TMI Blog2023 (8) TMI 1067X X X X Extracts X X X X X X X X Extracts X X X X ..... the second question of law does not survive for consideration. Thus AO erred in making addition treating the cessation of liability and CIT(A) erred in applying the provision of section 28(iv) of the Act, thereby, modifying the assessment order. The grounds so raised by the assessee deserve to be allowed. - Shri Kul Bharat, Judicial Member For the Appellant : Shri R.P.Mall, Advocate For the Respondent : Shri Om Parkash, Sr.DR ORDER PER KUL BHARAT, JM : The present appeal filed by the assessee is directed against the order passed u/s 143(3) of the Income Tax Act, 1961 ( the Act ) dated 17.03.2023 for the assessment year 2015-16. 2. The assessee has raised following grounds of appeal:- 1. That the learned CIT(A) has erred both in law and on fact in failing to appreciate that since the appellant has reflected the outstanding liability in its books of account and has acknowledged the liability and there is no evidence that such liability has ceased during the year, addition made by the learned AO of Rs. 7,02,059/- in respect of M/s Green Press Pvt. Ltd. by invoking the provisions of section 41(1) of the Act is unsustainable in law. 2. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se your honours: 1. In the captioned appeal filed by the assessee, in respect of the issues involved in the appeal, the assessee seeks to place reliance on the following judicial pronouncements: 2. IN RESPECT OF ADDITION SUSTAINED U/S 41(1) OF THE ACT: a. In the case of Commissioner of Income-tax v. Jain Exports (P.) Ltd [2013] 35 taxmann.com 540 (Delhi), wherein during scrutiny, Assessing Officer added amounts shown as credit balances of creditors, outstanding for several years under section 41(1). The Id. Commissioner (Appeals) confirmed addition only in respect of creditor 'E' as assessee could not prove genuineness of transaction, but deleted addition in respect of other creditors. On such facts it was held that as per section 41(1), cessation of liability may occur either by reason of it becoming unenforceable in law by creditor coupled with debtor's intention not to honour his liability, or by a contract between parties or by discharge of debt. It was also held that establishment of genuineness of transaction was required in year when liability had arisen and addition could not be made on such ground, treating it as cessation of trading liability, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) could not be made to consider such liability as income for year under consideration without there being any remission or cessation of liability. 3. IN RESPECT OF ADDITION MADE BY INVOKING SECTION 28(iv) OF THE ACT: a. That in the case of Infrastructure Logistics (P.) Ltd. v. Joint Commissioner of Income-tax reported in [2022] 141 taxmann.com 24 (Panaji - Trib.), wherein the Assessee had received advances/deposits in preceding years from 6 parties, for providing handling services in connection with its business - As assessee explained its inability to submit confirmations of aforementioned parties, Assessing Officer was of view that same were in nature of benefit or perquisite within meaning of section 28(iv) and, accordingly, Assessing Officer made an addition under section 28(iv). On the aforesaid facts, the Hon'ble Tribunal has held as under: 26. After having given a thoughtful consideration to the aforesaid contentions of the Ld. Authorized Representatives of both the parties in the backdrop of the orders of the lower authorities, we find substantial force in the claim of the Ld. AR that the invoking of provisions of section 28(iv) of the Act presupposes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong conviction that as the view taken by the AO, i.e., assessing of the alleged cessation of the assessee's liability qua the advances/deposits of Rs. 3,24,27,504/- as its income under sec. 28(iv), is not found to be in conformity with the judgment of the Hon'ble Supreme Court in the case of Mahindra Mahindra Ltd. (supra), thus, the same cannot be sustained and is liable to be vacated on the said count itself. As stated by the Ld. AR, and rightly so, as cessation of a capital receipt of an amount by the assessee, i.e., deposits/advances for providing handling services that were received by the assessee in the normal course of its business in the preceding years, would undisputedly represent cash/money and is not in the nature of benefit or perquisite other than any shape of money, therefore, the provisions of section 28(iv) of the Act would not get triggered. We, thus, in terms of our aforesaid observations finding favour with the claim of the Ld. AR that the alleged cessation of the assessee's liability towards the aforementioned six parties qua the advances/deposits that were received from them for providing handling services in connection with its business would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit' to the assessee arising from the business activity and is chargeable to tax under section 28(iv) of the Act. The learned Assessing Officer relied upon the decision of Hon'ble Bombay High Court in case of Solid Containers Ltd. v. Dy. CIT [2009] 178 Taxman 192/308 ITR 417/222 CTR 455 and decision of Hon'ble Supreme Court in case of CIT v. T.V. Sundaram Iyengar Sons Ltd. [1996] 88 Taxman 429/222 ITR 344/136 CTR 444. Accordingly, addition of Rs. 42,45,000/- was made under section 28(iv) of the Act. 7. Assessee on appeal before the learned CIT(A) reiterated the submissions made before the learned Assessing Officer and relied upon the decision of Hon'ble Bombay High Court in case Mahindra Mahindra Ltd. v. CIT [2003] 128 Taxman 394/261 ITR 501/182 CTR 34, which is affirmed by the Hon'ble Supreme Court. Assessee further relied on several decisions of co-ordinate Benches. Assessee also contested that the decision of Hon'ble Bombay High Court in case of Solid Containers (supra) does not apply to the facts. Learned CIT(A) held that there is waiver of unsecured loan, which is received in money, and waiver of unsecured loan is not a benefit for perquisite r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case, the loan was taken for the capital of the assessee. He further stated that there is no evidence that the above loan was used for the purpose of business of the assessee. Instead, the balance sheet of the assessee shows that his business assets are funded by his business loans. In any way, there is no nexus of the loan written back with business of assessee. Referring to the decision of the learned CIT(A), he submitted that the decision of the Hon'ble Supreme Court was followed by him, which cannot be found fault with. In the end, he submitted that the waiver of loan cannot be taxed under section 28(iv) of the Act as it is not for the purpose of business and further it is in form of cash. 10. We have carefully considered the rival contentions and perused the orders of the lower authorities. We have also perused plethora of judicial precedents relied up on by the ld AR in his written submission containing 26 pages as well as in case law paper book containing 132 pages. Facts are undisputedly admitted as narrated above. Succinctly, it shows assessee has borrowed interest free money from Singhi Associates of Rs. 1.40 Crores for his personal use. Before the commencem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs. 57,74,064/- can be taxed under the provisions of section 28 (iv) of the IT Act. 12. In the present case the addition has been made by the LD AO u/s 28 (iv) of The Act relying on the decision of Honourable Bombay High court in case of Solid Containers Ltd. (supra). We find that Id CIT (A) is justified in rejecting the argument of the ld AO for the reason that in that case was not at all on the issue of section 28 (iv) and thus Honourable High court did not have any occasion to consider that provision. In case of Mahindra Mahindra (supra) honourable SC specifically considered that provision and held that in waiver of loan, as it is not in kind but in cash, section 28 (iv) does not apply. 13. Further subsequently Honourable Bombay High court in CIT v. Xylon Holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turb the appellate order of the Ld. CIT (A) on this issue. We confirm his findings that the write back of loan is not chargeable as business income u/s 28 (iv) of The Act. Accordingly, Ground No 1 of the appeal is dismissed. c. Similarly in the case of Essar Shipping Ltd. vs. CIT reported in [2020] 117 taxmann.com 389 (Bombay), it was held that prime condition of section 28 (iv) is that any benefit or perquisite arising from business or profession shall be in form of benefit or perquisite other than in shape of money and since the waiver of loan would be construed to be cash receipt in hands of assessee and hence same could not be taxed under section 28(iv) of the Act. Same view has been taken in the case of Commissioner of Income-tax v. Arvind Securities (P.) Ltd. [2014] 52 taxmann.com 166 (Bombay). 6. On the other hand, Ld. Sr. DR opposed these submissions and supported the orders of the authorities below. He submitted that the assessee could not furnish confirmation from the creditors. It was incumbent upon the assessee to prove the existence of credit. In the absence of such credible evidence, AO had rightly made addition treating it as cessation of liability. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 79,569 Payments made in 16-17 In the above mentioned transactions of purchases and expenses the payments have been made in FY 2016-17 as per the accounts filed during the course of appellate proceedings. These are the cases where the purchase/expenses were debited to the profit loss account but payments have been made in the subsequent year. Therefore, there is no cessation of liability in these cases except in the case of Green Press Pvt Ltd. In view of the above, the addition made by the Assessing Officer in respect of above mentioned parties except Green Press Pvt Ltd u/s 41(1) of Income Tax Act is deleted. However, in the case of Green Press Pvt Ltd, the appellant did not provide any evidence that payment against these purchases have been made in the subsequent years. Therefore the purchases debited to P L account amounting to Rs. 7,02,059 is a ceased liability and the addition for the same has been correctly made u/s 41(1) of the Income Tax Act and is therefore confirmed. 4.1.11 In the following cases, advances received which were neither returned nor have goods been supplied against the advance. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her convertible into money or not arising from business or the exercise of a profession; 4.1.13 This is a case where the appellant has received advances during the course of business and neither returned them nor provided goods or services in lieu of such advances. These advances where ultimately retained by the appellant for its benefit and one of the advance from Desert Sands General Trading have even been written off during the current year. Therefore, the appellant derived a benefit arising from the business. Therefore, Section 28(iv) of Income Tax Act is applicable in the present case. In view of the above I am of the considered opinion that the advances amounting to Rs. 6,87,500/- from Gajpati Overseas and Rs. 31,34,418/- from Desert Sands General Trading are income of the appellant u/s 28(iv) of Income Tax Act and not u/s 41(1) of Income Tax Act. Accordingly, the addition amounting to Rs. 6,87,500/- from Gajpati Overseas and Rs. 31,34,418/- from Desert Sands General Trading is confirmed u/s 28(iv) of Income Tax Act. In view of the above discussion, Ground Nos. 1 2 of appeal are partly allowed. 7.1. So far the question of cessation of liability in respect of Gree ..... X X X X Extracts X X X X X X X X Extracts X X X X
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