TMI Blog2017 (12) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... INC. had been adjusted against the sale price payable to the assessee by that entity, there did not survive any scope to invoke section 41 of the Act in favour of the revenue. Thus Question no. 1 as raised in the memo of appeal is answered in favour of the assessee Cessation of liability in terms of provisions of Section 41(1) - Assessee company is a wholly owned subsidiary of Widecom 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the case, the order passed by Hon'ble ITAT is perverse and had been passed without appreciating all the facts correctly because the modus operandi of the assessee 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 sundry creditor for ₹ 8,87,43,228/-. During financial year 1999-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 liability . Otherwise also, Section 41 is not applicable because this amount had never been debited to P L account. Thus, addition of ₹ 1 crore is untenable in law as well as on merits, addition of ₹ 1 crore is deleted. (emphasis supplied) Against the aforesaid deletion, the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is not the case of the revenue that the assessee ever issued any share certificates to M/s Widecom Group INC, against the aforesaid deposit of ₹ 1,00,00,000/- made by it. It therefore appears that the amount of Rs. one crore was lying deposited with the assessee on account of M/s Widecom Group INC. It was therefore being shown as a liability by the assessee. Upon sale of goods made by the assessee to the said M/s Widecom Group INC, the assessee had made adjustment of Rs. one crore thus lying with it against the sale consideration payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity. 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 (Appeals) and the Tribunal that the amount of Rs. one crore received by the assessee from M/s Widecom Group INC. had been adjusted against the sale price payable to the assessee by that entity, there did not survive any scope to invoke section 41 of the Act in favour of the revenue. Thus Question no. 1 as rai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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