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2013 (11) TMI 525 - AT - Income TaxAddition u/s. 41(1) read with section 28(iv) of the Act - cessation of liability - Treated advance against export received from Amas Mauritius Ltd. by the assessee on 24.1.1997 as its income by treating the said transaction as sham transaction in the assessment year under consideration Held that - Assessee received a sum of Rs. 3,04,38,400/- from M/s. Amas Mauritius Ltd. on 24.1.1997 as an advance for the purpose of export of goods and the same has been appearing in the books of account of the assessee till date. It is also fact that the assessee neither has made export against the said advance nor the amount has been returned till date. Moreover, the assessee has admittedly stopped export business and is in the business of advisory as well as in share dealing. It is not in dispute that the said amount is shown as advance in the balance sheet of the assessee. The said liability is also shown as on 31.3.2007. Therefore the liability has been acknowledged by the assessee. Since amount has not been written off by the assessee in its books of account, it cannot be said that the liability has ceased to exists - Hon ble Madras High Court has held in the case of CIT Vs. Tamilnadu Warehousing Corporation 2006 (10) TMI 118 - MADRAS High Court that the amount representing liabilities which were shown year after year could not be added back u/s. 41(1) of the Act, 1961 Decided in favor of Assessee.
Issues:
1. Whether the Assessing Officer was justified in making an addition of Rs. 3,04,38,400/- u/s. 41(1) read with section 28(iv) of the Act by treating advance against export as income. Analysis: 1. The assessee appealed against the order of the CIT(A) confirming the action of the Assessing Officer to treat advance against export as income. The Assessing Officer observed that the assessee received an advance against exports from a company in 1997 but did not make any exports even after ten years. The Assessing Officer alleged that the advance was not for export but for the assessee's consumption, questioning the genuineness of the transaction and creditworthiness of the party. He added the amount to the assessee's income under section 41(1) based on the decision in Solid Containers Ltd. Vs. DCIT (308 ITR 417). 2. The CIT(A) upheld the Assessing Officer's decision, noting that the assessee failed to prove the intended export, lacked a formal agreement with the advancing party, and changed its business venture without proper documentation. The CIT(A) found the transaction to be sham, benefiting the assessee as a trading liability, and confirmed the addition under section 41(1) and section 28(iv) of the Act. 3. During the appeal, the assessee argued that the liability still existed in its books, awaiting RBI approval for a refund. The assessee distinguished its case from Solid Containers Ltd., emphasizing the ongoing liability. The Departmental Representative insisted on treating the advance as income due to the delay in exports. 4. The ITAT considered the case, noting the acknowledgment of the liability in the assessee's books and the absence of write-off. Referring to precedents, the ITAT held that the provisions of section 41(1) and section 28(iv) could not be applied since the liability persisted, following the decision in the case of CIT Vs. Tamilnadu Warehousing Corporation. The ITAT also emphasized that the genuineness of the transaction and creditworthiness of the party could not be questioned in the current assessment year. 5. Consequently, the ITAT allowed the appeal, deleting the addition made by the authorities. It cited the decision in M/s. Jayram Holdings Pvt. Ltd. to support its conclusion that the provisions of section 41(1) and section 28(iv) could not be invoked when the liability remained unextinguished. 6. The ITAT suggested that if the Assessing Officer suspected FEMA violations, the matter should be referred to the RBI for investigation. The appeal of the assessee was allowed, and the addition was removed. 7. In conclusion, the ITAT ruled in favor of the assessee, emphasizing the ongoing liability and rejecting the application of sections 41(1) and 28(iv) to add the advance against export as income.
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