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TMI Blog2016 (7) TMI 1006X X X X Extracts X X X X X X X X Extracts X X X X ..... . As we find that the assessee has not remitted the credit balances in respect of the above parties, the assessee has not obtained any benefit in respect of such trading liability and, therefore, provisions of section 41(1), are not applicable to the facts of the case in hand. Thus we hold that the assessee has not obtained any benefit in respect of the creditors by way of remission or cessation thereof and, therefore, no addition can be made in the assessment year under consideration under section 41(1) of the Act - Decided in favour of assessee - ITA Nos. 2153 & 4397/Del/2013 - - - Dated:- 14-7-2016 - SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Appellant : Sh. Rajesh Arora, CA For The Respondent : Sh. S.R. Senapathi, Sr. DR ORDER PER O.P. KANT, A.M.: These two appeals by the assessee are directed against two separate orders dated 15/01/2013 and 17/05/2013 of the learned Commissioner of Income-tax (Appeals)-III, New Delhi for assessment year 2009-10 and 2010-11 respectively. As both the appeals are related to the same assessee and one ground is common in both the appeals, same are heard together and disposed of by this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is undisputed that no exempt income was earned by the assessee in the year under consideration. We find that in the case of Cheminvest Ltd. Vs. Commissioner of Income Tax (supra), the question before the Hon ble Delhi High Court for consideration was as under: Whether disallowance under Section 14A of the Act can be made in a year in which no exempt income has been earned or received by the Assessee? 6. The Hon ble High Court relying upon the case of CIT Vs. Holcim India Private Limited in ITA No. 486/2004 answered the question as under: 23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression does not form part of the total income in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. 7. In view of the binding precedents, respectfully following the findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 2008-09 2009-10 1. Jattinder Grewal Ajit, Arjun Singh 1,55,293 1,55,293 1,55,293 2. Blue Star Ltd. 1,13,273 1,13,273 1,13,273 3. Migrani Envirotech Engineers Pvt. Ltd. 50,000 50,000 50,000 4. M. Paul Friedberg Associates Pvt. Ltd. 1,489 1,489 1,489 Total 3,20,055 3,20,055 3,20,055 13. According to the Assessing Officer, the assessee failed to provide their addresses or confirmation from the above creditors and on the basis of these observations, the Assessing Officer concluded that aforesaid persons were either no longer existed or have written off the amount into their books of accounts and, thus, liabilities were no longer in existence and assessee company had obtained b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to benefit in respect of such trading liability by way of remission of cessation thereof. In the facts of the instant case, we find that the assessee has not remitted the liability in its books of accounts. It is the Assessing Officer who has presumed that those parties no longer existed or have written off the amounts in their books of accounts. The Assessing Officer has not verified from those parties whether they have forgone their claim or the liability has become unenforceable at law by the creditor and the debtor declared unequivocally his intention not to honour his liability when payment is demanded by them. As we find that the assessee has not remitted the credit balances in respect of the above parties, the assessee has not obtained any benefit in respect of such trading liability and, therefore, provisions of section 41(1), are not applicable to the facts of the case in hand. In the case of Shri Vardhman Overseas Ltd. Vs. Assistant Commissioner of Income Tax (supra), the Tribunal has expressed similar views. The relevant findings of the Tribunal in the said case are as under: 10. We have carefully considered the rival submissions in the light of the material pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neralpublic. In the case of Sugauli Sugar Works (P.) Ltd. (supra) the assessee had credited the amount which was added to its income under s. 41(1) of the Act, but in the case of the assessee such amount has not even been credited to the P L a/c. Thus, the case of the assessee is on sound footing than the case of the assessee in that case. Therefore, on the ground of expiry of limitation, the addition upheld by the CIT(A) under s. 41(1) cannot be held justified. 12. Their Lordships of Hon'ble Supreme Court in the case of Kesaria Tea Co. Ltd. (supra) have examined the provisions of s. 41(1) and it was observed that for the application of s. 41(1) following points are to be kept in view :- (1) In the course of assessment for an earlier year, allowance or deduction has been made in respect of trading liability incurred by the assessee; (2) subsequently, a benefit is obtained in respect of such trading liability by way of remission or cessation thereof during the year in which such event occurred; (3) in that situation the value of benefit accruing to the assessee is deemed to be the profit and gains of business which otherwise would not be his income; and (4) such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of them- (i) Supreme General India, Hissar Rs.704 (ii) Bharatiya Cutler Hammer Pvt. Ltd., Faridabad. Rs.6,300 (iii) Wesman Engg.Works, Calcutta. ₹ 682 The IAC made an addition on the sole reason that the assessee is under no legal obligation to pay the amount since the outstandings are more than three years. In the appeal, the CIT (A) deleted the addition disagreeing with the reason given by IAC. 16. We have heard the learned Department representative on the issue. For the assessee, reliance was placed upon the decision of the Rajasthan High Court in the case of CIT vs. Sadul Textiles Limited (1987) 59 CTR (Raj) 98: (1987) 167 ITR 634 (Raj) . First, it cannot be said that limitation has run out merely because the origin of the liability is beyond three years. Assuming for argument sake that limitation has run out, it only bars the remedy in a Court of law but the liability as such is not wiped out. This is not a case where there has been a cessation or remission of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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