TMI Blog2019 (1) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... t provision, as under section 37(1) qua a purchase transaction, even as explained in Jain Exports (P.)Ltd. (supra). As such, nothing turns on the assertion that the relevant purchase/s stands not doubted by the Revenue; the very basis of sec. 41(1)(a) being the allowance of deduction qua the liability under reference earlier. As explained in Motilal Ambaidas v. CIT [1976 (2) TMI 17 - GUJARAT HIGH COURT] in the context of a sec. 41(1) addition, wherein no entries in respect of sale-tax collected (from customers) and paid to the Government were made by the assessee in his books of account, contending that therefore no deduction qua sales-tax paid had been claimed by him for section 41(1) to apply on the refund of the sales-tax from the Government. The contention was not accepted by the Hon’ble Court, further explaining that the provision is a machinery provision. In fact, as explained in CIT v. Balabux Birla & Co. [1985 (5) TMI 39 - PUNJAB AND HARYANA HIGH COURT] the method of accounting, cash or mercantile, adopted by the assessee is also irrelevant as far as section 41(1) is concerned, so that as soon as the assessee is found to have benefited from the remission or cessation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... har: Rs.1,68,859/- Total: Rs.4,60,581/- The assessee s accounts, having been rejected and his income determined by estimating the same, no further addition u/s. 41(1), he would submit, could be made, for which reliance was placed by him on ITO v. S. L. Road Construction Co. (in ITA No. 425/Asr/2017, dated 22/02/2018). Without prejudice, no addition u/s. 41(1) could be made in-as-much as the liability continues to be reflected in the assessee s accounts, as explained by the Hon ble Court in CIT v. Jain Exports Pvt. Ltd. [2013] 89 DTR 265 (Del). In fact, the liability in both accounts stood discharged in the following year, i.e., f.y. 2014-15. The fact that the said discharge is in cash, a fact found relevant by the ld. CIT(A), is immaterial. The impugned order, he would continue, is even otherwise inconsistent as the first appellate authority has deleted another addition for ₹ 9,99,438/-, qua another trade credit, also added u/s. 41(1) in assessment, on the ground that the assessee s accounts stood rejected u/s. 145(3) of the Act. The same ratio ought to have been applied by him for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. I have heard the parties, and perused the material on record. 3.1 Section 41(1) of the Act, in its relevant part, reads as under: Profits chargeable to tax. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of the previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. The same is clearly a matter of fact, to be determined considering and taking into account all the relevant facts and circumstances of the case. Without doubt, the initial onus for the same is on the Revenue. The question, therefore, to begin with, is if the said onus stands discharged, and which would, again, depend on the facts and circumstances of the case. For example, where the assessee has written back the liability in his accounts or otherwise admits the liability as not payable (as at the relevant year-end), there is nothing more for the Revenue to prove. This would be so even if, in the latter case, the liability continues to be reflected as such in the assessee s accounts, i.e., as an outstanding; it being trite that the entries in the books of account are not conclusive or determinative of the matter (viz. Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC); Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC)). Why, if that be so, section 68 of the Act could not be countenanced; the credit in the assessee s books of account may reflect the same as a liability, or as a receipt from another, or, for that matter, even by way of accretion to capital, i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t being not so. There is no explanation as to the goods bought being defective, or any other reason for the debt, which should in the normal course get liquidated within a period of a few weeks, to continue to outstand for so long. In other words, there is no explanation for this seeming abnormality. Couple this with the fact that the assessee s books reflecting the sum as a liability, are not reliable, as inferable from the same being rejected, as well as the fact that the notice u/s. 133(6) to the creditor gets returned back with the postal remark no such person at this address . What value, then, of the impugned sum being reflected as a trade liability in the assessee s books ? The onus, under the circumstances, thus, shifts to the assessee to show that the liability to the said trade creditor indeed subsists as on 31/03/2014, i.e., the year-end. That is, to show the truth of his accounts . All that the assessee was required to do was to obtain a confirmation from the said trade creditor, i.e., of the debt in the assessee s favour outstanding as on 31/03/2014. He fails to do so. This is particularly surprising as the creditor, who is local, is claimed to have been paid dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the trade liability as at the end of the relevant year, deduction in respect of which stands claimed and allowed to him in an earlier year, i.e., even where the liability continues to be reflected in the accounts. There is, apart from the absence of any positive material toward existence of the liability (as at the year-end), as aforenoted, no explanation by the assessee as to why the said evidence, which arises in the regular course of business, is absent or stands not produced. Why, to begin with, a credit, which should ordinarily stand liquidated within a maximum of a few weeks, the credit period that normally obtains, remains unpaid for years? Why, the assessee is unable to furnish the correct address/es? Why did he choose to pay in cash and, further, without obtaining receipts? Why is no confirmation for the payment in the subsequent year, as claimed without even furnishing a copy of account in the assessee s books for that year, from the trade creditor/s, a local business house, adduced? This confirmation, even otherwise incumbent, even assuming it being not obtained in the first instance, could be procured by the assessee on it being required to establish the existen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the relevant year, either by way of its remission or cessation. The provision of section 41(1), thus, becomes imminently applicable in the facts and circumstances of the case. 3.5 The assessee s arguments, in-as-much as it has been found that the impugned liability/s does not exist as at the relevant year-end, would be to no avail; the matter being principally factual. The fact that the assessee s accounts are admittedly not verifiable does not support his case as to the existence of the liability/s, i.e., on the basis of it being reflected therein. The liability/s being brought forward from an earlier year/s, the existence of the same as at the beginning of the relevant year is, rather, proved, or otherwise not in dispute and, at best from the assessee s standpoint, has nothing to do with accounts for the relevant year, found as not reliable. Even otherwise, rejection of accounts does not imply that each and every entry/transaction as recorded therein is being doubted or stands rejected. Why, the turnover on which the profit is usually estimated in most cases, as indeed in the present case, is as per that recorded in the books of account, so that the same is as reflect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly. The two, i.e., the allowance of a purchase and an addition u/s. 41(1)(a) are separate, with in fact an addition under section 41(1)(a) arising, where so, only in respect of an actual liability, or one considered as so. That is, are consistent, rather than contrary . Could, one may ask, a purchase possibly be allowed as a deduction where the same does not result, simultaneously, in a liability there-against, to be met either in cash or in kind, whether due for payment immediately or later? Clearly, not? A liability, which is not a genuine liability, or even one found as not genuine subsequently, could not be added u/s. 41(1)(a) in-as-much as the same could only be disallowed in the year in which it arose. This is as the same would stand to be disallowed as an expenditure for the year in which it is incurred, contracting a liability in its respect and, even otherwise, the benefit in its respect arising in that year itself, even as explained in Jain Exports (P.) Ltd . (supra). In fact, in the facts of the present case, the ld. CIT(A) has, in view of the assessee having regular transactions with a creditor during the relevant year, making purchases for ₹ 36.16 lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentative with regard to the making separate edition on account of cash credit of ₹ 12,28,600/-. Similarly, the addition of ₹ 1,75,766/-, was rightly deleted by the CIT(A) as it was part of the payment of purchases, . (emphasis, supplied) On principle, therefore, the tribunal, whose order is upheld by the Hon ble Court, opines against the assessee, clearly stating that an addition on account of cash credit/s could be made even if the net profit rate is adopted. Finally, the decision, in any case, is without considering the decision by the Apex Court in Devi Prasad Vishwanath Prasad (supra), which explains the law in the matter thus: There is nothing in law which prevents the Income-tax Officer in an appropriate case in taxing both the cash credit, the nature and source of which is not satisfactorily explained, and the business income estimated by him under section 13 of the Indian Income-tax Act, 1922, after rejecting the books of account of the assessee as unreliable. (pg. 196) Where there is an unexplained credit, it is open to the Income-tax Officer to hold that it is income of the assessee, and no further burden lies on the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble higher courts of law (refer, inter alia, CIT v. Autopins India [1991] 191 ITR 161 (Del); CIT v. Jaipur Oil Products Pvt. Ltd. [1994] 206 ITR 90 (Raj); CIT v. Sea Pearl Industries [1995] 211 ITR 508 (Ker)). Further on, as a reading of the decision in S. I. Group India Ltd. (supra) shows, alluding thereto, whether, as is made out by Sh. Sarna, in response to the reliance on Chipsoft Technology Pvt. Ltd. (supra), or otherwise, is misplaced. In the facts of that case, the assessment years involved are AYs. 2000-01 and 2001-02. The assessee, by virtue of having set up a unit in a notified area, was entitled to an incentive scheme whereby the payment of the sales-tax (collected from the customers) to the State Government was deferred, and was required to be made in five equal instalments from April 20, 2010. How, one wonders, could that be regarded as a cessation of liability (of sales-tax) to the State Government, the payment being, under an incentive scheme, deferred by it to a later date? In fact, the deduction denied to the assessee in that case is for the sales tax-liability, while section 41(1)(a) comes into play only once a deduction qua a trade liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had contended a payment of the said liability/s during the current year, adducing some evidence toward the same, as, for example, the copy of his account in the books of the creditor reflecting payment/s thereto from the assessee during the current year. Even as it therefore continues to outstand and reflected as a liability in the assessee s accounts (for the current year), it would confirm its status as a liability qua which no benefit has arisen to the assessee, much less during the current year, precluding section 41(1)(a). An addition in such a case would though arise u/s. 69A; the payment being not reflected in the assessee s accounts, and which (addition) may stand to be telescoped against the addition on account of the additional profit, not disclosed in accounts. It would, however, be wholly presumptuous to, in the absence of any such claim/s, restore the matter back conjuring such a situation, toward which there is nothing to indicate or suggest. There is, accordingly, no basis for a restoration back to the file of the AO to consider the aspect of the telescoping in the facts and circumstances of the case. Rather, as apparent, the scope for telescoping ..... X X X X Extracts X X X X X X X X Extracts X X X X
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