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TMI Blog2017 (10) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the same as having ceased to exist during the year under consideration and added back to the income of the petitioner income U/s 41(1) of the IT Act, 1961. (i) M/s Coral Gems Rs. 19,96,783/- (ii) M/s Hem Gems, Mumbai Rs. 20,50,500/- (iii) M/s Priya Jewels Rs. 75,000/- (iv) M/s United Gems India Rs. 2,44,000/- Rs. 43,66,283/- 2. The only issue involved in the appeal is sustaining the addition of Rs. 43,66,283/- on account of liabilities of sundry creditors as per the Assessing Officer the same have ceased to exist hence added back U/s 41(1) of the Income Tax Act, 1961 (in short the Act). 3. The brief facts of the case are that the assessee is normally engaged in the business of trading of precious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the liability has ceased to exist during the year. Therefore, in the absence of remission or cessation or any unilateral written back of such liability by assessee, the same cannot be treated as assessee's income u/s 41(1). For this purpose, reliance is placed on the following cases:- CIT Vs. Narendra Mohan Mathur (2014) 97 DTR 428 (Raj.) (HC) The assessee was showing certain liabilities in the shape of sundry creditors in his books of accounts from year to year. The AO invoked sec. 41(1). It was held that merely because there was no response by the creditors or the parties choose not to appear, it does not prove that the trade creditors were not genuine and were not in existence so as to invoke sec. 41(1). The assessee claimed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of time and said liability was carried forward for many years and there was no cessation or remission during previous year, same could not be added to income. CIT Vs. G.K. Patel & Co. (2012) 212 Taxman 384 (Guj.) (HC) AO finds that assessee had not paid money to many of creditors for years together & thus added the same as income under provisions of sec 41(1). It was held that cessation of liability has to be either by reason of operation of law, i.e., on liability becoming unenforceable at law by creditor and debtor declaring unequivocally his intention not to honour his liability when payment is demanded by creditor, or a contract between parties, or by discharge of debt. In the present case, since there was no declaration by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of these facts, the CIT(A) as well as the Tribunal has rightly come to the conclusion that the AO has wrongly invoked the Expln. 1 of s. 41(1) and made the addition on the basis of presumption, conjectures and surmises. It has been further found that the AO failed to show that in any earlier year, allowance or deduction had been in respect of any trading liability incurred by the assessee. It was also not proved that any benefit was obtained by the assessee concerning such trading liability by way of remission or cessation thereof during the concerned year. Thus, there did not accrue any benefit to the assessee which could be deemed to be the profit or gain of the assessee's business, which would otherwise not be the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- was made on 02.08.2005 (PB 22) and the balance of Rs. 2,44,000/- is still payable. Same is the case of Hem Gems. Thus, all the liabilities are subsisting and only because payment is not made to them cannot be a reason to invoke section 41(1). In view of above, the addition made by AO be directed to be deleted. 5. On the other hand, the ld DR has relied on the orders of the authorities below. 6. I have heard both the sides on this issue. It is a fact that the assessee was showing these liabilities in its books of account for year to year basis. The assessee claims that the amount was payable and these liabilities were never ceased. It was claimed that there was no cessation of the liability. For invoking the provisions of Section 41, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry concern of Shri Govind Johari was M/s King of Jewels. The liability of the same was accepted by the Assessing Officer as genuine and payable, therefore, there is no reason to disbelieve the liability of M/s Priya Jewels of Rs. 75,000/-. PAN of Shri Govind Johari was also provided. Similarly in the case of United Gems India, purchases were made on 20/06/2004 against which payment of Rs. 2,58,000/- was made on 02/08/2005 and the balance was still payable. The same is the case with Hem Gems, therefore, in my considered view, these liabilities were subsisting during the relevant period and only because payments were not made against these liabilities, therefore, provisions of Section 41(1) of the Act cannot be invoked. In the case of CIT Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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