TaxTMI 
TaxTMI 
2019 (8) TMI 728
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....Co. Limited and M/s. Basanti Finance & Investment Co. Limited respectively by treating the same as liabilities, which have ceased to exist as per the provisions of section 41(1) of the Income Tax Act, 1961. 2. The assessee in the present case is a Company, which is engaged in the business of Manufacturing of Jute Goods and Trading of Jute & Jute Products. The return of income for the year under consideration was filed by it on 26.09.2012 declaring total income at 'NIL'. During the course of assessment proceedings, notices under section 133(6) were issued by the Assessing Officer to verify the genuineness of the liabilities claimed by the assessee in respect of various parties. The notices sent by the assessee to M/s. Basanti Finance & Investment Co. Limited with credit balance of Rs. 1,35,51,000/- and to M/s. Shree Mahalaxmi Trading & Investment Co. Limited with credit balance of Rs. 86,58,069/- were returned back un-served with the Postal remarks "not known". Although the assessee furnished photo-copies the reply of M/s. Shree Mahalaxmi Trading & Investment Co. Limited and M/s. Basanti Finance & Investment Co. Limited submitted during the course of assessment proceedings for A.....
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....ave provided the correct address and contact details of the party in appeal proceedings. However, this has not been done. Under the circumstances amount of Rs. 1,35,31,000/- is taken as trading liability and it would be dealt in the same manner as trading liabilities from other parties. Assessee has submitted copy of a letter from Shree Mahalaxmi Trading & Investment Co. Pvt. Limited dated 19.03.2018. Along with the letter, ledger account of the transactions in the books of accounts of Shree Mahalaxmi Trading & Investment Co. Pvt. Ltd. have also been submitted. Here again old address of the party is indicated on the letter head which was not found to be correct by the postal authorities. Appellant has not provided the correct address or the contact details of this party as well. From Shri Bimal Kumar Jhanwar [HUF] a letter has been submitted which mentioned that it had sold jute to the assessee on behalf of its principal. But names and contact details of the principal has not been given. Neither it is clarified as to why nothing was informed about the outstanding liability of the assessee when the A.a. had enquired about it. A confirmation letter....
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....cer to show that the said liability had ceased to exist during the year under consideration was not discharged by him. In support of this contention, he relied on the decision of the Coordinate Bench of this Tribunal in the case of Sri Nasir Ahmed -vs.- ITO (ITA No. 2518/KOL/2013 dated 03.06.2016), wherein it was held that income cannot be brought to tax under section 41(1) of the Act until and unless the trading liability is ceased to exist in the books of account of the assessee. He also relied on the decision of the Hon'ble Supreme Court in the case of CIT -vs.- Sugauli Sugar Works Pvt. Limited [236 ITR 518], wherein it was explained that cessation of the liability may occur either by reason of the operation of law, that is, 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. He contended that the case laws relied upon by the ld. CIT(Appeals) in his impugned order are distinguishable on facts. He submitted that the case of Dalmia (P....
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.... that the same cannot be treated as income by invoking the provisions of section 41(1) of the Act. However, keeping in view that this claim is made by the assessee specifically for the first time before the Tribunal, we consider it just and proper to give an opportunity to the Assessing Officer to verify the same. We accordingly direct the Assessing Officer to verify this claim of the assessee from the relevant record and decide the issue afresh in accordance with law. 9. As regards the liability standing in the name of M/s. Shree Mahalaxmi Trading & Investment Co. Limited, it is observed from the copy of the relevant ledger account placed at page nos. 66 to 68 of the paper book that the said party was a supplier to the assessee and the amount payable to them represented the trading liability of the assessee. As per the confirmation dated 01.04.2011 placed at page no. 69 of the assessee's paper book, the amount of Rs. 86,58,069/- payable to the said party was duly confirmed by the said party and even during the course of assessment proceedings for A.Y. 2010-11, a letter dated 19.03.2013 was filed by the assessee before the Assessing Officer confirming the amount receivable fr....
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....r a long effort. The Assessing Officer, therefore, treated the liability standing in the name of Bhikam Chand Jhawar(HUF) as ceased to have existed and addition of Rs. 18,36,091/- was made by him to the total income of the assessee under section 41(1) of the Act. On appeal, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer by invoking the provision of section 41(1). 12. The ld. Counsel for the assessee invited our attention to the copy of the ledger account of Bhikam Chand Jhawar(HUF) as maintained in the books of account of the assessee to show that the said party was regular supplier of the assessee and the amount payable to them represented a trading liability of the assessee. He contended that the assessee was very much liable to pay the amount in question to the said party and the same was appearing in the list of sundry creditors of the assessee as on 31.03.2011. 13. The ld. D.R., on the other hand, strongly relied on the orders of the authorities below in support of the revenue's case on this issue. He submitted that no confirmation whatsoever was filed by the assessee from the concerned party to show the existence of the liability as claim....
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....e addition of Rs. 17,99,020/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of trading liability payable to M/s. Daga Trading Company by treating the same as income of the assessee under section 41(1) of the Act. 16. A liability of Rs. 17,99,020/- was shown by the assessee in the name of M/s. Daga Trading Company as on 31.03.2011. In order to verify the same, a notice under section 133(6) was issued by the Assessing Officer. In reply to the said notice, it was submitted by M/s. Daga Trading Company that it was a Commission Agent and the books of account having been maintained on cash basis, there was no opening or closing balance shown in respect of the assessee. The copy of ledger account of the assessee as maintained in its books of account was also furnished by M/s. Daga Trading Company showing no balance receivable from the assesese as on 31.03.2011. Relying on the said ledger account, the Assessing Officer concluded that the liability shown by the assesese in the name of M/s. Daga Trading Company was no more in existence and accordingly an addition of Rs. 17,99,020/- was made by him to the total income of the assessee under section 41(1) ....
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..../- and Rs. 33,65,484/- in the name of M/s. Bimal Kumar Jhanwar (HUF) and Bimal Kumar Jhanwar respectively as on 31.03.2011. In response to the notices issued under section 133(6) of the Act, the said parties confirmed the transactions made with the assessee-company. They also stated in their reply that they were dealing with the assessee-company as commission agent and the copies of ledger accounts of the assessee as maintained in their books were also furnished. As revealed from the said ledger accounts, no amount was shown as receivable from the assessee company by the said parties as on 31.03.2011. The Assessing Officer, therefore, presumed that the amounts in question shown as payable by the assessee to the said parties against purchases was paid by the assessee-company from its concealed income and by treating the said purchases as unexplained, he made additions of Rs. 46,87,982/- and Rs. 36,11,430/- to the total income of the assessee under section 69C of the Act. On appeal, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer by observing that the assessee has either inflated the purchases made from the said parties or has made payments to the said ....
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....on made for any liability by the assessee but it was paid on account of Gratuity to the employees, who had actually retired during the year under consideration. He has contended that the amount in question thus represented the provision made for the ascertained liability on account of Gratuity payable to the employees, who retired from service in the year under consideration and the same, therefore, cannot be added while computing the book profit of the assessee-company under section 115JB of the Act. In our opinion, this matter also requires verification by the Assessing Officer keeping in view the contrary findings recorded by the authorities below to the effect that there was no evidence produced by the assessee to prove that the amount in question was a provision made for ascertained liability. We, therefore, set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh after giving proper and sufficient opportunity of being heard to the assessee. Ground No. 5 of the assessee's appeal is accordingly treated as allowed for statistical purposes. 22. Now we shall take up the Revenue's ....