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TMI Blog2019 (4) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... non-existent liability would not arise. The Tribunal, in the impugned order, has held that the Assessing Officer was right to hold the financial year in question as the right year for taxability when the facts concurring the non-existence were unrevealed (sic. revealed/unraveled). Thus, the Tribunal has doubted the very existence of the trading liabilities. Thus, the reasoning adopted by the Tribunal is contrary to the provisions of section 41(1) of the Act, which can be invoked provided there is trading liability in existence and there is remission or cessation of such liability. If no trading liability exists, the question of invoking section 41(1) of the Act would not arise. Another relevant aspect of the matter is that the appellant has written of some of the liabilities in the subsequent assessment years and offered the same as income, therefore, taxing such income in the year under consideration would amount to taxing the same income twice, which is impermissible in law. - Decided in favour of assessee. - R/TAX APPEAL NO. 1393 of 2018 - - - Dated:- 29-1-2019 - MR HARSHA DEVANI AND DR A. P. THAKER, JJ. For The Appellant : JAIMIN A GANDHI (8065) For The Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the creditors as claimed. The Assessing Officer further found that the credits were standing in the books of account since last many years without payment and that the assessee had not furnished any corroborative evidence regarding purchases made from the creditors. He, therefore, came to the conclusion that in the light of these peculiar facts where the credits were outstanding for long period and the parties were not traceable, denied transactions and did not demand the money, etc., the genuineness of the creditors remained unproved and the onus cast upon the assessee in this regard had not been discharged. The Assessing Officer, however, accepted the bona fides in the case of two of the creditors where corroboration was available. Consequently, he 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 income of the assessee. 4. The appellant-assessee carried the matter in appeal before the Commissioner (Appeals), who, by an order dated 20.5.2014, held that the facts in the present case were similar to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in the Limitation Act. 5.2 It was submitted that the Tribunal has wrongly placed reliance upon the decision of this court in the case of Gujtron Electronics Pvt. Ltd. v. Income Tax Officer , [2017] 83 taxmann.com 389 (Gujarat) , which was rendered in the context of a different set of facts and would not be applicable to the facts of the present case. It was also submitted that the Tribunal has failed to appreciate that the assessee, during the subsequent years, had repaid significant amount of outstanding debt, and hence, such debt could not have been added as income under section 41(1) of the Act. Accordingly, such liabilities which were offered to tax in the subsequent years cannot be doubly taxed in the current year, and the addition to that extent may be deleted. It was accordingly, urged that the appeal deserves to be allowed by answering the questions in favour of the assessee. 6. Vehemently opposing the appeal, Mr. Varun Patel, learned senior standing counsel for the respondent submitted that in the present case, for assessment year 2010-11, the Assessing Officer made the addition of ₹ 72,49,188/- under section 41(1) of the Act after holding that the trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gujtron Electronics (P) Ltd. v. Income Tax Officer , [2017] 397 ITR 462 , wherein the assessee company had collected a huge sum and had shown outstanding trade liability for many years. Since the scheme had been terminated many years back and there was absolutely no movement or correspondence between the assessee and its members with respect to the claim or with respect to the deposited amounts, the court held that there was cessation of liability and that the amount was to be added to the income of the assessee. 6.4 Reliance was placed upon the decision of the Delhi High Court in the case of Commissioner of Income Tax v. Chipsoft Technology (P) Ltd. , [2012] 210 Taxman 173 (Delhi) , wherein the court held thus: 9. Two aspects are to be noticed in this context. The first is that the view that liability does not cease as long as it is reflected in the books, and that mere lapse of the time given to the creditor or the workman, to recover the amounts due, does not efface the liability, though it bars the remedy. This view, with respect is an abstract and theoretical one, and does not ground itself in reality. Interpretation of laws, particularly fiscal and comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 41(1) of the Act and found that no substantial question of law arises and dismissed the appeal. 7. In rejoinder, Mr. Jaimin Gandhi, learned advocate for the appellant submitted that the decisions relied upon by the learned counsel for the revenue would not be applicable to the facts of the present case. It was submitted that insofar as the decision in the case of Gujtron Electronics (P) Ltd. v. Income Tax Officer (supra) on which reliance has been placed by the Tribunal is concerned, it was a case wherein the liability ceased to exist by virtue of contract and not because of operation of law. The condition of writing off debt in books of accounts (unequivocal declaration) is not a primary condition for cessation of debt by operation of contract, but it is a primary condition for cessation of debt by operation of law. It was submitted that the said decision was rendered in the peculiar facts of the said case and would not be applicable to the facts of the present case. It was further submitted that the decision of the Bombay High Court in Palkhi Investments Trading Co. (P) Ltd. v. Income Tax Officer, Mumbai (supra), was rendered in the context of penalty proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax-III v. Bhogilal Ramjibhai Atara (supra) and has found that the facts of the present case are more or less similar to the facts of the said case and has, accordingly, held that the issue is squarely covered in favour of the assessee by the above decision of this court and deleted the addition made under section 41(1) of the Act. 10. The Tribunal, in the impugned order, has concurred with the findings recorded by the Assessing Officer and has placed reliance upon the decision of this court in Gujtron Electronics (P) Ltd. v. Income Tax Officer (supra) and held that after detailed inquiry, the revenue authorities have found as a matter of fact that the liabilities shown in the balance sheet do not, in fact, exist, and that the revenue authorities are not expected to put blinkers while looking at the outstanding trading liability. According to the Tribunal, merely because the liabilities had been shown in the books of accounts and not written back, would not, tie down the revenue to hold such liabilities to be subsisting liability. The Tribunal, in the facts of the present case, found that the liabilities shown in the balance sheet as existing by the assessee were fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income tax as the income of that previous year. Explanation 1 .-For the purposes of this sub-section, the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) of the successor in business under clause (b) of that subsection by way of writing off such liability in his accounts. 12. The above provision has been interpreted by the Supreme Court in the case of Commissioner of Income Tax v. Sugauli Sugar Works (P) Ltd. (supra), wherein the court has concurred with the reasoning adopted by a Full Bench of this court in the case of Commissioner of Income Tax v. Bharat Iron Steel Industries , (1993) 199 ITR 67 (Guj.) , and held thus: 9. One aspect of the matter has been completely ignored by the judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld only prevent the creditor from enforcing the debt has been well settled. It was further held that if that principle is applied, it is clear that mere entry in the books of accounts of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the section. 14. In the facts of the present case, it is not even as if the assessee debtor has unilaterally made any entry in the books of account. Merely on the ground that a considerable time has elapsed since the debts were incurred and more particularly on the ground of genuineness of such debts, the Assessing Officer has passed the order under section 41(1) of the Act. There is no material whatsoever on record to show that there was cessation or remission of liability during the previous year relevant to assessment year 2010-11, namely the year under consideration. 15. From the findings recorded by the Assessing Officer as well as the Tribunal, it appears that the very genuineness of such entries has been doubted, inasmuch as the Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of the Assessing Officer that the liabilities ceased to exist in the previous year relevant to the assessment year under consideration. In fact the Assessing Officer has doubted the very genuineness of such liabilities. Therefore, in the absence of any liability, the question of taxing any income on the ground that there was remission or cessation of such non-existent liability would not arise. 18. The Tribunal, in the impugned order, has held that the Assessing Officer was right to hold the financial year in question as the right year for taxability when the facts concurring the non-existence were unrevealed (sic. revealed/unraveled). Thus, the Tribunal has doubted the very existence of the trading liabilities. Thus, the reasoning adopted by the Tribunal is contrary to the provisions of section 41(1) of the Act, which can be invoked provided there is trading liability in existence and there is remission or cessation of such liability. If no trading liability exists, the question of invoking section 41(1) of the Act would not arise. 19. In the opinion of this court, the decision of this court in the case of Commissioner of Income Tax-III v. Bhogilal Ramjibhai Atara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, therefore, taxing such income in the year under consideration would amount to taxing the same income twice, which is impermissible in law. 22. Insofar as the decisions on which reliance has been placed by the learned senior standing counsel for the respondent are concerned, the decision of the Delhi High Court in the case of Commissioner of Income Tax v. Chipsoft Technology (P) Ltd. (supra), is contrary to the settled view taken by this court in various decisions on which reliance has been placed by the learned advocate for the appellant. 22.1 The decision of the Bombay High Court in the case of Palkhi Investments Trading Co. (P) Ltd. v. Income Tax Officer, Mumbai (supra) would also not be applicable to the facts of the present case, inasmuch as the same was rendered in the context of penalty proceedings. It may be further noted that in paragraph 7 of the said judgment, the court has categorically noted that the learned counsel appearing for the revenue attempted to take the court over the applicability of section 41(1) to the facts of the said case, but the court had stopped him from doing so. Under the circumstances, the controversy in issue in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X
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