2020 (3) TMI 390 - AT - Income Tax

Cessation of liability in respect of his father s gold that was purchased during the year - gold introduced by the assessee into the business belonged to his father on whose death it was inherited by mother, brothers and sister of the assessee - HELD THAT - As rightly contended by the ld. AR, inasmuch as the other legal heirs are available and the debt is acknowledged in the books of account of the assessee, it cannot be said that the liability ceased to exist. As a matter of fact, it cannot be said that such a liability ceased to exist on the death of assessee s father because the father of assessee died way back in the year 1993 and the introduction of gold of father into the business of assessee took place in the assessment years 2011-12 and 2012-13 only. In Mahindra Mahindra Ltd. 2018 (5) TMI 358 - SUPREME COURT clearly held that unless the benefit accrued to the assessee is in nature of cash or money, section 28 has no application and in the absence of cessation of liability, section 41(1) has no application. What all that happened in this matter is that the assessee introduced the gold left behind by his father into his business and had shown the trade liability in his own name in the name of other family as a whole or individual legal heir. Such an act cannot be termed either as introduction of unaccounted or unexplained money into the capital or that the trade liability ceased to exist. For these reasons, we find it difficult to sustain the addition made by the Assessing Officer and confirmed by the ld. CIT(A). Ground of appeal is accordingly allowed.

Summary

Issues Involved:
Appeal against addition of income under sections 28 and 41 of the Income-tax Act for assessment year 2012-13.

Detailed Analysis:

1. Background and Initial Assessment:
The appellant, engaged in trading in bullions and jewelry, filed a return of income for the assessment year 2012-13. The assessment by the Assessing Officer resulted in additions to the declared income, including a significant amount on account of sundry creditors.

2. Appeal and Impugned Order:
The appellant challenged the additions before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) deleted some additions but confirmed a substantial addition under sections 28 and 41 of the Income-tax Act.

3. Appellant's Contentions:
The appellant argued that the provisions of sections 28 and 41 were incorrectly applied as the gold introduced into the business originally belonged to the appellant's deceased father. The appellant contended that the liability did not cease to exist upon the father's death as it was inherited by multiple legal heirs.

4. Revenue's Counter-argument:
The Revenue claimed that the appellant failed to provide sufficient evidence to support the purchase of gold from the father. They argued that discrepancies in purchase rates and changing versions by the appellant cast doubt on the legitimacy of the transactions.

5. Judicial Analysis and Decision:
The Tribunal examined the facts, including the inheritance of the father's estate by multiple legal heirs. The Tribunal noted that the Assessing Officer had accepted the trading results and that the liability towards the father's gold did not cease to exist. Citing relevant case law, the Tribunal concluded that the addition made by the Assessing Officer and confirmed by the CIT(A) was unjustified. Consequently, the appeal was allowed.

6. Final Verdict:
The Tribunal ruled in favor of the appellant, setting aside the addition made under sections 28 and 41 of the Income-tax Act for the assessment year 2012-13. The decision was pronounced in the open court on 19th February 2020.