TMI Blog2021 (9) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... against which goods is supplied - assessee could not produce the confirmation from party HELD THAT:- The assessee furnished confirmation account, bank details, purchase and sale bills. Upon perusal of these details and evidences furnished by the assessee, we agree with the assessee s claim. The assessee has produced copy of confirmation before the lower authorities duly reflecting the creditor's name along with its address, PAN, advance amount etc. - advances or cash received against which goods is supplied subsequently is not a cash credit as contemplated by section 68 of the Act. Simply because, the assessee could not produce the confirmation from this party, the genuineness of transaction cannot be doubted. All the relevant details proving the transaction as genuine were available on record despite that, the A.O s mere emphasis was on the production of the confirmation from this party. In fact, the name and addresses were mentioned in the copies of bills of sale and purchase. Besides, the assessee by way of various documents duly proved that he had already supplied the goods against the advance amount subsequently on 28- 03-2017. In this regard, the assessee duly furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and is hereby condoned. 4. The brief facts of the case are that the assessee is proprietor of M/s Nandi International and engaged in import and trading of Glass Chaton, Glass beads and silver jewellery. The assessee filed his return of income on 27/09/2014 declaring total income of ₹ 9,01,270/-. The case of the assessee was selected for limited scrutiny under CASS. The A.O. passed the assessment order U/s 143(3)/144 of the Income Tax Act, 1961 (in short, the Act) on 24/12/2016 determining total income of the assessee at ₹ 3,18,99,110/- by making addition U/s 41(1) and 68 of the Act. 5. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of both the parties and material available on record, allowed the appeal of the assessee. Against the said order of the ld. CIT(A), the Revenue is in further appeal before the ITAT on the grounds mentioned above. 6. The 1st grounds raised by the Revenue relates to challenging the order of the ld. CIT(A) in deleting the addition of ₹ 2,59,97,837/- on account of non-genuine creditors u/s 41(1) of the Act. In this regard, the ld CIT-DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor came forward to make any claim from the assessee. The fact that the assessee had changed its business from timber business to that of sending of manpower to Gulf countries, altogether a different kind of business, but still continued to show its erstwhile Sundry Creditors of its erstwhile timber business in the Balance Sheet of current business also, it did not entitle the assessee to claim that the liability of such creditors of its timber business still continues in the eye of law, since such creditors are shown in the Balance Sheet. The inference of cessation of liability will not solely depend upon the accounting entries made by the assessee nor the omission of the assessee to make such accounting entries. The accounting entries are not the sole determinative factor, but they may still be relevant.[Para 20] Though the burden lies upon the revenue to establish that such liability had ceased in law to apply section 41(1), but the initial burden of revenue in this case was discharged by calling upon the assessee to produce the written confirmations from such trade creditors and thus, the onus, thereupon shifted on the assessee to either produce the written c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [Para 27] The assessment year 2003-04 in question has passed by for last 15-16 years by now. The assessee on being asked to produce evidence with regards to any creditor who may have raised claim against assessee even in past 15-16 years was unable to produce any evidence, despite the grant of an opportunity in this regard. Thus, it is also more fortified now that the liability to pay for these Sundry Creditors had ceased long back and the authorities under the Act, up to the Tribunal, were justified in applying section 41(1) and bring to tax the liability to pay back their old debts, as having ceased in law and in fact.[Para 28] A reasonable time line of period has to be drawn while considering the words 'cessation of trading liability' as employed in section 41(1). The lapse of ten years of time, coupled with the fact that there was a change of business altogether by the assessee, absolutely justified the Assessing Authority to draw an adverse inference against the assessee about the cessation of liability, especially when the assessee failed to produce the written confirmation from such trade creditors of its erstwhile timber business, despite g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue states of the liabilities continuing to outstand in the assessee's books from 3 to 25 years. Surely, the same raises considerable doubts as to the existence of the liability/s. True, they stand not written back and continue to outstand in the assessee's books, but that is precisely the reason for the same being, questioned by the Revenue, or entertaining doubts about the same. The doubt can by no means be considered as not valid, being in accord with the common practice and, thus, discharging the onus that law places on the Revenue. The accounting entries or the treatment that the assessee accords to an asset or liability in its books is not determinative of the matter. Again, the presumption would only be of the same representing the true state of affairs, but the inordinate delay in discharging the same raises considerable and valid doubt as to the existence of those liabilities as at the relevant year-end, i.e., as a fact. The onus on the Revenue, thus, gets discharged and shifts to the assessee, who is in effect only being called upon to show that the position as stated in its accounts reflects the true and correct position. A trading liability would normally get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee year after year.(emphasis supplied) 23. In the present case, the assessee has drawn balance-sheet based on its books of account in which the above amounts were being claimed as liabilities due to the various parties as at the end of the accounting year under dispute. However, the assessee failed to establish the genuineness of these liabilities by citing credible evidence. Simply the liabilities being reflected against certain names in its books of account would not establish the genuineness of such liabilities. On the other hand, the Assessing Officer went to the root of the issue and came to the conclusion that the alleged creditors were not genuine. The assessee was not able to establish the existence of these liabilities. In the circumstances, the lower authorities are justified in treating the liabilities as income under section 41(1) of the Income-tax Act. Being so, the lower authorities are justified in holding that such liabilities did not exist at the end of the accounting year under dispute and rightly added the said liabilities which had ceased to exist. Hence, we do not find any infirmity in the orders of the lower authorities and accordingly, this gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f made further enquiries to find out the alleged creditors through the official machinery. When he had satisfied himself that neither in the last so many years those parties had ever been seen by anybody, nor any known address of them was available, there was never any demand of payment by any of the above named parties from the assessee for the last more than 10 years, no income tax returns had been filed by them, only then he concluded that the liability of the assessee, in fact, had ceased to exist. ..In our view, merely because the assessee now has offered the said amount as income, that itself, does not support the case of the assessee that the liability had not ceased to exist in the year under consideration, rather, this fact supports, the case of the Revenue that even after passing of further 5 years from the date of assessment, the assessee could not trace his creditors. We, therefore, do not find any infirmity in the well-reasoned order of the Ld. CIT(A) in this respect. There being no merit in the appeal of the assessee, the same is accordingly dismissed. The assessee, however, if so advised, will be at liberty to claim the refund/adjustment of the taxes paid subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25 of 28.03.2017 26 of 28.03.2017 27 of 28.03.2017 13,90,121.90 8,21,989.18 2,32,799.96 24,44,911.04 19 20 21 22 6. Orient Enterprises 23,96,309 Chq.dt.05.11.2014 20,00,000.00 23 7. R.R. Gems 30,14,652 4 of 20.02.2017 30,14,700.00 24 25 8. Rudha Impex 41,04,560 6 of 06.03.2017 7 of 06.03.2017 8 of 06.03.2017 12 of 10.03.2017 13 of 10.03.2017 20,55,633.81 5,44,289.00 4,53,719.59 4,80,606.00 5,70,619.90 41,04,868.30 26 27 28 (F) 29 30 31 9. Shri Narayan Jewellers 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for more than four years. Liability shown in accounts of Assessee Company. Amount not assessable under section 41(1). (P.B. 8 to 11 of II). (3) Pr. CIT Vs. Matruprasad C. Pandey (2015) 377 ITR 363 (Del): Remission of liability. Amount shown for several years as due to sundry creditors. Amount not written off during relevant previous year. Genuineness of creditors not doubted. Amount not assessable under section 41. (P.B. 12 to 20 of II) . (4) CIT Vs. Banaras House Ltd. (2018) 402 ITR 88 (Del): Remission or cessation of trade liability. Assessee accepting and acknowledging its liability. Many creditors paid, adjusted or ceased in subsequent years. No special reason given by AO to observe that liability ceased. Provision of section 41(1) not attracted. (P.B. 21 to 24 of II) (5) CIT Vs. Vishal Transformers Switchgears Pvt. Ltd. (2018) 405 ITR 266 (Karn): Cessation of trading liability. Necessary ingredients for invoking the provisions of sec. 41(1) are twofold. Firstly, there should have been a cessation of trading liability and some benefit had been taken in respect of trading liability by assessee. Since creditor was not traceable on the date when verification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.01.2017 Import Shining Life Co. Ltd. 34,07,354.00 43 14.02.2017 Import Yiwu Yong Yang Jewellery Co. 36,81,493.00 44 22.02.2017 Import Shining Life Co. Ltd. 12,84,276.00 45 27.02.2017 Import Shining Life Co. Ltd. 8,51,394.64 46 07.03.2017 Import Shining Life Co. Ltd. 9,78,164.00 47 16.03.2017 Import Shining Life Co. Ltd. 11,76,326.61 48 Total import of goods in A.Y. 2017-18 1,52,13,652.25 49 25.03.2017 Local purchase Lavis Silver Arts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trading and P L account (31.03.2017) 3,37,94,266.52 63 4. VAT Assessment order (by CTO) 3,37,94,266.52 64 VAT tax free 51,02,662.98 Taxable Turnover 2,86,91,603.54 The ground No. (1) of the Department, on the facts is liable to be dismissed. 8. We have heard the ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. From perusal of the record, we found that the ld. CIT(A) has dealt with the issue from para 5.4 and to 5.5 of his impugned and the same is reproduced as under: 5.3 I have considered the facts of the case, assessment order, remand report and appellant's written submissions. At the outset, the issue of admissibility of additional evidence is required to be adjudicated. In the instant case, the assessment was completed e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the [Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.] On perusal of Rule 46A reproduced hereinabove, it is seen that the case of the appellant is covered by sub-rule (1) Clause (b) as he was prevented by sufficient cause from producing the evidence which he was called upon to produce by the AO during the course of assessment proceedings. Such additional evidence which goes to the root of the matter has to be entertained in the interest of fairness and justice towards the appellant. The confirmations of creditors submitted now as additional evidence are necessary for disposal of the appeal on merits and therefore admission of the same should not be denied. The law on the issue of admission of additional evidences before the first appellate authority is well settled. In the cases of Mr.Shahrukh Khan Vs DCIT (2007) 13 SOT 61 (Mumbai), CIT Vs Suretech Hospital Rese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat where the liabilities are outstanding for many years and the assessee had actually discharged the liability at future date, there is no justification to invoke or sustain any addition u/s. 41(1) of the Act. Before adjudicating the issue in hand, it would be appropriate to reproduce the relevant provisions of sec. 41(1) of the Act as under:- Profits chargeable to tax. 41. (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 that previous year, whether the business or profession in respect of which the allowance or deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r question is whether by not paying them for a period of three years the assessee had obtained some benefit in respect of the trading liability allowed in the earlier years. The words remission and cessation are legal terms and have to be interpreted accordingly. In the present case, there is nothing on record to show that there was either remission or cessation of these liabilities. The AO tried to verify the existence of such liabilities from creditors, however, most of the summons issued by him were returned bank unserved and many were not found at the given address. In such case, if the existence of such liabilities is doubted, the same could have been disallowed in the year in which it was claimed, or could have been treated as unexplained cash credit in the hands of the assessee under section 68 of the Act in relevant assessment years, but the same cannot be taxed under section 41(1) of the Act, in as much as if the liability itself is not genuine, the question of remission or cessation thereof would not arise. In the instant case, the AO, merely on the ground of genuineness of such credits, invoked the provisions of sec. 41(1) of the Act. In fact, there is no materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essation thereof was obtained by the assessee and it is in the previous year in which the amount or benefit, as the case may be, has been obtained that the amount or the value of the benefit would become chargeable to income tax as income of that previous year. 12. We fully agree with the view taken by the Division Bench in CIT v. Rashmi Trading 119761 103 ITR 312 (Gui), that the only meaning that can be attached to the words 'obtained, whether in cash or in any other manner whatsdever, any amount in respect of such loss or expenditure' incurred in any previous year clearly refer to the actual receiving of the cash of that amount. The amount may be actually received or it may be adjusted by way of an adjustment entry or a credit note or in any other form when the cash or the equivalent of the cash can be said to have been received by the assessee. But it must be the obtaining of the actual amount which is contemplated by the legislature when it used the words 'has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure in the past'. As rightly observed by the Division Bench in the context in which these w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of unexplained purchases where amount was shown as payable in balance sheet and thus there was no cessation of liability. The facts of this case were that the assessee filed her return declaring certain taxable income. In the course of scrutiny assessment, the Assessing Officer found that the assessee had shown large amount of sundry creditors at the end of relevant year, in order to verify genuineness of creditors, notices under section 133(6) were issued to them. Most of the notices were received back with remarks 'not available/wrong address' etc. The Assessing Officer thus taking a view that assessee was not able to establish that those sundry creditors were genuine, added amount payable to them to her taxable income. The Commissioner (Appeals) confirmed the addition made by Assessing Officer. On second appeal: * If addition has been mentioned under section 41(1), ingredients of section 41(1), the burden of proof which is resting on revenue, has not been discharged. [Para 6] * There is no evidence that the liability has ceased to exist and that too in the year under appeal. The very fact these amounts were being shown as payable in the balance sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the impugned creditors were in respect of trading liability for which any deduction was ever claimed and allowed and if allowed, in which year was it allowed so on so forth. This is evident from a plain reading of the assessment order. Therefore, Assessing Officer miserably failed to discharge the said burden and therefore this addition is liable to be deleted on this short ground alone. There could very well be the possibility of the loan creditors or advances from the business constituents under the head of sundry creditors for which there could never be any claim of deduction having been allowed. [Para 6.5] * The Assessing Officer has not established with evidence that the liability in respect of the above outstanding balances has ceased to exist. Assessing Officer has gone on presumption and that too by placing the burden wrongly on the shoulders of the assessee. Section 41(1) does not envisage any such presumption of cessation and fix the incidence of tax thereon. [Para 6.6] * In the absence of any material having been brought on record to establish that the deduction was claimed on credit balance has been remitted, addition cannot be made under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Sons (HUE) vs. ACIT [2017] 85 taxmann.com 283 (Delhi - Trib.). The relevant facts of this case were that assessee had shown outstanding sundry creditors since last three financial years in its balance sheet, on verification, Assessing Officer found that sundry creditors were not available at address provided and PAN of such creditors were also found incorrect, assessing Officer held that liabilities would ceased to exist and applied section 41(1), the assessee contended that these creditors had been paid in subsequent years through banking channels. The Commissioner (Appeals) upheld the order of the Assessing Officer. On appeal, the Hon'ble Tribunal held that where assessee had shown outstanding sundry creditors for last three years in its balance sheet and no provision was made to write off outstanding liabilities in its books of account, there would be no remission or cessation of liability under section 41(1) even if sundry creditors were not in existence at address provided and PAN of creditors were found to be invalid, addition u/s. 41(1) cannot be sustained. Similarly, in the instant case the assessee had not written off outstanding liabilities in his books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has not obtained any amount in respect of such expenditure or has not obtained any benefit in respect of such trading liability by way of remission or cession thereon. The assessee contended that these outstanding creditors do not satisfy the conditions prescribed in sec. 41(1) of the Act. The assessee referred to the provisions of sec. 41(1) and relied on various judicial decisions to argue that where the liabilities are outstanding for many years and the assessee had actually discharged the liability at future date, there is no justification to invoke or sustain any addition u/s. 41(1) of the Act. Thus, where a debt due from the assessee is foregone by the creditor in a later year, it can be taxed under section 41(1) of the Act in such later year when it was foregone. Section 41(1) of the Act, therefore, contemplates existence of a debt/liability and the remission or cessation thereof in the year under consideration. Therefore, for the purpose of taxing any income on account of remission or cessation of liability, the Assessing Officer has to establish that there was an existing liability and that there was remission or cessation of such liability in the previous year relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances and case laws exactly similar to the facts and circumstances of the present case, we find no reason to interfere in the order of the ld. CIT(A) qua this issue, hence, we uphold the same. 10. Ground No. 2 raised by the revenue relates to challenging the order of the ld. CIT(A) in deleting the addition of ₹ 50,00,000/- made by the A.O. on account of unexplained credits U/s 68 of the Act. In this regard, the CIT-DR has vehemently supported the order of the A.O. and also relied on the written submissions filed before the Bench and the same were already reproduced in earlier para of this order. 11. On the other hand, the ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the contents of the same are as under: ₹ 50,00,000/- was received on 17.01.2014 through RTGS as advance for purchase of goods from M/s. Avi Enterprises (PB. Page No. 65 65A). Due to non-availability of required quantity and quality of goods, the assessee could sell the ordered goods as per the following details: S.No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on 28-03-2017. In this regard, the appellant furnished confirmation account, bank details, purchase and sale bills. Upon perusal of these details and evidences furnished by the appellant, I am inclined to agree with the appellant's claim. The appellant has produced copy of confirmation before the undersigned duly reflecting the creditor's name along with its address, PAN, advance amount etc. The Hon'ble Allahabad High Court in the case of CIT vs. S Kamaljeet Singh (147 Taxman 1 S) held that no addition to income on account of cash credits is called and that the appellant had discharged the onus on him to explain the nature and the source of cash credit in question by placing, on record :- * Confirmation letters of cash creditors, * Their affidavits; * Their full address and GIR nos. and permanent account numbers. In the case of Mod Creations Pvt. Ltd., vs. ITO (2012) 354 ITR 282 (Del.), the Hon'ble Delhi High Court held as under :- Section 68 of the Income-tax Act, 1961, only sets up a presumption against the assessee whenever unexplained credits are found in the books of account of the assessee. The presumption is rebutt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether considering totality of facts and circumstances of case, especially fact that Assessing Officer had not disallowed interest claimed/paid in relation to those credits in assessment year under consideration or even in subsequent assessment years, and tax at source had been deducted out of interest paid/credited to creditors, Tribunal was justified in deleting addition made - Held, yes - Whether as there was no substance in appeal and no substantial question of law arose, appeal was liable to be dismissed - Held, yes The Hon ble Jurisdictional High Court in the case of CIT vs. Jai Kumar Bakliwal [2014] 45 taxmann.com 203 (Rajasthan) held that where identity, capacity and genuineness of transaction stands proved by assessee, he was not required to prove source of amount which had been deposited by creditors/lenders. The head note is reproduced as under:- Section 68 of the income-tax Act, 1961 - Cash credit (Unsecured loan from relatives) - Assessment year 2006-07 Unsecured loan raised by assessee from relatives was added in income of assessee on ground that none of creditors were able to prove source of amount advanced to assessee and immediately before grant of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained by the assessee----Since the purchases have been held to be genuine, the corresponding sales cannot, by any stretch of imagination be termed as hawala transaction ..It is the burden of the department to prove the correctness of such additions. When, in such like cases, a quantitative tally is furnished, even if purchases are not available no addition is called for. From the above judicial decisions, it is evident that advances or cash received against which goods is supplied subsequently is not a cash credit as contemplated by section 68. Simply because, the appellant could not produce the confirmation from this party, the genuineness of transaction cannot be doubted. All the relevant details proving the transaction as genuine were available on record despite that, the Assessing Officer's mere emphasis was on the production of the confirmation from this party. In fact, the name and addresses were mentioned in the copies of bills of sale and purchase. Besides, the appellant by way of various documents duly proved that he had already supplied the goods against the advance amount subsequently on 28- 03-2017. In this regard, the appellant duly furnished bil ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
