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2017 (5) TMI 726 - AT - Income TaxAddition u/s 41 - Held that - Mere outstanding balances for many years would not justify the conclusion that there was cessation of liability u/s 41(1) of the Act. The appellant has also acknowledged the credits and shown them in the balance sheet. Thus we set aside the order of the ld.CIT(A) and direct the AO to delete the addition - Decided in favour of assessee Addition being advances received from the customers - amount held on behalf of principal and monies received from Kenyan Government u/s 28(iv) - Held that - It is only if the benefit or the perquisite is not in cash or money but is non-monetary benefit or non-monetary perquisite that the question of including the value of such benefit or perquisite would ever arise. Under these circumstances the Tribunal was right in rejecting the contention urged on behalf of the revenue that the amount of ₹ 15,964 should be brought to tax as value of any benefit or perquisite within the meaning of section 28 (iv). The Tribunal doubted whether the amount of ₹ 15 964 was any benefit- It may or may not be a benefit . Another question is whether the phrase whether convertible into money or not would normally mean something else than money. In our opinion, the conclusion of the Tribunal that section 28(iv) would not apply when the amount received is cash or is considered in terms of money, is correct, and the provisions of s 28 (iv) can never be made applicable to the facts of the present case, where excise refund was received by the assessee. - Decided in favour of assessee.
Issues Involved:
1. Addition of ?1,79,53,595 under Section 41(1) of the Income Tax Act, 1961 for sundry credit balances of Kolkata branch. 2. Non-allowance of corresponding deduction for unrecovered debtors of ?1,80,72,562. 3. Addition of ?1,02,99,091 and ?43,89,471 under Section 28(iv) of the Income Tax Act, 1961 for advances from customers and amounts held on behalf of the principal. 4. Addition of ?1,66,212 under Section 28(iv) of the Income Tax Act, 1961 for monies received from the Kenyan Government. Issue-wise Detailed Analysis: 1. Addition of ?1,79,53,595 under Section 41(1): The assessee, engaged in various business activities, had its records destroyed due to a fire in 1998 and subsequent floods in 2005, leading to the inability to furnish details of sundry creditors for the Kolkata branch. The AO added ?1,79,53,595 to the total income under Section 41(1) on the ground that these creditors remained unpaid for a long time and the assessee could not provide details of these creditors. The CIT(A) confirmed this addition, rejecting the assessee's contention about the destruction of records and the termination of staff. The Tribunal, however, found that the mere fact of outstanding balances for many years does not justify the conclusion that there was a cessation of liability under Section 41(1). The Tribunal referred to the Supreme Court's decision in Sugauli Sugar Works (P) Ltd, which held that a unilateral entry in the books would not suffice to apply Section 41(1). Consequently, the Tribunal directed the AO to delete the addition of ?1,79,53,595. 2. Non-allowance of Deduction for Unrecovered Debtors: The assessee claimed a corresponding deduction for unrecovered debtors amounting to ?1,80,72,562. The CIT(A) dismissed this claim, stating that any unrecoverable amount of debtors can only be claimed as bad debts under Section 36(vii) of the Act after actually writing off in the books of account. The Tribunal, having decided the first ground in favor of the assessee, found no need to decide this ground separately and dismissed it. 3. Addition of ?1,02,99,091 and ?43,89,471 under Section 28(iv): The AO added these amounts under Section 28(iv), considering them as benefits or perquisites arising from business. The CIT(A) upheld this addition, noting the assessee's failure to provide details of these amounts. The Tribunal, however, noted that Section 28(iv) applies to the value of any benefit or perquisite and not to actual money received. The Tribunal cited several case laws, including Alchemic Pvt Ltd and Iskraemeco Regent Ltd, which held that Section 28(iv) does not apply to monetary transactions. Consequently, the Tribunal directed the AO to delete these additions. 4. Addition of ?1,66,212 under Section 28(iv): Similar to the third issue, the AO added this amount under Section 28(iv) for monies received from the Kenyan Government. The CIT(A) confirmed this addition. The Tribunal, however, reiterated that Section 28(iv) applies to non-monetary benefits or perquisites and not to actual money received. The Tribunal directed the AO to delete this addition as well. Conclusion: The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A) and directing the AO to delete the additions made under Sections 41(1) and 28(iv) of the Income Tax Act, 1961. The Tribunal emphasized that mere outstanding balances for many years do not justify the conclusion of cessation of liability and that Section 28(iv) does not apply to monetary transactions.
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