TMI Blog2022 (12) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... of inconvenience. The amount was withheld during the course of business payments and there is no cessation of liability as such. The contention of the assessee is that the liability is still subsisting hence, it can not be treated as income of the assessee. Therefore, looking to the totality of facts, the question whether the liability was subsisting, needs verification. AO is hereby directed to carry out necessary verification by making necessary inquiry. Needless to say that AO would afford adequate opportunity to the assessee. Ground No.2 raised by the assessee is allowed for statistical purposes. Addition u/s 41(1) of the Act on account of cessation of liability - HELD THAT:- We find that it is the contention that liability has been subsisting, this needs verification by the AO. We therefore, direct the AO to verify the claim of the assessee that the impugned liability is still subsisting and if he finds that the liability is still subsisting, he would delete the addition. Thus, Ground No.3 raised by the assessee is allowed for statistical purposes. - ITA No.89/Del/2021 - - - Dated:- 28-11-2022 - Shri N.K.Billaiya, Accountant Member And Shri Kul Bharat, Judicial Membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee relies on the order of Hon ble Supreme Court in Suo Motu Writ Petition (Civil No.3 of 2020) dated 08.03.2021 and Miscellaneous Application 665 of 2021 dated 19.07.2021. 4. Ld.CIT DR opposed these submissions and submitted that there is no reasonable cause. 5. Considering the order of Hon ble Supreme Court wherein Hon ble Supreme Court in Miscellaneous Application 665 of 2021 (supra) has held as under:- We also take judicial notice of the fact that the steep rise in COVID-19 Virus cases is not limited to Delhi alone but it has engulfed the entire nation. The extraordinary situation caused by the sudden and second outburst of COVID-19 Virus, thus, requires extraordinary measures to minimize the hardship of litigant-public in all the states. We, therefore, restore the order dated 23rd March, 2020 and in continuation of the order dated 8th March, 2021 direct that the period(s) of limitation, as prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings, whether condonable or not, shall stand extended till further orders. It is further clarified that the period from 14th March, 2021 till further orders shall also stand exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee is in appeal before this Tribunal. Thereby, the Ld.CIT(A) confirmed the addition of Rs.4,70,000/- qua deemed dividend and in respect of cessation of liability, the Ld.CIT(A) confirmed addition to the extent of Rs.32,61,337/- and Rs.76,29,910/- respectively. 10. Ground No.1 raised by the assessee in this appeal is against the confirming the addition of Rs.4,70,000/- u/s 2(22)(e) of the Act. 11. Ld. Counsel for the assessee reiterated the submissions as made in the written synopsis. The relevant contents of the written synopsis are reproduced as under:- Ground No. 1 reads as under: That the Ld. CIT(A) erred on facts and in law in confirming the addition of Rs. 4,70,000 u/s 2(22)(e) of I. T. Act on account of deemed dividend. At any rate, without prejudice, such addition as made is very excessive . AO: made addition of Rs.4,70,000 u/s 2(22)(e) of I.T. Act vide para 4.1 to 4.1.3 at pages 2-6 of the impugned assessment order. CIT(A): confirmed the above addition of Rs.4,70,000 vide pages 6 -9 of the appellate order. Submissions/documents relied upon: 1. Copy of ledger A/c of Niharika Impex Pvt. Ltd. in the books of the Assessee for the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors. However, the explanation of the assessee was not found acceptable and the AO made addition treating the amount as deemed dividend. The contention of the assessee is that no payment has been received during the year under consideration therefore, addition of opening credit balance of Rs.4,70,000/- is contrary to the judicial pronouncements. In support of this, reliance is placed upon the judgement of the Hon ble Bombay High Court rendered in the case of CIT vs Parle Plastics Ltd. Reported in 332 ITR 63. Ld.CIT(A) has decided the issue by observing as under:- 5.1.3. From above reply, it is observed that M/s. Niharika Impex Pvt.ltd. gave amount of Rs.4,70,000/- to the appellant from which the appellant purchased a plot of land in her own name. This shows that the amount given by M/s. Niharika Impex Pvt.Ltd. to the appellant was not for business purpose and is clearly covered by provisions of section 2(22)(e) of Income Tax Act. Repayment of the amount subsequently would not save the appellant from applicability of provisions of section 2(22)(e) of Income Tax Act. Hon ble Supreme Court in the case of Miss P. Sarada vs CIT [1988] 229 ITR 444 (SC) held that advances made by comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3,04,337 1. Copy of A/c of current liabilities (other payable) as on 01/04/2013 and 31/03/2014 is placed at page 37 of PB. 2. Copy of ledger A/c of Retention money (K.D. Constructions) in the books of the Assessee for the year under consideration is placed at page 38 of PB. It is evident from the ledger A/c of such party that no transaction was carried out during the year under consideration and only opening credit of Rs.3,04,337 as on 01/04/2013 has been carried forward to the next financial year. The issue as to the genuineness of a credit entry, thus does not arise during the year under consideration and this issue could only be examined in the year when the liability was recorded as having arisen. In other words, the addition made u/s 41(1) of I.T. Act is legally untenable. In this connection, reliance is placed on Jurisdictional Delhi High Court judgment in the case of CIT vs. Jain Exports Pvt. Ltd. reported in 35 taxmann.com 540 and also in 217 Taxman 54, copy placed at pages 78-93 of PB. Relevant portion from para 22 (pages 92- 93 of PB) of such judgment is reproduced below: We may also add that, admittedly, no credit entry has been made in the books of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected as payable to it by the assessee. Admittedly, winding up proceedings against M/s Elephanta Oil Vanaspati Ltd. are pending and there is no certainty that any claim that may be made by the assessee with regard to the amounts receivable from M/s Elephanta Oil Vanaspati Ltd. would be paid without the liquidator claiming the credit for the amounts receivable from the assessee company. It is well settled that in order to attract the provisions of Section 41(1) of the Act, there should have been an Irrevocable cession of liability without any possibility of the same being revived. The assessee company having acknowledged its liability successively over the years would not be in a position to defend any claim that may be made on behalf of the liquidator for credit of the said amount reflected by the assessee as payable to M/s Elephanta Oil Vanaspati Ltd. b) Jurisdictional Delhi High Court judgment in the case of CIT vs. Hotline Electronics Ltd. 18 taxmann.com 363 and also in 205 Taxman 245, copy placed at pages 94-101 of PB. Relevant portion from para 8 to 10 (pages 100 - 101 of PB) are reproduced below: The Bombay High Court had also observed that there was a cessat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had not unilaterally written back the accounts of the sundry creditors in its profit and loss account. The liability was shown in the balance-sheet as on March 31, 2002. The assessee being a limited company, this amounted to acknowledging the debt in favour of the creditors for purposes of section 18 of the Limitation Act, 1963. The assessee s liability to the creditors, thus, subsisted and did not cease nor was it remitted by the creditors. The liability was enforceable in a court of law. The amount was not assessable under section 41(1) . (B) Security against rent from Ethos Hotel Resorts - Rs. 6,93,000 1. Copy of ledger A/c of security against rent (Tenant: Ethos Hotel Resorts) for the year under consideration placed at page 39 of PB. It is evident from the ledger A/c of such tenant that no transaction has been carried out during the year under consideration and only credit opening balance of Rs.6,93,000 as on 01/04/2013 has been carried forward to the next financial year. The issue as to the genuineness of a credit entry, thus does not arise during the year under consideration and this issue could only be examined in the year when the liability was rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. In this connection, reliance is placed on the case laws as cited in Ground No. 2 above. (C) Mahimna Deshpandey (advance for sale of plot) - Rs.7,20,000 1. Copy of ledger A/c of Mahimna Deshpandey (advance for sale of plot) for the year under consideration placed at page 63 of PB. 2. Copy of confirmatory certificate of Mahimna Deshpandey confirming amount of Rs.7,20,000 receivable from the Assessee as on 31/03/2014 is placed at page 64 of PB. Her PAN No. is duly mentioned in the confirmatory certificate. The creditor having confirmed the outstanding balance of Rs.7,20,000, the AO was wholly unjustified in making an addition u/s 41(1) of I.T. Act on account of remission or cessation of trading liability. Therefore, the addition as made is legally untenable. In this connection, reliance is placed on the case laws as cited in Ground No. 2 above. 3. The above addition as made is wholly unjustified from another angle too inasmuch as the Assessee has not claimed any allowance or deduction of Rs.7,20,000 as the same represents advance received against sale of plot and therefore, provisions of section 41(1) of I.T. Act are not applicable to the facts of Assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o confirm the credit balances directly from such parties and therefore, no adverse inference could be drawn against the Assessee particularly when the Assessee had discharged the onus of proving the credit balances by filing the confirmations of all the parties. In view of the above facts, circumstances and the legal position, the addition of Rs.32,61,337 u/s 41(1) of I.T. Act on account of cessation of liability deserves to be deleted. At any rate, the addition as made is very excessive. 17. Ld.CIT DR opposed these submissions and supported the orders of the authorities below. 18. We have heard Ld. Authorized Representatives of the parties and perused the material available on record and gone through the orders of the authorities below. We find that the AO had made addition of Rs.32,94,849/-, the details thereof given at para 4.2 of the assessment order. During the assessment proceedings, the assessee was confronted as to why this liability should not be treated as cessation of liability u/s 41 of the Act. The assessee stated that she was unable to discharge her liability towards the outstanding creditors and other payables as all the bank account of the assessee have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor Calm Constructions confirming debit opening balance as on 31/03/2013 debit closing balance as on 31/03/2014 of Rs.38,98,955 receivable from the Assessee is placed at page 69. PAN No. of Calm Constructions is duly mentioned in the confirmatory certificate. 4. Copy of ledger A/c of K.D. Constructions in the books of the Assessee for the year under consideration is placed at page 70 of PB. 5. Confirmatory certificate of the debtor K.D. Constructions confirming debit opening balance as on 31/03/2013 debit closing balance as on 31/03/2014 of Rs. 19,09,350 receivable from the Assessee is placed at page 71 of PB. PAN No. of K.D. Construction is duly mentioned in the confirmatory certificate. 6. Copy of ledger A/c of Sarasan Pillai G in the books of the Assessee for the year under consideration is placed at page 72 of PB. 7. Confirmatory certificate of the debtor Sarasan Pillai G confirming debit balance of Rs.5,36,540 as on 31/03/2014 receivable from the Assessee is placed at page 73 of PB. PAN No. of Sarasan Pillai G is duly mentioned in the confirmatory certificate. 8. Copy of ledger A/c of Sameer Furniture in the books of the Assessee for the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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