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2017 (7) TMI 574 - GUJRAT HIGH COURT

2017 (7) TMI 574 - GUJRAT HIGH COURT - Tmi - Addition u/s 41 - amount collected towards the scheme which was expired long ago - cessation of liability - Held that:- The assessee had launched a scheme of sales promotion. Under such scheme, the assessee would enroll a member, who would deposit a sum of ₹ 500/with the assessee company. If such a member in turn enrolled four members, he would get one black and white TV set manufactured by the assessee company free of cost. Same benefit would b .....

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would break at some stage. The amount of ₹ 7.87 crores represents the money deposited by those members. This amount remained with the company over the years without any change whatsoever. The Revenue authorities have found that there was no activity at the hands of the assessee company in connection with the scheme for past several years. Not a single customer had demanded the money back nor the assessee had made any attempt to repay the same. It was only when the Assessing Officer in the .....

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d such amount as its own. The scheme itself terminated many years back. Limitation of claiming amount back has also seized. There is absolutely no movement or correspondence between the assessee and its members with respect to the claim or with respect to the deposited amounts. - Additions confirmed - TAX APPEAL NO. 462 of 2017 With CIVIL APPLICATION (OJ) NO. 511 of 2017 And TAX APPEAL NO. 462 of 2017 - Dated:- 12-7-2017 - MR. AKIL KURESHI AND MR. BIREN VAISHNAV, JJ. For The Appellant : Thakkar .....

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ading liability and the said trade liability has not ceased to exist during the A.Y. 2012-13 and therefore, the amount could not be added in the income under Section 41 of the Income Tax Act? II. Whether in the facts and circumstances of the case, the Tribunal was justified in not appreciating that in the present case, the ingredients of Sec. 41 are not satisfied inasmuch as the appellant has not obtained any benefit by way of remission or cessation of the liability and therefore, the amount cou .....

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ppreciating that the trade payable advance from Customers amounting to ₹ 7,87,19,819/has not written off and has not been transferred to profit and loss account and therefore the ratio laid down in the case of Commissioner of Income Tax v. Sundaram Iyengar and Sons. Ltd. would not apply in the present case? V. Whether in the facts and circumstances of the case, the Tribunal was justified in holding that the judgment of this Hon'ble Court in the case of CIT vs. Nitin S. Garg would not a .....

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ff). Such advances were brought forward from the earlier years. The Assessing Officer therefore issued a show cause notice requiring the assessee to file details of such advances. In response to the queries, the assessee explained that the same were in the nature of the advances received from the retail customer under the Sales Promotion Scheme launched by the assessee in the financial year 198687. It was a scheme for sales promotion of the company's black and white TV sets. As per the schem .....

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osed the proposal contending that the principles of section 41(1) of the Income Tax Act, 1961 ('the Act' for short) are not applicable. The liability has not seized and the assessee continues to show the same as a liability. 4. The Assessing Officer did not accept the stand of the assessee. He noted that the liability was nearly 15 to 20 years back in relation to Sales Promotion Scheme, when the company was engaged in the manufacturing of goods. Since many years, the company is no longer .....

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also admitted that the fund was used by parking it in investments from which the company had earned interest. Such interest was also offered to tax. Inter alia on such grounds, the Assessing Officer held that this was a case of cessation of liability and therefore added the said sum to the income of the assessee. 5. The assessee carried the matter in appeal. Commissioner of Income Tax (Appeals) undertook a detailed examination of materials on record and confirmed the view of the Assessing Offic .....

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ny is no longer engaged in such manufacturing activity. III. The addresses of the members/customers were also not verifiable since they were incomplete providing only the Tehsils and Districts. There was no signatures of the customers on these invoices. IV. The letters sent by the assessee to the past customers to show that company is still in correspondence, had all been issued by the company after commencement of the assessment proceedings and after the Assessing Officer had raised questions a .....

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missioner of Income Tax (Appeals) rejected the assessee's appeal placing reliance on the decision of the Supreme Court in case of CIT v. Sundaram Iyengar & Sons Ltd. reported in 322 ITR 344 making following observations: 3.2.4 With all due respect to the judgments by the Hon'ble Apex Court, High Courts and Tribunals on section 41(1) and section 28(iv), I am of the view that there are situations where the facts and circumstances of an appellant's case cannot be compared to those w .....

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r the years to make various investments (discussed earlier in the order). The appellant has itself admitted that these customers are from very remote areas and a perusal of the sample vouchers and invoices presented by the appellant also shows that only vague addresses have been noted down. Thus, it is highly unlikely that after a period of 10-15 years, these customers would claim an amount of ₹ 500/from the appellant. The appellant however very conveniently is still showing these amounts .....

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the entire money as its own money over the years and as mentioned in para 3.2.1 (vi) above, has made substantial investments out of this money. It has received interest on the same and has also paid taxes on the same. Thus, it is very clear that this amount is being treated as its own income by the appellant. These circumstances and facts are very different from the facts in all the caselaws relied on by the appellant and therefore cannot be applied to the appellant's case. Thus looking at .....

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el for the appellant submitted that this was not a case of cessation of liability. The conditions laid down under section 41 of the Act were not fulfilled. The authorities therefore, committed a serious error in adding the said sum to the income of the assessee. She further submitted that the ratio laid down by the Supreme Court in case of Commissioner of Income Tax v. Sugauli Sugar Works (P) Ltd reported in 1999 (1) SCR 400 would apply. She submitted that the facts in case of Sundaram Iyengar ( .....

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l are somewhat peculiar. The assessee had launched a scheme of sales promotion. Under such scheme, the assessee would enroll a member, who would deposit a sum of ₹ 500/with the assessee company. If such a member in turn enrolled four members, he would get one black and white TV set manufactured by the assessee company free of cost. Same benefit would be available to the enrolled members if they fulfilled this condition. The scheme was operative for a period of 12 months. In other words, a .....

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mpany over the years without any change whatsoever. The Revenue authorities have found that there was no activity at the hands of the assessee company in connection with the scheme for past several years. Not a single customer had demanded the money back nor the assessee had made any attempt to repay the same. It was only when the Assessing Officer in the present assessment proceedings raised the issue, the assessee made correspondence with the customers. This, the Commissioner (Appeals) correct .....

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