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2017 (3) TMI 1961 - AT - Income TaxAddition u/s 41 - Cessation of liability - HELD THAT - In case of Sri Bimal Kumar Gupta as shown by the assessee on the liabilities side and when the sale crystallized by handing over possession of the property the advance after adjustment of the cost was moved to the income side of the P L Account (in case if the adjustment results in surplus and when there is a deficit it will come in the expenditure side). So we take note that after completing the legal formalities and handing over the property during the F.Y. 2012-13 the profit from the sale of land to Sri Bimal Kumar Gupta of Rs. 34 Lakhs has been transferred to the P L Account of M/s Abir International in which the assessee is a proprietor. We note that the cost of land purchased from Dindayal Gupta of Rs. 26 Lakhs was adjusted against the advances which was duly reflected in the books as Advance paid on the asset side . So we find that in the facts and circumstances of the case this transaction of the assessee cannot attract Section 41(1). So therefore there is no infirmity in the order passed by the Ld. CIT (A) and we confirm the same. Liability from M/s Kit Sales (P) Ltd. Liability shown by the assessee without being written off by the creditor cannot attract Section 41(1) of the Act as rightly held by the Ld. CIT (A) and even if advance as claimed by the assessee is found to be non-genuine from the very inspection itself at least in terms of Section 41(1) of the Act there is no cure for it. May be the said amount which is credited in the books of the assessee could attract Section 68 of the Act which could have been done in the year when the amount was credited in the books of the assessee i.e. in the A.Y. 2007-08 since the fact remains that the said credit entry in the books of account happened on 28.08.2006. So therefore we do not find any infirmity in the order passed by the Ld. CIT (A) and we dismiss the appeal of the Revenue. Liability from B. Nirupam Co. - Liabilities have been existing from a very long time and same according to the assessee are still liabilities on its books and just because the notices were unserved does not mean that there is cessation or remission of liabilities and unless there is at least a unilateral act on the part of the creditors that they have waived off their right to receive payment or by operation of law there should be cessation of liability which is not the case so Section 41(1) of the Act cannot be applied in the facts of the case; and that Section 41(1) can be applied only when the department has allowed expenditure loss or trading liability as deduction in a previous A.Y. and there is a benefit which has accrued to the assessee in the assessment year in question then only Section 41(1) can get attracted. The AO has not brought anything on record to show that in the earlier years the assessee has got any deduction on account of loss expenditure or trading liability and that in the instant assessment year got benefit by remission or cessation of it without which Section 41(1) cannot be invoked. Crystalization of income - AO has pre-poned the income without appreciating that the assessee has offered Rs. 5 Lakhs in the next assessment year and followed the accounting standards as prescribed by the ICAI. We do not find any infirmity in the order of the Ld. CIT (A) and therefore dismiss this ground of appeal. Disallowance of compensation - payment in respect was disallowed because 5 persons to whom the payments were made could not be established by documentary evidence but there were proof in the form of receipts issued by these persons who have accepted the payments towards them - AR stated that if the matter is remanded back to the file of the AO the assessee would adduce evidence to support the claim made by him - HELD THAT - In the light of the said submission made by the assessee in the interest of justice we set aside the order of CIT (A) and remand this issue back to file of the AO to decide the issue afresh after granting opportunity to the assessee to bring evidence to support its claim. Addition of income - assessee failed to substantiate the source of payment made in cash for registration of some land dealing - HELD THAT - CIT (A) was of the opinion that since the source of expenditure could not be adduced by the assessee he confirmed the addition. Before us also the assessee could not adduce any evidence to prove the source of cash of Rs. 1, 13, 058/-. Therefore we confirm the order of the Ld. CIT(A).
ISSUES PRESENTED and CONSIDERED
The primary legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS 1. Application of Section 41(1) of the Income Tax Act The AO invoked Section 41(1) to treat certain liabilities as income, arguing that they were no longer genuine. This included liabilities to B. Nirupam & Co., Kit Sales (P) Ltd., and Bimal Kumar Gupta, totaling Rs. 1,36,38,000/-. Legal Framework and Precedents: Section 41(1) of the Income Tax Act pertains to the remission or cessation of trading liabilities, allowing the AO to treat such amounts as income if certain conditions are met. Court's Interpretation and Reasoning: The Tribunal found that the AO did not adequately demonstrate that the liabilities had ceased or been remitted. The liabilities were shown as advances for land purchases, which had not materialized, and thus were carried forward as liabilities. Key Evidence and Findings: The Tribunal noted that the liabilities were reflected in the balance sheet and had not been written off by the creditors. The AO failed to provide evidence of cessation or remission of these liabilities. Application of Law to Facts: The Tribunal concluded that Section 41(1) was not applicable as there was no cessation or remission of the liabilities. The advances were still considered liabilities as the transactions had not been completed. Treatment of Competing Arguments: The Tribunal agreed with the CIT(A) that the AO's reliance on incomplete or vague responses from creditors was insufficient to invoke Section 41(1). Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO under Section 41(1). 2. Disallowance of Compensation Expenses The AO disallowed Rs. 8,67,500/- out of the claimed Rs. 15,92,500/- for compensation expenses due to lack of evidence. Legal Framework and Precedents: The burden of proof lies on the assessee to substantiate expenses claimed as deductions. Court's Interpretation and Reasoning: The Tribunal noted that the assessee provided receipts for the payments but lacked formal evidence. The Tribunal remanded the issue back to the AO for further examination, allowing the assessee to provide additional evidence. Key Evidence and Findings: The assessee claimed payments were made to evict encroachers, with partial acceptance by the AO. Application of Law to Facts: The Tribunal found that the AO should have allowed the assessee an opportunity to substantiate the claim with further evidence. Conclusions: The Tribunal remanded the issue back to the AO for a fresh decision after allowing the assessee to present additional evidence. 3. Addition of Income for Unexplained Cash Payments The AO added Rs. 1,13,058/- as income due to unexplained cash payments for land registration. Legal Framework and Precedents: The assessee must substantiate the source of cash payments to avoid additions under unexplained income. Court's Interpretation and Reasoning: The Tribunal upheld the CIT(A)'s decision, as the assessee failed to provide evidence for the source of the cash payment. Key Evidence and Findings: The assessee could not substantiate the cash source, leading to the addition being upheld. Conclusions: The Tribunal confirmed the addition of Rs. 1,13,058/- as income due to the lack of evidence for the source of cash payments. SIGNIFICANT HOLDINGS Core Principles Established:
Final Determinations on Each Issue:
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