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2022 (9) TMI 1554 - AT - Income TaxAddition u/s 41(1) - cessation or remission of liability - DR before us contended that the liability has ceased to exist - Assessee contended that the impugned sundry creditors are arising against the purchases which were made in the earlier years and no doubt of whatsoever was raised about such purchases. Furthermore, the creditors have not been written back in the books of accounts HELD THAT - Condition precedent is that there should be an allowance or deduction in the assessment for any year in respect of allowance, expenses or trading liability incurred by the assessee and thereafter in any previous year if the creditor waives any such liability, then assessee is liable to tax under section 41(1) The provisions of Section 41(1)(a) of the Act casts a burden on the assessee to establish remission and cessation of liability in relevant assessment year where benefit has been obtained earlier by the assessee. Coming to the facts of the present case, we note that the assessee itself has admitted during the assessment proceedings that it is not approaching to the creditors namely M/s Khodiyar Enerprise, Krishna Enterprise, Karan Enterprise and SK Corporation as it is reluctant to make the payment. The liabilities appearing in the books of accounts of the assessee against 3 parties supra are not actually payable if we see the facts in aggregation. Shri Kirit Kumar Jani, the alleged proprietor of Khodiyar Enterprise has appeared and admitted that he is not the proprietor of the concern namely Khodiyar Enterprise. Likewise, he also admitted that is not into any kind of business dealing of whatsoever with the assessee. Parties namely M/s Krishna Enterprise and SK Corporation are also not genuine. It is for the reason that TIN/ VAT reflected on so called invoices raised were not belonging to them and were immediately cancelled after registration. Thus, it can be inferred that the liabilities shown by the assessee with respect to these parties were bogus. However, the assessee was allowed deduction on account of purchases from these bogus parties in earlier year. Be that as it may be, we find the assessee before the lower authorities has claimed that, on the advice of auditor, the outstanding balance from the parties namely M/s Khodiyar Enerprise, Krishna Enterprise, and SK Corporation has been written back in the books in the F.Y. 2014-15 as liability no longer required. The assessee to this effect also furnished a working sheet of liability written back as no longer required in F.Y. 2014-15. Thus no addition under section 41(1) of the Act on account of cessation of liability is required to be made in the year consideration, otherwise same will lead to double addition as the assessee has already offered the same in the F.Y. 2014-15 i.e. A.Y. 2015-16. However, before parting, we would like to give direction to the AO to delete the addition paid by him after necessary verification whether the impugned amount of sundry creditors has suffered to tax in the financial year 2014-15 corresponding to assessment year 2015-16. Addition u/s 41(1) in respect of the party namely M/s Kabra Brothers , we note that the difference in the amount shown by the assessee as liability viz of viz the amount shown by the party M/s Kabra Brother is arising mainly on account of the entries recorded in the books of accounts. The assessee has issued letter of credit to the party - The assessee was liable to make the payment after the period of 90 days which was falling in the subsequent financial year. However, the other party got these letter of credit discounted and received the payment which was adjusted against the account of the assessee. This fact can also be verified from the certificate issued by the party placed on page 98 of the paper book. Thus, the difference was arising only on account of book entries. The assessee actually made the payment in the later year whereas the party has accounted the receipt in the same financial year which has resulted the difference in the balance as discussed above. Thus to our understanding no addition is warranted under the provisions of section 41(1) of the Act. At the time of hearing the learned DR has also not brought anything on record contrary to the finding of the learned CIT-A. Thus, we do not find any infirmity in the order of the learned CIT-A and accordingly we uphold the same. Thus the AO is directed to delete the addition made by him.
Issues Involved:
1. Deletion of addition of Rs. 10,17,84,750/- under section 41(1) of the Income Tax Act, 1961. 2. Deletion of addition of Rs. 42,98,84,771/- under section 41(1) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Deletion of Addition of Rs. 10,17,84,750/- under Section 41(1) of the Act: The Revenue challenged the deletion of the addition of Rs. 10,17,84,750/- made by the Assessing Officer (AO) under section 41(1) of the Income Tax Act, 1961, which pertains to the cessation or remission of liability. The assessee, a private company engaged in the manufacturing of coke, listed certain parties as sundry creditors. The AO issued notices under section 133(6) of the Act to these parties, but no responses were received. Despite alternate addresses being provided, the parties did not respond, leading the AO to believe that the assessee had forged documents and intentionally provided incorrect details on invoices. The AO added the outstanding balance from these parties as income under section 41(1) of the Act. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, observing that there was no remission or cessation of trade liability during the year in question. The CIT(A) noted that unless the creditors decided to forgo the debt by crediting the assessee's account in their books, the question of cessation of liabilities under section 41(1) does not arise. The CIT(A) relied on the Gujarat High Court decision in the case of Bhogilal Ramjibhai Atara, which held that section 41(1) applies only in cases of genuine liabilities. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had written back the outstanding amounts in the profit and loss account in the financial year 2014-15, thus no addition under section 41(1) was required in the year under consideration to avoid double addition. 2. Deletion of Addition of Rs. 42,98,84,771/- under Section 41(1) of the Act: The Revenue also challenged the deletion of the addition of Rs. 42,98,84,771/- made by the AO under section 41(1) of the Act, which was the difference in the books of account of the assessee and the creditor M/s Kabra Brothers. The AO added this difference as income, citing that the assessee failed to satisfactorily explain it. The CIT(A) deleted this addition, noting that the difference arose because M/s Kabra Brothers had discounted letters of credit (LCs) before their due dates, which was not recorded in the assessee's books. The Tribunal observed that the difference in the amount shown by the assessee and the party M/s Kabra Brothers was due to the timing of the entries recorded in the books of accounts. The assessee made the payment in the subsequent financial year, while the party accounted for the receipt in the same financial year. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order and directing the AO to delete the addition. Conclusion: The Tribunal concluded that the appeal of the Revenue is partly allowed for statistical purposes, directing the AO to verify whether the impugned amount of sundry creditors has been taxed in the financial year 2014-15 corresponding to the assessment year 2015-16. The Tribunal pronounced the order on 16/09/2022 at Ahmedabad.
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