TMI Blog2014 (3) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... espective hands – the decision in Commissioner Of Income Tax Versus Steller Investment Ltd. [2000 (7) TMI 76 - SUPREME Court] followed - part relief given by the learned CIT(A) was not in line with the several judgments passed in this regard that the proper action is required to be taken in the hands of the persons in whose accounts the credit is appearing instead of invoking the provisions of Section 68 in the case of the company-assessee – thus, the addition made is directed to be set aside – Decided in favour of Assessee. - ITA No.1567/Ahd/2010, ITA No.1860/Ahd/2010 - - - Dated:- 26-2-2014 - Shri Mukul Kr. Shrawat And Shri T. R. Meena,JJ. For the Petitioner : Shri K. C. Mathews, Sr. D. R. For the Respondent : Shri Mehul R. Shah, AR ORDER Per Shri Mukul Kumar Shrawat, J.M. For A.Y. 2007-08 Cross Appeals have been filed emanating from the order of learned CIT(A)-I, Surat dated 23.03.2010. 2. The grounds raised by the assessee are hereby decided as follows: Ground No.1: On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax(Appeals) has erred in confirming the action of assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act covers even the capital expenditure. The expression expenditure u/s.41(1) is wide enough to include capital expenditure as well. The AO has concluded that the assessee had failed to prove the existence of the liability and that the assessee had offered an amount in the past, therefore, he has concluded that the provisions of the said section were to be applied on the assessee. Accordingly, he has concluded that the liability had not existed and it had ceased to exist as on 31st of March, 2007; hence, taxed the amount of Rs.35,74,216/- in the hands of the assessee. Being aggrieved, the matter was carried before the First Appellate Authority. 4. According to learned CIT(A), there was no movement in respect of those accounts and the assessee has not proved that those liability had in fact existed; hence, the action of the AO was confirmed in the following manner: I have considered the submission made by the appellant and the observation of the AO. From the submission given by the appellant during the appellate proceedings, it is clear that only in respect of two creditors, namely, Mausum Enterprise, there was a payment of Rs.70,000/- during the F.Y. 2003-04 but after 31.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred by the assessee and subsequently during any previous year, the said amount in respect of which expenditure or trading liability has ceased to exist or remitted then the benefit accruing to the assessee shall be deemed to be the profits and gains of the business of the assessee and accordingly chargeable to income tax of that previous year, whether the business in respect of which the deduction has been made is in existence in that year or not. We have noted that the decision which relied upon by the AO was subsequently overruled by the Hon'ble Apex Court. The observation of the Hon'ble Court as per the head notes was as under: Prior to April 1, 1988, each of sub-sections (1) to (4) of Section 41 of the income-tax Act, 1961, dealt with a different and distinct circumstance. Sub-section (1) dealt with recoupment of trading liability, sub section (2) dealt with balancing charge, sub-section (3) specifically dealt with balancing charge in respect of assets relating to scientific research and sub-section (4) dealt with recovery of bad debts. Therefore, one cannot read recoupment under one sub-section into another. Prior to April 1, 1988, both sub-section(1) and sub- sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. Sugauli Sugar Works Pvt. Ltd., (1991) 236 ITR 518 (SC), it was held that a unilateral action in writing off the liability do not amount to remission or cessation of liability. Although, in that case the unilateral action was on the part of the assessee but on the same reasoning we can also hold in the present set of facts and circumstances of the case that even the AO has unilaterally acted and considered that the liability in question had ceased to exist. On both the counts that the liability being capital in nature; hence, not to be taxed in the hands of the assessee. In the light of the Nector Beverages (supra) and also in the light of the decision of Sugauli Sugar Works (supra), we hereby reverse the findings of the learned CIT(A) and allow this ground of the assessee. 8. Ground No.2 On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in partly confirming the action of assessing officer of sustaining addition of Rs.2,25,000/- out of total of Rs.19,00,000/- on account of unexplained cash credits u/s.68 of the Act. 9. It was noted by the AO that there was increase in unsecured loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had paid the appellant ocmpnay's income tax liability when the recovery has been made by the TRO, Range-1, Surat. The payment was made to the TRO in the financial year 2005-06 relevant to A.Y. 2006-07, i.e., last year. However, since these were not accounted in that year in F.Y.2006-07 as on 01.04.2006 these liabilities were accounted for in the books of account of the assessee. Therefore, these credits are coming in the books of account of the assessee as a consequent of the directors having made the payment towards tax. As a proof, the assessee has filed copy of TRO receipts. The TRO being Mr. Sanjay Jain, Range-1, Surat. As per the details filed, Shri Anil had paid Rs.10,50,000/- from 13.09.2005 to 20.03.2006 in instalment of Rs.1.5 lakh. Similarly, Mr. Mahendra had paid Rs.6,25,000/- from 12.09.2005 to 20.03.2006 in six instalments of Rs.1 lakh each and one instalment of Rs.25,000/- 10.1 However, learned CIT(A) was partly convinced with the said explanation of the assessee and held that the receipt from the Revenue Department were only to the extent of Rs.16,75,000/-, however, the total amount deposited was Rs.19 lacs, therefore, the balance amount of Rs.2,25,000/- was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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