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Commissioner of Income Tax Versus M/s Indo Widecom International Ltd.

2017 (12) TMI 678 - ALLAHABAD HIGH COURT

Addition u/s 41 - cessation or remission of liability - Held that:- The fact that the assessee did not show the amount in its profit and loss account may itself not invite applicability of Section 41 of the Act. Treatment given in accounting entries does not give rise to taxable event. To invoke Section 41 of the Act, the initial burden was on the revenue to establish cessation or remission of liability of Rs. one crore. That burden was not discharged. In as much as it had been found by the CIT .....

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om Group Inc, Canada - Held that:- the assessee is a subsidiary of M/s Widecom Group INC is of no consequence in the facts and circumstances of the case. It is admitted that the two companies are separate juristic persons. Also, there is nothing to doubt the genuineness of the transaction of sale of goods made by the assessee to M/s Widecom Group INC. Thus, Question no. 3 is answered in favour of the assessee and against the revenue. - Income Tax Appeal No. 715 of 2012 - Dated:- 7-12-2017 - Hon& .....

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r the Assessment Year 2007-08 raising the following questions of law:- "(i) Whether the finding of the ITAT that the amount of 1 crore was never shown in the profit and loss account, hence assessee is entitle to relief without examining the fact that the assessee had suppressed the sales intentionally by not revising the price per unit fixed in the year, 2011? (iii) Whether on the facts and circumstances of the case, the Hon'ble ITAT was justified in law as well as in fact upholding the .....

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sessee is to supply products at a lesser price and declare loss leading to avoidance of tax incidence, which the holding company compensates by funding in cash, which assessee is regularly showing it under the head 'Payment received/Other Transaction?" During the assessment proceedings the assessing officer had issued notice to the assessee to verify the claim of loss of ₹ 8,15,14,476/-. According to the assessing officer the assessee had disclosed M/s Widecom Group INC. as a sund .....

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ore against the aforesaid sales made by it to M/s Widecom Group INC. and made book entries to transfer that amount of Rs. one crore to the 'general account' under a narration 'share application money transfer' and thus adjusted the share application money to sale price realisable from M/s Widecom Group INC. While the assessing officer proceeded to make an addition of aforesaid ₹ 100,00,000/- under Section 41 of the Act, upon appeal, CIT (Appeals) called for a remand report .....

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n/affidavit of Sh. L.S. Tuli furnished which is relevant for both A.Y. 2005-06 and 2007-08; this is observed and held that the liability towards M/s Widecom Group INC (which is holding company by assessee) is confirmed. During the present F.Y., there is no transaction except that ₹ 1 crore has been transferred from share application money account to general account. Even AO admits that this amount had been received in 1999-2000. Such transaction cannot be categorised as "cessation of .....

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here is no doubt that the liability disclosed by the assessee towards M/s Widecom Group INC, of Rs. one crore had ceased to exist during the previous year relevant to Assessment Year 2007-08. According to him, therefore, provision of Section 41 was attracted to the facts of the case. Sri Amitabh Agarwal, learned counsel for the assessee on the other hand submits, section 41 has application only where there is an actual cessation or remission of liability and it would not apply to the present cas .....

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, we find that the assessing officer never doubted the transaction of sale of goods made by the assessee during the financial year 2004-05. It is also not the case of the revenue that the assessee had ever received any money towards the aforesaid sale of goods up to the extent of ₹ 1,00,00,000. Then, it is also not the case of the revenue that the money that was lying in deposit with the assessee (by way of share application money) ever became share capital of the assessee inasmuch as it i .....

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g with it against the sale consideration payable by M/s Widecom Group INC to the assessee. The aforesaid appropriation or adjustment was reflected by recording appropriate entries in the books of account of the assessee. As a result, it is true that no liability remained or survived to the extent of Rs. one crore payable to M/s Widecom Group INC., however, this would not amount to cessation or remission of liability contemplated under Section 41 of the Act. That section principally applies to tr .....

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ks of account and thus recovered its money from the said purchaser through transfer of the share application money Rs. one crore to its general account evidenced by proper entries recorded in its books of account. It thus adjusted the credit entry arising on account deposit of Rs. one crore by M/s Widecom Group INC. against share application against the price of goods sold by it to M/s Widecom Group INC. Thus, looked at from the assessee's perspective, it is a case of discharge of liability .....

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