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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 ..... ome Tax Act, 1961 in respect of liabilities written off and offered as income in subsequent years?" 3. The assessment year is 2010-11 and the corresponding accounting period is the previous year 2009-10. The appellantassessee, a domestic company is engaged in the business of job work of hatching of eggs for Saguna Poultry Farm Ltd., Chennai. During the course of scrutiny assessment, the Assessing Officer observed from the balance sheet filed by the assessee that the assessee had shown sundry creditors outstanding of Rs. 74,40,360/-. To ascertain the bona fides of the sundry creditors reflected in the balance sheet, the Assessing Officer made inquiries with certain creditors under section 133(6) of the Act and found that come of the creditors had categorically denied having entered into any transaction with the assessee. Simultaneously, in some cases, the notices were returned un-served by the postal authorities and the assessee failed to produce the said creditors as directed. The Assessing Officer also noted that the assessee had not even furnished the correct address of all the creditors, PAN numbers and confirmation in respect of the creditors; he, therefore, doubted the bona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for the proposition that a unilateral act on the part of debtor cannot bring about a cessation of his liability. The cessation of the liability may occur either by reason of the operation of law, that is, on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor or a contract between the parties, or by discharge of the debt the debtor making payment thereof to his creditor. It was submitted that the expiry of period of limitation prescribed under the Limitation Act will not extinguish the debt and will only prevent the creditor from enforcing the debt and that the liability does not expire unless the assessee writes it off in his books of account. In support of such contention, reliance was placed upon the decision of this court in the case of Commissioner of Income Tax-III v. Bhogilal Ramjibhai Atara, [2014] 222 Taxman 313 (Guj.), to submit that this case is squarely covered by the said decision. 5.1 It was submitted that in the facts of the present case, the liabilities are still acknowledged by the assessee and are not written off in its books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also failed to furnish even the correct address, PAN, contra confirmation, etc., in respect of those creditors which could establish the existence, genuineness and/or enforceability of the said liability. It was submitted that even out of those creditors, five creditors had categorically refused before the Assessing Officer that they had made any transactions with the assessee and that the Tribunal has categorically observed that no attempt was made by the assessee to prove the existence of liability. 6.2 It was further submitted that the Assessing Officer has not accepted the genuineness of those trading liabilities after observing that the assessee is only doing the job work and hence, there is no possibility of purchases from the creditors. It was submitted that the said finding of the Assessing Officer has been reiterated and relied upon by the Tribunal in the impugned order and, therefore, the liability appearing in the books of the assessee for the last many years without any transaction or repayment is rightly held by the Assessing Officer and the Tribunal as unenforceable and non-existing. It was urged that the addition of Rs. 72,49,188/- under section 41(1) of the Act ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed person under clause". The expression "include" is significant; Parliament did not use the expression "means". Necessarily, even omission to pay, over a period of time, and the resultant benefit derived by the employer/assessee would therefore qualify as a cessation of liability, albeit by operation of law." 6.5 Reference was made to the decision of the Bombay High Court in Palkhi Investments & Trading Co. (P) Ltd. v. Income Tax Officer, Mumbai, [2016] 288 CTR 473 (Bombay) wherein it was held that showing a non-existent liability as an existing liability and not offering the same to tax amounted to furnishing inaccurate particulars of income. Reliance was also placed upon the decision of the Rajasthan High Court in Rama Steel Rolling Mills & General Engg. Works v. Income Tax Officer, Ward-3(1), [2013] 35 taxmann.com 262 (Rajasthan) wherein the Tribunal had remitted the matter to the Assessing Officer to verify the discharge of liability till the date of fresh assessment holding that if the liability had been discharged till date then there would be remission or cessation of the liability and if the assessee failed to produce the creditor or was unable to give the exact address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors, the notices were returned unserved and that in case of some of the creditors, they categorically denied having had made any transactions with the assessee. The Assessing Officer, therefore, recorded a finding that there was no genuine creditors appearing in the balance sheet of Rs. 74,40,360/- as on 31.10.2010. The Assessing Officer held that the onus was cast upon the assessee to prove the genuineness of the creditors appearing in the balance sheet. The assessee had neither produced the creditors nor furnished even confirmations and proper addresses of the creditors and some of the creditors had also categorically denied having made any transactions with the assessee. Out of the total creditors, only two creditors namely C.R. Share Dalal & Co. Rs. 3,210/- and Dattatraya Sales & Services Rs. 1,87,962 were treated as genuine since contra confirmation, PAN had been received. The Assessing Officer held that the facts on record establish that except for the above two creditors there were no genuine creditors and, accordingly, treated the amount of Rs. 72,49,188/- (Rs.74,40,360 - Rs. 1,91,172) as cessation of liability within the meaning of section 41(1) of the Act and added the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to be made on the ground that there was cessation of trading liabilities under section 41(1) of the Act. Section 41(1), to the extent the same is relevant for the present purpose, reads as under: 41. Profits chargeable to tax.-(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the case may be, has been obtained that the amount or the value of the benefit would become chargeable to income tax as income of that previous year. 12. We fully agree with the view taken by the Division Bench in CIT v. Rashmi Trading, [1976] 103 ITR 312 (Guj), that the only meaning that can be attached to the words 'obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure' incurred in any previous year clearly refer to the actual receiving of the cash of that amount. The amount may be actually received or it may be adjusted by way of an adjustment entry or a credit note or in any other form when the cash or the equivalent of the cash can be said to have been received by the assessee. But it must be the obtaining of the actual amount which is contemplated by the legislature when it used the words 'has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure in the past'. As rightly observed by the Division Bench in the context in which these words occur, no other meaning is possible." We are in agreement with the said reasoning." 13. The court held that the princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion thereof; - such amount or benefit is obtained by the assessee; - such amount or benefit is obtained in a subsequent year; Thus, where a debt due from the assessee is foregone by the creditor in a later year, it can be taxed under section 41(1) of the Act in such later year when it was foregone. Section 41(1) of the Act, therefore, contemplates existence of a debt/liability and the remission or cessation thereof in the year under consideration. Therefore, for the purpose of taxing any income on account of remission or cessation of liability, the Assessing Officer has to establish that there was an existing liability and that there was remission or cessation of such liability in the previous year relevant to the assessment year in which such income is sought to be taxed. 17. In the facts of the present case, while the assessee has shown the trading liability in its books of account, no benefit has been obtained in respect of such trading liability by way of remission or cessation thereof; under the circumstances, the requirements of section 41(1) of the Act are not satisfied in the present case. Moreover, any such cessation or remission of liability has to be in the previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses, 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 bi-parte 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) f the Act. This is one of the strange cases where even if the debt itself is found to be nongenuine 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." 20. The facts of the present case are more or less similar to the facts of the above case, and hence, the Commissioner (Appeals) was wholly justified in holding that the said decision would be squarely applicable to the facts of the present case and in deleting the addition. 21. Another relevant aspect of the matter is that the appellant has writt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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