TaxTMI 
TaxTMI 
2019 (3) TMI 901
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....absence of confirmation of balances and in the absence of evidence of claim for repayment during the previous year, the liability balances should be deemed to have ceased warranting the invocation of Section 41(1) of the Income Tax Act?" 2. The facts of the present case in a nut shell are as under: The Assessment Year involved in the present case is 2003-04. The Assessing Authority added back a sum of Rs. 58,60,105/- on account of the cessation of liability of Sundry Creditors in the hands of the Assessee. The Assessee was earlier engaged in the business of Timber, but about 10 years back from Assessment Year in the present case before us, it closed that Timber business and switched over to the business of Recruitment of Employees for sending to Gulf countries on behalf of certain foreign companies. The sundry creditors, about 16 in number, totalling to Rs. 58,60,105/- represented the suppliers in the timber business of the Assessee and shown as Sundry Creditors in the Balance Sheet of the Assessee for the said Assessment Year 2003-04 also. The Assessing Authority asked the Assessee to produce the confirmations from those Sundry Creditors about the current existence of its liabil....
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....s without any intention or legal obligation to return them to anybody itself is a big monetary benefit and it satisfies the other condition of S.41(1) that the assessee must be benefited from such remission or cessation. I am of the view that the above facts clearly establish that the said liabilities have ceased to exist (there is cessation) though the entries have not been reversed in the accounts, and all the requirements / conditions prescribed in S.41(1) are fully met in the present case. 2.8. In view of the above mentioned facts and circumstances, I am of the considered view that it is a clear case cessation of liability as a result of which the appellant has been benefited to the extent of Rs. 58,60,105/- on account of non-existing liabilities shown in the balance sheet. Furthermore, all the said liabilities are pertaining to the trading transaction for which the equivalent amount has already been debited by the appellant in the relevant accounting year against the taxable profits. In view of these facts, the entire addition made by the AO is confirmed. In the result, the appeal is dismissed." (emphasis supplied) 4. Similarly, the Income Tax Appellate Tribunal also ....
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....als), assessee is engaged in the recruitment of manpower for foreign countries. About ten years back the assessee company was doing business of purchase and sale of timber. The above mentioned sundry creditors were admittedly standing in the books for more than seven years. There was no evidence of confirmation nor the fact that any of those parties have appraoched the assessee for recovery of the amount. In such circumstances, in our opinion, authorities below were quite correct in invoking the provisions of Section 41(1). Hence, we affirm the order of the learned Commissioner of Income Tax (Appeals) in this regard and decide the issue in favour of the Revenue." (emphasis supplied). 5. The learned counsel for the Assessee, Mr.M.P.Senthil Kumar, urged before us the following contentions and relied upon certain case laws which are discussed herein below. 6. The learned counsel for the Assessee submitted that unless the Assessee writes off such liability in its books of accounts, the liability to pay such debts of the Assessee continues in law and merely because the Sundry Creditors had not made a claim against the Assessee in this regard and the Assessee failed to produce the conf....
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....establish such creditors (Transporters) were fake, but on the contrary, the documentary evidence on record on the basis of which the Tribunal returned the finding of facts in favour of the respondent Assessee that the creditors were genuine and existing, the additions under Section 41(1) were rightly set aside by the Tribunal and no substantial question of law arises under Section 260A of the Act and thus, the Revenue's appeal was dismissed. 9. In yet another decision of Karnataka High Court in Commissioner of Income Tax v. Alvares & Thomas [(2017) 394 ITR 0647 (Kar.)], another Division Bench of Karnataka High Court held that the sine qua non for invoking the provision of Section 41(1) of the Act is that there should be a remission or cessation of a trading liability and the additional requirement is that some benefit in respect of such trade liability is taken by the Assessee. In the facts of that case, the Revenue contended that since the burden was not discharged of existence of the liability, it would be treated as cessation of liability attracting Section 41(1) of the Act and it was further stated that when in respect of debt in question, confirmation was called for, a l....
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....icability of Section 41(1) of the Act. 12. The learned counsel for the Revenue relied upon the following decisions in support of his submissions. 13. In Commissioner of Income Tax v. T.V.Sundaram Iyengar & Sons Ltd. [(1996) 222 ITR 344 (SC)], the case before the Supreme Court was just contra and interesting. The Assessee had received certain deposits from customers in the course of carrying on its business, which were originally treated as capital receipts. Since those credit balances were not claimed by the customers or creditors, the Assessee transferred it to its profit and loss accounts. However, it did not offer the same for taxation as its total income. The Assessing Officer held that the Assessee got the said surplus as a result of trade transaction and the said amounts\ credited to profit and loss account had a character of income and therefore, held that such amount were taxable in the hands of the Assessee. The Supreme Court finally upheld such taxability in the hands of the Assesseee, applying the principles laid down by Lord Atkinson,J and held that even though the money were received by the Assessee as deposit was of capital nature at that point of time, but by the e....
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..... There is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else's money. In fact, as Atkinson, J. pointed out that what the assessee did was the common sense way of dealing with the amounts." (emphasis supplied) 14. The Delhi High Court, in the case of Commissioner of Income Tax v. Rajasthan Golden Transport Company [(2001) 249 ITR 723 (Del.)], the Division Bench of Delhi High Court held that mere fact that some party had unilaterally written back the said amount to profit and loss account did not amount to remission or cessation of liability and therefore, such income could not be treated as assessable under Section 41(1) of the Act, but where an amount is received in the course of trading transaction, even though it was not taxable in the year of receipt, the amount changes its character when it becomes Assessee's own money because of its limitation or by any such statutory or contractual right and thus, such amount in question has to be treated as Assessee's income under Section 41(1) of the Act. The Delhi High court relied upon the decision of Supreme Court in T.V.Sundaram Iyengar supra. 15. I....
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....ration of law. 10. The submission of the assesse that no period of limitation is provided for under the Industrial Disputes Act, as a result of which it is exposed to liability at any time, is insubstantial and unpersuasive. This is because in The Nedungadi Bank Ltd. v. K.P. Madhavankutty AIR 2000 SC 839 the Supreme Court held that even though under the Act no period of limitation has been prescribed, a stale dispute one where the employee approaches the forum under the Act after an inordinate delay cannot be entertained and adjudicated. 11. In view of the foregoing reasons, the question of law is answered in the affirmative, in favour of the revenue, and against the assessee; consequently the orders of the Commissioner (Appeals) and the impugned order of the ITAT are hereby set aside. The order of the Assessing Officer is hereby restored. The appeal is allowed in the above terms without any order on costs." 16. A Division Bench of Gujarat High Court, in Gujtron Electronics (P) Ltd. v. Income Tax Officer [(2017) 397 ITR 462 (Guj.)], held that under a Scheme, the Assessee took deposit of Rs. 500/- each from the person who was enrolled as a Member in the sales promotion Scheme....
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.... The Revenue authorities have found that there was no activity at the hands of the assessee company in connection with the scheme for past several years. Not a single customer had demanded the money back nor the assessee had made any attempt to repay the same. It was only when the Assessing Officer in the present assessment proceedings raised the issue, the assessee made correspondence with the customers. This, the Commissioner (Appeals) correctly categorised as an afterthought. More importantly in all invoices, the signatures of the member customers were missing. Their addresses were not sufficient. Over the years, the company had also invested such amount earning interest and used such interest for its purpose, of course, offering interest income to tax. 11. In view of the concurrent findings of the Revenue authorities and the Tribunal through which the above established facts emerged, we have no reason to interfere. The decision of the Supreme Court in case of Sundaram Iyengar (Supra) would apply. In the said case, the Court had held and observed as under: (already quoted above, hence, not repeated) 12. It is true that unlike in case of Sundaram Iyengar (supra), the as....
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....deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1 For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that subsection by way of writing off such liability in his accounts. 19. The crucial words in the said provisions are the 'remission or cessation' of such trading liability which has been claimed as an allowance or deduction taken by the Assessee in a previous year and if such liability is remitted by the creditor or had ceased to exist, then in the year of remission or cessation, the said trading liability can be brought to tax as profit chargeable to tax under the said provision. Obviously, the word "cessation" in the said provision means cessation de facto and de jure. The cessation of liability should cease to exist in the eye of law. While the remission of liability can b....
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....es drawn year after year in the Balance Sheets cannot perennially or indefinitely postpone the applicability of Section 41(1) of the Act on the ground of cessation of trading liability. Such an interpretation would defeat the very object of enacting such a provision. The object of the provision is very clear that what deduction and allowance was claimed against the profits of the previous year(s), if such liability ceased in law in the later year(s) then in such later year(s), to such extent, the liability should be treated as profit of such later year(s) and brought to tax, in such later year(s). 23. Therefore, while entry in the books of accounts is only one piece of evidence to establish that the liability is current and subsisting in the eye of law, even in the current assessment year, if the assessee fails to discharge the onus cast upon him, the Assessing Authority will be free to draw an adverse inference, as has been done in the present case. One cannot shut eyes to the fact like change of business by the Assessee to an entirely different nature and then creditors of old timber business not speaking up anything for ten years and the absence of the Assessee to produce the w....
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....is question (the procedure to be followed for ascertaining facts) in the context of fixing the amount required for rehabilitation cannot be overestimated. The item of rehabilitation is generally a major item that enters. into the calculations for the purpose of ascertaining the surplus and, therefore, the amount of bonus. So, there would be a tendency on the part of the employer to inflate this figure and the (1) [1960] 2 S.C.R. 841,847. ap. C. 1./69-2employees to deflate it. The accounts of a company are prepared by the management. The balance-sheet and the profit and loss account are also prepared by the company's officers. The labour have no concern in it. When so much depends on this item, the principles of equity and justice demand that an Industrial Court should insist upon a clear proof of the same and also give a real and adequate opportunity to the labour to canvass the correctness of the particulars furnished by the employer." The necessity of proper proof of the correctness of statements in the balance-sheet was repeated in Petlad Turkey Red Dye Works Ltd. v. Dyes & Chemical Workers' Union(1). These observations made with regard to balance- sheets and P & L a....
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....while dealing with the issue of burden of proof in this regard, the Court held as under:- "The burden of establishing the exemption lay upon the assessee respondent. The High Court was not correct in placing the burden upon the Department, after it was admitted that it was "forest land". Even if there could be such an onus, it was sufficiently discharged by the admission that the land was "forest land" covered with natural or wild growths. After that, at any rate, the assessee had to prove change of its character. Here the assessee's admission that the land under consideration was "forest land", covered by wild and natural growth of forests, constituted evidence to the contrary. After the assessee's admission that it was "forest land", which presumably prevented cultivation, no evidence was led to indicate any change of character of this land or its conversion into agricultural land. The assessee not having led any evidence of any intention to prepare or appropriate or earmark the land for any agricultural use or purpose, but, on the other hand, having contended that mere possibility of using such land for agricultural purposes in future was enough could not be said to ....
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....being made liable for the first time after 1979 with retrospective effect to pay sales tax on a transaction which is not a sale. A presumption is not in itself evidence but only makes a prima facie case for the party in whose favour it exists. It is a rule concerning evidence. It indicates the person on whom the burden of proof lies. When presumption is conclusive, it obviates the production of any other evidence to disodge the conclusion to be drawn on proof of certain facts. Having regard to the definition of 'may presume' in Section 4 of the Evidence Act, it is open to a court, in its discretion, either to draw a presumption referred to in a law or not. The words "shall presume" require the court to draw a presumption accordingly, unless the fact is disproved. They contain a rule of rebuttable presumption. When presumption is rebuttable it only points out the party on whom lies the duty of going forward with evidence on the fact presumed, and when that party has produced evidence fairly and reasonably tending to show that the real fact is not as presumed the purpose of presumption is over. Then the evidence will determine the true nature of the fact to be established....