TMI Blog2019 (2) TMI 1461X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue, in the form of denial of the assessee’s debt in their favour by the trade creditors, itself states of reduction in the said liability over a period of time. Agree with the CIT(A) that the reduction obtaining during a particular year is to be assessed as income for that year. His directions, accordingly, to that effect to the AO u/s. 150(1), subject to the fulfillment of the conditions u/s. 150(2), cannot be faulted. However, of the payment of ₹ 4 lacs to JRJC during f.y. 2004-05, ₹ 3 lacs stands already paid during f.y. 2003-04 as per the assessee’s accounts. Accordingly, it is only the difference, i.e., ₹ 1.0 lac, that can be assessed as income u/s. 41(1) for AY 2005-06 on that account. This aspect shall be duly considered by the AO while giving effect to the said directions by the ld. CIT(A). - I.T.A No.474/(Asr)/2017 - - - Dated:- 6-12-2018 - Sh. Sanjay Arora, Accountant Member For the Appellant : Sh. Gaurav Dhall, CA For the Respondent : Sh. Charan Das, Sr. DR ORDER PER SANJAY ARORA, A.M. This is an Appeal filed by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-2, Jalandhar ( C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts as well as the statements u/s.131 were supplied to the assessee, who denied having made any payments, i.e. except as recorded in its books of account. Shri Prem Kumar, its managing partner, had in fact been declared a proclaimed offender (PO) on 15.09.2004 in criminal proceedings filed against him by Markfed, a PSU, whose paddy was being milled by the assesse-firm. It was inconceivable that a person who had gone in hiding would surface every other day to pay cash to these firms at ₹ 20,000/-, i.e., discharging a time barred debt. The assessee-firm was in fact facing a financial crisis, and had no funds or, in fact, source of income. Additions were made for the amount outstanding in the assessee s books. The matter traveled to the Tribunal which, vide its order dated 30.12.2017 (in ITA No.616/Asr/2013 copy on record), set aside the matter to the file of the first appellate authority for a decision de novo per a speaking order after providing adequate opportunity of hearing to the assessee. The ld. CIT(A) has, in the second round, confirmed the additions for the current year to the extent of the payment recorded as received by the creditor-firm, i.e., at ₹ 4,38,872 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing been already embroiled in a dispute with a government agency. The payments may not necessarily have been made in installments of ₹ 20,000/-, which is so booked only to eschew non-deduction as business expenditure u/s. 40A(3/3A). In any case of the matter, denial of the assessee s liability thereto by the creditors would attract section 41(1) inasmuch as the liability stands extinguished, i.e., ceases to exist. Its reflection in the assessee s account, which perhaps continues to date, would be of little consequence inasmuch as, in effect and substance, it does not represent an actual liability to a trade creditor/s. My first observation in the matter, and even as observed during hearing, is that even assuming that the creditors have not been paid by the assessee, their denial of the assessee s impugned liability to them, would amount to a remission of a trade liability, attracting section 41(1) of the Act, which reads as under: Profits chargeable to tax. 41. (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-mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made without a firm basis, at least one of which a court could take judicial notice. That apart, it involves assumptions, for which there is no basis, so that it would only be presumptuous. In fact, no tax advantage arises as they could have, equivalently, claimed the entire amount as a bad debt while introducing their income/funds, assuming so, as income, so that there is not net tax liability. The claim of bad debts in accounts, based as it is on the best judgment of the management, does not prejudice the creditors right to recover through persuasion or recourse to the legal process. The limitation, even as stated by Shri Dhall, runs from the last acknowledgement of the debt, so that the debts were not barred by time during the period the payment is stated to have been received from the assessee, who admittedly has not paid the creditors even to date. To, though, no explanation or reason for non-payment, even as the balance-sheets for the subsequent years reflect business. Such a payment would, while proving its liability thereto as existing, only be to the benefit of the creditors, even if constituting their income liable to tax. We could go on further. However, it is not nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the assessee s income, being the amount by which the assessee s liability to SSS has undergone reduction during the current year. Though one could argue that the assessee s accounts reflecting a total liability to the trade creditors at ₹ 14.43 lacs, which does not exist as at the year-end, so that the entire amount ought to be, as by the AO, assessed as income, it needs to appreciated, that the evidence with the Revenue, in the form of denial of the assessee s debt in their favour by the trade creditors, itself states of reduction in the said liability over a period of time. Accordingly, I agree with the ld. CIT(A) that the reduction obtaining during a particular year is to be assessed as income for that year. His directions, accordingly, to that effect to the AO u/s. 150(1), subject to the fulfillment of the conditions u/s. 150(2), cannot be faulted. However, of the payment of ₹ 4 lacs to JRJC during f.y. 2004-05, ₹ 3 lacs stands already paid during f.y. 2003-04 as per the assessee s accounts. Accordingly, it is only the difference, i.e., ₹ 1.0 lac, that can be assessed as income u/s. 41(1) for AY 2005-06 on that account. This aspect shall be duly c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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