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2015 (7) TMI 517 - AT - Income TaxAddition on net increase in the assessee s capital on account of write back as well as write off of some old credits and debits appearing in accounts - Income Concept & Scope - Held that - We confirm the assessment of the impugned sum as income, which would, in the absence of the establishment of the cause of remission or cessation of liability, fall to be assessed under Chapter IV-F under the head income from other sources u/s. 56. When an amount, which is stated, claimed and accepted as a payable, is no longer so, the assessee gains to that extent. There is nothing unreal or notional about this gain. It can show that, even so, the same is not chargeable as income or no tax liability is attracted in-as-much as the benefit is not in the nature of income. The assessee offers no such explanation. What is admitted though is that there has been remission/cessation of liability in-as-much as these are no longer payable. Why? No reason is advanced. It is under these circumstances that the law permits the A.O. to draw an adverse inference of it as representing the assessee s income. As regards the year, there can again be little doubt in the matter. The impugned credit/s, which we have found as a fresh credit/s, is during the current year. The liability was accepted as genuine for and up to the immediately preceding year, while it is no longer payable as at the year-end. The taxable event, in terms of gain, thus, has taken place during the year, even if one considers the passing of the journal entry, recording so, on a particular (single) date in the books, to be a matter of convenience only. It is for these reasons that we find the impugned credit as corresponding and answering to the concept of income under section 2(24) and, further, as standing to fall to be assessed u/s. 56(1) and 56(2), finding strong support in the decision in the case of T.V. Sundram Iyengar 1996 (9) TMI 1 - SUPREME Court . - Decided against assessee. Addition being the write back of earlier year expenses to the assessee s capital account for the year - Held that - . No taxable event has taken place in the current year, as well as, as it appears, in the past. A reversal of a wrong entry, having no income or expense implication, cannot, by any stretch of imagination, result in income. Book entries do not create income but merely recognize it. In fact, even the Act does not define income conclusively, but only in terms in which it ordinarily manifests itself. The Revenue has wholly failed to discharge the onus on it to show that any income has either arisen or stood received by the assessee during the year, which could only be by showing that the credit written back, stated to be fictitious by the assessee, was actually not so but represented an actual liability of the assessee, so that she has actually gained to that extent. There is also no case of the assessee owning a godown and being entitled to rent in its respect or for ground-rent qua the same, for the current or even an earlier year. It is for these reasons that we stated at the beginning of our discussion of our finding no appeal or merit in the Revenue s case. We decide accordingly, directing the deletion of the impugned sum.- Decided in favour of assessee.
Issues Involved:
1. Maintainability of the addition of Rs. 28,09,953/- to the assessee's income. 2. Addition of Rs. 3,03,424/- on account of write back of earlier year expenses. Issue 1: Maintainability of the Addition of Rs. 28,09,953/- The primary issue in this appeal is the maintainability of the addition of Rs. 28,09,953/-, which represents the net increase in the assessee's capital due to the write back of sundry creditors and write off of sundry debtors. The assessee claimed these amounts as unsecured loans received about 15 years ago but failed to substantiate this claim with confirmations or reasons for the write back. Consequently, the amount was treated as income from other sources by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) ['CIT(A)']. Before the Tribunal, the assessee contended that sections 41(1) and 59(1) of the Income Tax Act did not apply as the sums had not been claimed or allowed in any preceding year, and there were no trading relations with the creditors. However, the Revenue argued that the amounts were not shown to be received on capital account and were credited to the assessee's capital account during the current year, thus attracting the provisions of section 56(2). The Tribunal held that income is inclusively defined under section 2(24) of the Act and includes any sum in the nature of income. The Tribunal noted that the assessee failed to substantiate the nature and source of the credit satisfactorily, thus invoking section 68, which deems unexplained credits as income for the year. The Tribunal also referred to various case laws, including CIT v. T.V. Sundram Iyengar, to support its conclusion that the impugned sum is assessable as income from other sources under section 56. The Tribunal concluded that the addition of Rs. 28,09,953/- as income was justified, as the assessee failed to provide a satisfactory explanation for the write back of the amounts, which were no longer liabilities but had been credited to her capital account. Issue 2: Addition of Rs. 3,03,424/- on Account of Write Back of Earlier Year Expenses The second issue pertains to the addition of Rs. 3,03,424/-, which was written back to the assessee's capital account for the year. The assessee claimed that this write back was due to erroneous entries made in earlier years and was merely a rectification entry. However, the A.O. brought this amount to tax as income from other sources under section 56(1), and the CIT(A) confirmed the addition due to the assessee's failure to clarify her claim. The Tribunal examined the assessee's explanation that the amount represented a fictitious credit due to erroneous entries in her books and was neutralized by the write back. The Tribunal found that the explanation of the impugned sum as representing a write back of earlier year's expenses was not correct. However, the Tribunal held that the impugned entry would not result in income accruing to the assessee, as no net accretion to the capital was shown, and the onus to prove otherwise was on the Revenue. The Tribunal concluded that the Revenue failed to demonstrate that any income had arisen or been received by the assessee during the year. Therefore, the addition of Rs. 3,03,424/- was directed to be deleted. Conclusion: The assessee's appeal was partly allowed. The addition of Rs. 28,09,953/- was confirmed as income from other sources under section 56, while the addition of Rs. 3,03,424/- was deleted. The Tribunal emphasized the importance of substantiating claims and providing satisfactory explanations for credits in accounts to avoid adverse inferences under sections 68 and 56 of the Income Tax Act.
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