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M/s Joharimal Bhanwar Lal Jewellers Pvt. Ltd. Versus Income Tax Officer, Ward 1 (1) , Jaipur

2017 (10) TMI 533 - ITAT JAIPUR

Addition on account of liabilities of sundry creditors as ceased to exist u/s 41(1) - Held that:- For invoking the provisions of Section 41, there must be two conditions fulfilled (i) there should be cessation/remission of liability and (ii) it should be ceased during the previous years relevant to assessment year under consideration. Even when the amount remained unclaimed for considerable period but it remains to be payable then there is no cessation or remission of such liability. Further it .....

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t these liabilities, therefore, provisions of Section 41(1) of the Act - Decided in favour of assessee. - ITA No. 69/JP/2016 - Dated:- 6-10-2017 - Shri Bhagchand, Accountant Member Assessee by : Shri P.C. Parwal ( CA ) Revenue by : Smt. Poonam Roy ( DCIT ) ORDER Per: Bhagchand, A. M. This is an appeal filed by the assessee emanates from the order of the ld. CIT(A)-I, Jaipur dated 24/11/2015 for the A.Y. 2012-13, wherein the assessee has raised sole effective ground of appeal, which is as under: .....

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377; 43,66,283/- 2. The only issue involved in the appeal is sustaining the addition of ₹ 43,66,283/- on account of liabilities of sundry creditors as per the Assessing Officer the same have ceased to exist hence added back U/s 41(1) of the Income Tax Act, 1961 (in short the Act). 3. The brief facts of the case are that the assessee is normally engaged in the business of trading of precious and semi precious stones. However, during the year under consideration, the assessee has not carried .....

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opy of account filed by M/s Kings of Jewels. The A.O. added the following outstanding liabilities: M/s Coral Gems ₹ 19,96,783/- M/s Hem Gems, Mumbai ₹ 20,50,500/- M/s Priya Jewels ₹ 75,000/- M/s United Gems India ₹ 2,44,000/- 4. The ld. CIT(A) confirmed the addition made by the Assessing Officer. Now the assessee is in appeal before the ITAT. While pleading on behalf of the assessee, the ld AR has submitted as under: 1. Section 41(1) is applicable where any loss, expendit .....

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on or any unilateral written back of such liability by assessee, the same cannot be treated as assessee s income u/s 41(1). For this purpose, reliance is placed on the following cases:- CIT Vs. Narendra Mohan Mathur (2014) 97 DTR 428 (Raj.) (HC) The assessee was showing certain liabilities in the shape of sundry creditors in his books of accounts from year to year. The AO invoked sec. 41(1). It was held that merely because there was no response by the creditors or the parties choose not to appea .....

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genuineness of transaction by producing ledger accounts and proof of payments made through bank channels and PAN numbers, there was no cessation of liability of debt to be paid by assessee to creditors and therefore, condition precedent for invoking section 41(1) was not satisfied. CIT Vs. Alvares & Thomas (2016) 239 Taxman 456 (Kar.) (HC) In this case, where the creditor was appearing in the books of the assessee for past 7 to 8 years, Hon ble Court considering the decision of Delhi High C .....

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ondly it should be ceased to be so during previous year. Even where an amount remained unclaimed by sundry creditors for a considerable period of time and said liability was carried forward for many years and there was no cessation or remission during previous year, same could not be added to income. CIT Vs. G.K. Patel & Co. (2012) 212 Taxman 384 (Guj.) (HC) AO finds that assessee had not paid money to many of creditors for years together & thus added the same as income under provisions .....

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c. 41(1) could not be invoked. CIT Vs. Sliri Vardhaman Overseas Ltd. (2012) 343 ITR 408/ 69 DTR 379 (Del.)(HC) Amounts standing in the names of sundry creditors for more than four years shown as outstanding and not unilaterally written back to P&L a/c cannot be brought to tax u/s 41(1). Argument of Revenue that the non-payment or non-discharge of the liability in favour of the sundry creditors resulted in some benefit in respect of such trading liability in a practical sense or common sense .....

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because such liability is outstanding for the last six years, it cannot be presumed that the said liabilities have ceased to exist. It is also conceded position that there is no bilateral act of the assessee and the creditors, which indicates that the said liabilities have ceased to exist. In absence of any bilateral act, the said liabilities could not have been treated to have ceased. In view of these facts, the CIT(A) as well as the Tribunal has rightly come to the conclusion that the AO has .....

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to the assessee which could be deemed to be the profit or gain of the assessee's business, which would otherwise not be the assessee's income. It has been further found as fact that the assessee had filed the copies of accounts of sundry creditors signed by the concerned creditors. In view of this fact, the Tribunal has rightly come to the conclusion that confirmation from the creditors was produced. In view of the above, there is no illegality in the impugned order passed by the Tribun .....

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the liability has not ceased to exist. In case of Priya Jewels it is submitted that it is a proprietor concern of Sh. Govind Johari. Its new address was provided at C-7, Prithviraj Road, CScheme, Jaipur. Govind Narayan Johari is assessed with ACIT, Central Circle-Ill, Jaipur. M/s King of Jewels is also a proprietary concern of Sh. Govind Johari whose credit was accepted by AO and therefore, there is no reason to held that liability of M/s Priya Jewels of ₹ 75,000/- has ceased to exists. PA .....

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and, the ld DR has relied on the orders of the authorities below. 6. I have heard both the sides on this issue. It is a fact that the assessee was showing these liabilities in its books of account for year to year basis. The assessee claims that the amount was payable and these liabilities were never ceased. It was claimed that there was no cessation of the liability. For invoking the provisions of Section 41, there must be two conditions fulfilled (i) there should be cessation/remission of liab .....

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yable by him. Therefore, merely on the fact that the liability is outstanding for many years shall not amount to cessation or remission of the liability. It is pertinent to note that in the case of Coral Gems, purchases were made in F.Y. 2001-02, it is evident from page No. 5 & 12 of the paper book, against those purchases, an amount of ₹ 32,50,000/- was paid in F.Y.2004-05 and an amount of ₹ 19,96,783/- was outstanding as evident from page No. 4 of the paper book. Coral Gems dem .....

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he same was accepted by the Assessing Officer as genuine and payable, therefore, there is no reason to disbelieve the liability of M/s Priya Jewels of ₹ 75,000/-. PAN of Shri Govind Johari was also provided. Similarly in the case of United Gems India, purchases were made on 20/06/2004 against which payment of ₹ 2,58,000/- was made on 02/08/2005 and the balance was still payable. The same is the case with Hem Gems, therefore, in my considered view, these liabilities were subsisting du .....

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