TaxTMI 
TaxTMI 
2021 (9) TMI 1259
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....f appeal in this case are related to the addition of Rs. 5,53,16,938/- which was deleted by the Ld.CIT(A). The Assessing Officer (AO) found from the balance sheet of the company as on 31.03.2013 that share application money pending allotment was increased from Rs. 3,19,37,796/- to Rs. 7,85,15,078/-.. On calling for explanation of the assessee, the assessee submitted that increase in share application money was due to the reason that one of the directors of the company has agreed to take over the liabilities (sundry creditors) of the company in order to strengthen the equity in the balance sheet of the company and the liabilities taken over by the Director are treated as share application money of the Director, Mr.N.Bala Balaji in the books ....
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..... 4. We have heard both the parties and perused the material placed on record. In the instant case, though there was an increase in share application money, there was no infusion of fresh capital or fresh credit in the books of the assessee. One of the directors has taken over the outstanding liabilities (sundry creditors) and shown the same as share application money in his name in the balance sheet. Thus, the sundry creditors was reduced and taken shape of share application money, which was stated to be taken over by Mr.Bala Balaji. The assessee furnished the paper book and on verification of the balance sheet it is observed that there was substantial decrease in the sundry creditors, long term borrowings or unsecured creditors. The asse....
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.... first issue in this case is related to the trade creditors amounting to Rs. 6,52,39,273/- transferred to capital accounts of the partners of the firm. It is established by the Ld.AR that the AO has called for the details during the assessment proceedings and the assessee had explained the reasons for transfer to the partners capital account vide letter dated 16.04.2015. The contention of the assessee is, as at the end of the year to increase the capital base for better bank loan facilities, the amounts were transferred to capital accounts of the partners. Verification of the balance sheet shows that the capital account balances of the partners are showing balance i.e. 13.17 crores including the transfer of trade creditors amounting to Rs. ....
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....counts, the assessee has made purchases and paid the entire sums through cheque including the retransferred amounts. The AO examined the purchases and sales and accepted the purchases and sales. From the scrutiny of the partners capital accounts, trade creditors account, we understand that the assessee has unilaterally transferred the sums to the partners capital accounts and there was no cessation or remission of the liability. The same fact is established as per the account copies placed in the paper book in page no.47 to 49 of the paper book. It is settled law that to tax the trade creditors balances u/s 41(1), the cessation or remission of the liability has to be allowed by the trade creditor but not by the beneficiary assessee and the ....
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....gh Court was right in holding that the assessee's unilateral entry in the accounts transferring the amount to the capital reserve account would not bring the matter within the scope of section 41." 15.1. Similarly in the case of Satpal & Sons (HUF)v. ACIT Circle-38(1), New Delhi* 85 taxman.com 283, the Coordinate Bench of ITAT Delhi has also taken similar view. In the instant case, the assessee has transferred the trade credit balances to the capital accounts without any confirmation from the trade creditor for cessation or remission of liability, hence, it is incorrect to hold that the said sum required to be brought to tax u/s 41(1) of the Act. As per the material placed before us by the assessee and discussed in the preceding parag....