TaxTMI 
TaxTMI 
2018 (5) TMI 1311
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....ircumstances of the case. 3. The brief facts of this case are that the assessee is an individual and is an Interior Decorator and Contractor in the name and style of M/s VIBGYOR. The return of income for the Asst Year 2012-13 was filed by the assessee on 23.3.2013 (belated return but within time specified u/s 139(4) of the Act) declaring total income at Rs. 15,48,850/- The ld AO observed that in response to notices issued u/s 143(2) and 142(1) of the Act, the authorized representative of the assessee attended and submitted details , which were examined with annexure, reports etc along with the return of income and kept on record. The total turnover declared by the assessee was Rs. 1.66 crore from M/s VIBGYOR. In addition to business income, the assessee is a partner is M/s D.M.Constructors and has remuneration income of Rs. 7,20,000/- during the year under consideration. 3.1. The ld AO on perusal of the balance sheet as on 31.3.2011 observed that the assessee had shown sundry creditors as under:- Sundry Creditors - Rs. 1,08,65,202/- Sundry Creditors Labour - Rs. 25,60,398/- Sundry Creditors Materials - Rs. 30,82,491/- The details of the same were called for and the asses....
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....t on account of cessation of liabilities. 3.2. The ld AO observed that out of the other sundry creditors for labour and materials in the sums of Rs. 25,60,398/- and Rs. 30,82,491/- respectively, the assessee had provided the list of creditors along with addresses showing opening balance, total of supplies made during the year (credit) , payments made thereon (debits) including debits towards debit notes and TDS and closing balance of each of the creditors. From the same, the ld AO issued notice u/s 133(6) of the Act to 4 parties , out of which 2 notices returned unserved ; 1 notice was served but no reply was received from the party and balance 1 notice was served and reply was received from the said supplier. The details of these 4 parties are as under:- Sl. No. Name of Creditor party Op. Balance Cl. Balance Remarks 1 Shri Brahmadeb Das 7,21,962/- 5,96,962/- No Reply received 2 M/s Intex 8,81,094 9,73,673.- Received Un-served 3 M/s M.J. Contractor 18,38,395 18,34,395 Reply Received 4 Shri Sarvjit Kumar Tiwary 5,26,178/- 5,18,178 Received Un-served 39,67,629 39,23,208 The ld AO observed that M/....
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....ade in the sum of Rs. 1,08,65,202/- u/s 41(1) of the Act was upheld by the ld CITA for the same reasons stated by the ld AO. With regard to addition made towards bogus creditors, the ld CITA observed that the balance outstanding in the sum of Rs. 9,73,673/- with M/s Intrex , was not creditors outstanding , rather it was debtors outstanding (i.e receivable by the assessee). Hence he held that the same cannot be added as bogus creditors in the hands of the assessee. However, he upheld the balance portion of bogus creditors in the sum of Rs. 29,49,535/- made in the assessment. Aggrieved, the assessee is in appeal before us on the following grounds:- 1. That under the facts and circumstances of the case, Ld. CIT(A) erred in confirming the addition of Rs. 1,08,65,202/- u/s 41(1) as cessation of liability despite there is no change in closing balance of creditors liability, the addition therefore arbitrary, unjustified, illegal and uncalled for. 2. For that on facts of the case, Ld. CIT(A) erred in not considering the facts that unilaterally no cessation of liability can take place, therefore, the addition so made by the AO and confirmed by the Ld. CIT(A) is bad in law and liable to ....
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....that the assessee had claimed deduction towards at the time of creation of these trading liabilities in the earlier years. The only dispute is whether the same could be brought to tax u/s 41(1) of the Act on account of cessation of liabilities. We find that the assessee had shown the same balances as outstanding towards the sundry creditors even as on 31.3.2013 (i.e the next assessment year). It is not in dispute that the assessee had not written back these creditors in the sum of Rs. 1,08,65,202/- to his profit and loss account as liabilities no longer payable. Hence there is no unilateral write back of the creditors to his profit and loss account by the assessee. From this it could be safely concluded that the assessee had proved that the liabilities had not ceased to exist. The very fact, that the liabilities are continued to be shown in the books of the assessee even in the next financial year ended 31.3.2013 relevant to Asst Year 2013-14, goes to prove that the assessee had duly acknowledged his debt by accepting the creditors liability to be discharged in future. Hence there cannot be any cessation of liability as on 31.3.2012. Moreover, in order to invoke the provisions of s....
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.... maintained for any previous year". Since the credit entries in question do not relate to previous year relevant to AY 2009-10, the same cannot be brought to tax u/s. 68 of the Act. The proper course in such cases for the Revenue would be to find out the year in which the credits in question were credited in the books of account and thereafter make an enquiry in that year and make an addition in that year, if other conditions for applicability of section 68 are satisfied. 12. As far as applicability of section 41(1) of the Act is concerned, the question before us is limited to the applicability of Section 41(1) of the Act. The section insofar as it is relevant for our purpose is as below: "Profits chargeable to tax. 41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year, - (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by ....
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....he Hon'ble Delhi High Court on the applicability of Sec. 41(1) of the Act, held:- "12. That takes us to the next question as to what constitutes remission or cessation of the liability. It cannot be disputed that the words "remission" and "cessation" are legal terms and have to be interpreted accordingly. In State of Madras v. Gannon Dunkerley & Co. AIR 1958 SC 560 Venkatarama Aiyyar J. explained the general rule of construction that words used in statutes must be taken in their legal sense and observed : "The ratio of the rule of interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have, in law, acquired a definite and precise sense and that, accordingly, the legislation must be taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law". In our opinion, this rule should be applied to the interpretation and understanding of the words "remission" and "cessation" used in the section. 13. In Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay AIR 1958 SC 3....
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.... the AAC and thereafter carried the matter in further appeal to the Tribunal. Its contention before the Tribunal was that the unilateral entry of transferring the amount from the suspense account to the capital reserve account would not bring the said amount within s. 41(1). The contention was accepted by the Tribunal whose decision was affirmed by the Calcutta High Court in CIT v. Sugauli Sugar Works (P.) Ltd.(1981) 23 CTR (Cal) 226 : (1983) 140 ITR 286 (Cal). The Revenue carried the matter in the appeal to the Supreme Court. The contention of the Revenue (as noted at p. 520 of 236 ITR) was that on the facts of the case, the liability came to an end as a period of more than 20 years had elapsed and the creditors had not taken any steps to recover the amount and consequently there was a cessation of the debt which would bring the matter within the scope of s. 41(1). It may be noted that the contention of the Revenue in the case before us is precisely the same. To recapitulate, the learned standing counsel contended before us that since a period of more than 4 years has admittedly elapsed from the debt on which the debts were incurred and since the creditors had not taken any steps ....
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....his liability. Remission has to be granted by the creditor. It is not in dispute, and it indeed cannot be disputed, that it is not a case of remission of liability. Similarly, a unilateral act on the part of the debtor cannot bring about a cessation of his liability. The cessation of the liability may occur either by reason of the operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to Honour his liability when payment is demanded by the creditor, or a contract between the parties, or by discharge of the debt the debtor making payment thereof to his creditor. Transfer of an entry is neither an agreement between the parties nor payment of the liability. We have already held in Kohinoor Mills Co. Ltd. v. CIT (1963) 49 ITR 578 (Bom.) that the mere fact of the expiry of the period of limitation to enforce it, does not by itself constitute cessation of the liability. In the instant case, the liability being one relating to wages, salaries and bonus due by an employer to his employees in an industry, the provisions of the Industrial Disputes Act also are attracted and for the recovery of the dues f....
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....ned addition cannot be sustained and the same was rightly directed to be deleted by the CIT(A). The order of the CIT(A) is therefore confirmed.' 3. The aforesaid shows that, the Tribunal has considered that the issue is already covered by the decision of Delhi High Court that Section 41(1) cannot be invoked and based on the decision of Delhi High Court, the Tribunal held that unless there is no material on record either for cessation or remission of liability by the creditor, Section 41(1) of the Income Tax Act cannot be invoked and the addition made cannot be sustained. Consequently, the Tribunal has directed the deletion made by the assessing officer. 4. However, Mr. Arvind, learned counsel appearing for the revenue relied upon the decisions of Rajasthan and Punjab & Haryana High Courts in Rama Steel Rolling Mills & General Engg. Works v. ITO [2013] 35 taxmann.com 262 and Mrs. Adarsh Sood v. CIT [2014] 47 taxmann.com 268/225 Taxman 67 respectively. He also relied upon the provisions of Section 41 of the Income Tax Act. 5. The principal contention is that unless the burden is discharged with regard to the existence of the liability by the assessee, it is open for the Rev....
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....ired, by the legal heirs of the deceased creditor. Under the circumstances, in the present case, it can hardly be said that the liability had ceased. If the liability had not ceased or the benefit was not taken by the assessee in respect of such trade liability, in our view, the conditions precedent were not satisfied for invoking Section 41(1) of the Act in the instant case. 10. The Tribunal has rightly relied upon the decision of Delhi High Court in case of Shri Vardhman Overseas Ltd. (supra). The discussion of the decision of Delhi High Court was relevant, for consideration of the facts of the case in order to find out as to under what circumstances it could be said that there is cessation of liability. Further, the decision of Delhi High Court is after considering the view taken by the Apex Court in case of CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518/102 Taxman 713. 11. In the decision of Rajasthan High Court in the case of Rama Steel Rolling Mills & General Engg. Works (supra), the question examined was with regard to discharge of the liability, whether by remission or cessation was not concluded but was rather referred to the assessing authority for fres....
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....ng payments were made after due deduction of tax at source during the year by the assessee which has been accepted as genuine by the ld AO :- Name of the Supplier Net Amt Paid TDS portion Nature of Paymt Shri Brahmadeb Das Rs1,23,750/- Rs. 1,250/- Sub contractor payment M.J.Contractor Rs3,960/- Rs40/- Sub contractor payment Sarvjit Kumar Tiwary Rs8,000/- Rs Nil Supplier payment We find that when the payments made during the year by account payee cheque had been examined and accepted by the ld AO which was also partly subjected to due deduction of tax at source and especially in view of the fact that one of the parties M/s M.J.Contractor had duly responded to notice u/s 133(6) of the Act before the ld AO by confirming the transactions and in respect of Shri Brahmadeb Das, the notice u/s 133(6) of the Act was duly served on the said supplier, it cannot be said that those suppliers are non-existent and bogus. We find that the assessee had placed all the relevant materials before the lower authorities to drive home the point that the sundry creditors shown in the name of these three parties are indeed genuine and transactions were done during the year with the....
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....r Mondal upon payment of labour & fabrication charges u/s 40(a)(ia), therefore, the addition so made is liable to be cancelled. 7.2. We have heard the rival submissions. At the outset, we find that the disallowance u/s 40(a)(ia) of the Act has been made due to short deduction of tax at source on labour and fabrication charges paid to Adhir Kumar Mondal. We find that the ld CITA had considered the assessee (payer) as assessee in default despite the chartered accountant's certificate proving the fact that Adhir Kumar Mondal had duly considered the payments made by the assessee in his return of income filed on 23.3.2013. The ld CITA had held that since the return was filed belatedly u/s 139(4) of the Act by the payee (i.e Adhir Kumar Mondal), the conditions prescribed in proviso to section 201(1) of the Act were not satisfied and accordingly the assessee is to be treated as assessee in default. In this regard, the conditions prescribed in proviso to section 201(1) of the Act are reproduced below for the sake of convenience:- Section 201 - Consequences of failure to deduct or pay (1) .................. 18[Provided that any person, including the principal officer of a company, wh....