TaxTMI 
TaxTMI 
2020 (5) TMI 121
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....he case and in law, the ld. CIT(A) was justified in deleting the addition of Rs. 1,20,54,761/- made by the AO u/s 41(1) of the Income Tax Act, 1961 holding that the assessee has himself written off such liabilities in a subsequent year that is F.Y 2016-17 whereas these had ceased to exist during F.Y 2011-12 relevant to A.Y 2012-13 itself as rightly observed by AO?" 2. Briefly stated, the facts of the case are that the assessee firm is engaged in business of import, export, trading and manufacturing of precious, semi precious finished and rough stones. It filed its return of income on 20.09.2012 declaring income of Rs. 1,62,930/-. During the year under consideration, the assessee has shown sundry creditors of Rs. 5,97,08,992/- as on 31.03.2012. The AO observed that out of the total outstanding creditors of Rs. 5,97,08,992/-, assessee has made payment/written back the creditor in the subsequent years to the extent of Rs. 1,62,89,178/-. Accordingly, he treated the balance amount of Rs. 4,34,19,814/- as cessation of the liability u/s 41(1) of the Act and corresponding addition was made in the hands of the assessee. 3. Being aggrieved, the assessee carried the matter in appeal before ....
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....eased to exist and the AO was right in invoking the provisions of section 41(1) of the Act and which has wrongly been deleted by the ld CIT(A). Further, it was submitted that the ld CIT(A) has wrongly deleted the addition of Rs. 1,20,46,936/- merely for the reason that the assessee has subsequently written off such liabilities in financial year 2016-17 when the fact of the case is that the liabilities in respect of these creditors have ceased to exist during the financial year 2011-12 itself. He accordingly supported the order of the Assessing officer. 7. Per contra, the ld. AR supported the findings of the ld CIT(A) and drawn our reference to the provisions of Section 41(1)(a) which read as under:- (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 way of remission or cessa....
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....not be invoked on the ground that assessee has not furnished evidence to prove that it will make payment to the creditors or the evidence about the dispute with the creditors particularly when liability to pay the creditors is continued to be reflected in the books of accounts and the creditors has not been written back. The ld. CIT(A) in these facts has called a remand report where addition of Rs. 1,87,24,329/- where payment is subsequently made is deleted against which department is not in appeal. The ld. CIT(A) also deleted the addition of Rs. 1,20,54,761/- which has been subsequently written back by the assessee but department has challenged the same in ground No. 2 of the appeal. The ld. CIT(A) has also deleted the addition of the creditors of Rs. 1,26,40,714/- in respect of five creditors which was outstanding for the period less than 3 years out of which department has challenged the deletion in respect of two creditors, i.e., M/s Sky Gems Ltd. and M/s AR Gems aggregating to Rs. 1,13,80,605/- in Ground No. 1 of the appeal. 10. It was further submitted that in respect of these creditors which are under challenge by the Department, following facts are relevant:- A. M/s Sky G....
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....d 2,98,717/- 3 Gems House (K) Ltd. 8,34,528/- 4 RVP Ltd. 14,20,934/- 5 Glitz (Kenya) Ltd. 8,03,343/- 6 Jagoda Gems Ltd. 3,51,889/- 7 Kariba Amethyst Mktg. Ltd. 6,12,410/- 8 Prominent Gems & Rough Inc. 4,87,082/- 9 Mbele Investment Ltd. 8,09,866/- 10 Gems Marketing Services 22,31,124/- 11 Wildlife Ranch & Trading Co. Ltd. 20,18,366/- Total 1,20,54,761/- It was submitted that in assessment proceeding, the assessee filed the complete details of these parties and confirmation in some of the cases. These amounts are still payable but the same were written back by the assessee in the books of accounts for F.Y 2016-17 and accordingly, offered for tax in A.Y 2017-18. Thus, when these creditors have been written back and offered for tax in A.Y 2017-18, in view of Explanation 1 to section 41(1), the ld. CIT(A) has rightly deleted the addition as per Para (xiii) & (xiv) of his order. 11. Further, reliance was placed on the following cases, apart from the decisions already referred in the order of ld. CIT(A):- * PCIT vs. Pukhraj S. Jain ITA No. 1288 of 2016 order dt. 04.01.2019 (Bom) It is well settled through series of judgments that merely because a....
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.... as on the close of the financial year 2011-12 as evidence by the fact that the permission to remit the money has been sought and granted by the RBI on 4/8/2015 and thereafter, the assessee had again applied for permission to remit on 19/8/2016. The fact that the payment has still not been made cannot be sole reason as reflective of remission or cessation of the said liability as there could be other financial constraints for not making the payment in time. The fact remains that the liability continue to exist and remain payable and the assessee continue to reflect the same as payable in its books of accounts as on close of the financial year 2011-12 and in view of the same, there is no basis for making the addition u/s 41(1) and the findings of the ld CIT(A) are hereby confirmed. 13. Regarding amount of Rs. 1,20,54,761/-, the ld CIT(A) has returned a finding based on perusal of profit and loss account and return of income for A.Y 2017-18, that the assessee has written back the creditors amounting to Rs. 1,20,46,936/- in A.Y 2017-18 which indicates that the assessee was recognizing such liabilities till A.Y 2017-18. The Revenue has not brought any evidence on record which suggests....