TaxTMI 
TaxTMI 
TaxTMI 
2021 (9) TMI 887
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....t 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, there is no need to file condonation application and the delay....
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....ion. 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 ceased to exist in law and not only the claims become barred by limitation, but in fact, no creditor....
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....es 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 back those dead debts of the assessee to tax under section 41(1), was justified.[Para 27] * The assessment year 2003-04 in ....
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....own 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 297 (Mumbai - Trib.), it was held that: "5. ..... In the present case, the Revenue states of the liabilities continuing to outstand in the assessee's books from 3 to 25 years. Surel....
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....ccurred 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 is a genuine liability. In this case, the liability is outstanding in the books of account of the assessee year after year.(emphasis supplied) 23. In the present case, the assessee has drawn balance-sheet based on its b....
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....he 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, confirmations etc. from the alleged creditors, has assumed that the liability has ceased to exist, but he himself made further enquiries to find out the alleged creditors through the official machinery. When he had satisfied himself that neither in the last so many yea....
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....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 5,00,461.17 6,49,322.08 2,26,858.12 1,95,299.88 15,71,941.25 32 (F) 33 (F) 34 35 36 10. Hunan Heng Zin Jewellery Ltd.Co.* 41,89,117 Yiwu Sailing Diamonds Zhejiang Yiwu Jingchu Zhejilang Yiwu Sailing 21,37,736.88 5,26,083.09 14,94,272.00 41,58,091.97 37 37A 2,59,97,837 (*Advances made for import of goods to its three sister concerns were adjusted against the payment due to Cre....
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..... (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 effecting sales to the trade creditors in subsequent years, only because they were outstanding for more than 5 to 6 years, it is neither remission nor cessation of liability so long the assessee is willing to pay the same and creditors have not waived off the credit. (P.B. 37 to 47 of II) (8) Pr. CIT Vs. ECO Auto Components Pvt. Ltd. (2018) 409 ITR 202 (P&H): Remission or cessation of liability. Liability continued to be shown in Balance sheet- no deemed income. (P.B. 48 to 55 of II) (9) Jashojit Mukherjee Vs. ACIT (2018) 195 TTJ (Kol 'A') 697: Liability not written back by the....
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.... 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 cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. From perusal of the record, we found that the ld. CIT(A) has dealt with the issue from para 5.4 and to 5.5 of his impugned and the same is reproduced as under: "5.3 I have considered the facts of the case, assessment order, remand report and appellant's written submissions. At the outset, the issue of admissibility of additional evidence is required to be adjudicated. In the instant case, the assessment was completed ex-parte within meaning of provisions of sec. 144 of the Act, therefore, various documents furnished during the course of appellate proceedings were treated as additional evidence and were sent to the AO....
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....ing 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 called upon to produce by the AO during the course of assessment proceedings. Such additional evidence which goes to the root of the matter has to be entertained in the interest of fairness and justice towards the appellant. The confirmations of creditors submitted now as additional evidence are necessary for disposal of the appeal on merits and therefore admission of the same should not be denied. The law on the issue of admission of additional evidences before the first appellate authority is well settled. In the cases of Mr.Shahrukh Khan Vs DCIT (2007) 13 SOT 61 (Mumbai), CIT Vs Suretech Hospital & Research Centre Ltd. 293 ITR 53 (Bomb.), CIT Vs Parimal, Kandi Chanda (2007) 291 1TR 77 (Gau), CIT Vs Poddar Swadesh Udyog (P) Ltd. (2007) 295 ITR 252 (Gau), Smt. Prabhavati S. Shah Vs CIT (1998) 231 ITR 1 (Born), Surmukh Singh Vs ITO (2008) 115 TTJ (Asr) 852, ITO V....
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....ce 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-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 cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or ** ** ** [Explanation 1 - For the purposes of this sub-section, the expression - loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation....
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.... "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 address. In such case, if the existence of such liabilities is doubted, the same could have been disallowed in the year in which it was claimed, or could have been treated as unexplained cash credit in the hands of the assessee under section 68 of the Act in relevant assessment years, but the same cannot be taxed under section 41(1) of the Act, in as much as if the liability itself is not genuine, the question of remission or cessation thereof would not arise. In the instant case, the AO, merely on the ground of genuineness of such credits, invoked the provisions of sec. 41(1) of the Act. In fact, there is no material whatsoever on record to show that there was cessation or remission of liabilities during the previous year relevant to the present assessment year 2014-15. It is noted that while the appellant had shown these trading liabilities in his books of account, no benefit had been obtained in respect of such trading liabilities by way of remission....
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....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 any previous year clearly refer to the actual receiving of the cash of that amount. The amount may be actually received or it may be adjusted by way of an adjustment entry or a credit note or in any other form when the cash or the equivalent of the cash can be said to have been received by the assessee. But it must be the obtaining of the actual amount which is contemplated by the legislature when it used the words 'has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure in the past'. As rightly observed by the Division Bench in the context in which these words occur, no other meaning is possible." We are in agreement with the said reasoning." The ratio laid down by the Hon'ble Supreme Court is squarely applicable to the appellant's case. The Hon'ble Gujarat High Court in the case of Bhogilal Ramjibhai Atara (Atara) (2014] 43 taxmann.com 55/222 Taxman 313) held as under: "We are in agreement with the v....
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....o 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' etc. The Assessing Officer thus taking a view that assessee was not able to establish that those sundry creditors were genuine, added amount payable to them to her taxable income. The Commissioner (Appeals) confirmed the addition made by Assessing Officer. On second appeal: "* If addition has been mentioned under section 41(1), ingredients of section 41(1), the burden of proof which is resting on revenue, has not been discharged. [Para 6] * There is no evidence that the liability has ceased to exist and that too in the year under appeal. The very fact these amounts were being shown as payable in the balance sheet of the assessee which would establish that there was no cessation of the liability. [Para 6.1] * Impugned liabilities are very much payable by the assessee as and when demanded and unless it is demanded, these are bound to be shown as outstanding. The very fact that these liabilities are appearing in the balance sheet is a strong acknowledgment of the debts payable by the assessee. The liability....
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....y well be the possibility of the loan creditors or advances from the business constituents under the head of sundry creditors for which there could never be any claim of deduction having been allowed. [Para 6.5] * The Assessing Officer has not established with evidence that the liability in respect of the above outstanding balances has ceased to exist. Assessing Officer has gone on presumption and that too by placing the burden wrongly on the shoulders of the assessee. Section 41(1) does not envisage any such presumption of cessation and fix the incidence of tax thereon. [Para 6.6] * In the absence of any material having been brought on record to establish that the deduction was claimed on credit balance has been remitted, addition cannot be made under section 41(1). [Para 6.7] * The third burden which was on Assessing Officer was to establish that cessation if at all has happened, has happened in the year under appeal. After all, liability to tax can be fixed in the year to which it pertains and to no other year. Liability to tax any ceased liability in a particular year does not depend on the action of Assessing Officer in selecting a case in scrutiny of that year. Merely b....
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....41(1), the assessee contended that these creditors had been paid in subsequent years through banking channels. The Commissioner (Appeals) upheld the order of the Assessing Officer. On appeal, the Hon'ble Tribunal held that where assessee had shown outstanding sundry creditors for last three years in its balance sheet and no provision was made to write off outstanding liabilities in its books of account, there would be no remission or cessation of liability under section 41(1) even if sundry creditors were not in existence at address provided and PAN of creditors were found to be invalid, addition u/s. 41(1) cannot be sustained. Similarly, in the instant case the assessee had not written off outstanding liabilities in his books of accounts and made the payments to these creditors in subsequent years through banking channels. In the light of the above decisions, it is held that the impugned addition is contrary to the well settled position of law; 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 by the AO to show that some benefit has actually accrued t....
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....ually discharged the liability at future date, there is no justification to invoke or sustain any addition u/s. 41(1) of the Act. Thus, where a debt due from the assessee is foregone by the creditor in a later year, it can be taxed under section 41(1) of the Act in such later year when it was foregone. Section 41(1) of the Act, therefore, contemplates existence of a debt/liability and the remission or cessation thereof in the year under consideration. Therefore, for the purpose of taxing any income on account of remission or cessation of liability, the Assessing Officer has to establish that there was an existing liability and that there was remission or cessation of such liability in the previous year relevant to the assessment year in which such income is sought to be taxed. It was noted that while the assessee had shown these trading liabilities in his books of account, no benefit had been obtained in respect of such trading liabilities by way of remission or cessation thereof; under the circumstances, the requirements of section 41(1) of the Act are not satisfied in the present case. Moreover, any such cessation or remission of liability has to be in the previous year relevant ....
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.....O. and also relied on the written submissions filed before the Bench and the same were already reproduced in earlier para of this order. 11. On the other hand, the ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the contents of the same are as under: "Rs. 50,00,000/- was received on 17.01.2014 through RTGS as advance for purchase of goods from M/s. Avi Enterprises (PB. Page No. 65 & 65A). Due to non-availability of required quantity and quality of goods, the assessee could sell the ordered goods as per the following details: S.No. Date of sale Invoice No. Amount P.B. Page 1. 28.03.2017 29 34,80,731.46 66 2. 28.03.2017 30 11,59,121.65 67 3. 28.03.2017 31 3,60,200.00 68 Total goods taxable @ 1% GST sold 50,00,053.11 69 Since the amount received as advance was for trading activity, the same was shown as trade creditors towards liability side of the balance sheets every year till goods was sold to M/s. Avi Enterprises in March 2017. In the case of Pr. CIT Vs. Dutta Automobiles (P) Ltd. (2016) 287 CTR (Cal) ....
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.... of the Income-tax Act, 1961, only sets up a presumption against the assessee whenever unexplained credits are found in the books of account of the assessee. The presumption is rebuttable. In refuting the presumption raised, the initial burden is on the assessee. This burden, which is placed on the assessee, shifts as soon as the assessee establishes the authenticity of transactions as executed between the assessee and its creditors. It is no part of the assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the assessee to prove the creditworthiness of the sub-creditors." Similarly, in the cases of CIT v. Real Time Marketing Pvt. Ltd. [(2008) 306 ITR 35 (Delhi)], CIT v. Ramneet Singh [(2008) 306 ITR 267 (P & H)] and CIT v. Shri Ram Enterprises [(2008) 304 ITR 375 (All)], it was held that in a case where an appellant company satisfactorily proves the identity, capacity and genuineness of the transactions, no addition u/s 68 is called for. The Hon'ble Gujarat High Court in the case of DCIT vs. Rohini Builders [2003] 127 TAXMAN 523 (GUJ.) deleted the addition made u/s. 68 of the Act by....
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....essee from relatives was added in income of assessee on ground that none of creditors were able to prove source of amount advanced to assessee and immediately before grant of loan by them cash was deposited in their accounts - However, it was admitted by Assessing Officer that all creditors were assessed to Income tax and they had provided confirmation as well as their PAN Moreover, all payments were through account payee cheques and most of cash creditors appeared before Assessing Officer and were examined on oath - Whether since there was no clinching evidence nor Assessing Officer had been able to prove that money actually belonged to none but to assessee himself, action of Assessing Officer appeared to be based on mere suspicion and, thus, addition required to be deleted - Held, yes The Hon'ble Rajasthan High Court in the case of Smt. Harshila Chordia vs ITO (2008) 298 ITR 349 held that "Addition u/s 68 could not be made in respect of the amount which was found to be cash receipts from the customers against which delivery of goods was made to them." Similarly, the Hon'ble ITAT, Nagpur Bench in the case of Mis Heera Steel Limited vs ITO (2005) 4 IT J 437 held that "B....
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....nts duly proved that he had already supplied the goods against the advance amount subsequently on 28- 03-2017. In this regard, the appellant duly furnished bills. In the light of the above discussion and judicial precedents discussed supra, it is held that the AO is not justified in making the addition of Rs. 50,00,000/- u/s. 68 of the Act, the same is directed to be deleted. The ground no. 2 of appeal raised by the appellant regarding this issue is allowed." 13. From perusal of the record, we observed that the AO, in absence of any details from the assessee to prove the genuineness of transaction of Rs. 50,00,000/- (advance for sale), treated the same as unexplained credit u/s. 68 of the Act. During the remand proceedings also, since summons issued to this party returned back unserved by postal authorities, therefore, the AO stated that the addition on account of unexplained credit was rightly made. The assessee submitted that he duly discharged his onus by filing confirmation account of the party, however the AO did not give any cognizance to the same and only on the basis of returning of notice as unserved, doubted the genuineness of transaction. The assessee pointed out that h....