TaxTMI 
TaxTMI 
2021 (2) TMI 1091
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....ppellant. The Ld. CIT (Appeals) has also erred by upholding this unwarranted addition made by the Ld. AO under section 41(1) of the Act. 3. Based on the facts and circumstances of the case, the Ld. AO has erred in making the addition for alleged credits of the past years as cash credits of the previous year relevant to subject AY 2014-15 and brought the same to tax under section 68 of the Act during the AY 2014-15, totally ignoring the settled principle that alleged credit can be brought to tax as income only in the year of such credit in the books of accounts. The Ld. CIT (Appeals) has also erred by upholding this unwarranted addition made by the Ld. AO under section 68 of the Act. 4. Based on the facts and circumstances of the case, the Ld. AO has failed to appreciate the fact that the amount of Rs. 52,78,707/- due to family members of your appellant had originated only out of the partition of various properties among your appellant's family members and the Ld. CIT (Appeals) failed to acknowledge the above fact. 5. The Ld. CIT (Appeals) and the Ld. AO erred in ignoring the partition deed that was placed on record and the submissions made by your appellant in this connect....
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....ces to prove that the credits for the same has been taken in the earlier financial year, the provisions of section 41(1) of the Act cannot be invoked. The assessee has also challenged the findings of the AO for invoking section 68 of the Act, on the ground that all the credits shown in the books of accounts are brought forward from financial year 2006-07 & 2007-08 and no credits were taken during the relevant financial year. Hence, no additions can be made u/s. 68 of the Act. 5. The ld.CIT(A) after considering relevant submissions of the assessee and also taken note of the provisions of section 41 and 68 of the Act, rejected the arguments taken by the assessee by holding that although the assessee claims that sundry creditors shown in the books of accounts is not a trade credit but the assessee has no explanation why it was treated as sundry credits in the books of accounts, even though, sundry credits are made for trade credits. Further, the assessee has not offered any valid explanation, why so many credit entries are lying for so many years, since 2005-06. As regards, additions made u/s.68 of the Act, for similar credits the ld.CIT(A) noted that because the Department had no oc....
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....es one by one in the following paragraphs: 63. In respect of the credit entry in the name of Mr.A.R.K.A.Karuthapandian for Rs. 26,99,730/- which is shown as outstanding from FY 2007-08, in spite of specific opportunity given, the AR could not furnish the balance sheet reflecting the contra entry in the books of the creditor. Therefore, I concur with the AO's addition and the same is confirmed. 6.4, In respect of a credit amount of Rs, 15,000/- in the name of Late A.R.K.Arunachala Nadar, the assessee's father, the credit entry is lying outstanding from FY 2007-08. The AR has admitted that the assessee's father has not filed the Return of Income in the corresponding year and balance sheet is not available. Therefore, the AO's addition is confirmed. 6.5. In respect of a credit entry in the name of the assessee's brother, Mr.k.A.Sekar, for an amount of Rs,22,38,977/-, the AO has observed that the said sundry credit is lying outstanding from FY 2007-08 and the balance sheet of Mr.K.A.Sekar could not be furnished and there is no way to cross- verify the genuineness of the assessee's claim, Similarly, there is a credit entry in the name of the assessee's sister-in-law, Ms.M.K.Siv....
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....ocuments, the addition of Rs. 25,14,500/- is deleted. 6.10. The AR's contention before the CIT(A) is that the AO ought not to have made an addition u/s 41(1), as the aforesaid sundry credits can not be treated as cessation of liability as no deduction or allowance was claimed against these credits in earlier AYs and they were not trade credits, The AR has further contended that Section 68 is not applicable as these credit entries were not fresh credits in the AY 2014- 15 and they were only opening balance. The AR's contentions have been considered. First of all, if it is not a trade credit, the assessee has no explanation why it was treated as sundry credit in his hooks of accounts, The sundry credits are meant for trade credits and therefore the AR's contention is not acceptable. Further, there is no valid explanation why so many credit entries are lying outstanding for so many years since FY 2005-06 in the ease of Mr.Kumar, for an amount of Rs. 10 Lakhs, and in respect of others from FY 200708. It is pertinent to mention that the Department had no occasion to scrutinize these credit entries in the corresponding AYs, Therefore, the AR's contentions that it should not be questio....
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....006-07 & 2007-08. But, the AO has made additions for the simple reason that said credits were carried forward in the books of accounts for many years and the assessee has not offered any explanation as why these credits continued in the books of accounts for such a long period. Hence, he has invoked the provisions of section 41(1) / 68 of the Act. The provisions of section 41(1) of the Act, deals with the cases were in the course of assessment for an earlier year, an allowance or deduction has been claimed in respect of trade liability incurred by the assessee and subsequently a benefit is obtained in respect of such trading liability by way of remission or cessation in that situation, the value of benefit accruing to the assessee is deemed to be profit and gains of business, which otherwise would not be his income. Therefore, from the plain reading of section 41(1) of the Act, it is very clear that in order to invoke the provisions of section 41(1) of the Act, it is a prerequisite condition that the said amount must have been claimed as a deduction during any earlier assessment years and further in the present year, the assessee must have derived some benefit on account of remissi....
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....e. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, the assessee is liable to pay tax under section 41 of the Act. The assessee had been paying interest at 6 per cent. per annum to K in terms of the contract but never claimed deduction for payment of interest under section 36(1)(iii) of the Act. Hence, the case of the assessee would not fall under section 41(1) of the Act." The Hon'ble Madras High Court in the case of ACIT vs. Transworld Garnet India Pvt. Ltd., reporte din [2017] 397 ITR 233, had considered an identical issue and held as under: "in order for the provisions of section 41(1) to be attracted, the benefit obtained by the assessee in the relevant year should have a direct nexus with an allowance or deduction for any previous year as a claim of loss, expenditure or trading liability which had not been established in the assessee's case. The findings of the Commissioner (Appeals) were based upon the financials as well as all the relevant documents. He also found that there was nothing on record to lead to the conclusion that the advances from W had been claimed as an allowance or deduction in any previous year." Simi....