TaxTMI 
TaxTMI 
2019 (9) TMI 689
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....brief facts of the case are that the assessee company, engaged in the business of trading in minerals, filed its return of income for A.Y. 2012-13 on 29.09.2012 declaring total income of Rs. 1,08,14,510/-. The case was selected for scrutiny and notices u/s. 143(2) and u/s. 142(1) of the Act, were issued. In response to the notice, the AR for the assessee appeared from time to time and filed various details, as called for. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had received share application money from seven subscribers as listed in para 3 of his order and, accordingly, called upon the assessee to explain and furnish necessary details in respect of share application money and also justification for issue of shares at premium. In response, the assessee has filed details of share application money received from those seven companies along with application for allotment of equity shares, PAN, financial statements and the confirmations from the parties. The assessee has also filed valuation report for justifying issue of shares at premium. The Assessing Officer, in order to ascertain correctness of details filed by the assessee calle....
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.... the share holder companies and confirmation from the investors. The assessee has also filed valuation report obtained from independent valuer, where the valuation has been made by following DCF method. Although, assessee has filed complete details of the share application money received from the above companies, the Assessing Officer without carrying out any further inquiries in order to ascertain the true nature of the transactions, simply made the additions on the basis of financial statements of the assessee to come to the conclusion that none of the share holders have the capacity to explain huge investments made in the assessee company. In this regard, he relied upon plethora of judicial decisions including the decision of Hon'ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd. 216 CTR 195. 5. The CIT(A) after considering the submissions of the assessee and also on analyzing the facts brought out by the Assessing Officer in respect of each of the subscriber companies came to the conclusion that the assessee has failed to prove credit found in form of share capital with necessary evidence, more particularly on the aspect of credit worthiness of the subscriber, w....
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....see did not respond to the requirements of the production of creditors before him for verification. The first appellate authority and the High Court felt that it was possible for the Assessing Officer to have accepted the same or make further enquiries with reference to the files of the creditors, since they were assessees. Even so, the High Court reversing the finding of the Tribunal observed as under: "the appellate authorities have failed to appreciate that in the present case the assessee had totally failed to respond to the notice of the Assessing Officer. Further, even if they were of the view that the Assessing Officer should have made cross verification with the records of the creditors available with him, they ought to have directed the Assessing Officer to do so instead of straight way accepting the assessee's version without affording any opportunity to the Assessing Officer to make the verification. In the alternative, the appellant authorities could have themselves verified the material placed before them with the records of the creditors. This has not been done. Accordingly, we are satisfied that the appellate authorities have not dealt with the matter properly." ....
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....henticity of the transaction. It can at best be treated as a corroborative document. Since the share application form is not an unimpeachable document, it cannot on its own be treated as sufficient for cross-verification of the transaction. We have already held that that mere production of PAN Number or assessment particulars does not establish the identity of a person. The identification of a person includes the place of work, the staff and the fact that it was actually carrying on business and further recognition of the said NEmpany/individual in the eyes of public. ii) It has further been argued that submissions of details showing identity, bank details and details related to ROC are sufficient compliance for ingredients of section 68 of the Act. Prima facie onus is always on the assessee to prove the cash credit entry found in the books of account of the assessee. In land mark cases like Kale Khan Mohammad Hanif v CIT[1963] 50 ITR 1 (SO. Roshan Di Hatti v CIT [1977] 107 ITR 107 (SC) it has been held that the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee, is on him. Where the nature and source thereof c....
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....n raised that source of source cannot be examined amended provision of section 68. Source of source can be examined even under unamended provision of section 68 of the Act. If it is a simple case, the detailed submitted like PAN, Bank statement, ITR etc can be accepted on face value. However, if it is associated with something more like accommodation entry, capital generation, entry from shell company, the AO is well within its right to examine source of source. a) Pragati Financial Management (P.) Ltd. v. Commissioner of Incometax- 11 [2017] 82 taxmann.com 12 (Calcutta) :- * "A coordinate bench of the Court in dealing with an almost identically worded over of the Commissioner in the case of Raimandir Estates (P.) Ltd, v. Pr, CIT [2016l 386 ITR 162/240 Taxman 306/70 taxmann.com 124. construed the provisions of section 68 as it was before the amendment being the law which prevailed in the relevant previous year in that proceeding, and held that 'the use of the words 'any sum found credited in the books' in section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and s....
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....oceeds or even receipt of share application money. The use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money." 12. From the above discussion it is seen that the legislative intent was always to protect against benami transactions done with a view to evade identifying the real contributor of funds. However, such an interpretation, especially in the preamendment regime, has not been consistent. Any reliance on the dismissal of SLf by the Supreme Court in the case of CIT v. Lovely Exports (P) Ltd., [2008] 216 CTR 195, which is used as a tool to defend against the 'source of source' inquiry, is wrong. Therein the SC held: "We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with....
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....d upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. d) The Hon'ble Delhi High Court in CIT v. Navodaya Castles (P.) Ltd. [2014] 367 ITR 306/50 taxmann.com 110/226 Taxman 190 (Mag) following the principle laid down in Nova Promoters &Finlease (P.) Ltd..(supra) has held that the share capital in case of a closely held company is required to be examined by the AO in terms of section 68 and the failure of the assessee to satisfy the AO, calls for addition u/s 68. It is useful to mention that the SLP filed by the assessee against this judgment has been dismissed by the Hon'ble Supreme Court which has been since reported as Navodaya Castles (P.) Ltd. v. CIT [2015] 230 Taxman 268/5....
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....smokescreens which masquerade as pretence should be exposed and not It has further been argued that irrespective of the characteristics of investor company, it is the Board of Director, who passes resolution with respect to investment in a company and such decisions of Board of Directors cannot be challenged by the AO. There is no denial of the fact that the commercial decisions are to be made by the Board of Director of the company. However, these decisions can certainly be examined if the investments in the guise of share capital application money/premium are being recorded in the books of account from suspicious business entity. The business entities threadbare examined by the AO are characters of the shell company. 4.2.7 It has further been argued that the recent amended provision u/s.56 (2)(viib) and proviso to section 68 cannot have a retrospective application and thereby the share application money/premium , creditworthiness etc., cannot be examined under unamended provision. (iv) Share capital/ S.Application money/Share Premium/ Credit Worthiness/Source of Source can very well examined even under amended provision. Pee Aar Securities Ltd. 96 Taxmann. Com 602 (De....
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....) and other judgments/decision based on lovely exports. Lot water has been flown in Ganges since the judgment of Hon'ble Supreme Court in case of Lovely Export was delivered. This judgment was given under a peculiars fact of the case which is not at all applicable in Private Company as specified by various High Courts. Reliance has been placed on the judgement of the Hon'ble Apex Court in case of Lovely Exports Ltd. (2008) 299 ITR 268, to claim that 'source of source' can't be asked to be proved. If the assessee is able to prove identity and genuineness of share investors, then revenue should examine share investor if there is any doubt, is its creditworthiness. Number of High Courts have examined the ratio of Lovely Exports Ltd. (supra) and has held inapplicable in private limited company. (a) Commissioner of Income-taxv. N.R. Portfolio (P.) Ltd. [2014] 42 taxmann.com 339 (Delhi) :- In Lovely Exports Ltd. (supra), a Division Bench examined two earlier decisions of this court in CIT v. Steller Investment Ltd. [1991] 192 ITR 287(Delhi) and CIT v. Sophia Finance Ltd. [1994] 205 ITR 98(Delhi) (FB). The decision in Steller Investment's case (supra) w....
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....de available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a premeditated plan - a smokescreen -conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec. 68 fo prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary." (C) In Mimec (India) (P.) Ltd. v. Dy. CIT [2013] 353 ITR 284/ also, the ....
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....l statements without carrying out further enquiries either by issue of notice u/s. 133(6) or summons u/s 131 to ascertain true nature of transactions between the parties. On the other hand, the assessee has discharged its initial onus by filing enormous documents, including confirmation from the parties where they have categorically stated that investments in assessee company is genuine transaction and has been routed through banking channels. The assessee has also filed complete details about identity of the subscribers including their PAN, address etc. The assessee has also filed income tax acknowledgment of the subscribers along with financial statement and bank statements. The Assessing Officer never disputed the fact that the assessee has filed necessary documents in order to prove identity of the subscribers and genuineness of the transactions. Once, the assessee discharges initial burden placed upon him, then the onus shifts to the shoulder of the assessing officer to prove otherwise. In this case, the Assessing Officer neither carried out any further enquiries, nor called upon the assessee to explain the credit with further evidences. The Assessing Officer came to the concl....
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.... filed by dept dismissed) 7. The learned DR, on the other hand, strongly supporting order of the CIT(A) submitted that the Assessing Officer as well as the CIT(A) has brought out clear fact to the effect that although the assessee has filed number of documents to prove identity of the creditors, remaining two aspects of the issue i.e. genuineness of the transaction and creditworthiness of the subscribers are in doubt. The DR further submitted that mere furnishing of documents to prove identity is not enough to come out of the shadow of provisions of section 68 of the I.T.Act, 1961. But, what is relevant is to discharge the onus by filing necessary evidence to prove true identity of the creditors, genuineness of the transactions and creditworthiness of the parties. In this case, although the assessee has filed number of documents to prove the identity, he could not produce creditors in person when called upon by the Assessing Officer, therefore, it is very clear that identity of the parties is in doubt and their creditworthiness is also not proved to the satisfaction of the Assessing Officer. Although, the subscribers have filed their acknowledgment of income tax return, the profi....
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....uestioned share premium charged by the assessee in light of business activity and financial strength. According to the AO, although the assessee has filed valuation report in support of share price, such report has been prepared on the basis of future earnings of the assessee without any support from existing business activity and asset base. 9. The AO has made additions towards share capital u/s. 68 of the I.T.Act, 1961, on the ground that the assessee has failed to offer any explanation with regard to credit found in the nature of share capital. The provisions of section 68 deals with a case where any sum found credited in the books of account of the assessee in any previous year, for which the assessee offers no explanation about the nature and source thereof, or the explanations offered by the assessee in the opinion of the AO is not satisfactory, then sum so credited may be charged to income tax as income of the assessee of that previous year. A plain reading of section 68 makes it clear that to fix any credit within the ambit of said provision, the AO has to examine three ingredients i.e. identity, genuineness of transactions and creditworthiness of the parties. If the asse....
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....enough reserves and surplus in their books of accounts. All these evidence go to prove beyond doubt that the assessee has discharged its onus of proving the genuineness of transactions and creditworthiness of the parties. Once the assessee has discharged its onus, then it is for the AO to ascertain correctness of claim of the assessee by carrying out further inquiries. In this case, the AO has failed to do so. Therefore, we are of the view that there is no merit in the findings recorded by the AO or the CIT(A) that the assessee has failed to discharge its onus of proving the three ingredients provided u/s. 68 of the I.T. Act, 1961. 11. Coming to the other aspect of the issue, the AO has invoked the provisions of section 56(2)(viib) of the I.T. Act, 1961. We find that the said provision has been inserted by Finance Act, 2012 w.e.f 10.04.2013, where it provides that where a closely held company issues its shares at a price which is more than its fair market value, then amount received in excess of fair market value will be charged to tax in the hands of the company as income from other sources. We, further noted that the provisions of section 56(2)(viib) was inserted by Finance Act....
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....m the facts on record, it is clear that the assessee has proved identity and genuineness of the transactions by filing necessary evidences. The assessee has filed valuation report from registered valuer as per which the share price of the company is over and above premium charged by the assessee. Therefore, we are of the considered view that provisions of section 56(2)(viib) has no application. 12. Coming to the case laws relied upon by the assessee. The assessee has relied upon plethora of judgements, including the decision of Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (2008) 216 CTR 195 (SC). In the case laws relied upon by the assessee, the issue has been dealt as under:- CIT vs. Goa Sponge and Power Ltd (13/02/2012) Tax Appeal No. 16 of 2012 (High Court-Bombay) "Once the authorities have got all the details, including the name and addresses of the shareholders, their PAN/GIR number, so also the name of the Bank from which the alleged investors received money as share application, then, it cannot be termed as "bogus". The controversy is covered by the judgements rendered by the Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd, vs. C....
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....sed capital were not genuine, tinder no circumstances could the amount of share capital be regarded as un disclosed income, an appeal was taken by the Department to th e Supreme Court. The Supreme Court dismissed the appeal holding that the Tribunal had come to a conclusion on facts and no interference was called for." CIT vs. Nav Bharat Duolex Ltd (2013) 35 Taxmann.com289 (All-High Court) "We have considered the arguments of the counsel for the parties. CIT(A) found that five companies subscribing the equity shares amounting to Rs. 25,00.000/- were identified and they had submitted their bank statements, cash extracts and returns filing receipts. As such identity of the share applicant companies and purchase of share had been proved by the assessee. Supreme Court in the cases of CIT v. Steller Investments Ltd. [2001] 251 ITR 263 and Lovely Exports case (supra), has held that the identity of the shareholder alone is required to be proved, in case of the capital contributed by the shareholders. Accordingly CIT(A) and the Tribunal has not committed any illegality in allowing the appeal of the assessee. We do not find any illegality in the judgment of the CIT(A) and the Tribunal....
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....ss muster in law. The Revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The Tribunal without adverting to the principle laid stress on the fact that despite opportunities, the assessee and/or the creditors had not proved the genuineness of the transaction. Based on this it construed the intentions of the assessee as being mala fide. The Tribunal ought to have analysed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the Assessing Officer. If the Assessing Officer had any doubt about the material placed on record, which was largely bank statements of the creditors and their income-tax returns, it could gather the necessary information from the sources to which the information was attributable......If it had any doubts with regard to their creditworthiness, the Revenue could always bring the sum in question to tax in the hands of the creditors or sub- creditors." CIT vs. Al Anam Agro Foods (P.) Ltd (2013) 38 Taxmann.corn 375 (All-High Court) Tribunal, however, held that since identity of share holders stood proved on record, amount of....
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....stor who had provided the share subscription an d that the transaction was genuine. Though the assessee's contention was that the creditworthiness of the creditor was also established, in this case, the establishment of the identity of the investor alone was to be seen. Thus, the addition was rightly deleted." CIT vs. Shree Rama Multi Tech Ltd (2013) 34 Taxmann.com177 (Guj- HC) "It is noted that Commissioner (Appeals) as well as the Tribunal have duly considered issue and having found complete details of the receipts of share application money, along with the form names and addresses, PAN and other requisite details, they found complete absence of the grounds noted for invoking the provision of section 68. Moreover, both rightly had applied the decision of CIT vs. Lovely Exports (P) Ltd to the case of the assessee. Therefore, no reason was found in absence of any illegality much less any perversity too to interfere with the order of the both these authorities, who had concurrently held the due details having been proved. The assessee company had presented the necessary worth proof bef ore both the authorities and it was not expected by the assesseecompany to further prove....
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....ll three ingredients, i.e. identity, genuineness of transactions and creditworthiness of the parties should be proved beyond doubt. We find that in the case before the Hon'ble Supreme Court the parties never responded to 133(6) notices. The AO has carried out inquiries by issuing notices u/s. 133(6), for which none of the companies have replied. None of the companies produced bank statements to establish source of funds for making such huge investments in shares, even though they were declaring a very meagre income in the return. None of the investors appeared before the AO, but merely sent response through Dak. In this case, from the facts on record, it is clear that the assessee filed complete set of documents, but the AO neither carried out any invitation nor issued notices u/s. 133(6) or summons u/s. 131(1) to examine the veracity of documents furnished by the assessee. Unless, the AO carried out further investigations to ascertain true nature of transactions, he cannot come to the conclusion merely on the basis of documents submitted by the assessee. Therefore, after considering relevant facts, the co-ordinate Bench came to the conclusion that decision rendered by Hon'ble Supr....
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....ance on certain decisions. We find that both the aforesaid loan additions were confirmed by the ld CITA by placing reliance on the decision taken by his predecessor in Asst Year 2012-13. We find that this tribunal in assessee's own case for the Asst Year 2012-13 in ITA No. 5954/Mum/2016 dated 29.12.2017 in respect of loan transactions of entities controlled by Shri Pravin Kumar Jain and others had elaborately dealt this issue and held as under:- "5. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The AO made addition towards unsecured loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd on the basis of information received from Investigation Wing which revealed that the assessee is the beneficiary of bogus accommodation entries provided by Shri Praveenkumar Jain through his bogus companies. The AO has made additions u/s 68 of the Income-tax Act, 1961 on the ground that though the assessee has furnished necessary evidences to prove identity of the parties, but failed to establish genuineness of transactions and creditworthiness of parties in the backdrop of clear findings of Invest....
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.... of the parties which is evident from the fact that the assessee has furnished financial statements of the creditors wherein the said transaction has been disclosed in the relevant financial years. We further notice that the assessee also filed financial statements of the creditors which are enclosed in paper book filed. On perusal of the financial statements filed by the assessee, we find that both the companies are active in the website of Ministry of Corporate Affairs. This fact has been further supported by the letter of AO wherein the AO has accepted that both companies, viz. Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd are active in MCA website. We further notice that both the companies have filed financial statements for the year ending 31-03- 2006. Therefore, we are of the considered view that the assessee has discharged its initial burden cast u/s 68 by filing identity, genuineness of transaction and creditworthiness of the parties. Once, the assessee has discharged its initial burden, the burden shifts to the AO to prove otherwise. In this case, the AO made addition only on the basis M/s Shree Laxmi Developers of information received from Investigation Wing, ....
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....t of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a case in this context to the pre- amended section 68 has held that where the revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income-tax Officer to proceed by reopening the assessment of such shareholder and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee's income as unexplained cash credit." [Para 3] 8. The assessee has also relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Archid Industries Pvt Ltd in ITA No1433/Mum/2014 dated 5th July, 2017. The Hon'ble Bombay High Court, after considering relevant facts and also by following judgement in the case of CIT vs Gagandeep Infrastructure Pvt Ltd (supra) held as under:_ 6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also o....
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....sued by the AO u/s 133(6) by filing various details, therefore, case law relied upon by the Ld.DR cannot be applicable to the facts of the present case. 11. In this view of the matter and considering the ratio of the case laws discussed above, we are of the considered view that the assessee has discharged identity, genuineness of transactions and creditworthiness of the parties. Therefore, there is no reason for the AO to make addition towards loan u/s 68 of the Act. Hence, we direct the AO to delete addition made towards loans alongwith interest u/s 68 of the Act. 8.1. We find that the ld DR vehemently placed reliance on the recent decision of Hon'ble Supreme Court in the case of PCIT vs NRA Iron & Steel Pvt Ltd arising out of SLP(Civil) No. 29855 of 2018 dated 5.3.2019 in support of contentions of the revenue on the impugned issue. In this regard, we find that the facts before the Hon'ble Supreme Court are clearly distinguishable on the following grounds:- a) In Para 3.6. of the said judgement of Hon'ble Supreme Court, it was mentioned that the entire share capital had been received by the assessee through normal banking channels by account payee cheques / demand drafts,....
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....ustify that they had sufficient creditworthiness to advance loan to the assessee company. From the perusal of the balance sheet of all investor companies, all the loan creditors had sufficient own funds in their kitty which prove their creditworthiness to advance loan to the assessee company. As has been stated hereinabove, the most excruciating point of difference in facts vis a vis the facts of the case before the Hon'ble Supreme Court supra that the investor companies had not even furnished their bank statements to prove their immediate source of credit for making investment in share application monies of NRA Iron & Steel Pvt Ltd. From the bank statements furnished by the loan creditors in the case of the assessee herein, we find that there were no cash deposits in the bank accounts of the lenders prior to issuance of loan to the assessee company. In the case before the Hon'ble Supreme Court, the AO in that case had made field enquiries at Mumbai, Kolkata and Guwahati where those investor companies were stated to be situated to examine their identity and credentials and the result of such enquiry had been summarized hereinabove. Whereas in the instant case before us, no such enq....
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....50 lacs and Rs. 25 lacs towards unsecured loan u/s 68 of the Act. Accordingly, the Grounds 1 to 6 raised by the assessee are allowed." 14. In the case of PCIT vs. Hi-Tech Residency Pvt. Ltd. (2018) 257 Taxman 335, Hon'ble Supreme Court has considered identical issue and held that where an assessee company had discharged the onus of establishing identity, genuineness of transaction and creditworthiness of investors, no additions could be made u/s. 68 of the I.T. Act, 1961. We, further, noted that although the Apex Court has not expressed any opinion, because of dismissal of SLP filed by the assessee, the fact of the matter is that this issue has been considered by the Hon'ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd (supra), where the issue has been thoroughly examined in the light of provisions of section 68 of the Act, and held that if the share application money is received by the assessee company from alleged bogus share holders, whose names are given to the AO, then the department is free to proceed to reopen their assessment in accordance with law, but sum received from share holders cannot be regarded as undisclosed income of the assessee. 15. In this v....
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....eness of transactions and creditworthiness of the parties. In this case facts are pari-materia with the facts which we have already considered in ITA No. 607/Mum/2019. The reasons given by us in preceding paragraphs shall apply mutatis mutandis. We, therefore, for the detailed reasons given by us in the preceding paragraphs, direct the AO to delete the addition of Rs . 12,35,00,000/- made u/s. 68 of the I.T.Act, 1961 towards share capital. 19. The next issue that come up for consideration in Ground nos. 2 & 3 of the assessee's appeal is addition towards non-existing liability u/s. 41(1) of the Income Tax Act, 1961. The facts borne out from record in respect of impugned dispute are that from the balance sheet for A.Y. 2011-12, it was seen that there were several creditors since 01.04.2010 and they were continuing during the year under consideration without there being any transaction for two years. Therefore, a show cause notice dated 23.03.2015 was issued to the assessee and asked as to why non-existing creditors should not be treated as remission/cessation of liability u/s. 41(1) of the Income tax Act, 1961. In response, the assessee vide letter dated 27.03.2015 filed complete d....
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....ments have not been done for over 7 years. There Is no evidence in support of any litigation. Therefore the liability does not appear to be genuine. Therefore Rs. 1,29,16,133/- is held to be a liability which is not genuine and is treated as income of the assessee. Therefore penal proceedings u/s. 271(1)(c) is seperately initiated." 20 Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), assessee made submissions to argue that in order to bring any liability u/s. 41(1) of the Act, the same should be written off in the books of account of the assessee and assessee should derive benefits. Unless there is a remission/cessation of liability, by act of parties, the sum cannot be considered to be deemed remission/cessation of liability, when the assessee has filed necessary details to prove that the same has been paid or written off in subsequent years. The CIT(A), after considering relevant submissions and also by following decision of ITAT Ahmedabad Bench in the case of Dattatray Poultry Breeding Farm (P) Ltd. 95 taxmann.com 130 held that the assessee has failed to file any proof to justify existence of liability. The trading liability of....
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....ility incurred by the assessee in earlier years. Secondly, the assessee should derive some benefit in respect of such loss or expenditure or such trading liability by way of remission or cessation thereof, then such amount or benefit obtained by assessee in a subsequent year may be treated as cessation or remission of liability. In this case, on perusal facts available on record, we find that the AO has made additions towards certain creditors on assumptions of non-existing liability merely for the reasons that they are continuing in the books of account for more than two to three years and except this the AO has not pointed out anything about remission/cessation of liability and benefit derived by the assessee out of such remission/cessation. On the other hand, assessee has filed complete details about the liabilities and proved that out of total outstanding amount, part amount has been paid in subsequent years and the remaining amount has been written off in the books of account for A.Y. 2011-12, 2015-16 and 2017-18. Once liability continues in the books of account and such liability has been discharged in subsequent financial year by making payments or written off in the books o....
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....n by way of remission or cessation, etc., has to be regarded as profits and gains of business or profession accruing or arising in the previous year wherein it is obtained. In either of these events happened, the deeming provision enacted in the closing part of section 41(1) of the Act comes into play. Accordingly, the amount obtained by the assessee or value of benefit accruing to him is deemed to be the profits and gains of business or profession and it becomes chargeable to tax as the income of that previous year relevant to the assessment year under consideration. In the present case before us, admittedly in the year under consideration i.e. the assessment year 2010-11 by way of remission or cessation no gain has accrued or arisen to the assessee in the given facts and circumstances of the case. Admittedly, as given in the chart above by the assessee before us, the assessee had already declared the credit to the Profit and Loss Account on account of cessation of liability under cessation of liability u/s 41(1) of the Act on account of sundry creditors and offered to tax. The learned Counsel for the assessee fairly agreed that this fact can be verified by the AO. In view of t....