TaxTMI 
TaxTMI 
2012 (7) TMI 392
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....the case, CIT(A) has grossly erred in treating a sum of Rs.81,653/- as remission of trading liability. 2. The learned CIT(A) has grossly erred on the facts of the case and in law in treating a sum of Rs.58,500/- out of expenses payable at the end of the year as cessation of trading liability u/s 41(1) of the Income-tax Act. 2. Adverting first to ground no.1 in the appeal of the Revenue and the corresponding CO, facts, in brief, as per relevant orders are that return declaring income of Rs.5,23,739/- filed on 31.10.2007 by the assessee, exporting artificial jewellery and handicraft items, after being processed u/s 143(1) of the Incometax Act, 1961 (hereinafter referred to as the Act) was selected for scrutiny with the service of a notice u/s 143(2) of the Act issued on 29.09.2008. During the course of assessment proceedings, the Assessing Officer (A.O. in short) asked the assessee to furnish confirmation of the creditors having balance exceedingRs.50, 000/-each as on 31.03.2007. In response, the assessee furnished the following details :- S.No. Name of Creditor Amount[In Rs.] 1. M/s Chipri Handicraft Cr. Rs. 5,97,045/- 2. M/s Cottage Craft Cr. Rs. 81....
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....subsequent assessment year. The account of M/s Fashion Craft shows total purchases of Rs.30,47,771/- in the previous year under consideration, of which Rs.5,47,771/-remains as credit balance as on 31.3.2007. There are regular transactions of purchases and payments throughout the year, and the transactions of purchases and payments throughout the year, and the outstanding balance of Rs.5,47,771/- has been paid in the subsequent year. The ledger account of M/s Khan Handicrafts shows total purchases of Rs.2,22,974/-, of which Rs.79,170/- remained outstanding as on 31.03.2007. These amounts have been paid off between 4.4.07 and 11.4.07, and the appellant has continued to make purchases from the party in the subsequent year. Ins the case of M/s Landmark Exports also, the appellant had regular dealings of purchases and payments throughout the previous year and out of total purchases of Rs.4,98,276/-, an amount of Rs.1,06,825/- remained outstanding as on 31.3.2007 which has been paid up in April 2007. The appellant has continued to make purchases from this party in the subsequent year as well. In the account of M/s M.A. Craft, the appellant has a closing credit balance of Rs.83,481/....
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....ed that entire addition was required to be deleted in view of decisions in CIT Vs. Auto Kashyap India Pvt. Ltd. 330 ITR 435(Del.); &CIT Vs. Shri Vardhman Overseas Ltd. (2011) 16 Taxman.com 350 (Delhi),especially when purchases had not been doubted . 5. We have heard both the parties and gone through the facts of the case as also the decisions relied upon by the ld. AR. Indisputably, the assessee did not submit any confirmation before the AO nor established the genuineness of the sundry creditors, his counsel having not submitted the details desired by the AO. On appeal, the ld. CIT(A) after admitting additional evidence found that the assessee was dealing with most of the parties in the subsequent year and liability had been paid up. Only the liability of Cottage Craft continued to be shown as outstanding even in the subsequent year. Accordingly, the ld. CIT(A) while deleting the addition of Rs.17,34,147/-, upheld the amount of Rs.81,653/- even when he found that the AO had accepted all the purchases without demur. The ld. CIT(A) did not even advert to the applicability of relevant provisions of sec. 41(1)(a) of the Act .The provisions of sec. 41(1)(a) stipulate that where an al....
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...., therefore, even if the entries are made to write back the expenditure, the amount so written back cannot be added in the income of the assessee as per the provisions of section 41(1) of the Act. 5.2 Hon'ble Bombay High Court in the case of CIT Vs. Chase Bright Steel Ltd.,177 ITR 128(Bombay) while relying upon their judgment in J. K. Chemicals Ltd. Vs. CIT, [1966] 62 ITR 34 held that the liability of an assessee does not cease merely because the liability has become barred by limitation. The liability ceases when it has become barred by limitation and the assessee has unequivocally expressed its intention not to honour the liability even when demanded. 5.3 Hon'ble Supreme Court in the case of Bombay Dyeing & Manufacturing Co. Ltd. v. State of Bombay, AIR 1958 SC 328, in para 23 of their decision observed as follows : " 23. It has been already mentioned that when a debt becomes time barred, it does not become extinguished but only unenforceable in a court of law. " 5.4 Hon'ble Supreme Court in the case of Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518 held that unless there is a cessation of liability, income cannot be added as per the provisions of section 41(1) of the ....
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....t of view taken by the Hon'ble Supreme Court and jurisdictional High Court in their aforesaid decisions, it is apparent that unless there is a cessation of liability or there is a remission of liability by the creditor, the liability subsists and the assessee having not unilaterally written back accounts of the aforesaid creditors in its profit and loss account, the provisions of section 41(1) of the Act and explanation 1 thereto, are not attracted. In the instant case, there is nothing to suggest that the assessee obtained any benefit either by way of remission or cessation of any liability while the aforesaid liabilities are continually admitted by the assessee in their balance sheet. Moreover, the AO or the ld. CIT(A) have nowhere doubted the genuineness of purchases. In these circumstances, especially when the Revenue have not placed before us any material, controverting the aforesaid findings of the ld. CIT(A) nor brought to our notice any contrary decision, we have no alternative but to uphold the findings of the ld. CIT(A) in deleting the addition of Rs.17,34,147/-.For the aforesaid reasons, even the addition of Rs.81,653/- can not be sustained, the ld. CIT(A) having admitte....