TaxTMI 
TaxTMI 
2019 (5) TMI 1835
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.... 2.2 Without prejudice to the above, the Ld. CIT(A) has erred in making/confirming the addition of Rs. 32,51,157/- u/s 41(1) as ceased liability in respect of M/s. Gravity (India) Ltd. 2.3 The Ld. CIT(A) has erred in confirming the addition of Rs. 32,51,157/- without affording an opportunity of cross-examination to the appellant assessee and in violation of the principles of natural justice. 3. that in the facts and circumstances of the case and in law, 3.1 The Ld. CIT (A) has erred in confirming the addition u/s 41(1) of Rs. 41,90,675/- (included in the addition of Rs. 2,49,39,520/-) being due to creditor, i.e., M/s. R.D. Textile. 3.2 The Ld. CIT(A) has erred in confirming the addition without affording an opportunity of crossexamination to the appellant-assessee and in violation of the principles of natural justice. 3.3 The Ld. CIT(A) erred in confirming the addition without considering the evidences in support of the claim and by solely relying on the statement of the creditor-party. 4. That in the facts and circumstances of the case and in law, 4.1 The Ld. CIT(A) has erred in confirming the addition u/s 41(1) ....
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....mon order. 4. We have heard the counsels for both the parties and we have also perused the material placed on record, judgment cited by the parties, respective written submissions as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the assessee by taking into consideration the submissions made by the assessee, remand report submitted by the AO in para no. 4 to 7 of its order and the same is reproduced below:- 4. The first Ground of appeal is against the addition u/s.69C of Rs. 32,51,157/ being the amount payable to M/s. Gravity(India) Ltd. 4.1. It is the contention of the Ld. counsel that this expenditure pertain to A.Y.2005-06 and therefore section 69C cannot be applied. He further stated that the principles of natural justice have been violated as the information was collected behind his back and no cross examination was given to him. in response to notice issued by the AO, M/s.. Gravity India has confirmed that it has received the entire payments in Sept., 2009 and there is no balance receivable f....
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....into the account of M/s,Gravity India in Sept.09 exactly tally with the amount payable by the appellant. Even though the cheques are issued by various parties, the possibility of the payments being made by the appellant through other parties is not ruled out. For example, P.D. Sinar, who is the agent of the appellant has collected the amount due to the appellant from its clients and adjusted it against tn dues from the appellant. Similarly, the appellant would have some of its debtors pay to M/s.Gravity India Ltd. M/s, Gravity India is confirming that it had received the payment from the appellant and is showing the bank account statement as a proof. Therefore, this is a payment made by the appellant which has not gone through the books and the AO has rightly brought this to tax u/s.69C as unexplained expenditure. 4.2.2. Even for a moment, if it is presumed that the appellant has not made this payment and the amounts are still due to M/s.Gravity India Ltd., when the creditor itself is saying that it has received the payments and there is nothing receivable from the appellant, it amounts to cessation of liability. The party (self is clearly saying that there is nothing rece....
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....,90,675.20 was receivable by you,? Ans - To the best of my know/edge, no such big amount i.e. Rs. 41,90,672,20 as stated above is receivable by me. This itself is satisfactory that there is no amount payable to P4/s. P.D. textiles or Mr. H.V.Singh, the proprietor ( copy of the statement is attached herewith for your reference and perusal) Assessee's claim for cross examination is not justifiable as such a huge amount receivable by a person cannot he waived out, hence, there is no justification for the claim of sundry creditors ad the addition made stands." 5.2. It is also a fact that the matter pertains to purchases made in July, 2003 and the proprietor issued a statement in 2013 stating that he does not remember anything as receivable from the appellant. Even till the end of 2016, which is a good 13 years after the purchases, the party has not taken any steps for recovery. It is amply clear from this that the party is not interested in pursuing recovery if it all it was due from the appellant, and there is no chance " of any further measures for recovery as the business of the appellant was closed down in 2003 itself. The appellant ....
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....e replied stating that he would start making the payments by the end of Dec., 2016. It is not understood why no legal action has been taker by this party even after so many years. The letters from the parties submitted by the appellant also appear to be fabricated. There is no phone no. given on the letter head even though it is a very big party to whom the appellant's dues itself is 1,71,26,130/-. 11 s strange and surprising that somebody would keep quiet without initiating any legal action when the party i.e. the apellant is non-cooperative and defiant. 2) MIs. Paanerj Print : The amount payable to this party is Rs. 6,22,823/- and the address is Sakinaka, Andheri(E), Murnhai. This amount is being carried forward from A.Y.2004-05 i.e. for about 17 years. No payment whatsoever has been made by the appellant for all these years At the time of appellate proceedings for 2004-05, the CIT(A) has observed that the balance has hoen confirmed by the party and therefore he deleted the addition. He was deciding the matter for A.Y,2004-05. The current appeal is against the additions made for A.Y.2010-11 and the situation remains the same The Ld. Counsel for the appellant was aske....
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....ount due to this party was Rs. 7,70,375/- which is due from A,Y.2004-05. This amount is being carried forward from A.Y.2004-05 i.e. for about 12 years. No payment whatsoever has been made by the appellant for all these years. At the time of appellate proceedings for 2004-05, the CIT(A) has observed that the balance has been confirmed by the party and therefore he deleted the addition. He was deciding the matter for A.Y.200405 when it was too early to apply Sec.41(1). The current appeal is against the additions made for 201011 and the situation remains the same. The Ld. Counsel for the appellant was asked to submit any correspondence between the appellant and the party. He had submitted 3 letters dt.25.12,2015, 30,06.2016 and 13.9.2016 supposedly written by M/s.Saileela Dyeing Ptg.Mills requesting for clearing the dues. It is surprising that: after keeping silent for about 12 years, the party is writing letters in 2016. Further surprising is that the party has not initiated any legal action till date. The appellant, no doubt has furnished a fabricated piece of paper for which non credence can be given. The letters from the parties submitted form the appellant also appear to be fabri....
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....ear to be fabricated, 6.2.1. The Ld. Counsel for the appellant was asked to submit any correspondence between the appellant and the party. He had submitted 2 letters dt.18.1 .2016 and 19.8.2016 supposedly written by MIs. Om Textiles P,Ltd, requesting for clearing the dues. It is surprising that after keeping silent for about 12 years, the party is writing lettefs in 2016. Further surprising is that the party has not initiated any legal action till date. Even more surprising is the fact: that the phone number of the arty i.e. Om Textiles P.Ltd. given in this lettei head is 7685926 which is only seven digits. All the phone numbers in Metros have been converted to 8 digits many years ago. if somebody is keeping seven digit phone no, on the letter head in 2016, the genuineness of such a letter is anybody's guess. The appellant no doubt has furnished a fabricated piece of paper for which non credence can be given. 6.2.2. It is clear from the above, that none of the parties have been pursuing for recovery and it is as good as not recoverable. All the parties seem to have given up on recovery. Otherwise there would have been legal suits initiated against the appellan....
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....the debt even after expiry of the normal period of limitation as provided in the Limitation Act. The principle that expiry of periOd of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt, has been well settled. If that principle is applied, it is clear that mere entry in the books of accounts of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end." 6.2.4. In the instant case, there is no unilateral write off in the books of accounts. In fact, the appellant has net written off the liabilities but the facts and circumstances showed that there is no possibility of any recovery. Therefore the additions made u/s.41(1) are justified. The appellant further relied upon UT Jain Exports Pvt. Ltd. 35 Taxman.com 540 (Del.) wherein the Delhi High Court held that credit amount outstanding for several years cannot be held as cessation of trading liability on ground that assessee could not prove genuineness of transaction, where assessee had acknowledged its liability successively over several years, Genuinene....
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...., MI/s. Sunrise Textiles, M/s. Panneri Print, M/s. S.R. Prints, NI/s. Shri. Sai Leena Dyg. & Ptg.Mills, Mr. Pradeep Kher and M/s. Om.Textiles Pvt. Ltd. have to be upheld. 6.2.8. In view of the facts and circumstances discussed above, the addition made by the AO u/s,41(1) is upheld. This ground of appeal is dismissed. 5. After having gone through the facts of the present case, we find that the AO had made additions by identifying the creditors who were outstanding for more than five years and in this respect, summons were issued separately u/s 131 to them. In the case of M/s Gravity (I) Ltd, where the amount outstanding was shown at Rs. 32,51,157/-, the said party categorically stated that it had received the entire amount during financial year 2009-10 and thus there was nothing which was receivable by the assessee. Ld. CIT(A) during the appellate proceedings had also called for the remand report seeking AO's comments and the AO in his remand report had stated that notices u/s 133(6) of the I.T. Act were issued upon the said party i.e. M/s Gravity (I) Pvt. Ltd. for furnishing copy of bank statements highlighting the payments received from the assessee. In this regard, M/....
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....) of the I.T. Act is concerned, we have minuently gone through the orders passed by Ld. CIT(A), wherein each party wise details have been provided, wherein it was categorically admitted that no amount has been paid by the assessee to any of the parties till date. As far as furnishing of communication in the shape of letter are concerned, the same was rightly considered as fabricated as none of the parties personally appeared before the AO and even in the case of sunrise textile, there is no phone no. given on the letter head even though it is a very big party to whom the assessees dues itself is 1,71,26,130/-. Thus it is strange and surprising that somebody would keep quiet without initiating any legal action when the party i.e. the assessee is non-cooperative and defiant. 10. As far as in the case of other parties, admittedly assessee had not made payment to any of them and the letters submitted by the assessee contains the phone numbers of the parties, which are only in 7 digits, which itself shows that no phone numbers are less than 8 digits since many years ago. These 7 digit phone numbers on the letter heads in 2016 itself doubted the genuiness of the letters. 11. We are....
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....eviable if the assessee fails to offer cessation of liability of outstanding demand. In this case also one of the creditor admitted that nothing was outstanding against the assessee in his books and certain other creditors were not found at the address given. The Assessing Officer made additions u/s 41(1) as ceased Liability. In quantum proceedings of the case, the Ld CIT(A) confirmed the action of Assessing Officer, the Hon'ble ITAT also confirmed the action of Assessing Officer. Thereafter the Hon'ble Bombay High Court dismissed the appeal of the assessee and the Honble Supreme Court of India also dismissed the SLP filed by the assessee. The relevant portion of the decision is reproduced as under: We have carefully considered the rival submissions and perused the orders of the authorities below and the case laws cited at bar. The applicability of section 41(1) of the Act on outstanding trading liabilities as reflected in the balance sheet has been called into question. Section 41(1) of the Act states that where an allowance in respect of an expenditure or trading liability etc. is made in a year and the assessee obtains any benefit, whether in cash or otherwise in a ....
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....uring the year under consideration and was not actually written off by the Assessee. However, the hon'ble Gujarat High Court noted that not a single customer had demanded money back nor assessee had made any attempt to repay the same. Over year, company had invested such amount in diverse activities. On such facts where since last many years, there was no activity of any repayment of amounts nor the amounts have been collected by the customers, the hon'ble Court endorsed the decision of the co-ordinate bench of tribunal (HA No.1145/Ahd/2016 order dated 10.01.2017) that trading liability had, in fact, ceased to exist. Therefore, it logically flows that the hon'ble Gujarat High Court has clearly opined that liability may cease to exist in terms of Section 41(1) where it is outstanding for a long period without any payment despite it being reflected in the books of accounts. The hon'ble Gujarat High Court also did not question the action of Revenue towards taxability u/s.41(1) of the Act with reference to financial year in question. The distinction sought to drawn on behalf of Assessee for its non-application is un-merited. The Hon'ble Gujarat High Court has approv....
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....ties shown in the balance sheet as existing by assessee was found to be symbolic by AO. The onus is on the assessee to show the reasons why it believed at the time of filing the return that the liabilities were true. No such attempt was even made to prove the existence of liabilities. In this view of the matter, the incidence of taxation under s.41(1) of the Act cannot be escaped on non-existing liability. Our this view also finds support from yet another decision of the hon'ble Bombay High Court in the case of Palkhi Investments & Trading Co. (P.) Ltd. v. ITO 120161 71 taxmann.com 322 where the hon'ble Bombay High Court went to the extent of confirming penalty för not offering such trading liability under s. 41(1) of the Act. Thus, the conclusion apparently leans against the Assessee. However, we are left with one pertinent question hurled at us on behalf of the Assessee i.e. year of taxability. In this regard, we are not impressed by the plea the AO did not bring anything on record to allege that cessation took place during the financial year in question for the purposes of taxability under s. 41(1) of the Act. We find that AO has assertive justification to bring the....