TaxTMI 
TaxTMI 
TaxTMI 
2024 (11) TMI 1019
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....ssessment order u/s 143(3) r.w.s. 144B of the Act dtd. 20.04.2021, the Assessing Officer has made his intentions clear about the impugned addition being made on account of non substantiation by the assessee of the identity, creditworthiness & genuineness of the creditors in its books of accounts. 3. On the facts and the circumstances and in law, the Ld.CIT(A) erred on the facts of the case that addition was made by the Assessing Officer u/s 41(1) of the Act and therefore, the ld.CIT(A) has failed to deliberate on the three key parameters required to be substantiated by the assessee with respect to sundry creditors in its books of accounts viz. identity, creditworthiness & genuineness. 4. On the facts and the circumstances and in law, the Ld. CIT(A) erred in law by not providing an opportunity to the Assessing Officer to investigate additional evidences submitted by the assessee during the course of appellate proceedings by calling for a remand report in this regard." 3. Both the learned representatives next invited our attention to the CIT(A)/NFAC's relevant detailed discussion reversing the Assessing Officer's assessment findings, adding sundry credits of Rs. 3,92,87,487/- in....
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....nd ledger accounts of these S. Creditors before the AO vide submission dated 09.04.2021. All transactions are through banking channels. Hence, the appellant proved the identity, creditworthiness and genuineness of transaction before the AO. There was no incriminating evidence before the AO to prove that these S. Creditors are bogus. vi) Appellant relied on judgement in case of Smt. Sudha Loyalka Vs. ITO (2018) 97 taxmann.com 303 where the AO added the closing balance (credit) as on 31.03.2012. It was held that non- mentioning of precise provision of law makes the impugned addition bad in law, Apart from above the Appellant also relied on * Steel and Geneva Mills Co. Ltd. Vs. CIT (1974) 96 ITR 438(Del) * Ambica Mills Ltd. Vs. CIT (1964) 54 ITR 167(Guj) Appellant held that AO passed the order without any application of mind and without providing any basis for making addition of Outstanding Creditors to total income of Appellant. 7.2 a) The issue of Remission or cessation of a trading liability i.e. applicability of clause (a) of subsection (1) of section 41 of the Act has been discussed and decided in detail by Hon'ble Delhi High Court in CITII vs. Shri Vardhman Oversea....
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.... are barred, though the right is not extinguished.// And if the law requires that a debtor should get a discharge before he can be compelled to pay, that requirement is not satisfied if he is merely told that requirement is the normal course he is not likely to be exposed to action by the creditor.//(underlining ours) This was also the view taken by the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd. (supra). 14. Since the Tribunal has relied on the judgment of the Supreme Court in the case of CIT v. Sugauli Sugar Works (P) Ltd. (supra) we may usefully refer to the decision in order to appreciate the controversy therein and the ratio laid down. That was a case of a private limited company. In respect of the assessment year 1965-66, it transferred a sum of 3,45,000/- from the suspense account running from 1946-47 to 1948-49 to the capital reserve account. The Income Tax Officer found that a sum of 1,29,000/- out of the above amount repayment deposits and advances which were paid back by the assessee. He, therefore, deducted this amount from the amount of 3,45,000/- and the balance of 2,56,529/- was brought to assessment under Section 41(1) of the Act. The assessee appealed un....
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.... allowed as a deduction, the assessee should have received any amount, in cash or otherwise, but it is necessary that the assessee should have received some benefit // in respect of such trading liability. However, we have already seen that this benefit in respect of trading liability should be - by way of remission or cessation of the liability, after the amendment made to the clause with effect from 1st April, 1993. The second part of the reasoning of the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd. (supra) is based on the interpretation of the words -cessation or remission //of the trading liability. The Supreme Court noticed a judgment of the Bombay High Court in J.K. Chemicals Ltd. v. CIT (1966) 62 ITR 34 in which it was explained as to what could bring out a cessation or remission of the assessee's liability. The observations of the Bombay High Court in the judgment cited above are as under:- The question to be considered is whether the transfer of these entries brings about a remission or cessation of its liability. The transfer of an entry is a unilateral act of the assessee, who is a debtor to its employees. We fail to see how a debtor, by his own unilatera....
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....bility 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 operation of law or the debtor unequivocally declaring his intention not to honour his liability when payment is demanded by the creditor, or by a contract between the parties, or by discharge of the debt". b) From the ratio laid down in the aforesaid decision, I am of the view that there is nothing on record to show any cessation or remission of liability by the creditors or even an unilateral act by the appellant in ....
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.... instant case. 10. The Tribunal has rightly relied upon the decision of Delhi High Court in case of Vardhman Overseas Ltd. The discussion of the decision of Delhi High Court was relevant, for consideration of the facts of the case in order to find out as to under what circumstances it could be said that there is cessation of liability. Further, the decision of Delhi High Court is after considering the view taken by the Apex Court in case of CIT vs. Sugauli Sugar Pvt. Ltd. (1999) 236 ITR 518 (SC)." d) This issue was also decided by Hon'ble Karnataka High Court in case of PCIT vs. Ramgopal Minerals (2017) reported in 394 ITR 696 (Kar.). The relevant part of judgement is as under: "8. We are satisfied that the judgment relied upon by the learned counsel for the respondent-assessee in the present case applies to the facts of the present case on all fours. We are further of the opinion that the burden lies upon the Revenue to establish, before applying Section 41(1) of the Act, to make additions or disallow the deduction under Section 41(1) of the Act to establish that the liability of the respondent-assessee towards such creditors has ceased in law or so has been remitted by ....
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....eading of the assessment order. There could very 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. The A.O. has not established with evidence that the liability in respect of the above outstanding balances has ceased to exist. Section 41(1) does not envisage any such presumption of cessation and fix the incidence of tax thereon. In the absence of any material having been brought on record to establish that the deduction was claimed or credit balance has been remitted, addition cannot be made u/s 41 (1) in view of the following decisions: * Steel and General Mills Co. Ltd vs CIT 96 ITR 438 (Del) * CIT vs Nathubhai Desha Bhai 130 ITR 238 (MP) * Liquidator, Mysore Agencies P Ltd vs CIT 114 ITR 853(Karn) * K.V. MoosaKoya & Co vs CIT 175 ITR 120,124 (Ker) * CIT vs Pranlal P Doshi 201 ITR 756 (Guj) 8.4 The third burden which was on A.O. 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. Merel....
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....editors as on 31.03.2018 to total income without mentioning the precise provision of law. In the said judgement, the impugned addition was held as bad in law due to non-mentioning of precise provision by the AO. 10.1 In view of the above facts and discussion and respectfully following the judgements outlined in Paras 7.2 to 9 of this order the addition of Rs. 3,92,87,487/- made by the AO as unproved creditors is hereby deleted. Ground of appeal no. 1 is allowed." 4. We have given our thoughtful consideration to vehement rival submissions against and in support of the NFAC's foregoing lower appellate discussion. Mr. Murkunde vehemently argued inter alia that not only the learned NFAC herein has erred in law and on facts in deleting section 41(1) addition which was infact made u/s. 68 of the Act as unexplained cash credits but also he failed to comply with Rule 46A of the Income-tax Rules, 1962 in admitting the additional evidence submitted by the taxpayer, thereby not seeking the Assessing Officer's remand report. His further case is that the assessee had not filed any details proving genuineness of the impugned sundry creditors which made the Assessing Officer to treat the said ....