DATTATRAY POULTRY BREEDING FARM PVT LTD V. THE ASSISTANT COMMISSIONER OF INCOME TAX

TAXAP/1393/2018

AI Insights

The case revolves around the appellant, Dattatray Poultry Breeding Farm Pvt Ltd, challenging an order by the Income Tax Appellate Tribunal which upheld the addition of certain liabilities under section 41(1) of the Income Tax Act, 1961. The liabilities in question were shown as sundry creditors in the balance sheet but were later found to be non-genuine or non-existent upon scrutiny. The Assessing Officer had initially doubted the genuineness of these creditors after failing to verify their existence and transactions with the assessee. The Tribunal's decision to uphold the addition was contested by the appellant, leading to this appeal.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 685447 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 29-01-2019
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax-III v. Bhogilal Ramjibhai Atara, Commissioner of Income Tax v. Sugauli Sugar Works (P) Ltd., Gujtron Electronics Pvt. Ltd. v. Income Tax Officer, Commissioner of Income Tax v. Chipsoft Technology (P) Ltd., Palkhi Investments & Trading Co. (P) Ltd. v. Income Tax Officer, Mumbai, Rama Steel Rolling Mills & General Engg. Works v. Income Tax Officer, Ward-3(1)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: VARUN PATEL
• Assessee Lawyers: JAIMIN GANDHI
• Keywords: Cessation of liability; Genuineness of creditors; Income Tax; Scrutiny assessment
• Section: 133(6); 260A; 41(1)

Judgement Text

"C/TAXAP/1393/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1393 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ================================================================ DATTATRAY POULTRY BREEDING FARM PVT LTD Versus THE ASSISTANT COMMISSIONER OF INCOME TAX ================================================================ Appearance: JAIMIN A GANDHI(8065) for the APPELLANT MR.VARUN K.PATEL(3802) for the RESPONDENT ================================================================ CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER Date : 29/01/2019 ORAL JUDGMENT (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) Page 1 of 21 C/TAXAP/1393/2018 JUDGMENT 1. By this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), the appellant (assessee) has challenged the order dated 19.6.2018 passed by the Income Tax Appellate Tribunal, Ahmedabad in ITA No.2193/Ahd/2014. 2. This court, by an order dated 26.12.2018, had admitted the appeal on the following substantial questions of law: “(1) Whether, on the facts and in the circumstances of this case, the Income Tax Appellate Tribunal was justified in upholding the addition under section 41(1) of the Income Tax Act, 1961? (2) Whether, on the facts and in the circumstances of this case, the Income Tax Appellate Tribunal was justified in upholding the addition under section 41(1) of the Income Tax Act, 1961 in respect of liabilities written off and offered as income in subsequent years?” 3. The assessment year is 2010-11 and the corresponding accounting period is the previous year 2009-10. The appellant- assessee, a domestic company is engaged in the business of job work of hatching of eggs for Saguna Poultry Farm Ltd., Chennai. During the course of scrutiny assessment, the Assessing Officer observed from the balance sheet filed by the assessee that the assessee had shown sundry creditors outstanding of Rs.74,40,360/-. To ascertain the bona fides of the sundry creditors reflected in the balance sheet, the Assessing Officer made inquiries with certain creditors under section 133(6) of the Act and found that come of the creditors had categorically denied having entered into any transaction with the assessee. Simultaneously, in some cases, the notices were returned un-served by the postal authorities and the Page 2 of 21 C/TAXAP/1393/2018 JUDGMENT assessee failed to produce the said creditors as directed. The Assessing Officer also noted that the assessee had not even furnished the correct address of all the creditors, PAN numbers and confirmation in respect of the creditors; he, therefore, doubted the bona fides of the creditors. He further observed that the claim of the assessee that outstanding was on account of purchases made, did not appear plausible considering the nature of business carried out by the assessee. He observed that the assessee was doing only job work and hence, there was no possibility of purchases from the creditors as claimed. The Assessing Officer further found that the credits were standing in the books of account since last many years without payment and that the assessee had not furnished any corroborative evidence regarding purchases made from the creditors. He, therefore, came to the conclusion that in the light of these peculiar facts where the credits were outstanding for long period and the parties were not traceable, denied transactions and did not demand the money, etc., the genuineness of the creditors remained unproved and the onus cast upon the assessee in this regard had not been discharged. The Assessing Officer, however, accepted the bona fides in the case of two of the creditors where corroboration was available. Consequently, he held that Rs.72,49,188/- out of Rs.74,40,360/- shown as creditors’ liability are not genuine and treated the same as cessation of liability within the meaning of section 41(1) of the Act and added the same to the total income of the assessee. 4. The appellant-assessee carried the matter in appeal before the Commissioner (Appeals), who, by an order dated 20.5.2014, held that the facts in the present case were similar Page 3 of 21 C/TAXAP/1393/2018 JUDGMENT to the facts in the case of Commissioner of Income Tax-III v. Bhogilal Ramjibhai Atara (supra) and deleted the addition made by the Assessing Officer under section 41(1) of the Act. The revenue went in appeal before the Tribunal and succeeded. 5. Mr. Jaimin Gandhi, learned advocate for the appellant assailed the impugned order by submitting that the Tribunal has erred in not appreciating that merely because the liability has become time barred it does not mean that it has ceased to exist inasmuch as there may be circumstances which may enable the creditor to come with a proceeding for enforcement of debt even after the expiry of the normal period of limitation as provided in the Limitation Act. To bolster his submission the learned advocate placed reliance upon the decision of the Supreme Court in Commissioner of Income Tax v. Sugauli Sugar Works (P) Ltd., [1999] 236 ITR 518 (SC), for the proposition that a unilateral act on the part of debtor cannot bring about a cessation of his liability. The cessation of the liability may occur either by reason of the operation of law, that is, on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor or a contract between the parties, or by discharge of the debt the debtor making payment thereof to his creditor. It was submitted that the expiry of period of limitation prescribed under the Limitation Act will not extinguish the debt and will only prevent the creditor from enforcing the debt and that the liability does not expire unless the assessee writes it off in his books of account. In support of such contention, reliance was placed upon the decision of this court Page 4 of 21 C/TAXAP/1393/2018 JUDGMENT in the case of Commissioner of Income Tax-III v. Bhogilal Ramjibhai Atara, [2014] 222 Taxman 313 (Guj.), to submit that this case is squarely covered by the said decision. 5.1 It was submitted that in the facts of the present case, the liabilities are still acknowledged by the assessee and are not written off in its books of account and that merely because the liability has become time-barred, it does not mean that it has ceased to exist because there may be circumstances which may enable the creditor to come with a proceeding for enforcement of the debt even after expiry of the normal period of limitation as provided in the Limitation Act. 5.2 It was submitted that the Tribunal has wrongly placed reliance upon the decision of this court in the case of Gujtron Electronics Pvt. Ltd. v. Income Tax Officer, [2017] 83 taxmann.com 389 (Gujarat), which was rendered in the context of a different set of facts and would not be applicable to the facts of the present case. It was also submitted that the Tribunal has failed to appreciate that the assessee, during the subsequent years, had repaid significant amount of outstanding debt, and hence, such debt could not have been added as income under section 41(1) of the Act. Accordingly, such liabilities which were offered to tax in the subsequent years cannot be doubly taxed in the current year, and the addition to that extent may be deleted. It was accordingly, urged that the appeal deserves to be allowed by answering the questions in favour of the assessee. 6. Vehemently opposing the appeal, Mr. Varun Patel, learned senior standing counsel for the respondent submitted Page 5 of 21 C/TAXAP/1393/2018 JUDGMENT that in the present case, for assessment year 2010-11, the Assessing Officer made the addition of Rs.72,49,188/- under section 41(1) of the Act after holding that the trade liability appearing in the books of account of the assessee as outstanding for many years, had ceased to exist. The addition has been upheld by the Tribunal after a detailed discussion on facts and law. 6.1 It was contended that the onus is on the assessee to show that the liability appearing in its books of account at the time of filing of the return is existing/live, genuine and enforceable in law. The assessee, however, has completely failed to discharge the said burden. It was submitted that the Assessing Officer as well as the Tribunal have observed that huge amount of trading liability was shown as outstanding in the books of account of the assessee for the last six to twenty years without any repayment. The assessee had failed to produce those creditors in respect of whom notices under section 133(6) of the Act had been returned by the postal authorities before the Assessing Officer. The assessee had also failed to furnish even the correct address, PAN, contra confirmation, etc., in respect of those creditors which could establish the existence, genuineness and/or enforceability of the said liability. It was submitted that even out of those creditors, five creditors had categorically refused before the Assessing Officer that they had made any transactions with the assessee and that the Tribunal has categorically observed that no attempt was made by the assessee to prove the existence of liability. 6.2 It was further submitted that the Assessing Officer has Page 6 of 21 C/TAXAP/1393/2018 JUDGMENT not accepted the genuineness of those trading liabilities after observing that the assessee is only doing the job work and hence, there is no possibility of purchases from the creditors. It was submitted that the said finding of the Assessing Officer has been reiterated and relied upon by the Tribunal in the impugned order and, therefore, the liability appearing in the books of the assessee for the last many years without any transaction or repayment is rightly held by the Assessing Officer and the Tribunal as unenforceable and non-existing. It was urged that the addition of Rs.72,49,188/- under section 41(1) of the Act made by the Assessing Officer and confirmed by the Tribunal is just, legal and proper and does not warrant intervention by this court. 6.3 In support of his submissions, the learned senior standing counsel placed reliance upon the decision of this court in the case of Gujtron Electronics (P) Ltd. v. Income Tax Officer, [2017] 397 ITR 462, wherein the assessee company had collected a huge sum and had shown outstanding trade liability for many years. Since the scheme had been terminated many years back and there was absolutely no movement or correspondence between the assessee and its members with respect to the claim or with respect to the deposited amounts, the court held that there was cessation of liability and that the amount was to be added to the income of the assessee. 6.4 Reliance was placed upon the decision of the Delhi High Court in the case of Commissioner of Income Tax v. Chipsoft Technology (P) Ltd., [2012] 210 Taxman 173 (Delhi), wherein the court held thus: Page 7 of 21 C/TAXAP/1393/2018 JUDGMENT “9. Two aspects are to be noticed in this context. The first is that the view that liability does not cease as long as it is reflected in the books, and that mere lapse of the time given to the creditor or the workman, to recover the amounts due, does not efface the liability, though it bars the remedy. This view, with respect is an abstract and theoretical one, and does not ground itself in reality. Interpretation of laws, particularly fiscal and commercial legislation is increasingly based on pragmatic realities, which means that even though the law permits the debtor to take all defences, and successfully avoid liability, for abstract juristic purposes, he would be shown as a debtor. In other words, would be illogical to say that a debtor or an employer, holding on to unpaid dues, should be given the benefit of his showing the amount as a liability, even though he would be entitled in law to say that a claim for its recovery is time barred, and continue to enjoy the amount. The second reason why the assessee’s contention is unacceptable is because with effect from 1-4-1997 by virtue of Finance Act, 1996 (No.2), an Explanation was added to Section 41 which spells out that \"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\". The expression \"include\" is significant; Parliament did not use the expression \"means\". Necessarily, even omission to pay, over a period of time, and the resultant benefit derived by the employer/assessee would therefore qualify as a cessation of liability, albeit by operation of law.” 6.5 Reference was made to the decision of the Bombay High Court in Palkhi Investments & Trading Co. (P) Ltd. v. Income Tax Officer, Mumbai, [2016] 288 CTR 473 (Bombay) wherein it was held that showing a non-existent liability as an existing liability and not offering the same to tax amounted to furnishing inaccurate particulars of income. Page 8 of 21 C/TAXAP/1393/2018 JUDGMENT Reliance was also placed upon the decision of the Rajasthan High Court in Rama Steel Rolling Mills & General Engg. Works v. Income Tax Officer, Ward-3(1), [2013] 35 taxmann.com 262 (Rajasthan) wherein the Tribunal had remitted the matter to the Assessing Officer to verify the discharge of liability till the date of fresh assessment holding that if the liability had been discharged till date then there would be remission or cessation of the liability and if the assessee failed to produce the creditor or was unable to give the exact address then such liability would stand ceased during the year and the Assessing Officer would be free to add back the same as per law. The High Court held that the liability in the end of the year if not proved can certainly be added under section 41(1) of the Act and found that no substantial question of law arises and dismissed the appeal. 7. In rejoinder, Mr. Jaimin Gandhi, learned advocate for the appellant submitted that the decisions relied upon by the learned counsel for the revenue would not be applicable to the facts of the present case. It was submitted that insofar as the decision in the case of Gujtron Electronics (P) Ltd. v. Income Tax Officer (supra) on which reliance has been placed by the Tribunal is concerned, it was a case wherein the liability ceased to exist by virtue of contract and not because of operation of law. The condition of writing off debt in books of accounts (unequivocal declaration) is not a primary condition for cessation of debt by operation of contract, but it is a primary condition for cessation of debt by operation of law. It was submitted that the said decision was rendered in the peculiar facts of the said case and would not be applicable to the facts of the present case. It was further submitted that Page 9 of 21 C/TAXAP/1393/2018 JUDGMENT the decision of the Bombay High Court in Palkhi Investments & Trading Co. (P) Ltd. v. Income Tax Officer, Mumbai (supra), was rendered in the context of penalty proceedings and would have no applicability to the facts of the present case; and the decision of the Rajasthan High Court in Rama Steel Rolling Mills & General Engg. Works v. Income Tax Officer (supra), was in the context of a case where by Tribunal had remitted the case to the assessing authority and would not be applicable to the facts of the present case. 8. The facts are not in dispute. In the present case, during the course of scrutiny assessment, the Assessing Officer noted that in the balance sheet, the assessee had shown huge sundry creditors of Rs.74,40,360/- as on 31.10.2010. The Assessing Officer carried out an inquiry into the genuineness of the creditors and came to the conclusion that the assessee company was doing job work only and hence, there would be no purchases and hence, there was no possibility of such huge amount outstanding in respect of such sundry creditors. He, however, issued notices to the creditors and found that in case of several creditors, the notices were returned unserved and that in case of some of the creditors, they categorically denied having had made any transactions with the assessee. The Assessing Officer, therefore, recorded a finding that there was no genuine creditors appearing in the balance sheet of Rs.74,40,360/- as on 31.10.2010. The Assessing Officer held that the onus was cast upon the assessee to prove the genuineness of the creditors appearing in the balance sheet. The assessee had neither produced the creditors nor furnished even confirmations and proper addresses of the creditors and Page 10 of 21 C/TAXAP/1393/2018 JUDGMENT some of the creditors had also categorically denied having made any transactions with the assessee. Out of the total creditors, only two creditors namely C.R. Share Dalal & Co. Rs.3,210/- and Dattatraya Sales & Services Rs.1,87,962 were treated as genuine since contra confirmation, PAN had been received. The Assessing Officer held that the facts on record establish that except for the above two creditors there were no genuine creditors and, accordingly, treated the amount of Rs.72,49,188/- (Rs.74,40,360 – Rs.1,91,172) as cessation of liability within the meaning of section 41(1) of the Act and added the same to the income of the assessee. 9. The Commissioner (Appeals), in the order dated 20.5.2014, has compared the facts of the present case with the facts of the case in Commissioner of Income Tax-III v. Bhogilal Ramjibhai Atara (supra) and has found that the facts of the present case are more or less similar to the facts of the said case and has, accordingly, held that the issue is squarely covered in favour of the assessee by the above decision of this court and deleted the addition made under section 41(1) of the Act. 10. The Tribunal, in the impugned order, has concurred with the findings recorded by the Assessing Officer and has placed reliance upon the decision of this court in Gujtron Electronics (P) Ltd. v. Income Tax Officer (supra) and held that after detailed inquiry, the revenue authorities have found as a matter of fact that the liabilities shown in the balance sheet do not, in fact, exist, and that the revenue authorities are not expected to put blinkers while looking at the outstanding trading liability. According to the Tribunal, merely Page 11 of 21 C/TAXAP/1393/2018 JUDGMENT because the liabilities had been shown in the books of accounts and not written back, would not, tie down the revenue to hold such liabilities to be subsisting liability. The Tribunal, in the facts of the present case, found that the liabilities shown in the balance sheet as existing by the assessee were found to be symbolic by the Assessing Officer. According to the Tribunal, the onus is on the assessee to show the reasons why it believed at the time of filing the return that the liabilities were true. No such attempt was even made to prove the existence of liabilities and that in this view of the matter, the incidence of taxation under section 41(1) of the Act cannot be escaped on non-existing liability. The Tribunal held that the onus is on the assessee to show that the year of cessation is different and that in the facts and circumstances of the case, the assessee did not admit cessation in the first place, and therefore, the Assessing Officer was within his right to hold the financial year in question as the right year for taxability when the facts regarding the non-existence were unraveled. The Tribunal, accordingly, set aside the order passed by the Commissioner (Appeals) and restored the order passed by the Assessing Officer. 11. It may be noted that in the facts of the present case, the addition is sought to be made on the ground that there was cessation of trading liabilities under section 41(1) of the Act. Section 41(1), to the extent the same is relevant for the present purpose, reads as under: 41. Profits chargeable to tax.—(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 Page 12 of 21 C/TAXAP/1393/2018 JUDGMENT 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 deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income tax as the income of that previous year. Explanation 1.—For the purposes of this sub-section, 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) of the successor in business under clause (b) of that sub- section by way of writing off such liability in his accounts. 12. The above provision has been interpreted by the Supreme Court in the case of Commissioner of Income Tax v. Sugauli Sugar Works (P) Ltd. (supra), wherein the court has concurred with the reasoning adopted by a Full Bench of Page 13 of 21 C/TAXAP/1393/2018 JUDGMENT this court in the case of Commissioner of Income Tax v. Bharat Iron & Steel Industries, (1993) 199 ITR 67 (Guj.), and held thus: “9. One aspect of the matter has been completely ignored by the judgment of the Division Bench of the Bombay High Court. As pointed out already, the crucial words in the section require that the assessee has to obtain in cash or in any other manner some benefit. That part of the section has been omitted to be considered by the Division Bench of the Bombay High Court. The said words have been considered by a Full Bench of the Gujarat High Court in detail in CIT v. Bharat Iron & Steel Industries, (1993) 199 ITR 67 (Guj.). The following passages in the judgment bring out the reasoning of the Full Bench succinctly: “11. In our opinion, for considering the taxability of amount coming within the mischief of Section 41(1) of the Act, the system of accounting followed by the assessee is of no relevance or consequence. We have to go by the language used in Section 41(1) to find out whether or not the amount was obtained by the assessee or whether or not some benefit in respect of trading liability by way of remission or cessation 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, [1976] 103 ITR 312 (Guj), that the only meaning that can be attached to the words ‘obtained, whether in cash or in any other manner whatsoever, 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 Page 14 of 21 C/TAXAP/1393/2018 JUDGMENT 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 words occur, no other meaning is possible.” We are in agreement with the said reasoning.” 13. The court held that the principle that expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt has been well settled. It was further held that if that principle is applied, it is clear that mere entry in the books of accounts of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the section. 14. In the facts of the present case, it is not even as if the assessee debtor has unilaterally made any entry in the books of account. Merely on the ground that a considerable time has elapsed since the debts were incurred and more particularly on the ground of genuineness of such debts, the Assessing Officer has passed the order under section 41(1) of the Act. There is no material whatsoever on record to show that there was cessation or remission of liability during the previous year relevant to assessment year 2010-11, namely the year under consideration. 15. From the findings recorded by the Assessing Officer as well as the Tribunal, it appears that the very genuineness of Page 15 of 21 C/TAXAP/1393/2018 JUDGMENT such entries has been doubted, inasmuch as the Assessing Officer has tried to verify the existence of such liabilities from the creditors, however, many were not found at the given address and some of them had categorically denied having any transaction with the assessee. In the opinion of this court, 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 the relevant assessment year, but the same cannot be taxed under section 41(1) of the Act, inasmuch as if the liability itself is not genuine, the question of remission or cessation thereof would not arise. 16. Section 41(1) of the Act can be applied, provided the following conditions are fulfilled: - In the assessment of any assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him; - any amount is obtained in respect of such loss or expenditure; or any benefit is obtained in respect of such trading liability by way of remission or cessation thereof; - such amount or benefit is obtained by the assessee; - such amount or benefit is obtained in a subsequent year; 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 Page 16 of 21 C/TAXAP/1393/2018 JUDGMENT 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 to the assessment year in which such income is sought to be taxed. 17. In the facts of the present case, while the assessee has shown the trading liability in its books of account, no benefit has been obtained in respect of such trading liability by way of remission or cessation thereof; under the circumstances, the requirements of section 41(1) of the Act are not satisfied in the present case. Moreover, any such cessation or remission of liability has to be in the previous year relevant to the assessment year under consideration, in the facts of the present case, it is not the case of the Assessing Officer that the liabilities ceased to exist in the previous year relevant to the assessment year under consideration. In fact the Assessing Officer has doubted the very genuineness of such liabilities. Therefore, in the absence of any liability, the question of taxing any income on the ground that there was remission or cessation of such non-existent liability would not arise. 18. The Tribunal, in the impugned order, has held that the Assessing Officer was right to hold the financial year in question as the right year for taxability when the facts concurring the non-existence were unrevealed (sic. revealed/unraveled). Thus, the Tribunal has doubted the very existence of the trading liabilities. Thus, the reasoning adopted by the Tribunal is contrary to the provisions of section Page 17 of 21 C/TAXAP/1393/2018 JUDGMENT 41(1) of the Act, which can be invoked provided there is trading liability in existence and there is remission or cessation of such liability. If no trading liability exists, the question of invoking section 41(1) of the Act would not arise. 19. In the opinion of this court, the decision of this court in the case of Commissioner of Income Tax-III v. Bhogilal Ramjibhai Atara (supra) would be squarely applicable to the facts of the present case, wherein the court held thus: “We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) f 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. Be that as Page 18 of 21 C/TAXAP/1393/2018 JUDGMENT it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed.” 20. The facts of the present case are more or less similar to the facts of the above case, and hence, the Commissioner (Appeals) was wholly justified in holding that the said decision would be squarely applicable to the facts of the present case and in deleting the addition. 21. Another relevant aspect of the matter is that the appellant has written of some of the liabilities in the subsequent assessment years and offered the same as income, therefore, taxing such income in the year under consideration would amount to taxing the same income twice, which is impermissible in law. 22. Insofar as the decisions on which reliance has been placed by the learned senior standing counsel for the respondent are concerned, the decision of the Delhi High Court in the case of Commissioner of Income Tax v. Chipsoft Technology (P) Ltd. (supra), is contrary to the settled view taken by this court in various decisions on which reliance has been placed by the learned advocate for the appellant. 22.1 The decision of the Bombay High Court in the case of Palkhi Investments & Trading Co. (P) Ltd. v. Income Tax Officer, Mumbai (supra) would also not be applicable to the facts of the present case, inasmuch as the same was rendered in the context of penalty proceedings. It may be further noted that in paragraph 7 of the said judgment, the Page 19 of 21 C/TAXAP/1393/2018 JUDGMENT court has categorically noted that the learned counsel appearing for the revenue attempted to take the court over the applicability of section 41(1) to the facts of the said case, but the court had stopped him from doing so. Under the circumstances, the controversy in issue in the present case was not in issue before the court in the said case and hence, the said decision does not carry the case of the revenue any further. 22.2 In Rama Steel Rolling Mills & General Engg. Works v. Income Tax Officer, Ward-3(1) (supra), the Rajasthan High Court held that though no principle of law has been laid down, no substantial question of law arose for consideration regarding the effect of section 41(1) of the Income Tax Act resulting into remission or cessation of the trade liability standing in the books of account; under the circumstances, the said decision does not in any manner come to the aid of the revenue. 23. In the light of the above discussion, the court is of the view that the impugned order passed by the Tribunal suffers from various infirmities as referred to hereinabove and therefore, cannot be sustained. 24. The appeal, therefore, succeeds and is, accordingly, allowed. The impugned order dated 19.6.2018 passed by the Income Tax Appellate Tribunal in ITA No.2193/Ahd/2014 is hereby quashed and set aside. The questions are answered in the negative, that is, in favour of the appellant and against the revenue. It is held that the Income Tax Appellate Tribunal was not justified in upholding the addition under section 41(1) of Page 20 of 21 C/TAXAP/1393/2018 JUDGMENT the Income Tax Act, 1961. The Tribunal was also not justified in upholding the addition under section 41(1) of the Act in respect of liabilities written off and offered as income in subsequent years. (HARSHA DEVANI, J) (A. P. THAKER, J) B.U. PARMAR Page 21 of 21 "