TaxTMI 
TaxTMI 
TaxTMI 
2018 (3) TMI 1515
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....dditions were also made by disallowing purchases. 4. The assessee craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing. 2. The assessee HUF filed its return of income on 22nd September, 2012 declaring total income of Rs. 3,72,450/-. The assessee is running business in the name of M/s. R.S. Gems dealing in precious and semi precious stones. During the course of assessment, the AO noted that there were huge sundry credits appearing in the books of accounts of the assessee to the tune of Rs. 9,78.82,902/-. The AO found that out of these trade creditors, 10 creditors were non-resident and the amount to the extent of Rs. 4,27,14,114/- pertaining to these foreign creditors were accepted by the AO. However, the AO has conducted an enquiry in respect of the local trade creditors representing the amount of Rs. 3,34,38,259/-. The AO noted that these credits were outstanding for last 5-6 years and accordingly the notices were sent to some of the creditors by post but the same could not be served. The AO further noted that in the subsequent assessment year i.e. 2015-16 the assessee has written off some trade creditors to the extent of ....
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....conclusion only on the basis of non-service of the letters. He has further submitted that due to financial difficulty the assessee was not able to make the payment in time. However, it is an established position of law that till the party giving credit has not written off the amount, the trade creditors would continue to stand. He has further submitted that when the foreign creditors were also outstanding for equally long period of time and AO has accepted the genuineness of the foreign trade creditors then the said long outstanding of local trade creditors cannot be a reason for treating the same as not genuine. He has further contended that in the subsequent assessment years i.e. 2014-15 and 2015-16 the assessee has paid the trade creditors to the extent of Rs. 80,72,538/- and, therefore, the part liability has been discharged by effecting the sales to the trade creditors. The ld. A/R has referred to the sale vouchers relating to the assessment years 2014-15 and 2015-16 and submitted that in the subsequent years the assessee has discharged the liability by way of sale of precious stones to the trade creditors. He has further submitted that ld. CIT (A) has relied upon the various ....
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....re, these are not pertaining to the year under consideration. It is also not the case of the AO that the assessee has introduced fresh trade creditors during the year under consideration. Once the trade creditors were accepted by the AO in the year these were first time in the books of accounts, then the genuineness of the trade creditors cannot be doubted only because of nonpayment of the same for such a long time. The AO held that trade creditors shown in the books of accounts to the extent of Rs. 3,34,38,259/- are not genuine and, therefore, the same are added to the income of the assessee though the counter part of the trade credits belonging to the foreigners were accepted by the AO. Thus the AO cannot apply a different parameter of outstanding period for the local trade creditors and foreign trade creditors. Even others, once the trade credits were accepted in the year when these are introduced in the books of accounts, the same cannot be treated as non-genuine in the subsequent year except the fact that the liability of the assessee to repay the amount ceased to exist. The AO has arrived to the conclusion based on the fact that the notices issued to the trade creditors were ....
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.... remained unclaimed by the work men. For this reason, the Question arose during the relevant assessment year 1972-73 whether these amounts of unclaimed wages and unclaimed bonus were taxable in that year under section 41(1) of the Act. The ITO included these amounts in the assessee's income treating the same as profits and gains of business during the relevant assessment year and the assessee's appeal to the Commissioner (Appeals) also failed. However, the Tribunal hereafter accepted the assessee's contention that these amounts could not be deemed to be profits and gains of business in order to be taxable under section 41(1). This view was taken on the basis that these amounts representing: the unclaimed wages and bonus, though time barred had not resulted in either remission or cessation of the trading liability of the assessee without which the same could not be taxed under section 41(1). Aggrieved by the view taken by the Tribunal, the revenue applied for a reference under section 256(1) which was made by the Tribunal to answer the above- quoted question of law. 3. The preponderance of the authorities on the point is in assessee's favour. The High Courts of Bo....
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....) the remedy had become time barred, whereas in this case it had not. This alone is sufficient to indicate that this decision relied on by the learned counsel for the revenue cannot be construed as a contrary decision. There is no other decision taking a contrary view cited at the bar. 5. We find no reason to take the contrary view suggested by the learned counsel for the revenue in the face of catena decision cited earlier, taking the view in assessee's favour. Following those cases it is to be held that the Tribunal was justified in the view it has taken." Thus merely because the trade creditors are standing in the books for a period which is considered to be time barred it is neither remission or cessation of liability so long the assessee is willing to pay the same and the creditor has not waived off the credit. The Hon'ble Jurisdictional High Court in the case of CIT vs. Narendra Mohan Mathur (supra) has reiterated its view and held that for remission or cessation of a trading liability and for making addition under section 41(1) of the Act it is not enough that the creditors have not given any response. The revenue has to prove that how the trading liability ceased t....
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....id liability has ceased to exist. In the absence of any bilateral act of the assessee and creditors, the said liability could not be treated to have ceased. The Hon'ble Delhi High Court in the case of CIT vs. Jaipur Jewellers (Exports) (supra) has held in para 3 & 4 as under :- "3. So far as the addition for unexplained credit entries with Banks, the CIT(A) deleted the same as the same was duly assessed for another assessee. The only submission of the learned counsel for the appellant is that the assessee never disclosed that the earlier firm had been dissolved and new firm had been established and this fact, for the first time, was brought by the assessee before the CIT (Appeals) and CIT (Appeals) accepted the same as a truth without verifying as to whether earlier firm had been dissolved and new firm had come into existence. She submitted that no necessary documents evidencing the creation of the new partnership were not even looked into by the CIT (Appeals) or ITAT. On our repeated queries made to the learned counsel as to whether this ground was raised before the ITAT while challenging the order of the CIT (Appeals) or not, Ms. Prem Lata Bansal was not able to point out any s....
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....half of the revenue at length. We have perused and considered the assessment order, the order passed by the learned CIT(A) as well as the impugned judgment and order passed the learned Tribunal. 6.1 At the outset, it is required to be noted that the Assessing Officer made the addition of Rs. 56,96,645/- invoking Section 41(1) of the Income Tax Act by doubting certain sundry creditors amounting to Rs. 56,96,645/- appearing in the balance sheet of the assessee since past several years. However, it is required to be noted that as such those sundry creditors mentioned in the balance sheet of the assessee were shown as sundry creditors since past several years from the relevant assessment year and at no point of time earlier the Assessing Officer doubted the creditworthiness and/or identity. In any case the addition on the aforesaid ground under Section 41(1) of the Act cannot be made unless and until it is found that there was remission and/or cessation of the liability that too during the previous year, relevant to the assessment year in question, there cannot be any addition invoking the provision of Section 41(1) of the Act. Identical question came to be considered by the Divisio....
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....ng on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the 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....