TaxTMI 
TaxTMI 
2019 (1) TMI 633
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....record, with the impugned order being served on the assessee on 19/10/2017. The appeal was, accordingly, admitted, and the hearing in the matter proceeded with. Further, the same being filed by a representative assessee, it was explained by Sh. Sarna that all the assets of the since deceased assessee had devolved on the appellant as her spouse and, in fact, the successor of her business and, thus, he only is competent to file the appeal. The requirement of bringing other legal heirs, if any, on record, was accordingly dispensed with. 2.2 On merits, Sh. Sarna would argue that the sole issue is the maintainability of the addition qua two sums, aggregating to Rs. 4.61 lacs, outstanding in favour of two trade creditors, as under, u/s. 41(1)(a) of the Act: (i) Sanjeev Tweezzers, Jalandhar: Rs.2,91,722/- (ii) Satish Surgical Works, Jalandhar: Rs.1,68,859/- Total: Rs.4,60,581/- The assessee's accounts, having been rejected and his income determined by estimating the same, no further addition u/s. 41(1), he would submit, could be made, for which reliance was placed by him on ITO v. S. L. Road Construction Co. (in ITA No. 425/Asr/2017, dated 22/02/2018). Without prej....
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....iance on the decision in CIT v. Chipsoft Technology Pvt. Ltd. [2012] 80 DTR 250 (Del), submit that the fact of the matter is that the 'fact' of payment during f.y. 2014-15 was not disclosed by the assessee to the Assessing Officer (AO) during the assessment proceedings, which were on both during f.y. 2014-15 as well as part of f.y. 2015-16. In any case, the payment is in cash and, more importantly, not confirmed. Sh. Sarna would, in rejoinder, state that the said decision is distinguishable on facts as in that case the liability under reference was to the assessee's employees, finding the assessee's argument that no time limitation had been provided for payment of the employees' dues under the Industrial Dispute Act as insubstantial and unpersuasive. 3. I have heard the parties, and perused the material on record. 3.1 Section 41(1) of the Act, in its relevant part, reads as under: Profits chargeable to tax. (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 firs....
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....y, is not under question. Rather, where so, the same would disqualify the relevant amount/s for being allowed as a deduction for the year in which it arose, i.e., under the relevant provision, as under section 37(1) qua a purchase transaction, even as explained in Jain Exports (P.)Ltd. (supra). As such, nothing turns on the assertion that the relevant purchase/s stands not doubted by the Revenue; the very basis of sec. 41(1)(a) being the allowance of deduction qua the liability under reference earlier. 3.3 The next question is whether the relevant condition/s for the applicability of the provision, i.e., the benefit to the trade debtor by way of remission or cessation of the trade liability, is satisfied in the instant case. The same is clearly a matter of fact, to be determined considering and taking into account all the relevant facts and circumstances of the case. Without doubt, the initial onus for the same is on the Revenue. The question, therefore, to begin with, is if the said onus stands discharged, and which would, again, depend on the facts and circumstances of the case. For example, where the assessee has written back the liability in his accounts or otherwise admits t....
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....s, forming part of his trade debt and, thus, working capital, the same would ordinarily stand to be paid in the normal course of business within the credit period as per the terms of the sale or as generally allowed by the debtor or, in any case, as per the trade norms. In the present case, the credit of Sanjeev Tweezers relates to f.y. 2012-13, which remains unpaid even by 31/03/2014, i.e., after an average period of 1½ years, reckoned so by spreading the purchases (from which the credit emanates) evenly over f.y. 2012-13, i.e., in the absence of the account statement. Why? The assessee is not under any financial stress in-as-much as he continues to pay the other creditors; there being no indication of it being not so. There is no explanation as to the goods bought being defective, or any other reason for the debt, which should in the normal course get liquidated within a period of a few weeks, to continue to outstand for so long. In other words, there is no explanation for this seeming abnormality. Couple this with the fact that the assessee's books - reflecting the sum as a liability, are not reliable, as inferable from the same being rejected, as well as the fact that t....
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....wo years, after the transaction/s was made, is issued. The assessee's claim of the trade liability as subsisting as at the relevant year-end is wholly unproved, with, rather, all the indica pointing to the contrary. In other words, the assessee's case completely fails completely on facts. The facts and circumstances of the second trade credit under reference, i.e., favouring Satish Surgical Works, Jalandhar, are the same, the balance outstanding relating to an even earlier year, i.e., f.y. 2011-12, making the situation all the more grotesque. 3.4 The question that next arises is if section 41(1)(a) could be invoked by the Revenue where the assessee completely fails or is unable to prove the existence of the trade liability as at the end of the relevant year, deduction in respect of which stands claimed and allowed to him in an earlier year, i.e., even where the liability continues to be reflected in the accounts. There is, apart from the absence of any positive material toward existence of the liability (as at the year-end), as aforenoted, no explanation by the assessee as to why the said evidence, which arises in the regular course of business, is absent or stands not produced. W....
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.... by drawing from all the relevant facts and circumstances. An inferential fact is again only a finding of fact. The assessee, on whom the burden to prove his return and his accounts lies, has, under the circumstances, completely failed to do so. It cannot, therefore, but be said that the impugned liability/s does not outstand as at the relevant year-end, whatever may have been the position for the earlier year/s. Why, the assessee also claiming so, both per his books of account and otherwise, there is nothing to suggest that the said liability/s was not outstanding as at the end of the immediately preceding year. And which, therefore, leads to the inference of the liability not subsisting during the relevant year, either by way of its remission or cessation. The provision of section 41(1), thus, becomes imminently applicable in the facts and circumstances of the case. 3.5 The assessee's arguments, in-as-much as it has been found that the impugned liability/s does not exist as at the relevant year-end, would be to no avail; the matter being principally factual. The fact that the assessee's accounts are admittedly not verifiable does not support his case as to the existence of the l....
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....sion in CIT vs. Banwarilal Banshidhar [1998] 229 ITR 229 (All), is on a different footing than an addition qua the liability in respect of the said purchase/s on account of any benefit by way of remission or cessation thereof arising to the assessee - a matter of fact, in the subsequent year. As afore-explained, it is only where the purchase is genuine or its genuineness not in doubt and, accordingly, allowed as a deduction, so that the liability in its respect/arising there-from represents a genuine liability, that the same is liable to be added u/s. 41(1)(a) where in the facts and circumstances of the case a benefit qua the said liability arises to the assessee subsequently. The two, i.e., the allowance of a purchase and an addition u/s. 41(1)(a) are separate, with in fact an addition under section 41(1)(a) arising, where so, only in respect of an actual liability, or one considered as so. That is, are consistent, rather than contrary. Could, one may ask, a purchase possibly be allowed as a deduction where the same does not result, simultaneously, in a liability there-against, to be met either in cash or in kind, whether due for payment immediately or later? Clearly, not? A liab....
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....Appellate Tribunal. In fact, the tribunal deleted the addition u/s. 68 not on principle, as sought to be made out by the ld. counsel during hearing, but on facts; the relevant part of the tribunal's order, reproduced by the Hon'ble Court at para 5 of its' decision, reading as under: "As is observed above, the addition on account of cash credits even if the net profit rate is applicable could be made but it depends upon the facts of each case. This is a case before us, which clearly shows that the addition on account of cash credits would be unjustified. We, accordingly, do not find any merit in the submissions of the ld. Departmental Representative with regard to the making separate edition on account of cash credit of Rs. 12,28,600/-. Similarly, the addition of Rs. 1,75,766/-, was rightly deleted by the CIT(A) as it was part of the payment of purchases,...." (emphasis, supplied) On principle, therefore, the tribunal, whose order is upheld by the Hon'ble Court, opines against the assessee, clearly stating that an addition on account of cash credit/s could be made even if the net profit rate is adopted. Finally, the decision, in any case, is without considering the decision b....
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....68, could an addition there-under qua a cash credit, where the same is proved by the assessee to be a liability, be made? The answer thereto is clearly in the negative. And it is precisely for this reason/s that reference in this order stands made to section 68. Again, the period for which the liability had remained unpaid, i.e., as at the end of the relevant year, etc., are all matters of fact, again, emphasizing, if one was still necessary, that the matter as to whether a liability subsists as at the year-end or not is essentially factual, even as clarified in several decisions that have travelled to the Hon'ble higher courts of law (refer, inter alia, CIT v. Autopins India [1991] 191 ITR 161 (Del); CIT v. Jaipur Oil Products Pvt. Ltd. [1994] 206 ITR 90 (Raj); CIT v. Sea Pearl Industries [1995] 211 ITR 508 (Ker)). Further on, as a reading of the decision in S. I. Group India Ltd. (supra) shows, alluding thereto, whether, as is made out by Sh. Sarna, in response to the reliance on Chipsoft Technology Pvt. Ltd. (supra), or otherwise, is misplaced. In the facts of that case, the assessment years involved are AYs. 2000-01 and 2001-02. The assessee, by virtue of having set up a unit i....
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....to all the relevant facts and circumstances, a benefit by way of remission or cessation thereof, irrespective of no accounting entry/s in its' respect being made or appearing in his accounts, even otherwise not reliable, stands accrued to the assessee during the year. There is, therefore, nothing in common between the excess profits earned by the assessee during the year, and the benefit that enures to the assessee on account of remission or cessation of the said liability/s arising during an earlier year, during the current year. It would though be a different matter where the assessee had contended a payment of the said liability/s during the current year, adducing some evidence toward the same, as, for example, the copy of his account in the books of the creditor reflecting payment/s thereto from the assessee during the current year. Even as it therefore continues to outstand and reflected as a liability in the assessee's accounts (for the current year), it would confirm its' status as a liability qua which no benefit has arisen to the assessee, much less during the current year, precluding section 41(1)(a). An addition in such a case would though arise u/s. 69A; the payment be....