TMI Blog2022 (8) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. Accordingly, ground No.2 of the Department s appeal stands dismissed. Unsecured loans - Addition u/s 41(1) - AO acknowledges that the impugned amount were never debited to the profit and loss account as an expenditure in the year they were received - HELD THAT:- In the present case, the assessee had not debited the aforesaid liability to its Profit and Loss account in any of the earlier years (admitted by the AO at Pg-7 and by Ld. CIT(A)) and thus, the question of receiving any benefit, allowance or deduction by the assessee in earlier years, as specified in (i) above, has not been fulfilled in the instant case and, therefore, there lies no application of section 41 (1) in the instant case. Further, the assessee had also not received any benefit either in cash or otherwise during the relevant year. In fact the said sum will decrease the cash inflows of the assessee in the subsequent years. The assessee has not written back the liability during the relevant year and the said liability continued to appear as the closing liability and has been carried forward to next year. Thus, condition (ii) above has also not been fulfilled. Therefore, it can be said that both the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m was existing at the address provided. Therefore, the AO issued a show case notice to the assessee proposing to add back the impugned amount of Rs. 2,11,37,181/- as income of the assessee. The assessee submitted another reply before the AO stating that these credits pertained to earlier years and due to some dispute with these parties, the assessee was no longer having any business dealings with these two parties. It was also submitted that the liability to pay back the amount still existed and it was not a case of cessation of liability in terms of section 41(1) of the Act and, therefore, the amount was not liable to be added to the income of the assessee. However, it was the view of the AO that the explanations and submissions given by the assessee were not acceptable and that the assessee had drafted the balance sheet to suit his personal needs and, therefore, the amount was liable to the added to the income of the assessee. Accordingly, after adding the amount of Rs. 2,11,37,381/- the assessment was completed at an income of Rs. 2,14,49.871/-. 2.2 The assessee carried the matter before the Ld. First Appellate Authority challenging the addition. There was a delay in filing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities with these parties any longer due to disputes and also that he did not have further information about the two parties, it was apparent that the assessee had raised fictitious liabilities and had introduced his own unaccounted money into the books account under the garb of unsecured loans. It was further argued by the Ld. Sr. DR that it was improbable that the two parties would not be making any efforts to recover the amount due from the assessee and would rather be sitting quietly even after there had been some alleged dispute between the assessee and those parties. It was also argued by the Ld. Sr. DR that the assessee had not filed any documentary evidences before the AO to establish the fact of dispute with these concerns. It was also highlighted by the Ld. Sr. DR that the assessee had not filed any confirmed copy of account with these parties and that these two parties had also not been filing any Income Tax Returns and, therefore, it was very much apparent that the impugned additions had been rightly made by the AO but the Ld. CIT(A) had grossly erred in deleting the addition. 4.0 In response to the arguments of the Ld. Sr. DR, the Ld. Authorised Representative (AR) s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder were perverse. In fact, when the Bench inquired from the Ld. Sr. DR if the Department was willing to challenge findings of Ld. CIT(A) vis- -vis the non-service of assessment order by filing an Affidavit on behalf of the Department in this regard, the Ld. Sr. DR replied in the negative. In such a situation, we are of the considered view that the Department is merely trying to grab at straws to somehow make a case that the condonation of delay being bad in law would nullify the First Appellate Order on the merits of the case. Therefore, we out- rightly reject this contention of the Department that the Ld. CIT(A) had wrongly condoned the delay as the same is not established by any documentary evidence. We are of the considered view that the condonation of delay lies within the discretionary powers of the Ld. First Appellate Authority and he has exercised the same in favour of the assessee after duly considering the facts and record. Accordingly, ground No.2 of the Department s appeal stands dismissed. 5.1 Coming to the grounds challenging the deletion of addition on merits viz. Ground Nos. 1 and 3, it is seen that the Ld. CIT(A) has given a categorical finding in this regard i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion in respect of which the allowance or deduction has been made is in existence in that year or not; or... ...Explanation 1:- For the purposes of this subsection, the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. 5.3 On perusal of the aforesaid section, it could be said that the above provision enacts adjustment provisions whereby the revenue takes back what it has already been allowed if the following two conditions come to pass and as such, the under noted conditions need to be fulfilled in order to treat the cessation of a liability as income under section 41 (1) of the Act: (i) The assessee has to avail an allowance or deduction in an earlier year in respect of loss, expenditure or trading liability; and - (ii) In subsequent year, the assessee has to obtain benefits in cash or any other kind in respect of such loss, expenditure and tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue that the case of the Respondent would fall under Section 41 (1) of the IT Act. 5.7 The Hon'ble Punjab Haryana High Court in the case of CIT Vs. G.P International Ltd in ITA No. 618 of 2019 has held that since the assessee was showing the aforesaid liabilities in his books and has not written off the same, the provisions of section 41(1) are not applicable. 5.8 Further, in the case of CIT Vs. Sugauli Sugar Works (P) Ltd. 236 ITR 518 (SC), the Hon'ble Apex Court held as under: (Head Notes) Business Income-Profits chargeable to tax under s. 41(1)-Transfer of amount to capital reserve account- Obtaining by assessee of a benefit by virtue of remission or cessation is sine qua non for application of s. 41(1) - Mere fact that assessee has made an entry of transfer unilaterally will not enable the department to apply s. 41(1)- Assessee cannot get rid of his liability by making an unilateral entry- Expiry of period of limitation cannot extinguish the debt- section 41(1) not applicable. 5.9 The Hon'ble Delhi High Court in the case of CIT Vs. Vardhman Overseas Ltd. 343 ITR 408 (Del.) by following the judgment of the Hon'ble Supreme Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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