TaxTMI 
TaxTMI 
2022 (5) TMI 665
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.... of decision in "Elde Electricals Agencies Private Limited (supra)" and "Lotus India Ltd (supra)" to the present case. 2. We have heard rival submission of the parties on the issue in dispute and perused relevant material on record including the case laws cited by the Ld. counsel of the assessee. 3. In the case, the assessee is a partnership firm engaged in the business of export of textile fabrics. The Assessing Officer during assessment proceeding observed certain trade liabilities (trade creditors) outstanding for more than five years but on verification, those parties denied any outstanding due from the assessee. The Assessing Officer accordingly treated the said creditors as ceased/waived liability and added under section 41(1) of the Income Tax Act, 1961 (in short 'the Act'). The Ld. CIT(A) also upheld the addition. On further appeal, the Tribunal vide order dated 23/05/2019 upheld the addition observing as under: "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 th....
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....rther, a notice u/s.133(6) was issued to the bank for classification of the receipt wherein the bank has confirmed the payment received by M/s, Gravity India P. Ltd. from various account since M/s. Gravity India P. Ltd, has liability from M/s. Venus International. Hence, the assessee's claim of sundry creditors of the party is not justified and the addition is sustained." 4.2. Needless to say, the appellant was given an opportunity by the AC during the remand proceedings thereby the appellant was provided with the copy of the bank statement of M/s. Gravity India Ltd. However, it is the contention of the appellant that these amounts are not paid by him. The cheques deposited into the account of M/s. Gravity India have come from various parties and not from the appellant. The Ld, Counsel claims that the amount of Rs.32,51,157 is still payable as on 31.2.2010 and cannot be added u/s.69C. 4.2.1. The amounts credited 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 ru....
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....r the appellant as he is waving off the amounts payable. The Ld. Counsel contended that the cross examination was not provided and the statement has been recorded behind his back. However, the statement copy has been given to him during the remand proceedings, The AD has submitted as under in the remand report :- The addition of Rs.2,49,39,6201- for ceased liability claimed of sundry creditors, out of the above Rs.41,90,6751- claimed as outstanding payment to Mr. H.V. Singh, proprietor of M/s. R.D. Textiles, Surat has been claimed by the assessee. The statement was recorded on oath u/s.131 of the I.T. Act, wherein question was put to the proprieto, by the AO which is annexed herewith. Q.No.4. My assessee M/s, Venus International in his return of income for AY.2010-11 claims that they had purchased material from M/s. R.I), textile and shown creditors of Rs,41,90,675.20, please explain whether an amount of Rs.41,90,675.20 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.....
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.... counsel was asked by the undersigned if there was any correspondence with the said parties, if the parties had followed up with the appellant for recovery and if any amounts have been paid till now. It is seen that the balances as on 31.3.2004 in respect of the above parties are more or less the same even as on 31.3.2010. Till date i.e. till Dec., 2016, no payments have been made by the appellant. However, the appellant has produced some letters which were supposed to be correspondence between the appellant and the parties, 1) M/s. Sunrise Textiles H This is a Surat based party to whom the - appellant claims to have a liability of Rs.1,71,26,130/-. No amount has been paid by the appellant till now. Even though this is due for so many years, the Ld. Counsel for the appellant has furnished 2 letters dated 8.3.2016 and 26.7.2016 where the party had requested the appellant to make the payment. The appellant also seems to have 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 fa....
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....e Ld. Counsel for the appellant was asked to submit any correspondence between the appellant and the party. The appellant submitted copies of 2 letters dated 17.2.2016 and 3.9.2016 where the party is requesting for payment of 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. Even more surprising is the fact that the phone number of the party i.e. M/s.S.R. Print given in its letter head is 022- B523863/8505623 which are 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 the letter is anybody's guess. The appellant no doubt has furnished a fabricated piece of paper for which no credence can be given. 4) Shri Sai Leela Dyeing and PN. Mills The amount 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 ....
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....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 letter is anybody's guess. The appellant, no doubt, has furnished a fabricated piece of paper for which no credence can be given. Also, verification reveals that this number is not existing. 6) M/s. Om Textiles Pvt. Ltd. : The amount due to this party is Rs.7,56,544/-. No amount has been paid by the appellant till now. Even though this is due for so many years, the Lb. Counsel for the appellant has furnished 2 letters dated 2.3,7,2016 and 2.5.8.2016 where the party had requested the appellant to make the payment. The appellant also seems to have 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 taken by this party even after so many years. The letters from the parties submitted form the appellant also appear 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 Textil....
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.... him. Thus, the obtaining by the assessee of a benefit by virtue of remission or Cessation is sine qua non for the application of this section. The mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not enable the department to say that s.41 would apply and the amount should be included in the total income of the assessee. Just because an assessee makes an entry in his books of accounts unilaterally, he cannot get rid of his liability. The question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but it is a matter which has to be decided only if the creditor is before the concerned authority. In the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt is barred and has become unenforceable. There may be circumstances which may enable the creditor to come with a proceeding for enforcement of 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 w....
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.... exist and the income will be treated as assessee's taxable income. In this case also, M/s. Gravity India Ltd. and M/s, R.D.. Textiles have denied any outstanding liability and therefore the amount shown as outstanding by the appellant has been rightly treated as the appellant's income. 6.2.6. In the case of Natural Gas Co. Pvt. Ltd. Vs. DCIT 70 SOT 1, the Hon'ble ITAT Mumbai held that - revenue found that certain liabilities were outstanding in assessee's books for periods from 3 to 25 years - revenue was of the view that liability no longer existed- whether since assessee has not adduced any material or evidence or even explanation as to why the impugned amounts were not paid in normal course, the same amounted to cessation or remission of liability/s.41(I): held. yes, 6.2.7. In view of the facts and circumstances discussed above and in view of the judgments cited above, the additions made by the AO in the cases of R.D. Textiles, 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 circumst....
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.... 2003 and had no knowledge of receiving any amount from the assessee. Thus this is a case where the creditor is stating that he does not remember any such receivable from the assessee which is good for the assessee. In this case, the copy of statement was provided to the assessee with regard to Shri Harish Singh, the proprietor of R. D. Taxtile. 8. It is important to mention here 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 assessee. Even till the end of 2016, which is a good 13 years after the purchases, the party has not taken any steps for recovery. Thus in such circumstances, it was rightly concluded that the party is not interested in pursuing recovery if it all it was due from the assessee, and there is no chance " of any further measures for recovery. The assessee is carrying a fictitious liability, 9. As far as addition of Rs.2,07,48,845/- u/s.41(1) 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....
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....mjibhai Atara, the creditors outstanding were not Trading Creditors whereas in the present case, the outstanding creditors are trading creditors. Moreover, in the decision in the case of Dattatry Poultry, the case of Bhogilal Ramji Bhal Atara was duly referred by the Hon'ble ITAT while passing the decision. The Coordinate Bench of ITAT had also discussed the case of M/s Gujtron Electronics (P.) Ltd. v. ITO:1.20171 83 taxmann.com 389/249 Taxman 443 (Guj.) which was passed subsequent to the decision of Bhogilal Ramjilal Atara ie on 12-07-2017 and the Hon'ble Gujarat High Court had also referred to the case of Bhogilal Ramjibhai Atara while passing the judgment in the case of Gujtron Electronics (P.) Ltd. v. ITO referred supra 15. Even the Coordinate Bench of ITAT while reaching to the conclusion had also referred the decision of Hon'ble Bombay High Court in the case of Palkhi Investments & Trading Co. (P.) Ltd. v. ITO 120161 71 taxmann.com 322 wherein the Hon'ble Bombay High Court had held that penalty is also leviable if the assessee fails to offer cessation of liability of outstanding demand. In this case also one of the creditor admitted that nothing was outst....
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....ble income of the assessee owing to the fact that the assessee has obtained benefit in the past against such outstanding trading liabilities. The CIT(A), in first appeal, however, has set aside the action of the AO primarily on the ground that the assessee has not written back of these amounts in the books of accounts. The CIT(A) granted relief to the assesse placing reliance upon the decision of the hon'ble Gujarat High Court in its decision in the case of Bhogilal Ramjibhai Atara (supra). 10. It is the case of the Revenue that the lawhas evolved judicial precedents since the earlier decision of the hon'ble Gujarat High Court in the case of Bhogilal Ramjibhai Atara's case (supra). Keeping in mind the peculiar facts as found by the AO, we observe that hon'ble Gujarat High Court was confronted with the similar issue in the case of Gujtron Electronics's case (supra) where also the facts are broadly similar. In Gujtron Electronics's case (supra) also the outstanding was appearing in the balance sheet during 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 ....
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....s backdrop, where the Revenue Authorities have found as a matter of fact after detailed inquiry that the liabilities shown in the balance sheet do not, in fact, exist, the Revenue Authorities are not expected to put blinkers while looking at the outstanding trading liability. Merely because the liabilities have been shown in the books of accounts and not written back, would not, in our view tie down the Revenue to hold such liabilities to be subsisting liability. The ground realities on facts were found to be altogether different in the present case. It does not accord with human probabilities to infer that trading liabilities do exist where the parties are not traceable, denied the outstanding, no repayment made for last many many years and till date. Such approach would be quite theoretical and abstract. 11. Adverting to the legal claim made before us on behalf of the assessee that liabilities shown in the balance sheet was itself sufficient to hold such liability exists and bonafide is not understood at all. The liabilities 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 a....
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....xtiles admitted on oath that he had stopped his business and had nothing receivable from assessee. As far as other part i.e M/s Gravity India Ltd also admitted that the party had made payments to him and thus there is nothing outstanding. So far as remaining six parties are concerned, they were not found on the address given as the summons issued by the AO u/s 131 of the Act were returned back by the postal authorities with remarks as " not known' 'Mill Closed' etc. Thus on being confronted by the AO and even after issue a showcase notice, the assessee never responded. However, during the appellate proceedings, the assessee placed on records certain letters which Ld CIT(A) had rightly considered the same as fabricated and unreliable on the basis of detailed facts and reasoning mentioned in his order. Even otherwise, the assessee could not furnish any documentary evidence showing that even after lapse of so many years, none of the party entered into any correspondence with him to recover their dues. 17. However it was argued by Ld. AR that in AY 2004-05, Ld. CIT(A) had deleted the additions under the identical circumstances. But it is important to mention here t....
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.... are continuing unchanged till the impugned assessment year. But the disallowance was made by holding that assessee had failed to file confirmations and no payments have been made for years together. We are of the view that when the AO accepts that the liabilities were created in the earlier years, then the genuineness of such transactions have to be examined in those assessment years and not in assessment year under consideration. Even on plain reading of the provisions of section 41(1) of the Act, we are of the view that before treating the amount outstanding as deemed income of the assessee u/s 41(1) on account of remission/cessation of liability, the AO is duty bound to examine whether the condition laid down u/s 41(1) are fulfilled or not. As per the reading of section 41(1) along with explanation (1) to section 41(1), the liability ceases to exist in the books of account I.T.A. No. 1417 /Mum/2014 M/s Lotus Investment Ltd. of the assessee in a particular previous year, if the person showing such liability had obtained benefit either in cash or in any other manner in respect of such liability. It further provides that such remission or cessation of liability is also acceptable ....