TaxTMI 
TaxTMI 
2021 (9) TMI 887
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....e is delay of 16 days in filing the present appeal, wherein it was stated that the Hon'ble Supreme Court in Suo Moto Writ Petition (Civil) No(s) 3/2020 dated 23/03/2020 has taken suo motu cognizance of the situation arising out of the challenge faced by the country on account of Covid-19 Virus and resultant difficulties that may be faced by litigants across the country in filing their petitions/applications/suits/appeals/all other proceedings within the period of limitation prescribed under the general law of limitation or under Special Laws (both Central and/or State). To obviate such difficulties and to ensure that lawyers/litigants do not have to come physically to file such proceedings in respective Courts/Tribunals across the country including this Court and the Hon'ble Supreme Court ordered that a period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or special laws whether condonable or not shall stand extended w.e.f. 15th March, 2020 till further order/s to be passed by this Court in present proceedings. The instant appeal has been filed on 11/06/2020, therefore, in view of the direction of the Hon'ble Supreme Court, t....
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....rading liability can be brought to tax as profit chargeable to tax under the said provision. Obviously, the word 'cessation' in the said provision means cessation de facto and de jure. The cessation of liability should cease to exist in the eye of law. While the remission of liability can be by way of conscious act on the part of the creditor, the cessation of such liability can be inferred on the basis of facts and circumstances surrounding such trading liability. After Explanation was added on section 41(1), it can be even by the unilateral act on the part of assessee viz., by writing back or writing off such liability amounting to cessation of liability in his hands attracting section 41(1) and attracting tax thereon.[Paras 18 and 19] * In the instant case, where the trading liability incurred by the assessee in the course of its erstwhile timber business, which was discontinued ten years ago and nobody claimed a single penny from the assessee in the last ten years and the assessee even failed to produce the written confirmations from such trade creditors, it could very well be inferred by the Assessing Authority that such trading liability of the assessee cease....
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....essing Authority will be free to draw an adverse inference, as has been done in the instant case. One cannot shut eyes to the fact like change of business by the assessee to an entirely different nature and then creditors of old timber business not speaking up anything for ten years and the absence of the assessee to produce the written confirmation from such creditors. In such circumstances, certainly an inference that the business link of the creditors with the assessee and the survival of the claim has totally vanished. Thereafter, after ten years, if such an inference is drawn and section 41(1) is applied, no valid exception can be taken by the assessee.[Para 23] * In the instant case, once the assessee was called upon to prove the credit entries with regard to the Sundry Creditors of its erstwhile business, the burden shifted upon him to establish the current existence of those creditors and their debts due from assessee and that there was a live link between the creditors and the outstanding debts and therefore, in the absence of assessee discharging that burden shifted upon him, the case of cessation of liability made out by the revenue against him so as to bring ba....
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....om 268 (Punjab & Haryana), it was held by Hon'ble High Court that: "8. A perusal of the aforesaid order and the facts would show that the entries which had been shown in the books of account of the assessee were not treated to be income under Sections 41(1) or 68 of the Act. The Tribunal had applied the principles enunciated by the Apex Court in T.V. Sundariam Iyengar &Sons's case (supra) where the amount which was initially of capital nature but had changed its character to be of revenue nature, it was treated to be taxable income of the assessee. Thus, the amount of Rs. 1,03,648/- found credited in the books of account of the assessee, the liability to pay back the same had ceased to exist and, therefore, the Tribunal had rightly treated it to be assessee's taxable income. It may be noticed that the submission of learned counsel for the appellant that the non-declaration of Rs. 1,03,648/- as the income of the assessee was due to bonafide belief that it was not exigible to tax, appears to be plausible. 9. In view of the above, we do not find any merit in the appeal." (4) In the case of Natural Gas Company (P.) Ltd. Vs DCIT [2015] 61 taxmann.com 2....
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....ot open for the assessee to turn back and say that you accepted my lie for the preceding years and, therefore, you are bound by it. The only consequence in law is that the cessation or remission has occurred during the relevant previous year. We are in this regard, with respect, unable to agree with the Hon'ble High Court in the case of Bhogilal Ramjibhai Atara (supra) that the law is not clueless in this regard; the said decision having been rendered without considering the decision by the said Court in CIT v. Hides & Leather Products (P.) Ltd. [1975] 101 ITR 61 (Guj.). (emphasis supplied).... 6. In the result, the assessee's appeal is dismissed." (5) In the case of GAC Shipping (India) (P.) Ltd. Vs JCIT [2015] 61 taxmann.com 347 (Cochin - Trib.) , it was held that: "21. We have heard both parties and perused the record. The argument of the assessee's counsel is devoid of merit. In our opinion, these credits continue to be carried forward year after year and there was no claim from the person to whom it was owing. Generally, in the normal course, nobody would ordinarily not claim his dues and usually they take steps to recover the dues if it ....
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....d the AO required the assessee to file supporting evidence from the alleged creditors and the assessee was only able to prove the existence of the liability in respect of Rs. 11,79,018/- and balance was not established as genuine. This shows, that the assessee has no explanation to prove that the creditors in the books of account are genuine. The assessee failed to discharge its onus cast on it, to substantiate its claim. Being so, CIT(A) is justified in holding that such liabilities did not exist at the end of the accounting year and rightly sustained the said liabilities which has ceased to exist. (7) In the case of Asht Laxmi Diamond &Jewellery Vs ITO [2015] 59 taxmann.com 430 (Mumbai - Trib.), it was held that: "8. We have considered the rival submissions. The Ld. CIT(A) has discussed in detail that in this case the alleged creditors, in the light of elaborate inquiries and evidence collected and also in the absence of any evidence produced by the assessee to the contrary, it had been well proved that the alleged creditors were non existent. It is not a case where the CIT(A), in the absence or because of the failure of the assessee to provide addresses, confir....
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.... 82,656.00 1,83,289.95 16,65,945.95 7 8 (F) 9 (F) 10 3. Dzire Exports 22,34,187 23 of 28.03.2017 24 of 28.03.2017 9,98,404.60 12,35,799.94 22,34,204.54 11 12 13 4. H.P. Jewellers 28,05,600 9 of 08.03.2017 10 of 08.03.2017 14 of 17.03.2017 15 of 17.03.2017 5,76,155.41 13,84,625.00 5,17,519.70 3,27,299.28 28,05,599.39 14 (F) 15 (F) 16 (F) 17 (F) 18 5. Om Shree Exports 24,44,880 25 of 28.03.2017 26 of 28.03.2017 27 of 28.03.2017 13,90,121.90 8,21,989.18 2,32,799.96 24,44,911.04 19 20 21 22 6. Orient Enterprises 23,96,309 Chq.dt.05.11.2014 20,00,000.00 23 7. R.R. Gems 30,14,652 4 of 20.02.2017 30,14,700.00 24 & 25 8. Rudha Impex 41,04,560 6 of 06.03.2017 7 of 06.03.2017 8 of 06.03.2017 12 of 10.03.2017 13 of 10.03.2017 20,55,633.81 5,44,289.00 4,53,719.59 4,80,606.00 5,70,619.90 41,04,868.30 26 27 28 (F) 29 30 31 9. Shri Narayan Jewellers 15,71,863 5 of 28.02.2017 17 of 18.03.2017 22 of 27.03.2017 28 of 28.03.2017 5,00,461.....
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....shal Transformers & Switchgears Pvt. Ltd. (2018) 405 ITR 266 (Karn): Cessation of trading liability. Necessary ingredients for invoking the provisions of sec. 41(1) are twofold. Firstly, there should have been a cessation of trading liability and some benefit had been taken in respect of trading liability by assessee. Since creditor was not traceable on the date when verification was made, it was not a ground to conclude that there was cessation of liability. Cessation of liability had to be cessation in law. Section 41(1) could not be invoked. (P.B. 25 to 29 of II). (6) CIT Vs. Kanoria Sugar and General Manufacturing Co. Ltd. (2018) 407 ITR 737 (Raj): Remission of cessation of trading liability. Condition precedent for application of sec. 41. Liability should have ceased. Mere entries in account not conclusive. (P.B. 30 to 36 of II) . (7) Anil Kumar Dangayach HUF Vs. ITO (2018) 58 TAX WORLD 200 (JP): When assessee has furnished complete details of all creditors, including their business names, complete address, PAN as well as TIN, trade creditors were accepted in the year when those were introduced in books of accounts and part liability has been discharged by ef....
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.... 27.03.2017 Local purchase Varndavan Jewellers 11,24,692.30 57 27.03.2017 Local purchase Varndavan Jewellers 26,69,850.51 58 Total local purchase of goods in A.Y. 2017-18 1,65,78,399.57 59 Total Import and local purchase in A.Y. 2017-18 3,17,92,051.82 60 The above detailed import, local purchases as well as VAT tax free and VAT taxable sale, copy of annual VAT Return for F.Y. 2016-17, VAT assessment order passed by CTO for the same period along with Trading and Profit & loss account are being made part of paper book as per following details: S.No. Nature of document Amount P.B. Page No 1. Sales VAT free 51,02,662.98 61 2. Sales taxable @ 1% VAT 2,86,91,603.54 62 3. Trading and P&L account (31.03.2017) 3,37,94,266.52 63 4. VAT Assessment order (by CTO) 3,37,94,266.52 64 VAT tax free 51,02,662.98 Taxable Turnover 2,86,91,603.54 The ground No. (1) of the Department, on the facts is liable to be dismissed. 8. We have heard the ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cite....
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....] [or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the [Assessing. Officer] has been allowed a reasonable opportunity- (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the [Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.]" On perusal of Rule 46A reproduced hereinabove, it is seen that the case of the appellant is covered by sub-rule (1) Clause (b) as he was prevented by sufficient cause from producing the evidence which he was cal....
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....were for supply of goods/services during the FY 2011-12, whom the payments had duly been made in subsequent years. The appellant further submitted that there was no cessation of liability as the assessee has not obtained any amount in respect of such expenditure or has not obtained any benefit in respect of such trading liability by way of remission or cession thereon. The appellant contended that these outstanding creditors do not satisfy the conditions prescribed in sec. 41(1) of the Act. The appellant referred to the provisions of sec. 41(1) and relied on various judicial decisions to argue that where the liabilities are outstanding for many years and the assessee had actually discharged the liability at future date, there is no justification to invoke or sustain any addition u/s. 41(1) of the Act. Before adjudicating the issue in hand, it would be appropriate to reproduce the relevant provisions of sec. 41(1) of the Act as under:- "Profits chargeable to tax. 41. (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-ment....
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.... w.e.f. 1.4.1997, is not attracted to the present case since there is no writing off of the liability in the appellant's accounts. The question has to be considered de hors Explanation 1 to Section 41(1). In order to invoke clause (a) of Sec.41(1) of the Act, it must be first established that the assessee had obtained some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to these sundry creditors were allowed in the earlier assessment years as expenditure in computing the business income of the assessee. The other question is whether by not paying them for a period of three years the assessee had obtained some benefit in respect of the trading liability allowed in the earlier years. The words "remission" and "cessation" are legal terms and have to be interpreted accordingly. In the present case, there is nothing on record to show that there was either "remission" or "cessation" of these liabilities. The AO tried to verify the existence of such liabilities from creditors, however, most of the summons issued by him were returned bank unserved and many were not found at the given addr....
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....a Full Bench of the Gujarat High Court in detail in CIT v. Bharat Iron & Steel Industries, 119931 199 ITR 67 (Gui.). The following passages in the judgment bring out the reasoning of the Full Bench succinctly: "11. In our opinion, for considering the taxability of amount coming within the mischief of Section 41(1) of the Act, the system of accounting followed by the assessee is of no relevance or consequence. We have to go by the language used in Section 41(1) to find out whether or not the amount was obtained by the assessee or whether or not some benefit in respect of trading liability by way of remission or cessation thereof was obtained by the assessee and it is in the previous year in which the amount or benefit, as the case may be, has been obtained that the amount or the value of the benefit would become chargeable to income tax as income of that previous year. 12. We fully agree with the view taken by the Division Bench in CIT v. Rashmi Trading 119761 103 ITR 312 (Gui), that the only meaning that can be attached to the words 'obtained, whether in cash or in any other manner whatsdever, any amount in respect of such loss or expenditure' incurred in ....
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....herefore, the amount in question cannot be added back as a deemed income under section 41(1) of the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed." The Hon'ble ITAT Delhi Bench `G' in the case of Smt. Sudha Loyalka vs. ITO [2018] 97 taxmann.com 303 (Delhi - Trib.) held that no addition could be made under sec. 41(1) in respect of unexplained purchases where amount was shown as payable in balance sheet and thus there was no cessation of liability. The facts of this case were that the assessee filed her return declaring certain taxable income. In the course of scrutiny assessment, the Assessing Officer found that the assessee had shown large amount of sundry creditors at the end of relevant year, in order to verify genuineness of creditors, notices under section 133(6) were issued to them. Most of the notices were received back with remarks 'not available/wrong address....
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....ny trace of income is treated as income liable to suffer the brunt of tax. Therefore, as per the established canons of law, the burden to prove that a particular amount falls within the four corners of section 41(1) is on the shoulder of the Assessing Officer without which the addition cannot be made and if made is liable to be deleted. [Para 6.4] * The first pre requisite for the applicability of section 41(1) is there must be a trading liability in respect of which the deduction has been claimed and allowed and burden to prove the twin conditions to the effect of the above facts, is on revenue. There is not even an iota of whisper as to whether the impugned creditors were in respect of trading liability for which any deduction was ever claimed and allowed and if allowed, in which year was it allowed so on so forth. This is evident from a plain reading of the assessment order. Therefore, Assessing Officer miserably failed to discharge the said burden and therefore this addition is liable to be deleted on this short ground alone. There could very well be the possibility of the loan creditors or advances from the business constituents under the head of sundry creditors for ....
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....s for expenses, advances from customers and other liabilities - Assessing Officer formed an opinion that there was no manufacturing activity in business since 13-3-2005, therefore, this liability was to be assumed as ceased - Accordingly, he made an addition - It was noted that Assessing Officer had not brought any evidence on record to show that liability had ceased - Assessee had not written off liability in accounts - Whether on facts, impugned additions was unjustified - Held, yes [Para 9] [In favour of assessee]" The appellant's case is also squarely covered by the decision of the Hon'ble ITAT Delhi Bench `G' in the case of Satpal & Sons (HUE) vs. ACIT [2017] 85 taxmann.com 283 (Delhi - Trib.). The relevant facts of this case were that assessee had shown outstanding sundry creditors since last three financial years in its balance sheet, on verification, Assessing Officer found that sundry creditors were not available at address provided and PAN of such creditors were also found incorrect, assessing Officer held that liabilities would ceased to exist and applied section 41(1), the assessee contended that these creditors had been paid in subsequent years thr....
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....AO. The AO held that these sundry credits are no longer payable and liable to be added u/s. 41(1) of the Act. The assessee submitted before the ld. CIT(A) that these outstanding trade creditors were not more than 2 years old, and out of Rs. 3,19,49,957/-, closing balance as on 31-03-2013 was Rs. 2,59,97,837/- which was received before 31-03-2013 and not during the year under reference. The assessee further submitted that these creditors were for supply of goods/services during the FY 2011-12, whom the payments had duly been made in subsequent years. The assessee further submitted that there was no cessation of liability as the assessee has not obtained any amount in respect of such expenditure or has not obtained any benefit in respect of such trading liability by way of remission or cession thereon. The assessee contended that these outstanding creditors do not satisfy the conditions prescribed in sec. 41(1) of the Act. The assessee referred to the provisions of sec. 41(1) and relied on various judicial decisions to argue that where the liabilities are outstanding for many years and the assessee had actually discharged the liability at future date, there is no justification to inv....
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....annels. In view of the above facts and circumstances, we are of the view that no addition could have made under section 41(1) without proving that liability ceased to exist and that too in the year under consideration. Nothing has been brought on record to show that some benefit has actually accrued to the assessee during the year under consideration. We observe that the case laws relied on by the ld DR are not applicable in the facts of the present case. The ld. CIT(A) has passed a speaking and reasoned order discussing all the facts and circumstances as well as legal propositions of law therefore, considering the totality of facts and circumstances and case laws exactly similar to the facts and circumstances of the present case, we find no reason to interfere in the order of the ld. CIT(A) qua this issue, hence, we uphold the same. 10. Ground No. 2 raised by the revenue relates to challenging the order of the ld. CIT(A) in deleting the addition of Rs. 50,00,000/- made by the A.O. on account of unexplained credits U/s 68 of the Act. In this regard, the CIT-DR has vehemently supported the order of the A.O. and also relied on the written submissions filed before the Bench and the....
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....ing of notice as unserved, doubted the genuineness of transaction. The appellant pointed out that he received an amount of Rs. 50,00,000/- as advance for sale and the same was cleared by sale on 28-03-2017. In this regard, the appellant furnished confirmation account, bank details, purchase and sale bills. Upon perusal of these details and evidences furnished by the appellant, I am inclined to agree with the appellant's claim. The appellant has produced copy of confirmation before the undersigned duly reflecting the creditor's name along with its address, PAN, advance amount etc. The Hon'ble Allahabad High Court in the case of CIT vs. S Kamaljeet Singh (147 Taxman 1 S) held that no addition to income on account of cash credits is called and that the appellant had discharged the onus on him to explain the nature and the source of cash credit in question by placing, on record :- * Confirmation letters of cash creditors, * Their affidavits; * Their full address and GIR nos. and permanent account numbers. In the case of Mod Creations Pvt. Ltd., vs. ITO (2012) 354 ITR 282 (Del.), the Hon'ble Delhi High Court held as under :- ....
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....ld, yes - Whether merely because summons issued to some of creditors could not be served or they failed to appear before Assessing Officer, could not be ground to treat those credits as non-genuine - Held, yes - Whether considering totality of facts and circumstances of case, especially fact that Assessing Officer had not disallowed interest claimed/paid in relation to those credits in assessment year under consideration or even in subsequent assessment years, and tax at source had been deducted out of interest paid/credited to creditors, Tribunal was justified in deleting addition made - Held, yes - Whether as there was no substance in appeal and no substantial question of law arose, appeal was liable to be dismissed - Held, yes" The Hon'ble Jurisdictional High Court in the case of CIT vs. Jai Kumar Bakliwal [2014] 45 taxmann.com 203 (Rajasthan) held that where identity, capacity and genuineness of transaction stands proved by assessee, he was not required to prove source of amount which had been deposited by creditors/lenders. The head note is reproduced as under:- "Section 68 of the income-tax Act, 1961 - Cash credit (Unsecured loan from relatives) ....
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....ple testimony in favour of the assessee. The facture of the assessee having maintained stock register and quantitative details have been mentioned by the AO in the assessment order. No mistake were pointed out by the AO in these records maintained by the assessee----Since the purchases have been held to be genuine, the corresponding sales cannot, by any stretch of imagination be termed as hawala transaction .................It is the burden of the department to prove the correctness of such additions. When, in such like cases, a quantitative tally is furnished, even if purchases are not available no addition is called for." From the above judicial decisions, it is evident that advances or cash received against which goods is supplied subsequently is not a cash credit as contemplated by section 68. Simply because, the appellant could not produce the confirmation from this party, the genuineness of transaction cannot be doubted. All the relevant details proving the transaction as genuine were available on record despite that, the Assessing Officer's mere emphasis was on the production of the confirmation from this party. In fact, the name and addresses were mentioned in ....