TMI Blog2023 (1) TMI 823X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/RPR/2020 - - - Dated:- 6-1-2023 - SHRI RAVISH SOOD , JUDICIAL MEMBER AND SHRI ARUN KHODPIA , ACCOUNTANT MEMBER For the Assessee : Shri R. B Doshi , CA For the Revenue : Shri Choudhary N. C. Roy , Sr. DR ORDER Per Ravish Sood , JM The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-I, Raipur, dated 01.07.2019, which in turn arises from the order passed by the A.O. under Sec. 143(3) of the Income-tax Act, 1961 (in short 'the Act') dated 30.03.2016 for assessment year 2013-14. The assessee has assailed the impugned order on the following grounds of appeal before us: 1. Ld. CIT(A) erred in confirming addition of Rs. 2,96,878/- made by the A.O. u/s. 41(1) on account of outstanding balance. The addition made by the A.O. and sustained by Ld. CIT(A) is arbitrary, baseless and not justified. 2. Ld. CIT(A) erred in confirming addition of Rs. 22,63,951/- made by the A.O. invoking Sec. 41(1) on account of outstanding balance in the account of a party. The addition made by the A.O. and sustained by the Ld. CIT(A) is arbitrary, baseless and not justified. 3. Without prejudice to above grounds, Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, the assessee company which is engaged in the business of running a rolling mill had e-filed its return of income for the A.Y. 2013-14 on 30.09.2013, declaring an income of Rs. 49,10,790/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act. 4. During the course of the assessment proceedings, it was observed by the A.O. that there were certain unmoved outstanding liabilities in the balance sheet of the assessee for the year under consideration, viz. (i) M/s. Ashoka Buildcon Ltd.: Rs. 2,96,878/-; and (ii) Jetha Ram Concreeto : Rs. 22,63,951/-. Observing, that the aforesaid liabilities were brought forward balances of the preceding year the A.O. held both of them as liabilities which had ceased within the meaning of Section 41(1) of the Act. Accordingly, the A.O. vide his order passed u/s. 143(3) dated 30.03.2016 after, inter alia, making an addition of Rs. 25,60,829/- u/s. 41(1) of the Act, determined the income of the assessee company at Rs. 77,19,290/-. 5. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals) but without any success in so far the aforesaid additions made by the A.O. u/s. 41(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of trading liability incurred by the assessee and subsequently during any previous year, the assessee has obtained some benefit in respect of such trading liability by way of remission or cessation thereof, then, the amount of benefit accruing to him shall be deemed to be profits and gains of his business or profession and accordingly, chargeable to income-tax as the income of that previous year. 11. On a careful perusal of the aforesaid statutory provision, it transpires that for triggering Section 41(1) of the Act two important aspects have to be duly considered, viz. (i) the assessee has obtained benefit in respect of such trading liability qua which deduction had earlier been claimed; and (ii) the amount of benefit so claimed by the assessee is to be brought to tax in his hands during any previous year, in which, the benefit has been so obtained by him. However, in the case before us, we find that neither of the aforementioned mandatory conditions have been satisfied. Neither the A.O. has been able to conclusively prove that the liabilities in question which the assessee company had projected as outstanding in its balance sheet had in fact ceased, nor has he give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for the application of Section 41(1) of the Act. For the sake of clarity the relevant observations of the Tribunal are culled out as under: 7. After hearing both the parties and perusing the entire material on record, we find that the Assessing Officer has made the addition of the creditors' outstanding liability to the income of assessee after resorting to the provisions of section 41(1) of the IT Act. The provisions of section 41(1) of the Act read as under: 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 prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... helter of these provisions cannot be sustained for want of satisfaction of such conditions. We stand fortified by the proposition of law laid down in the following decisions: (i). Hon'ble Supreme Court in the case of CIT vs. Sugauli Sugar Works (P) Ltd., 236 ITR 518 (SC) has held as under: Sec. 41 contemplates the obtaining by the assessee of an amount either in cash or in any other manner whatsoever or a benefit by way of remission or cessation and it should be of a particular amount obtained by him. Thus, the obtaining by the assessee of a benefit by virtue of remission or cessation is sine qua non for the application of this section. The mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not enable the Department to say that s. 41 would apply and the amount should be included in the total income of the assessee. Just because an assessee makes an entry in his books of accounts unilaterally, he cannot get rid of his liability. The question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but it is a matter which has to be decided only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d back as a deemed income under section 41(c) of the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. The findings of tribunal upheld. (iii). The ITAT Ahmedabad Bench vide order dated 01.10.2010 in the case of DCIT vs. Ratnamani Metals Tubes Pvt. Ltd. (ITA No. 3783/Ahd/2008, relying on the decision of Hon'ble Punjab and Haryana High Court in the case of Smt. Sita Devi Juneja 187 Taxman 96 and of Hon'ble Madras High Court in the case of Tamilnadu Warehousing Corpn., 292 ITR 319, has held as under: 11. The learned DR relied upon the order of the AO. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below. However, considering the above provisions and decisions noted above, it is clear that the amount in question relates to purchase of building material on which there was a dispute of payment. The AO admitted that the amount remained unpaid in the books of account. Since the assessee explained that the amount relates to purchase of building materials for their pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance of deduction has been made is in existence in that year or not. In our considered view, the A.O. before characterising an outstanding liability as a ceased liability remains under a statutory obligation to show that the assessee had obtained some benefit in respect of such trading liability by way of remission or cessation thereof, during the year. We are of a strong conviction that on the standalone basis that a trade liability is outstanding in the books of account of an assessee for several years cannot suffice for bringing the same within the realm of the provisions of Sec. 41(1) of the Act. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Delhi in the case of CIT, Delhi-II Vs. Jain Exports (P) Ltd. (2013) 217 Taxman.com 54 (Del). In the aforesaid case, the Hon'ble High Court had observed that in order to attract the provisions of Sec. 41(1) of the Act, it is necessary that there should be a cessation or remission of liability. It was further observed by the Hon'ble High Court, that as the assessee before them h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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