY: 2009-10
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S. 41(1): Unclaimed & unproven liabilities are deemed to have ceased and are assessable as income

(i) When the liability continues to subsist year after year, for several years, serious and valid doubts as to its existence or as representing an existing liability, may arise. This is as in the very nature of the events, nobody would ordinarily, i.e., without justifiable reason, not claim his dues, representing his hard earned money or capital built up over years. Then, again, why would one not agitate the matter or take legal recourse to effect recovery. That is, the said presumption fails on the test of human probabilities in the facts and circumstances of the case.

(ii) The hon’ble Delhi high court per its recent decision in the case of CIT vs. Chipsoft Technology (P.) Ltd. [2012] 210 Taxman 173 (Del), examining the legal aspect of the matter, has clarified that the view that merely because a liability outstands in books, and that lapse of time bars the remedy but does not efface the liability, is an abstract and theoretical one which does not ground itself in reality. The interpretation of law, particularly fiscal and commercial legislation, is to be based on pragmatic realities. It would be indeed paradoxical, if not illogical, to allow the assessee-debtor to, while avoiding a liability on the basis that it is no longer enforceable in law, yet claim his status as a debtor, so that he was indeed liable for the amount reflected as a liability in accounts. …. The said decision by the hon’ble court stands followed and adopted by the tribunal, as in ITO vs. Shailesh D. Shah and Yusuf R. Tanwar vs. ITO.

(iii) It could be argued that even where the assessee is unable to prove the existence of a trade liability as at the relevant year-end, which though continues to outstand in books, would yet not exhibit that the remission or cessation of the liability during the relevant year, and which is a prerequisite for the application of section 41(1). The argument, attractive at first sight, in-as-much as the same represents a primary ingredient of the relevant provision, fails on scrutiny. This is for the reason that the assessee reflecting the amount as a liability in his books for the immediately preceding year, has confirmed it as so as at the end of that year, i.e., 31.03.2008 in the present case. It does not therefore lie in his mouth or is not open for him to say or contend that it was not so, and that the amount was in fact not outstanding even on that date. The Revenue has merely proceeded by accepting the assessee’s claims and books for that year. The principle of approbate and reprobate would therefore apply to estopp the assessee from taking such a stand, i.e., legally. The anomaly stands explained famously by the hon’ble apex court in Phool Chand Bajrang Lal vs. ITO [1993] 203 ITR 456 (SC) in the context of reopening of reassessment u/s.147, which requires the assessee to disclose all material facts fully and truly: ‘You accepted my lie, now your hands are tied and you can do nothing.’ It clarified that it would be a travesty of justice to allow the assessee that latitude.

Note: Chipsoft Technology has not considered Sugauli Sugar Works 236 ITR 518 (SC) and has dissented from J.K. Chemicals Ltd 62 ITR 34 (Bom) & Sadabhakti Prakashan 125 ITR 326 (Bom). The Delhi High Court has in CIT vs. Jain Exports (P) Ltd (89 DTR 265) subsequently taken a contrary view to that taken in Chipsoft

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