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Glen Williams Versus The Assistant Commissioner of Income Tax, Circle 1 (1) , Bangalore.

Unaccounted cash credit - Non existent credit claims made in the books of the assessee - assessee was unable to obtain confirmation from the 21 creditors regarding the balances shown against them inspite of several opportunities - Held that:- n almost identical facts, the Hon’ble Delhi High Court in the case of Shri Vardhaman Overseas Ltd. (supra), has clearly laid down that neither section 41(1) nor section 68 of the Act can be applied. On the applicability of section 68, we are of the view tha .....

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for the Revenue would be to find out the year in which the credits in question were credited in the books of account and thereafter make an enquiry in that year and make an addition in that year, if other conditions for applicability of section 68 are satisfied.

It must be held that there was a cessation of the debts bringing the case within the scope of s. 41(1). A unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only b .....

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pugned addition cannot be sustained and the same is directed to be deleted. - Decided in favour of assessee. - ITA No.1078/Bang/2014 - Dated:- 7-8-2015 - SHRI N.V. VASUDEVAN AND SHRI JASON P. BOAZ, JJ. For The Appellant : Shri T.V. Subramanya Bhat, CA For The Respondent : Shri P. Dhivahar, Jt. CIT(DR) ORDER Per N.V. Vasudevan, Judicial Member This is an appeal by the assessee against the order dated 12.3.2013 of the CIT(Appeals)-I, Bangalore relating to assessment year 2009-10. 2. In this appeal .....

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68 or 41(1) of the Act. 3. Before we go to the merits of the appeal, there is a delay of about 456 days in filing the appeal before the Tribunal. The assessee has filed an affidavit explaining the reasons for the delay. In his affidavit, the assessee has stated that the order of CIT(Appeals) was passed on 12.3.2013 and was received by the CA of the assessee on 22.3.2013. The same was given by the CA to his assistant to be given to the assessee. The assistant of the CA however not deliver the ord .....

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out before us that the assessee claims to have got the knowledge of the order of CIT(A) when recovery proceedings were initiated. He brought to our notice that the appeal was filed before the Tribunal on 25.8.2014. According to him, even as early as 21.7.2014, a notice u/s. 271(1)© of the Act was issued to the assessee for AY 2009-10 and atleast when such notice was received by the assessee, he ought to have enquired about the fate of the appeal filed before the CIT(Appeals) with his CA. A .....

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w about the impugned order when recovery proceedings were initiated against the assessee. The ld. DR has produced a letter dated 21.7.2014 sent to the assessee by the AO and the same is with reference to the penalty proceedings u/s. 271(1)© of the Act. There is no doubt, there is a reference in this letter about factum of dismissal of the assessee s appeal by the CIT(A) by order dated 12.3.2013. It is the plea of assessee that since this letter was with reference to penalty proceedings, he .....

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of the assessee should be condoned, irrespective of the length of delay. The Hon ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji & Ors, 167 ITR 471 (SC) has also taken the view that there should be a liberal and practical approach in exercising discretionary powers in condonation of delay. Keeping in mind the judicial pronouncements referred to above and considering the facts and circumstances of the present case, we are of the view that the delay in filing the a .....

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7; 68,59,477. These creditors were 22 in number and their names have been listed in para 2 of Assessing Officer s order. It is not dispute that none of the transactions with the creditors listed in para 2 of the AO s took place during the previous year. In other words, the balances were opening balances of the earlier financial years and no balance arose out of the transactions during the previous year. 7. The assessee gave confirmations from the creditors which did not have complete details. Th .....

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and therefore the assessee is not in a position to confirm whether those creditors were residing in that address. 8. The AO was not satisfied with this reply and made an addition of ₹ 65,66,925 observing as follows:- In view of the above points, it is to be concluded that the credit claims made in the books of the assessee as on 1.4.2008 by the above 21 parties are non-existent and therefore added to the income of the assessee. The total credit balance claims in respect of 21 cases referre .....

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tors. The A.O followed the due process. At the time of appeal hearing, the appellant s authorised representative pleaded that the appellant was unable to obtain confirmation from the 21 creditors regarding the balances shown against them inspite of several opportunities. In the circumstances, I have no option but to confirm the addition of ₹ 65,66,925/- made by the AO in this regard. 10. Aggrieved by the order of the CIT(Appeals), the assessee has preferred the present appeal before the Tr .....

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e provisions of section 68 will not be attracted. The ld. counsel thereafter drew our attention to the decision of the Hon ble Delhi High Court in CIT v. Sri Vardhaman Overseas Ltd., ITA No.774/2009 dated 23.12.2011 343 ITR 408 (Del), wherein on identical facts, the Hon ble High Court held that neither section 68 nor section 41(1) of the Act would be attracted. In this regard, we have already observed that neither the order of the AO nor the order of CIT(A) is clear as to whether the impugned ad .....

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that the impugned additions cannot be sustained in law and the same will have to be deleted. 12. The ld. DR, on the order, placed reliance on the orders of the Revenue authorities. 13. We have given a careful consideration to the rival submissions. On almost identical facts, the Hon ble Delhi High Court in the case of Shri Vardhaman Overseas Ltd. (supra), has clearly laid down that neither section 41(1) nor section 68 of the Act can be applied. On the applicability of section 68, we are of the .....

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cases for the Revenue would be to find out the year in which the credits in question were credited in the books of account and thereafter make an enquiry in that year and make an addition in that year, if other conditions for applicability of section 68 are satisfied. 14. As far as applicability of section 41(1) of the Act is concerned, the question before us is limited to the applicability of Section 41(1) of the Act. The section in so far as it is relevant for our purpose is as below: Profits .....

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ion 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 xx xx xx xx xxxx xx xx xxxx xx xx [Explanation 1 - For the purposes of this sub-section, the expression _loss or expend .....

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bility to pay the sundry creditors in the assessee s accounts. The question has to be considered de hors Explanation 1 to Section 41(1). In order to invoke clause (a) of Sec.41(1) of the Act, it must be first established that the assessee had obtained some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as purchase price in co .....

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he order of the AO or CIT(A) to the expression remission or cessation of liability . In such circumstances, we are of the view that the provisions of section 41(1) of the Act could not be invoked by the Revenue. In fact the decision of the Hon ble Delhi High Court in the case of Vardhaman overseas Ltd. (supra) clearly supports the plea of the Assessee in this regard. On identical facts, the Hon ble Delhi High Court on the applicability of Sec.41(1) of the Act, held: 12. That takes us to the next .....

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construed in their legal sense is that those words have, in law, acquired a definite and precise sense and that, accordingly, the legislation must be taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law . In our opinion, this rule should be applied to the interpretation and understanding of the words remission and cessation used in the sectio .....

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s barred by limitation, the employer does not get, in law, a discharge therefrom. The modes in which an obligation under a contract becomes discharged are well-defined, and the bar of limitation is not one of them. The following passages in Anson s Law of Contract, 19th Edition, p. 383, are directly in point : At Common Law lapse of time does not affect contractual rights. Such a right is of a permanent and indestructible character, unless either from the nature of the contract, or from its term .....

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sed to action by the creditor. (underlining, italicised in print, ours) This was also the view taken by the Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra). 14. Since the Tribunal has relied on the judgment of the Supreme Court in the case of CIT vs. Sugauli Sugar Works (P) Ltd. (supra) we may usefully refer to the decision in order to appreciate the controversy therein and the ratio laid down. That was a case of a private limited company. In respect of the asst. yr. 1965-66, it tr .....

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he Tribunal. Its contention before the Tribunal was that the unilateral entry of transferring the amount from the suspense account to the capital reserve account would not bring the said amount within s. 41(1). The contention was accepted by the Tribunal whose decision was affirmed by the Calcutta High Court CIT vs. Sugauli Sugar Works (P) Ltd. (1981) 23 CTR (Cal) 226 : (1983) 140 ITR 286 (Cal). The Revenue carried the matter in the appeal to the Supreme Court. The contention of the Revenue (as .....

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e than 4 years has admittedly elapsed from the debt on which the debts were incurred and since the creditors had not taken any steps to recover the amount, there was a cessation of the debts which brought the matter under s. 41(1). Turning back to the judgment of the Supreme Court, we find that the judgment of the Calcutta High Court under appeal was affirmed for two reasons. The first reason was based on a judgment of the Full Bench of the Gujarat High Court in CIT vs. Bharat Iron & Steel I .....

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e said clause by the Finance Act, 1992 w.e.f. 1st April, 1993, by which the words some benefit in respect of such trading liability by way of remission or cessation thereof were inserted. After the amendment, therefore, it is not necessary that in respect of a trading liability earlier allowed as a deduction, the assessee should have received any amount, in cash or otherwise, but it is necessary that the assessee should have received some benefit in respect of such trading liability. However, we .....

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Bom) in which it was explained as to what could bring out a cessation or remission of the assessee s liability. The observations of the Bombay High Court in the judgment cited above are as under : The question to be considered is whether the transfer of these entries brings about a remission or cessation of its liability. The transfer of an entry is a unilateral act of the assessee, who is a debtor to its employees. We fail to see how a debtor, by his own unilateral act, can bring about the cess .....

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o 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. Transfer of an entry is neither an agreement between the parties nor payment of the liability. We have already held in Kohinoor Mills Co. Ltd. vs. CIT (1963) 49 ITR 578 (Bom) that the mere fact of the expiry of the period of limitation to enforce it, does not by itself constitute cessation of the liability. In the insta .....

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e them, and observed as under while upholding the judgment of the Calcutta High Court : This judgment has been quoted by the High Court in the present case and followed. We have no hesitation to say that the reasoning is correct and we agree with the same. To reinforce the conclusion, the Supreme Court also noticed its earlier judgment in Bombay Dyeing & Mfg. Co. Ltd. vs. State of Bombay AIR 1958 SC 328 wherein it was held that the expiry of the period of limitation prescribed under the Limi .....

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