TaxTMI 
TaxTMI 
2017 (10) TMI 533
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....olved in the appeal is sustaining the addition of Rs. 43,66,283/- on account of liabilities of sundry creditors as per the Assessing Officer the same have ceased to exist hence added back U/s 41(1) of the Income Tax Act, 1961 (in short the Act). 3. The brief facts of the case are that the assessee is normally engaged in the business of trading of precious and semi precious stones. However, during the year under consideration, the assessee has not carried out any business activity. The Assessing Officer observed that assessee has shown sundry creditors to the tune of Rs. 87,50,051/- as on 31.03.2012.The Assessing Officer observed that the assessee failed to file confirmation from 5 creditors amounting to Rs. 46,24,283/-.He issued notice u/s 133(6) to these parties (except M/s Hem Gems as no address was provided). Notice was served only to M/s Kings of Jewels. The credit in the name of M/s Kings of Jewels was verified by the AO from the copy of account filed by M/s Kings of Jewels. The A.O. added the following outstanding liabilities: M/s Coral Gems Rs. 19,96,783/- M/s Hem Gems, Mumbai Rs. 20,50,500/- M/s Priya Jewels Rs. 75,000/- M/s United Gems India Rs. ....
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.... held that section 41(1) is not applicable unless it is proved on record that there is remission of liability by the creditor or any unilateral act by the assessee. ITO Vs. Marcopolo Products Pvt. Ltd. (2016) 159 ITD 266 (Kol.) (Trib.) There are two conditions to be fulfilled in order to attract provisions of section 41. Firstly, there should be cessation or remission of liability and secondly it should be ceased to be so during previous year. Even where an amount remained unclaimed by sundry creditors for a considerable period of time and said liability was carried forward for many years and there was no cessation or remission during previous year, same could not be added to income. CIT Vs. G.K. Patel & Co. (2012) 212 Taxman 384 (Guj.) (HC) AO finds that assessee had not paid money to many of creditors for years together & thus added the same as income under provisions of sec 41(1). It was held that cessation of liability has to be either by reason of operation of law, i.e., on liability becoming unenforceable at law by creditor and debtor declaring unequivocally his intention not to honour his liability when payment is demanded by creditor, or a contract between parti....
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.... had filed the copies of accounts of sundry creditors signed by the concerned creditors. In view of this fact, the Tribunal has rightly come to the conclusion that confirmation from the creditors was produced. In view of the above, there is no illegality in the impugned order passed by the Tribunal and, no substantial questions of law, as raised by the Revenue in this appeal, arise from the order of the Tribunal." 2. It is submitted that in case of M/s Coral Gems, purchases were made in the FY 2001-02 (PB 5 & 12). Against those purchases payment of Rs. 32,50,000/- was made in FY 2004- OS and an amount of Rs. 19,96,783/- was outstanding. Copy of account is at PB 4. Thereafter, M/s Coral Gems vide letter dt. 15.05.2008 demanded the balance payment (PB 6). This shows that the liability has not ceased to exist. In case of Priya Jewels it is submitted that it is a proprietor concern of Sh. Govind Johari. Its new address was provided at C-7, Prithviraj Road, CScheme, Jaipur. Govind Narayan Johari is assessed with ACIT, Central Circle-Ill, Jaipur. M/s King of Jewels is also a proprietary concern of Sh. Govind Johari whose credit was accepted by AO and therefore, there is no reason to h....
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.... Narayan Johari was assessed to income tax at Central Circle-III, Jaipur. The other proprietory concern of Shri Govind Johari was M/s King of Jewels. The liability of the same was accepted by the Assessing Officer as genuine and payable, therefore, there is no reason to disbelieve the liability of M/s Priya Jewels of Rs. 75,000/-. PAN of Shri Govind Johari was also provided. Similarly in the case of United Gems India, purchases were made on 20/06/2004 against which payment of Rs. 2,58,000/- was made on 02/08/2005 and the balance was still payable. The same is the case with Hem Gems, therefore, in my considered view, these liabilities were subsisting during the relevant period and only because payments were not made against these liabilities, therefore, provisions of Section 41(1) of the Act cannot be invoked. In the case of CIT Vs Sugauli Sugar Works (P) Ltd., the Hon'ble Supreme Court held as under: Sec. 41 contemplates the obtaining by the assessee of an amount either in cash or in any other manner whatsoever or a benefit by way of remission or cessation and it should be of a particular amount obtained by him. Thus, the obtaining by the assessee of a benefit by virtue of remis....