TMI Blog2018 (3) TMI 1515X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the order dated 20TH October, 2016 for the assessment year 2012-13. The assessee has raised the following grounds of appeal :- 1. Under the facts and circumstances of the case the learned CIT (A) has erred in confirming the addition of ₹ 3,34,38,259/- made by the learned Assessing Officer by treating the sundry creditors as non-genuine appearing in balance sheet. 2. Under the facts and circumstances of the case the learned CIT (A) has erred in not allowing the sales made to the creditors in subsequent years to settle their accounts inspite of submitting all the evidences regarding sales. 3. Under the facts and circumstances of the case the learned CIT (A) has erred in not considering that in the earlier years the trading additions were also made by disallowing purchases. 4. The assessee craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing. 2. The assessee HUF filed its return of income on 22nd September, 2012 declaring total income of ₹ 3,72,450/-. The assessee is running business in the name of M/s. R.S. Gems dealing in precious and semi precious stones. During the course of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng period and further the letters issued to some of the creditors were not served. The ld. A/R has submitted that in the business of precious and semi precious stones the parties are not displaying their names or their business entity outside their business houses due to confidentiality and other business requirements. The assessee furnished all the details of the creditors including business name of creditors, complete address of creditors, name and PAN as well as TIN numbers of the creditors. All these information submitted by the assessee are more than enough to establish genuineness and existence of the trade creditors. The AO instead of conducting an internal enquiry and to verify the existence of trade creditors through their PAN has merely issued letters to them and arrived to the conclusion only on the basis of non-service of the letters. He has further submitted that due to financial difficulty the assessee was not able to make the payment in time. However, it is an established position of law that till the party giving credit has not written off the amount, the trade creditors would continue to stand. He has further submitted that when the foreign creditors were also outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the subsequent years as claimed by the assessee. He has referred to the finding of ld. CIT (A) and submitted that the ld. CIT (A) relied upon the decision of Hon ble Jurisdictional High Court in the case of Rama Steel Rolling Mills General Engg. Works vs. ITO, 35 taxmann.com 262 (Raj.) wherein the Hon ble High Court has observed that if the liability at the end of the year is not proved then certainly be added under section 41(1) of the Act. Thus the ld. D/R has submitted that if the assessee failed to prove the existence of liability as on 31st March, 2012 then the same will be treated as income under section 41(1) of the Act. 4. We have considered rival submissions as well as relevant material on record. The trade creditors are admittedly standing in the books of accounts of the assessee for a long time and, therefore, these are not pertaining to the year under consideration. It is also not the case of the AO that the assessee has introduced fresh trade creditors during the year under consideration. Once the trade creditors were accepted by the AO in the year these were first time in the books of accounts, then the genuineness of the trade creditors cannot be doubted on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., 26 taxmann.com 109 (Delhi) the issue involved was pertaining to bonus payable by the assessee and not trade creditor. Therefore, where the AO has given the finding based on the tangible material that the claim of the assessee is either false or the liability was otherwise ceased to exist then the creditors had denied any outstanding to be received from the assessee. In the case in hand the AO has not given any such finding or any supporting record to show that the creditors have denied any claim receivable from the assessee. The Hon ble Jurisdictional High Court in the case of CIT vs. Sadul Textiles (supra) has observed and held in para 2 to 5 as under :- 2. The relevant assessment year is 1972-73. The assessee was allowed deduction of the sums of ₹ 16,366 and ₹ 98,091 towards wages and bonus in earlier years but the same remained unclaimed by the work men. For this reason, the Question arose during the relevant assessment year 1972-73 whether these amounts of unclaimed wages and unclaimed bonus were taxable in that year under section 41(1) of the Act. The ITO included these amounts in the assessee's income treating the same as profits and gains of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 111 (All.). 4. The learned counsel for the revenue placed reliance on a decision of the Allahabad High Court in Indian Motor Transport Co. v. CIT [1978] 114 ITR 677. In our opinion, this decision of the Allahabad High Court cannot be construed as taking a contrary view on account of the fact that this too is a decision by the Division Bench alike the earlier decision and, therefore, it is reasonable to assume that a subsequent Division Bench of the same High Court would not take a view inconsistent with the earlier Division Bench. Moreover, Satish Chandra, CJ. who was party to this decision was also a party to the earlier decision in Bhagwat Prasad Co.'s case (supra). That apart the earlier decision in Bhagwat Prasad Co.'s case (supra)has also been distinguished in this case on the ground that in Bhagwat Prasad Co.'s case (supra) the remedy had become time barred, whereas in this case it had not. This alone is sufficient to indicate that this decision relied on by the learned counsel for the revenue cannot be construed as a contrary decision. There is no other decision taking a contrary view cited at the bar. 5. We find no reason to take t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remission or cessation thereof during the concerned year. Thus, there did not accrue any benefit 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, in our opinion, the ITAT has rightly come to the conclusion that confirmation from the creditors were produced. 5. In view of the above, we do not find any illegality in the impugned order passed by the ITAT and in our opinion, no substantial questions of law, as raised by the revenue in this appeal, arise from the order of the ITAT. Thus the Hon ble High Court has held that merely because such liability is outstanding for last 6 years, it cannot be presumed that the said liability has ceased to exist. In the absence of any bilateral act of the assessee and creditors, the said liability could not be treated to have ceased. The Hon ble Delhi High Court in the case of CIT vs. Jaipur Jewellers (Exports) (supra) has held in para 3 4 as under :- 3. So far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amounts payable to the creditors have been acknowledged by the assessee in its books and the liability pertains to the amount payable by the erstwhile firm being now taken over by the assessee, and that various creditors were paid and were being paid off by the assessee. The ITAT therefore held that so long as there is no cessation of liability by writing back the same, no addition can be made under section 41(1). This clearly pertains to the finding of facts. Therefore, the Hon ble High Court has upheld the findings of the Tribunal that so long the liability is shown in the books of accounts and has not been treated as ceased to exist by writing back, no addition can be made under section 41(1) of the Act. Similarly, the Hon ble Gujarat High Court in the case of Principal CIT vs. Matruprasad C. Pandey (supra) held in para 6 7 as under :- 6. Heard Shri Varun Patel, learned advocate appearing on behalf of the revenue at length. We have perused and considered the assessment order, the order passed by the learned CIT(A) as well as the impugned judgment and order passed the learned Tribunal. 6.1 At the outset, it is required to be noted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trading liabilities the assessee have become non existent. 6.2 The aforesaid decision of the Division Bench in the case of Nitin S. Garg (supra) has been considered and followed by the Division Bench of this Court in the case of Bhogilal Ramjibhai Atara (supra) and the addition made under Section 41(1) of the Act in the similar facts and circumstances of the case is ordered to be deleted. In paragraph 8 the Division Bench has observed and held as under; We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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