TMI Blog2021 (2) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO to delete additions made towards sundry creditors u/s.41(1) 68 of the Act. As regards, other credits in the name of Late ARK Arunachala Nadar, Smt. Swarnalatha and Shri Dhanabalan amounting to ₹ 28,79,600/-, all these credits were carried forward from financial year 2007-08 and such credits were either a loan or advance but not trade credits for which deduction was claimed in the earlier financial year. Therefore, these credits cannot be brought to tax u/s.41(1) of the Act. Similarly, a sum of ₹ 10,00,000/- shown in the name of Shri Kumar was a land advance received in the financial year 2005-06 and the same has been carried forward since 2005-06. Any loan or advance including land advance cannot be brought to tax u/s.41(1) of the Act, because said loan or advance was never claimed as deduction of an expenditure or allowance or trade loss in the earlier financial years. Therefore, we are of the considered view that the AO as well as the CIT(A) were erred in invoking provisions of section 41(1) of the Act, to bring into tax sundry creditors shown in the name of above persons. Coming to invocation of section 68 AO has simultaneously invoked provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for alleged credits of the past years as cash credits of the previous year relevant to subject AY 2014-15 and brought the same to tax under section 68 of the Act during the AY 2014-15, totally ignoring the settled principle that alleged credit can be brought to tax as income only in the year of such credit in the books of accounts. The Ld. CIT (Appeals) has also erred by upholding this unwarranted addition made by the Ld. AO under section 68 of the Act. 4. Based on the facts and circumstances of the case, the Ld. AO has failed to appreciate the fact that the amount of ₹ 52,78,707/- due to family members of your appellant had originated only out of the partition of various properties among your appellant s family members and the Ld. CIT (Appeals) failed to acknowledge the above fact. 5. The Ld. CIT (Appeals) and the Ld. AO erred in ignoring the partition deed that was placed on record and the submissions made by your appellant in this connection narrating the details of balances of the family members before partition and after partition of properties. 6. The Ld. CIT (Appeals) has erred in upholding the balance addition of ₹ 13,49,600/- made by the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO for invoking section 68 of the Act, on the ground that all the credits shown in the books of accounts are brought forward from financial year 2006-07 2007-08 and no credits were taken during the relevant financial year. Hence, no additions can be made u/s. 68 of the Act. 5. The ld.CIT(A) after considering relevant submissions of the assessee and also taken note of the provisions of section 41 and 68 of the Act, rejected the arguments taken by the assessee by holding that although the assessee claims that sundry creditors shown in the books of accounts is not a trade credit but the assessee has no explanation why it was treated as sundry credits in the books of accounts, even though, sundry credits are made for trade credits. Further, the assessee has not offered any valid explanation, why so many credit entries are lying for so many years, since 2005-06. As regards, additions made u/s.68 of the Act, for similar credits the ld.CIT(A) noted that because the Department had no occasion to scrutinize those credits in the corresponding assessment years, the AO was very much within his powers to consider said credits for the impugned assessment year and hence, there is no meri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing from FY 2007-08, in spite of specific opportunity given, the AR could not furnish the balance sheet reflecting the contra entry in the books of the creditor. Therefore, I concur with the AO s addition and the same is confirmed. 6.4, In respect of a credit amount of Rs, 15,000/- in the name of Late A.R.K.Arunachala Nadar, the assessee s father, the credit entry is lying outstanding from FY 2007-08. The AR has admitted that the assessee s father has not filed the Return of Income in the corresponding year and balance sheet is not available. Therefore, the AO s addition is confirmed. 6.5. In respect of a credit entry in the name of the assessee s brother, Mr.k.A.Sekar, for an amount of Rs,22,38,977/-, the AO has observed that the said sundry credit is lying outstanding from FY 2007-08 and the balance sheet of Mr.K.A.Sekar could not be furnished and there is no way to cross- verify the genuineness of the assessee s claim, Similarly, there is a credit entry in the name of the assessee s sister-in-law, Ms.M.K.Sivasundarappa for an amount of ₹ 3,40,000/-, which is lying outstanding from AY 2007-08. In spite of specific opportunity given during appeal proceeding, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO ought not to have made an addition u/s 41(1), as the aforesaid sundry credits can not be treated as cessation of liability as no deduction or allowance was claimed against these credits in earlier AYs and they were not trade credits, The AR has further contended that Section 68 is not applicable as these credit entries were not fresh credits in the AY 2014- 15 and they were only opening balance. The AR s contentions have been considered. First of all, if it is not a trade credit, the assessee has no explanation why it was treated as sundry credit in his hooks of accounts, The sundry credits are meant for trade credits and therefore the AR s contention is not acceptable. Further, there is no valid explanation why so many credit entries are lying outstanding for so many years since FY 2005-06 in the ease of Mr.Kumar, for an amount of ₹ 10 Lakhs, and in respect of others from FY 200708. It is pertinent to mention that the Department had no occasion to scrutinize these credit entries in the corresponding AYs, Therefore, the AR s contentions that it should not be questioned in this relevant AY 20 14-15 is not acceptable. 6. Being aggrieved by the CIT(A) order, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rried forward in the books of accounts for many years and the assessee has not offered any explanation as why these credits continued in the books of accounts for such a long period. Hence, he has invoked the provisions of section 41(1) / 68 of the Act. The provisions of section 41(1) of the Act, deals with the cases were in the course of assessment for an earlier year, an allowance or deduction has been claimed in respect of trade liability incurred by the assessee and subsequently a benefit is obtained in respect of such trading liability by way of remission or cessation in that situation, the value of benefit accruing to the assessee is deemed to be profit and gains of business, which otherwise would not be his income. Therefore, from the plain reading of section 41(1) of the Act, it is very clear that in order to invoke the provisions of section 41(1) of the Act, it is a prerequisite condition that the said amount must have been claimed as a deduction during any earlier assessment years and further in the present year, the assessee must have derived some benefit on account of remission or cessation of liability. In this case, on perusal of facts available on record, it is abund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any such liability, the assessee is liable to pay tax under section 41 of the Act. The assessee had been paying interest at 6 per cent. per annum to K in terms of the contract but never claimed deduction for payment of interest under section 36(1)(iii) of the Act. Hence, the case of the assessee would not fall under section 41(1) of the Act. The Hon ble Madras High Court in the case of ACIT vs. Transworld Garnet India Pvt. Ltd., reporte din [2017] 397 ITR 233, had considered an identical issue and held as under: in order for the provisions of section 41(1) to be attracted, the benefit obtained by the assessee in the relevant year should have a direct nexus with an allowance or deduction for any previous year as a claim of loss, expenditure or trading liability which had not been established in the assessee s case. The findings of the Commissioner (Appeals) were based upon the financials as well as all the relevant documents. He also found that there was nothing on record to lead to the conclusion that the advances from W had been claimed as an allowance or deduction in any previous year. Similarly, the Madras High Court in the case of Narayanan Chettiary Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee did not pertain to the year under consideration, the Assessing Officer was not justified in making the addition under section 68 of the Act and no fault could be found with the order of the Tribunal endorsing the decision of the Commissioner (Appeals). The ITAT, Chennai Bench in the case of ITO vs. Sooraj Leathers reported in ITA No.305/Mds/2016 had considered an identical issue and after considering relevant facts held as under:- If the liabilities are old, no credit has been made in so far those credits in the books of accounts in the assessment year under consideration, Sec. 68 cannot be applied. This view of ours is supported by the judgement of Delhi High Court in the case of Usha Stud Agricultural Farms Ltd., cited supra wherein held that credit balance in the account of the assessee did not pertain to the year under consideration, the AO was not justified in making the addition u/s. 68 of the Act. Hence, in our opinion, the liabilities which were not credited in the previous year relevant to the assessment year under consideration, the provisions of the section 68 cannot be applied and the AO is directed to exclude the same from the addition u/s. 68 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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