TaxTMI 
TaxTMI 
2014 (6) TMI 139
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....ry creditors'. a) Skylark Finance Ltd. Rs. 1,59,25,000/- b) Mrubee Exports Rs. 15,00,000/- c) Ajanta Chem & Plast P. Ltd. Rs. 1,62,324/- d) Kunjan Enterprises P. Ltd. Rs. 3,00,000/- Total........ Rs. 1,78,87,324/- Since, the sundry creditor in the name of above said persons were shown as outstanding in the books of assessee company for the last several years and there being no transactions with the parties concerned during the last several years, the assessee was asked to show cause why the said amount shown as sundry creditors should not be treated as its income as the liability for payment of the same has ceased and the parties concerned had no legal right for asking payment of the same. The assessee submitted before the A.O. that none of the 4 creditors referred to in the show cause letter, were in respect of any expenditure or trading liability incurred by the assessee in the past. It is further stated that the outstanding amount in this case appearing as sundry creditors were in fact representing current account liabilities towards finance received from them. Accordingly, the assessee objected before the A.O. that it cannot be subjected to tax ....
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....tence and therefore, the assessee's liability in so far as the money due to the said party to the extent of Rs.1,59,25,000/- has ceased. The ld. A.O. further held that there is no dispute over the fact that the amount in question was received by the assessee in the course of its trade. By reason of cessation of liability, the assessee is enriched by an amount of Rs.1,59,25,000/- since the amount in question was originally received in connection with and in the course of the assessee's business, the benefit derived by the assessee on account of cessation of liability is taxable as its income. The same is taxable in view of the provisions of Section 28(iv) of the IT Act. The argument made by the appellant before the A.O. that amount in question was not claimed deduction as expenditure in any of the earlier years and therefore, the same cannot be taxed u/s.41(1) is devoid of any merit. He relied upon the decision of Hon'ble Supreme Court in case of CIT vs. T.V.Sundaram Iyengar and Sons Ltd., 222 ITR 344 (SC). The Hon'ble Supreme Court after referring various case laws, in the aforesaid case had observed as under: "The assessee had received deposits in the course of its business whi....
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....end because as mentioned in the preceding para, the party has not taken any action for recovery of the demand and it cannot now initiate any action. The amount in question has been received in the course of the business of the assessee for the reason mentioned in the preceding para dealing with the liability in the case of Skylark Finance Ltd. this amount was also chargeable to income tax u/s. 28(iv) of the IT Act. iv) Ananta Chem. & Plastic P. Ltd. Rs.1,62,324/- The assessee had filed a copy of the audited profit and loss account and balance sheet of Ananta Chem. & Plastic P. Ltd. for the year ended31.03.2007. In the balance sheet of the assessee company the name of the said Ananta Chem & Plast. P. Ltd. appears under the head 'sundry creditors' and an amount of Rs.1,62,324/- has been shown as liability to the said company. However, on perusal of the balance sheet particularly, Schedule VII of Ananta Chem. & PLast. P. Ltd., there is no money recoverable from the assessee company as on 31.03.2007. As per the said Schedule VII giving list of loans & advances an amount of Rs.1,58,072/- was recoverable from the assessee Anugraha Chemicals P. Ltd. However, during the year ended 31....
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....charge created on the office premise of M/s. Ambica Mills Ltd. situated at 122, Maker's Chambers, Nariman Point is filed. The appellant also filed a copy of Civil Suit No. 5028 of 1997 filed by M/s. Shatmurti Investment and Trading Pvt. Ltd., against M/s. Ambica Mills Ltd. for an amount of Rs. 1,14,12,473/- to substantiate that it is also facing same problem as that of appellant and therefore, not able to pay back to appellant. The appellant submitted copies of confirmation from Skylark Finance Ltd. (PAN AACCS9634G) showing outstanding balance as on 31-3-98 from the books of Skylark Finance Ltd. (Reference of ledger page No. 24) notarised true copy dt: 30-11-09 to substantiate the claim that appellant still treat it as outstanding and M/s. Skylark has not intimated the appellant about its closure or write off. Further, appellant objected that the A.O. has done inquiry behind the appellant and has not afforded any opportunity to cross examine Shri Ketan Shah. I am further inclined to accept the contention of the appellant that ratio of Hon'ble Supreme Court judgement, 222 ITR 344 is not applicable in the case of appellant being there were different facts. The assessee in ....
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....n two years old as per accounts related to these parties, but the appellant has not submitted any evidence or controverted the A.O's finding that as per the balance sheet of M/s. Ananta Chem. & Plastic P. Ltd. for the year ending 31-3-07, no such amount is shown due from appellant. The appellant has not filed any confirmation from such party or made any satisfactory explanation. It is, therefore, the A.O. is justified in invoking section 41(1) of the Act, based on factual finding in respect of this party and addition of Rs. 1,62,324/- is therefore, upheld. In Conclusion, the ground of appeal appellant is partly allowed where relief of Rs.1,77,25,000/- is given in respect of three parties and upholding the addition of Rs.1,62,324/-." 5. Now both the parties are before us. Ld. Sr. D.R. vehemently supported the order of the A.O. in Revenue's appeal but in assessee's appeal, he supported the order of CIT(A). At the outset, ld. Counsel for the assessee supported the order of CIT(A) in Revenue's appeal and in assessee's appeal, ld. Counsel for the assessee argued that detailed reply was submitted before the A.O. that the case law cited by the A.O. i.e. CIT vs. T.V.Sundaram Iyen....
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....he matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) f the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed." 6. We have heard the rival contention and perused the material on record. The assessee has not credited the liability in the book of account and had not shown as income during the year. The A.O. found that the lenders had not shown this amount in the balance sheet as debtors. But facts are that the appellant's intention is to pay the amount to the lenders. The case laws cited by the appellant are squarely applicable on this issue. Therefore, we do not find any reason to confirm the order of the CIT....