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TMI Blog2020 (5) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has written back the creditors in A.Y 2017-18 which indicates that the assessee was recognizing such liabilities till A.Y 2017-18. Revenue has not brought any evidence on record which suggests that liability in respect of these creditors have ceased to exist during the financial year relevant to impugned assessment year 2012-13. Where liabilities continue to exist and reflected in the assessee s books of accounts, there is no basis to bring the same to tax u/s 41(1) of the Act. Further, in the A.Y 2017-18, where such liabilities have been written back in the books of accounts, the same have already been offered to tax by the assessee in his return of income. - Decided in favour of assessee. - ITA No. 1164/JP/2019 - - - Dated:- 28-4-2020 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Sh. P.C. Parwal (CA) For the Revenue : Smt. Runi Pal (JCIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the Revenue against the order of ld. CIT(A)- I, Jaipur, dated 30.07.2019 wherein following grounds of appeal have been taken:- 1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016- ₹ 1,20,51,761/- 4. The ld. CIT(A) after considering the submission of assessee and the remand report of the AO deleted the addition made by the AO by giving following findings:- (a) Addition u/s 41(1) of the Act cannot be made when the evidence brought on record indicate that the assessee has continued payment to the concerned parties subsequently to discharge the liability. (b) The assessee has himself written back the creditors in A.Y 2017-18 which indicate that the assessee was recognizing such liability till year 2017- 2018. The addition of the same amount in the current year will amount to double addition. (c) The liability is still bring recognized in the books of accounts and in the absence of specific finding by the AO that the said amount has been specifically written off in books of accounts, it does not amount to remission/cessation of liability. The reason that creditors are outstanding for long period cannot be basis for addition u/s 41(1) of the Act. 5. Against the order of ld. CIT(A), the Revenue is in appeal before us on the ground that assessee without specifying any reason has not made payment to two parties namely M/s Sky Gems Ltd. and M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of remission or cession thereof shall include the remission or cession of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of the sub-section by way of writing off such liability in his accounts. 8. It was submitted that from the plain reading of the section, it can be noted that section 41(1) would be attracted only when there is a remission or cessation of a trading liability. Explanation 1 to this section further clarifies that any unilateral act of writing off a liability in the accounts would also be considered as remission or cessation of the liability. It was submitted that assessee firm is engaged in the business of precious and semi precious stones. The assessee has not written back any of these creditors nor AO has brought on record any material to prove that the liability has ceased to exist. Section 41(1) cannot be invoked where liability to pay to the creditor is continued to be shown in the books of accounts and the creditor has not written off the same. In the trade of gems and jewellery it is a normal phenomenon that the amount remains outstanding for more than three to five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion from RBI on 4.08.2015 for making the payment. However, due to unavoidable circumstances, payment could not be made. The assessee again filed an application to its banker on 19.08.2016 for revalidation of the bills so that remittance can be made but the same is still pending and therefore, remittance could not be made. This proves that the liability to pay the creditors still exists. In the remand proceedings, AO has not made any adverse comments and therefore, ld. CIT(A) has rightly deleted the addition by referring to various decisions at para (xviii) to (xx) at pages 36 to 38 of his order. B M/s A.R Gems- ₹ 21,61,520/- From the copy of account which is placed on record, it can be noted that this amount is outstanding in respect of purchases made for the year 2011- 2012 itself. Before ld. CIT(A), the assessee filed letter dated 21.03.2016 of the party regarding payment of outstanding along with the copy invoice and certificate of import. The assessee also got the permission for RBI on 4.08.2015 for making the payment. However, due to unavoidable circumstances payment could not be made. The assessee again filed an application to its banker on 29.08.2016 for revali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions already referred in the order of ld. CIT(A):- PCIT vs. Pukhraj S. Jain ITA No. 1288 of 2016 order dt. 04.01.2019 (Bom) It is well settled through series of judgments that merely because a debt has not been repaid for over three years, would not automatically imply cessation of liability. Exhaustion of period of limitation may prevent filing of recovery proceedings in a Court of law, nevertheless it cannot be stated by itself that the liability to repay the amount had ceased. Such liability cannot be termed as bogus. PCIT vs. New World Synthetics Ltd. (2018) 258 Taxman 189 (Del) Non-payment of outstanding liability which is admitted and acknowledged as due and payable by an assessee does not indicate remission or cession of liability. Delay or non-payment, even when AO is of the opinion that likelihood of payment was remote as business has stopped, would by itself not denote and mean cessation or remission of liability. Babulal Products (P.) Ltd. vs. ACIT (2017) 167 ITD 402 (Ahd.) (Trib.) In return of income, assessee has shown liabilities under head sundry creditors for goods, sundry creditors for expenses, advances from customers and other liabiliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten back the creditors amounting to ₹ 1,20,46,936/- in A.Y 2017-18 which indicates that the assessee was recognizing such liabilities till A.Y 2017-18. The Revenue has not brought any evidence on record which suggests that liability in respect of these creditors have ceased to exist during the financial year relevant to impugned assessment year 2012-13. Therefore, where liabilities continue to exist and reflected in the assessee s books of accounts, there is no basis to bring the same to tax u/s 41(1) of the Act. Further, in the A.Y 2017-18, where such liabilities have been written back in the books of accounts, the same have already been offered to tax by the assessee in his return of income. Therefore, we affirm the following findings of the ld CIT(A) which reads as under: (xiii) Next, the disallowance of credit entries from the parties appearing in table-2 is examined. Where the appellant has himself written off the outstanding liabilities in its books of accounts in April, 2016 amounting to ₹ 1,20,54,761/- in the remand proceeding on this issue, the AO commented that writing off the trading liability in the year 2016 after lapse of 10 years is not satisfacto ..... X X X X Extracts X X X X X X X X Extracts X X X X
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