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TMI Blog2022 (9) TMI 1554X X X X Extracts X X X X X X X X Extracts X X X X ..... itself has admitted during the assessment proceedings that it is not approaching to the creditors namely M/s Khodiyar Enerprise, Krishna Enterprise, Karan Enterprise and SK Corporation as it is reluctant to make the payment. The liabilities appearing in the books of accounts of the assessee against 3 parties[supra] are not actually payable if we see the facts in aggregation. Shri Kirit Kumar Jani, the alleged proprietor of Khodiyar Enterprise has appeared and admitted that he is not the proprietor of the concern namely Khodiyar Enterprise. Likewise, he also admitted that is not into any kind of business dealing of whatsoever with the assessee. Parties namely M/s Krishna Enterprise and SK Corporation are also not genuine. It is for the reason that TIN/ VAT reflected on so called invoices raised were not belonging to them and were immediately cancelled after registration. Thus, it can be inferred that the liabilities shown by the assessee with respect to these parties were bogus. However, the assessee was allowed deduction on account of purchases from these bogus parties in earlier year. Be that as it may be, we find the assessee before the lower authorities has claimed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT. D.R For the Assessee : Shri P.V. Shivraman, A.R ORDER PER BENCH: The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income tax(Appeals), Jamnagar, dated 26/08/2016 arising in the matter of assessment order passed under s.143 of the Income Tax Act, 1961 (here-in-after referred to as the Act ) relevant to the Assessment Year 2012-13. 2. The Revenue has raised following grounds of appeal: 1. Whether, on facts and the circumstances of the case, the ld.CIT(A) was justified in deleting the addition of Rs. 10,17,84,750/- made by AO u/s.41(1) of the I.T. Act, 1961. 2. Whether on facts and the circumstances of the case, the ld.CIT(A) was justified in deleting the addition of Rs. 42,98,84,771/- made by AO u/s.41(1) of the I.T. Act, 1961. 3. On the basis of the facts and circumstances of the case, the learned CIT(A) ought to have upheld the order of the Assessing Officer. 4. That the revenue craves leaves to add, amend, alter or withdraw any ground of appeal. 5. It is therefore prayed that the order of the CIT(A), Jamnagar may kindly be set aside and that of Assessing Officer be rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchases were made by previous management. To avoid the payment of outstanding dues of the previous management, it was not approaching to the parties. However on the advice of the auditor, the same were written back in profit and loss account in F.Y. 2014-15. With regard to difference with M/s Kabra brother, the assessee submitted that purchases were made against letter of credit which were due in next year but M/s Kabra Brother discounted the LC in the year under consideration itself which is not recorded in our book hence difference arises. 5.5 However, the AO disagreed with the submission of the assessee and held that the genuineness of sundry creditor namely M/s Khodiyar Enerprise, Krishna Enterprise, Karan Enterprise and SK Corporation were not established by the assessee. Also the basis of writing off the same in the profit loss account was not explained. Hence the AO treated the outstanding balance of Rs. 10,17,84,750/- from these parties as income of the assessee under section 41(1) of the Act. 5.6 Likewise, the AO further held that if the purchases were made against letter of credit then in such a situation, the liability should have been reduced by the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant s case is squarely covered by the above decision of jurisdictional High Court. Hence respectfully following the above decision it is held that provisions of sec. 41(1) are not applicable in this case. Therefore, the addition of Rs. 10,17,84,750/- made u/s.41(1) is hereby deleted this ground of appeal is allowed. 7.2 Addition/disallowance u/s. 41(1) of Rs. 42,98,84,771/-/ being difference in the books of account of appellant and creditor M/s. Kabra Bros. The Assessing Officer added Rs. 42,98,84,771/ being difference in the books of accounts of the assessee and books of account of the creditor M/s Kabra Brothers. As per the appellant's books there was a credit balance of Rs. 71,29,78,695/- as on 31.03.2012 and as per account copy furnished by M/s Kabra Brothers to the A.O. the closing balance was Rs. 28,30,93,924/-. Therefore the difference between the closing balance of Rs. 42,98,84,771/- ( (Rs.71,29,78,695/- - Rs. 28,30,93,924/-) was added by the Assessing Officer on the ground that the appellant has not satisfactorily explained the difference. In the course of appeal proceedings the appellant filed written submission and original certificate issued by SBI, Ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in respect of loss, expenditures and trading obligation which were already allowed as deduction by deeming them as profit if the liability ceases to exist. On plain reading of the provisions of section 41(1) of the Act, the following conditions emerge: 1. In the course of assessment for an earlier year, allowance or deduction has been made in respect of trading liability incurred by the assessee; 2. Subsequently, a benefit is obtained in respect of such trading liability by way of remission or cessation thereof during the year in which such event occurred; 3. In that situation the value of benefit accruing to the assessee is deemed to be the profit and gains of business which otherwise would not be his income; and 4. Such value of benefit is made chargeable to income tax as the income of the previous year wherein such benefit was obtained. 10.2 From the above, it is revealed that to apply the provisions of section 41(1) of the Act, the condition precedent is that there should be an allowance or deduction in the assessment for any year in respect of allowance, expenses or trading liability incurred by the assessee and thereafter in any previous year if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o them. These purchase were made by our erstwhile management and it is payable till today. We are not approaching to the party. But in the current year with the consultation of out auditor these amount are being written back in the P/L account. 10.6 Further, from the ledger copies of these parties namely M/s Khodiyar Enterprise, Krishna Enterprise, and SK Corporation available at page 90 to 95 of paper book, we find that in each case 3 purchase invoice all dated 19-08-2010 aggregating to Rs. 3,70,03,200/-, Rs. 3,53,60,000/- and Rs. 3,44,86,400/- were booked in their respective ledger. In all these 3 parties cases part payment were made dated 6-12-2010 and 18-01-2011 for Rs. 14,23,200/-, Rs. 28,60,000 and Rs. 13,26,400/- respectively leaving outstanding balances of Rs. 3,55,80,000/- in case of Khodiyar Enterprise, Rs. 3.25 crore in case of Krishna Enterprise and Rs. 3,31,60,000/- in case of SK Corporation which is still outstanding. 10.7 However, on perusal of ledger copy of M/s Karan Enterprises available at pages 86 to 89 we note that the purchases aggregating to Rs. 9,84,30,904/- were made during September 2010 at different dates. Against the purchases payments were made at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hna Enterprise, and SK Corporation has been written back in the books in the F.Y. 2014-15 as liability no longer required. The assessee to this effect also furnished a working sheet of liability written back as no longer required in F.Y. 2014-15 which is placed on page 97 of the paper book. In these facts and circumstances and in our considered view no addition under section 41(1) of the Act on account of cessation of liability is required to be made in the year consideration, otherwise same will lead to double addition as the assessee has already offered the same in the F.Y. 2014-15 i.e. A.Y. 2015-16. However, before parting, we would like to give direction to the AO to delete the addition paid by him after necessary verification whether the impugned amount of sundry creditors has suffered to tax in the financial year 2014-15 corresponding to assessment year 2015-16. 10.12 Coming to the addition made by the authorities below for Rs. 42,98,84,771/- under section 41(1) of the Act in respect of the party namely M/s Kabra Brothers, we note that the difference in the amount shown by the assessee as liability viz of viz the amount shown by the party M/s Kabra Brother is arising mainl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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