2022 (10) TMI 685

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.... 68 of the Act in respect of unsecured loans from directors and promoters is concerned we observe that in the course of assessment proceedings the assessee was required to furnish the details of unsecured loans in respect of various parties listed out by the Assessing Officer in the assessment order at page 2 including loan from directors and promoters amounting to Rs.1,39,51,852/-. Assessee furnished confirmations in respect of Rana Policot Ltd., Rana Sugar Ltd. and Verms Pesticides Pvt. Ltd. It is the finding of the AO that in respect of loans from directors and promoters the assessee has not furnished any confirmations or any other documentary evidence, therefore, in the absence of any details furnished by the assessee the AO treated unsecured loans from directors and promoters as nothing but the circulation of money by the assessee company to introduce cash credit in the form of unsecured loans. Accordingly, addition of Rs.1,39,51,852/- u/s 68 was made to the income of the assessee. 4. On appeal the ld. CIT(A) on examining the evidences furnished by the assessee deleted the addition of Rs.1,39,51,852/- made u/s 68 in respect of loans from directors and promoters observing as....

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....here any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. In order to invoke the aforesaid provisions it is essential that amount should have been credited in the books of accounts of the appellant during the financial year for which income is being assessed. Once an amount is being credited in the books the next issue is a reasonable explanation for the amounts credited is required to be furnished by the assessee. It is only when the assessee fails to furnish a reasonable explanation for the amount in his books can Section 68 be invoked. Thereafter an amount credited is treated as income of the assessee (in the year in which such amount is credited). In the present case the addition fails on very first requirement of Section 68. No amount has been credited in the year under reference and therefore no addition can be made u/s 68 in respect of these accounts. The additio....

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....ection in so far as it is relevant for our purpose is as below: -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 xx xx xx xx xx xx (Explanation 1-For the purposes of this subsection, 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 ....

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....iability by way of remission nor cessation thereof should be read as a whole and not in the manner suggested by the Ld. Standing Counsel. ................. 16. In our opinion, the judgment of the Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra) is a complete answer to the contention of the Ld. Standing Counsel. In the case before the Supreme Court for a period of almost 20 years the liability remained unpaid and this fact formed the basis of the contention of the Revenue before the Supreme Court to the effect that having regard to the long lapse of time and in the absence of any steps taken by the creditors to recover the amount, it must be held that there was a cessation of the debts bringing the case within the scope of Section 41(1). In the case before us, the identical contention has been taken on behalf of the Revenue, though the period for which the amount remained unpaid to the creditors is much less. It was held by the Supreme Court that a unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only by the creditor and a cessation of the liability can only occur either by reason of oper....