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TMI Blog2018 (6) TMI 1100X X X X Extracts X X X X X X X X Extracts X X X X ..... ation if any can be cured under s.153(6) in such cases. However, we do not consider it expedient to dwell further - addition made in respect of trading liabilities which had ceased to exist represents taxable business income in terms of Section 41(1) of the Act - Appeal of the Revenue is allowed. - I.T.A. No. 2193/Ahd/2014 - - - Dated:- 19-6-2018 - SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR For The Appellant : Shri Mudi t Nagpal , Sr. D. R. For The Respondent : Shri Jaimin Gandhi , A.R. ORDER PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the Revenue against the order of the CIT(A)-IV, Baroda ( CIT(A) in short), dated 20.05.2014 arising in the assessment order dated 12.03.2013 passed by the Assessing Officer (AO) u/s.143(3) of the Income Tax Act, 1961; (the Act) concerning assessment year 2010-11. 2. The grounds of appeal raised by the Revenue reads as under: 1. On the facts of the case and in the circumstances and in law, the CIT(A)-IV, Baroda has erred in deleting the addition of ₹ 72,49,188 made by the AO u/s.41(1) of the I.T. Act, in respect of the cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outstanding is on account of purchases made does not appear plausible considering the nature of business carried out by the assessee. It was observed that the assessee is only doing job work and hence, there is no possibility of the purchases from the creditors is claimed. It was found that the creditors are standing in the books for last many years without payment. It was further observed that the assessee has not furnished any corroborative evidences regarding purchases made from the creditors. The AO therefore came to the conclusion that in the light of these peculiar facts where the creditors are outstanding for long period and the parties are not traceable, denied transations and not demand money etc. the genuineness of the creditors remains unproved and the onus cast upon the assessee in this regard has not been discharged. However, the AO accepted bonafides in the case of two creditors where the corroboration was available. Consequently, the AO held that ₹ 72,49,188/- out of ₹ 74,40,360/- shown as creditors liability are not genuine and treated the same as cessation of liability within the meaning of Section 41(1) of the Act and added the same to the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte 'and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through biparte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41 (c) of the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed. 4.2.1. Thus, the issue in this case is covered squarely in favour of the appellant by the decisions of Hon'ble Gujarat High Court discussed above. Hence, following the same, Assessing Officer is directed to delete the addition made by him u/s. 41(1) of the Act. 5. In essence, the CIT(A) observed that where the assessee has not wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between assessee and its creditors with respect to the claim or with respect to the deposited amounts while deciding the issue against the assessee. The learned DR thereafter referred to another judgment rendered by the hon ble Delhi High Court in the case of CIT vs. Chipsoft Technology (P.) Ltd. (2012) 210 Taxman 173 (Delhi) to buttress its plea that Explanation to Section 41(1) does not restrict the scope of Section 41(1) only to a situation where the assessee writes back the liability in its books of accounts as per its option. The learned DR in conclusion submitted that where as a matter of fact it is found that existence of the creditors claimed in the books of accounts is found to be incorrect or in-genuine, the operation of Section 41(1) to assess the non-existent trade liability by resorting to Section 41(1) cannot be excluded. 8. The learned AR, on the other hand, strongly supported the order of the CIT(A) and submitted that the provisions of Section 41(1) can apply only where; (i) there is a positive act on the part of the assessee for writing back the liabilities as income in the P L account, (ii) the liability ceases to exist by the reason of operation of law i.e. o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) presupposes existence of liability in the earlier year. The learned AR accordingly submitted that scope of Section 41(1) requires to be read in distinction to Section 68 of the Act. Adverting to the decision of the hon ble Gujarat High Court in the case of Gujtron Electronics (supra) relied upon by the other side, the learned AR contended that the aforesaid decision was rendered in the backdrop of altogether different facts. It was submitted that in Gujtron Electronics s case (supra), the liability was nearly 15 to 20 years back in relation to sales promotion scheme when the company was engaged in the manufacturing of goods. The company thereafter was no longer engaged in such manufacturing activity and was now engaged only in trading of electronics appliances etc. The learned AR submitted that, notably, scheme itself suggested that it was valid for a period of twelve months. Since years, there was no activity and since the scheme itself was dispensed, the liability had actually ceased to exist. The learned AR thus submitted that cessation of liability had occurred as a matter of fact. The learned AR thus submitted that in view of the material difference in the facts, the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef to the assesse placing reliance upon the decision of the hon ble Gujarat High Court in its decision in the case of Bhogilal Ramjibhai Atara (Supra). 10. It is the case of the Revenue that the law has evolved judicial precedents since the earlier decision of the hon ble Gujarat High Court in the case of Bhogilal Ramjibhai Atara s case (supra). Keeping in mind the peculiar facts as found by the AO, we observe that hon ble Gujarat High Court was confronted with the similar issue in the case of Gujtron Electronics s case (supra) where also the facts are broadly similar. In Gujtron Electronics s case (supra) also the outstanding was appearing in the balance sheet during the year under consideration and was not actually written off by the Assessee. However, the hon ble Gujarat High Court noted that not a single customer had demanded money back nor assessee had made any attempt to repay the same. Over year, company had invested such amount in diverse activities. On such facts where since last many years, there was no activity of any repayment of amounts nor the amounts have been collected by the customers, the hon ble Court endorsed the decision of the co-ordinate bench of tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to hold such liabilities to be subsisting liability. The ground realities on facts were found to be altogether different in the present case. It does not accord with human probabilities to infer that trading liabilities do exist where the parties are not traceable, denied the outstanding, no repayment made for last many many years and till date. Such approach would be quite theoretical and abstract. 11. Adverting to the legal claim made before us on behalf of the assessee that liabilities shown in the balance sheet was itself sufficient to hold such liability exists and bonafide is not understood at all. The liabilities shown in the balance sheet as existing by assessee was found to be symbolic by AO. The onus is on the assessee to show the reasons why it believed at the time of filing the return that the liabilities were true. No such attempt was even made to prove the existence of liabilities. In this view of the matter, the incidence of taxation under s.41(1) of the Act cannot be escaped on non-existing liability. Our this view also finds support from yet another decision of the hon ble Bombay High Court in the case of Palkhi Investments and Trading Co. Pvt. Ltd. vs. ITO 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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