TaxTMI 
TaxTMI 
2026 (3) TMI 466
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....3,79,941/- under section 41(1) of the Act by holding that no evidence of any dispute with the foreign creditors has been submitted, despite of the fact that the appellant filed ledger confirmations of outstanding balance from Foreign supplier along with purchase invoices. The issuance of confirmation confirming of balance outstanding and the same, till the year under consideration was under settlement due to disagreement in terms and conditions of supplies in respect to quality. The liability could not be written back and charged to Income unless it is being accepted by the creditors. It is pertinent to note that the limitation period for recovery only bar a company to recover the outstanding amount through court of Law but cannot be disowned the liability itself. Since the Foreign supplier was the regular supplier and both are trying to resolved the issues amicably but it had taken time and not resolved till the year under consideration. 3. Misapplication of RBI and FEMA guidelines: On the facts and in the circumstances of the case and in law, the CIT(A) erred in relying on RBI and FEMA norms to hold the liability as ceased without establishing any provision unde....
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....rty-wise details of the sundry creditors and required the assessee to explain as to why the unpaid creditors should not be treated as income on account of cessation of liability. 2.1.1. In response, the assessee submitted that mobile phones and accessories were purchased in the earlier years from Zytel Industries Ltd., and Hainan Peng Hua National Industries, both being Hong Kong-based entities, and that the outstanding balances were continuing to be reflected as trade creditors since FY 2008-09 & 2009-10 respectively. The assessee submitted before the Ld. AO that, the amounts represented outstanding liabilities and did not amount to cessation of income. It was further submitted that, the assessee had not derived any benefit from the outstanding creditors during the year under consideration since the same was not waived by the creditors. In support of its contention, the assessee furnished confirmations of the outstanding balances from the creditors before the Ld. AO. 2.2. However, the Ld. AO was of the opinion that the assessee failed to establish the genuineness of the creditors and, thus held that the liability ceased to exist. In support of this conclusion, the Ld. AO pla....
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....r, 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 of any liability by a unilateral act by the first-mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.] It is amply clear that inclusion of word "shall include" in the Explanation means that it is not necessary that assessee should admit cessation of liability before AO can invoke provisions of section 41 of the Act. Further, case laws cited by assessee are distinguishable on facts of the case under consideration. Rather I find support in Supreme Court judgment in case of Sundaram lyengar (TV) & Sons Ltd (as cited in assessment order) that assessee because of its business operation has become richer by the amount of Rs 43,79,941/-, that the amount has arisen out of ordinary business transactions, that th....
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....on of liability in respect of the outstanding credits relating to the two suppliers under consideration. 4.3. The Ld. AR submitted that confirmations regarding waiver of liabilities have also been placed on record in support of the submissions. The Ld. AR further submitted that, the assessee closed its business in the year 2019 and that the assessee discharged its primary onus to establish the genuineness of the transactions recorded in its books of account which were within its knowledge. He submitted that the amount remained outstanding till the closure of the business and it was only thereafter that waiver of liabilities was intimated by the creditors. 4.4. The Ld. AR submitted that the Ld.AO doubted the transactions merely on the ground that, assessee did not make payment to the creditors within six months from the date of shipment as per RBI policy and FEMA regulations. He submitted that the Ld. AO proceeded on the footing that the assessee did not seek extension of time from the RBI for making payment to the foreign entities and, on that basis alone, treated the transactions as not genuine. 4.5. It was further submitted that, the decision relied upon by the Ld. AO of....