Nama Properties Limited, Hyderabad V. Deputy Commissioner of Income Tax, Central Circle-2(1), Hyderabad

ITA 1831/Hyd/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3332 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2012-2013
• Appeal Filed On: 09-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS DR
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Unexplained cash credit; Related party transaction; Deemed to accrue or arise in india; Additional evidence; Wrong claim; Corroborative evidences; Capital receipt
• Section: 271(1)(c); 143(3); 133(6); 195; 43; 13; 119; 68; 56

Judgement Text

ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 1 OF 17 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.1831/HYD/2017 ASSESSMENT YEAR: 12-13 M/S. NAMA PROPERTIES LTD HYDERABAD PAN:AACCN3417D VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI P. MURALI MOHAN RAO REVENUE BY : SMT. NIVEDITA BISWAS,DR DATE OF HEARING: 06/12/2019 DATE OF PRONOUNCEMENT: 05/03/2020 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2012-13 AGAIN ST THE ORDER OF THE CIT (A)-12, HYDERABAD, DATED 10.08 .2017 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY FILED ITS RETURN OF INCOME FOR THE A.Y 2011-12 ELEC TRONICALLY ON 28.09.2012 DECLARING TOTAL LOSS OF RS.25,802/-. DUR ING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A O OBSERVED FROM THE BALANCE SHEET OF THE COMPANY, THAT THERE A RE TRADE PAYABLES TO THE EXTENT OF RS.19,63,11,404/- OUT OF WHICH RS.19,62,86,726/- IS LYING OUTSTANDING SINCE SEVERA L YEARS AGAINST THE SUPPLIERS. WHEN THE ASSESSEE WAS QUESTIONED, TH E ASSESSEE SUBMITTED THAT HE HAS EXECUTED CIVIL CONTRACT WORKS DURING THE YEAR ENDING 31.03.2006 & 31.03.2008 RELEVANT TO THE A.YS 2006- ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 2 OF 17 07 & 2008-09 AND THAT THE AMOUNT COULD NOT BE PAID DUE TO SHORTAGE OF FUNDS. IT WAS FURTHER SUBMITTED THAT TH E ASSESSEE COMPANY WAS TO GET LOT OF MONEY FROM THE MAIN CONTR ACTOR AND THE AMOUNT PAYABLE WILL BE CLEARED AS AND WHEN THE RECEIVABLES ARE COLLECTED FROM THE MAIN CONTRACTOR. THE ASSESSE E WAS DIRECTED TO FURNISH THE DETAILS OF THE CREDITORS INCLUDING T HE NAME & ADDRESS, PAN AND LEDGER A/C. THE ASSESSEE FURNISHED A COMMON LEDGER A/C FOR THE YEAR 1.4.2011 TO 31.3.2012 CONSI STING OF 195 PAGES, EACH PAGE CONTAINING THE NAMES OF 14 CREDITO RS AND THE DETAILS INCLUDED ONLY THE NAME OF THE ALLEGED CREDI TOR AND THE AMOUNT. IN THE NARRATION, IT WAS SIMPLY STATED THAT AS THE BALANCE BROUGHT FORWARD AND ALMOST ALL THE ENTRIES WERE BELOW RS.1.00 LAKH. IT IS ALSO OBSERVED THAT THE CREDITOR S INCLUDED FILLING STATIONS, AUTO SERVICES, MECHANICAL WORKS, ETC., TH EREFORE, THE ASSESSEE WAS ASKED TO PRODUCE FURTHER DETAILS INCLU DING ADDRESS, PAN AND AN INDIVIDUAL LEDGER A/C FOR THE YEAR IN WH ICH THE CREDIT WAS ORIGINATED. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE VIDE REPLY DATED 22.12.2014 STATED THAT THE CREDITORS AR E MOBILE PEOPLE WHO WORKS IN THE WORK-SITES OF THE COMPANY AND ARE NOT CONFINED ONLY TO THE ASSESSEE COMPANY AND THAT THEY WERE NOT READILY TRACEABLE AND THE ASSESSEE WAS STILL IN THE PROCESS OF OBTAINING DETAILED ADDRESSES AND PANS OF THE SUNDRY CREDITORS . IT WAS FURTHER STATED THAT OUT OF THE TOTAL BALANCE OF RS. 19,62,86,726/- AN AMOUNT OF RS.1,03,61,448/- WAS PAID BY THE ASSES SEE TO SOME OF THE CREDITORS IN THE SUBSEQUENT A.Y LEAVING A BA LANCE OF RS.18,59,25,278/- AS ON 31.03.2013. THE AO DID NOT ACCEPT THE CONTENTION OF REPAYMENT OF THE AMOUNT ON THE GROUND THAT IT WAS NOT VERIFIABLE. HE HELD THAT THE AMOUNT OF RS.19,62 ,86,726/- IS NOTHING BUT CESSATION OF LIABILITY U/S 41(1) OF THE ACT. HE ACCORDINGLY BROUGHT IT TO TAX. AGGRIEVED, THE ASSES SEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO CONFIRMED THE ORDER O F THE AO AND ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 3 OF 17 THE ASSESSEE IS IN SECOND APPEAL BEFORE US BY RAISI NG THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD. CIT (A)-12, HYDERABAD IS E RRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LD. CIT (A) ERRED IN DISMISSING THE APPEAL. 3. THE LD. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS.19,62,78,726/ - MADE U/S 41(1) OF THE ACT. 4. THE LD. CIT(A) ERRED IN HOLDING THAT THE AO WAS CORRECT AND JUSTIFIED IN TREATING THE AMOUNT OF RS.19,62,86 ,726/ - AS CEASED LIABILITY AND IN BRINGING IT TO TAX U/ S 41(1) OF THE I.T.ACT,1961. 5. THE LD. CIT (A) ERRED IN CONCLUDING THAT THE CRE DITORS FOR RS.19,62,86,726/-SHOWN BY THE APPELLANT AS OUTSTAND ING ARE NOTHING BUT BOGUS ENTRIES, ARE NON-GENUINE, NON - VERIFIABLE AND NOT IN EXISTENCE. 6. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT T HE PROVISIONS OF SEC 41(1) OF THE ACT ARE NOT APPLICAB LE IN RESPECT THE LIABILITY OF RS. 19,62,86,726/- WHICH W AS EXISTING IN THE BALANCE SHEET AS ON 31-03-2012. 7. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E AMOUNT OF RS.19,62,86,726/DOES NOT REPRESENT ANY DEDUCTION CLAIMED IN RESPECT OF ANY LOSS, EXPENDITURE INCURRE D BY THE ASSESSEE OR TRADING LIABILITY BY WAY OF REMISSION O F CESSATION THEREOF FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 8. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT ME RELY BECAUSE THE LIABILITY OF RS.19,62,86,726/ - HAS BEE N OUTSTANDING FOR THE LAST MORE THAN EIGHT YEARS, IT CANNOT BE HELD THAT THE LIABILITY HAS CEASED TO EXIST AS ON 3 1-3-2012. 9. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT O BTAINING OF A BENEFIT BY THE ASSESSEE BY VIRTUE OF REMISSION OR CESSATION IS SINE QUA NON FOR INVOKING THE PROVISIONS OF SECTION 41(1) OF THE I.T.ACT, 1961. 10. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT THE AO HAS INVOKED THE PROVISIONS OF SECTION 41(1) OF THE ACT, WITHOUT ESTABLISHING THAT THERE IS REMISSION OR CES SATION OF THE LIABILITY IN THE YEAR UNDER CONSIDERATION. 11. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT THE AMOUNT OF RS. 19, 62, 86, 726/REPRESENTS SUNDRY CRE DITORS THAT ARE BROUGHT FORWARD FROM EARLIER ASSESSMENT YE ARS. ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 4 OF 17 12. THE ASSESSEE MAY ADD, ALTER OR MODIFY OR SUBSTI TUTE ANY OTHER POINT TO THE GROUNDS OF APPEAL AT ANY TIM E BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. THE LEARNED COUNSEL FOR THE ASSESSEE, WHILE REIT ERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW S UBMITTED THAT THERE IS NO CESSATION OF LIABILITY DURING THE RELEV ANT A.Y, AS THE ASSESSEE COMPANY IS STILL LIABLE TO PAY LIABILITIES TO THE CREDITORS IN FUTURE AND THE ASSESSEE ALSO HAS NOT WRITTEN OFF TH E OUTSTANDING LIABILITIES IN ITS BOOKS OF ACCOUNT. HE SUBMITTED T HAT THE AO HAS MADE THE ADDITION U/S 41(1) WITHOUT CORROBORATIVE E VIDENCE THAT THE SAID LIABILITIES NO MORE EXISTS. ACCORDING TO T HE LEARNED COUNSEL, MERELY BECAUSE THE LIABILITY IS BEING CARR IED FORWARD FOR YEARS AND THE ASSESSEE IS NOT ABLE TO COMPLETELY PR OVE THE GENUINENESS OF THE TRADING LIABILITY AT THE TIME OF COMPLYING WITH THE PROVISIONS OF SECTION 41(1) OF THE ACT, IT CANN OT BE TREATED AS CESSATION OF LIABILITY. 4. THE ASSESSEE HAD ALSO FILED THE ADDITIONAL EVIDE NCE IN THE FORM OF PAPER BOOK II FROM 112 TO 119 PAGES AND SOUGHT ADMISSION OF THE SAME. THESE ARE THE ADDITIONAL EVI DENCE IN THE FORM OF CONFIRMATION LETTER FROM M/S. MADHUCON PROJ ECTS LTD REGARDING (I) CONFIRMATION OF BALANCE; (2) PROVISIO NAL FINANCIALS OF M/S. NAMA PROPERTIES LTD AS ON 31.01.2017 AND (3) T RIAL BALANCE OF M/S. NAMA PROPERTIES LTD AS ON 31.10.2017. 5. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE UPON THEM FOLLOWING DECISIONS IN SUPPORT O F HIS CONTENTIONS THAT PROVISIONS OF SECTION 41(1) CANNOT BE INVOLVED IN THE CASE OF THE ASSESSEE FOR THE RELEVANT A.YS. A) ITAT HYDERABAD IN THE CASE OF DAS D.Y IN ITA NO.365/HYD/2013. ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 5 OF 17 B) HON'BLE GUJARAT HIGH COURT IN THE CASE OF BHOGIL AL RAMJIBHAI ATARA 43 TAXMANN.COM 55 (GUJ.). C) ITAT MUMBAI IN THE CASE OF MAHARASHTRA STATE COO P. CONSUMERS FEDERATION LTD, 13 TAXMANN.COM 163 (MUM). D) ITAT DELHI IN THE CASE OF SRI VARDHMAN OVERSEAS LTD 24 SOT 393 (DEL.) E) HON'BLE DELHI HIGH COURT IN THE CASE OF SRI VARD HMAN OVERSEAS LTD (16 TAXMANN.COM 350). F) HON'BLE DELHI HIGH COURT IN THE CASE OF JAIN EXP ORTS (P) LTD 35 TAXMANN.COM 540 G) HON'BLE GUJARAT HIGH COURT IN THE CASE OF MATRUP RASAD C PANDEY, 59 TAXMANN.COM 428 H) ITAT KOLKATA IN THE CASE OF JASHOJIT MUKHERJEE 9 3 TAXMANN.COM 366 6. THE CIT (DR) HAD OBJECTED TO THE ADMISSION OF SU CH ADDITIONAL EVIDENCE AND ALSO HAD CALLED FOR A REPOR T FROM THE AO ON THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE. T HE AO HAS FILED THE REMAND REPORT STATING THAT THE ASSESSEE WAS GIV EN SUFFICIENT OPPORTUNITY TO SUBSTANTIATE THE NATURE OF THE CREDI TORS DURING THE ASSESSMENT AS WELL AS FIRST APPELLATE PROCEEDINGS, BUT THE ASSESSEE HAS BEEN UNABLE TO AVAIL THE SAID OPPORTUN ITIES. ON THE MERITS OF THE ADDITIONAL EVIDENCE FILED, THE AO SUB MITTED THAT THIS DID NOT CONTAIN ANY DOCUMENTARY EVIDENCE OR THE CIR CUMSTANCES ENABLING M/S. MADHUCON PROJECTS LTD TO TAKE OVER TH E TRADE LIABILITY FROM THE ASSESSEE COMPANY NOR DOES IT CLA RIFY THE NATURE OF THE BALANCE RECEIVABLE BY THE ASSESSEE COMPANY. IT IS ALSO SUBMITTED THAT NOTHING IS AVAILABLE ON RECORD OR AD DITIONAL EVIDENCE SUBMITTED IN THE PAPER BOOK TO PROVE THAT M/S. MADHUCON PROJECTS LTD IS THE PARENT COMPANY OF THE ASSESSEE NOR THAT THEY OWNED UP TRADING LIABILITY OF M/S. NAMA P ROPERTIES LTD. IT IS ALSO SUBMITTED THAT THERE IS NOTHING IN THE A DDITIONAL ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 6 OF 17 EVIDENCE TO PROVE THAT THE LIABILITIES ARE STILL EX ISTING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY. 7. THE LEARNED DR HAS ALSO FILED WRITTEN SUBMISSION S ALONG WITH THE REPORT OF THE AO ON THE ADDITIONAL E VIDENCE FILED BY THE ASSESSEE AND PLACED RELIANCE UPON THE FOLLOWING CASE LAW: A) ITAT AHMEDABAD BENCH IN THE CASE OF ACIT VS. DATTAT RAY POULTRY BREEDING FARM (P) LTD, 95 TAXMANN.COM 130 B) BOMBAY HIGH COURT IN THE CASE OF PALKI INVESTMENTS & TRADING CO. (P) LTD VS. ITO MUMBAI 71 TAXMANN.COM 322 C) HON'BLE SUPREME COURT IN THE CASE OF CIT VS. T.V. SUNDARAM IYENGAR & SONS LTD (1996) 88 TAXMANN 429 (S.C) D) HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF RAMA ST EEL ROLLING MILLS & GENERAL ENGG. WORKS (2013) 35 TAXMANN.COM 2 62 E) HON'BLE GUJARAT HIGH COURT IN THE CASE OF GUJTRON E LECTRONICS (P) LTD VS. ITO, 83 TAXMANN.COM 389 F) HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. CHI PSOFT TECHNOLOGY (P) LTD 26 TAXMANN.COM 109. G) ITAT MUMBAI BENCH IN THE CASE OF BHARAT DANA BERA V S. ITO, 56 TAXMANN.COM 388 H) ITAT MUMBAI BENCH IN THE CASE OF ITO VS. SAJJAN KUM AR DIDWANI, 47 TAXMANN.COM 381 I) ANDHRA PRADESH HIGH COURT IN THE CASE OF A.K. BABU KHAN VS. CWT 102 ITR 757 8. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE DETAILS OF THE TRADE PA YABLES/LIABILITIES WERE PRODUCED BEFORE THE AO AND THE AO HAS NOT DOUB TED THAT THEY ARE THE LIABILITIES OF THE EARLIER A.YS I.E. A .Y 2006-07 AND 2008-09 RESPECTIVELY. THE TRADING PAYABLES ARE CONT INUED AS PAYABLES SINCE THEN, AND THE RELEVANT A.Y BEFORE US IS A.Y 2012- ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 7 OF 17 13. IF THERE IS CESSATION OF LIABILITY, IT IS FOR T HE ASSESSEE TO WRITE OFF THE PAYABLES AND OFFER IT TO TAX U/S 41(1) OF THE A CT. SINCE THE PAYABLES ARE PENDING FOR MANY YEARS, THE AO DURING THE RELEVANT A.Y, WANTED TO EXAMINE THE VERACITY OF PAYABLES AND SINCE THE ASSESSEE FAILED TO PRODUCE NECESSARY DETAILS OF THE TRADE PAYABLES, HE DECIDED THAT THERE IS CESSATION OF THE LIABILITY DURING THE RELEVANT A.Y AND TO BROUGHT IT TO TAX U/S 41(1) OF THE ACT. U/S 41(1) OF THE ACT, WHERE AN ALLOWANCE OR DEDUCTION H AS BEEN MADE ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE, AND IN THE SUBSEQUENT YEA R, THE LIABILITY CEASED OR THERE IS A REMISSION OF SUCH LIABILITY, T HEN THE SAME IS TO BE BROUGHT TO TAX U/S 41(1) OF THE ACT. IN THE CASE OF THE ASSESSEE BEFORE US, THE ASSESSEE HAS BEEN CLAIMING IT AS TRA DE PAYABLES. THUS, THE ASSESSEE MUST HAVE BEEN ALLOWED EXPENDITU RE IN THE YEAR IN WHICH IT HAD ACCRUED TO THE ASSESSEE AND CA N BE BROUGHT TO TAX IN THE YEAR IN WHICH IT CEASES TO EXIST. IT IS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE LIABI LITY IS STILL EXISTING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. I T IS THE CASE OF THE ASSESSEE THAT SUBSEQUENTLY, ITS SISTER CONCERN MADHUCON PROJECTS LTD HAS TAKEN OVER THE LIABILITY OF THE AS SESSEE COMPANY AND TO THIS EFFECT, THE CONFIRMATION OF M/S. MADHUC ON PROJECTS LTD IS FILED, WHEREIN IT IS CONFIRMED THAT A SUM OF RS. 14,49,60,055/- IS RECEIVABLE FROM THE ASSESSEE. IN HIS REPORT, AO HAS EXPRESSED THAT THERE IS NOTHING AVAILABLE ON RECORD TO PROVE THAT M/S. MADHUCON PROJECTS LTD IS THE PARENT COMPANY OF THE ASSESSEE, NOR THAT THEY HAVE OWNED UP THE TRADE LIABILITIES OF THE ASSESSEE COMPANY. IN REPLY TO THIS REPORT OF THE AO, THE LEARNED COUNSEL FOR THE ASSESSEE HAS FILED THE ANNUAL REPORT OF MADHUCON PROJECTS LT D FOR FINANCIAL YEAR 2012-13 WHEREIN, IN THE LIST OF RELATED PARTY TRANSACTIONS, THE NAME OF THE ASSESSEE IS MENTIONED UNDER THE HEAD E NTERPRISES WHERE SIGNIFICANT INFLUENCE EXISTS. THE AO CAN EXA MINE THE ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 8 OF 17 GENUINENESS OF THE EXPENDITURE IN THE YEAR IN WHICH IT IS CLAIMED TO HAVE ACCRUED TO IT AND CAN ONLY BRING IT TO TAX IN THE YEAR THERE IS CESSATION OF LIABILITY. THE GENUINENESS OR OTHER WISE OF THE EXPENDITURE SHOULD HAVE BEEN QUESTIONED BY THE AO I N THE YEAR IN WHICH IT IS CLAIMED BY THE ASSESSEE. AS FAR AS THE A.Y 2012-13 IS CONCERNED, WE FIND THAT THE AO HAS INVOKED ONLY THE PROVISIONS OF SECTION 41(1) OF THE ACT AND THE SAME CAN BE INVOKE D ONLY IF THERE IS A CESSATION OF LIABILITY AND THE AO CANNOT UNILA TERALLY TREAT IT AS CESSATION OF LIABILITY WITHOUT THERE BEING ANY EVID ENCE THAT SUCH LIABILITIES CANNOT BE ENFORCED ON THE ASSESSEE OR T HAT THE ASSESSEE HAS WRITTEN IT OFF. THEREFORE, ASSESSEES APPEAL IS TREATED AS ALLOWED. 9. THE ASSESSEE HAS RELIED UPON THE FOLLOWING DECIS IONS IN SUPPORT OF ITS CONTENTION THAT THE GENUINENESS OR O THERWISE OF THE TRADE LIABILITY SHOULD HAVE BEEN CONSIDERED IN THE YEAR IN WHICH THEY ARE CLAIMED AS LIABILITY AND UNLESS AND UNTIL THERE IS A REMISSION OF LIABILITY OF CESSATION OF LIABILITY, I T CANNOT BE BROUGHT TO TAX U/S 41(1) OF THE ACT: I) DAS D.Y IN ITA NO.365/HYD/2013, THE SMC BENCH OF ITAT HYDERABAD IN THIS CASE, HAS HELD AS UNDER: 8. HAVING HEARD THE LEARNED DR AND HAVING CONSIDER ED THE MATERIAL ON RECORD, I FIND THAT THE ONLY BASIS FOR MAKING ADDIT ION U/S 41(1) OF THE ACT BY THE AO IS THE PRESUMPTION BY HIM THAT THE LIABILITY OF THE ASSESSEE UNDER 'SUNDRY CREDITORS' HAS CEASED TO BE LIABILITY DUE T O LONG DURATION OF TIME AFTER THE CREDIT BECAME A LIABILITY AND ALSO BECAUS E THE ASSESSEE WAS NOT HAVING ANY FURTHER TRANSACTIONS WITH THE SAID PARTI ES. IT IS OBSERVED THAT THERE CAN BE CESSATION OF LIABILITY ONLY WHEN THE C REDITOR GIVES UP HIS CLAIM OR THE ASSESSEE RECOGNIZES THE CESSATION OF LIABILI TY. FURTHER, I FIND THAT THE ASSESSEE HAS SUBMITTED RECEIPTS FROM THE SUNDRY CRE DITORS AS PROOF OF HAVING RECEIVED THE AMOUNTS OUTSTANDING FROM HIM, B EFORE THE CIT(A) AND THAT THERE IS NO CESSATION OF LIABILITY AS PRESUMED BY THE AO. FURTHER, THE CIT(A) HAS FOLLOWED THE ORDER OF HIS PREDECESSOR IN ASSESSEE'S OWN CASE FOR AY 2008- 09 WHEREIN SIMILAR ADDITION U/S 41(1) HAS BEEN DELETED. THE LEARNED DR HAS NOT BEEN ABLE TO PRODUCE ANY EVIDENC E ON RECORD TO REBUT THE FINDING OF THE CIT(A). IN VIEW OF THE ABOVE DIS CUSSION, I DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) AN D, ACCORDINGLY, THE ORDER ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 9 OF 17 OF THE CIT(A) IS HEREBY UPHELD DISMISSING THE GROUN D RAISED BY THE REVENUE ON THIS COUNT . II) HON'BLE GUJARAT HIGH COURT IN THE CASE OF BHOGILAL RAMJIBHAI ATARA 43 TAXMANN.COM 55 (GUJ.). SECTION 41(1) OF THE INCOME-TAX ACT, 1961 - REMISSI ON OR CESSATION OF TRADING LIABILITY (CESSATION OF LIABILITY) - ASSESS MENT YEAR 2007-08 - IN RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08, ASSES SEE HAD SHOWN A CERTAIN AMOUNT BY WAY OF HIS DEBTS - HE SUPPLIED DE TAILS OF 27 DIFFERENT CREDITORS - ASSESSING OFFICER UNDERTOOK EXERCISE TO VERIFY RECORDS OF SO CALLED CREDITORS AND FOUND THAT CREDITORS HAD NO DE ALING WITH ASSESSEE - ASSESSING OFFICER FURTHER HAVING FOUND THAT DEBTS W ERE OUTSTANDING SINCE SEVERAL YEARS APPLIED SECTION 41(1) AND ADDED ABOVE AMOUNT IN INCOME OF ASSESSEE AS DEEMED INCOME - THERE WAS NOT HING ON RECORD TO SUGGEST THAT THERE WAS REMISSION OR CESSATION OF LIABILITY THAT TOO DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 20 07-08 - WHETHER IN PECULIAR FACTS OF CASE AMOUNT IN QUESTION COULD NOT BE ADDED BACK IN INCOME OF ASSESSEE AS DEEMED INCOME UNDER SECTION 4 1(1) - HELD, YES [PARA 8] [IN FAVOUR OF ASSESSEE] III) ITAT MUMBAI IN THE CASE OF MAHARASHTRA STATE C OOP. CONSUMERS FEDERATION LTD, 13 TAXMANN.COM 163 (MUM). I. SECTION 41(1) OF THE INCOME-TAX ACT, 1961 - REMI SSION OR CESSATION OF TRADING LIABILITY - ASSESSMENT YEAR 2005-06 - DU RING ASSESSMENT PROCEEDINGS, ASSESSING OFFICER OBSERVED THAT THERE WAS A LIABILITY OF RS. 10,85,531 PENDING FOR MORE THAN 5 YEARS ON ASSE SSEE AND SAME HAD NOT BEEN CLAIMED BY CREDITORS; THEREFORE, HE AD DED THIS AMOUNT TO TOTAL INCOME OF ASSESSEE PRESUMING THAT ASSESSEE 'S LIABILITY HAD SEIZED - WHETHER IN ABSENCE OF ANY CONTRARY MATERIA LS PLACED ON RECORD BY REVENUE TO SHOW THAT NO SUCH LIABILITY EX ISTED IN BOOKS OF ACCOUNT OR ASSESSEE HAD OBTAINED ANY BENEFIT BY CAS H OR IN ANY MANNER, MERELY BECAUSE SAID LIABILITY WAS MORE THAN 5 YEARS OLD IT COULD NOT BE SAID THAT THERE WAS CESSATION OF LIABI LITY - HELD, YES [IN FAVOUR OF ASSESSEE] IV) ITAT DELHI IN THE CASE OF SRI VARDHMAN OVERSEAS LTD 24 SOT 393 (DEL.) HELD AS UNDER: SECTION 68 OF THE INCOME-TAX ACT, 1961 - CASH CREDI TS - ASSESSMENT YEAR 2002-03 - DURING RELEVANT ASSESSMENT YEAR, ASSESSING OFFICER ASKED ASSESSEE-COMPANY TO PROVE GENUINENESS OF CERTAIN SUNDRY CREDITORS - ASS ESSEE COULD NOT FILE CONFIRMATIONS FROM SAID CREDITORS; THEREFORE, ASSES SING OFFICER TREATED CREDIT BALANCE APPEARING IN ASSESSEES BOOKS OF ACCOUNT AS UNEXPLAINED CREDITS UNDER SECTION 68 - ON APPEAL, COMMISSIONER (APPEALS) CONF IRMED ADDITIONS UNDER SECTION 41(1) - WHETHER SINCE NO NEW AMOUNT HAD BEEN CREDIT ED IN ACCOUNTS OF CREDITORS DURING YEAR UNDER CONSIDERATION, ADDITION COULD NOT BE MADE UNDER SECTION 68 - HELD, YES SECTION 41(1) OF THE INCOME-TAX ACT, 1961 - REMISSI ON OR CESSATION OF TRADING LIABILITY - ASSESSMENT YEAR 2002-03 - WHETHER IN VI EW OF FACTS STATED UNDER HEADING CASH CREDITS, SINCE AMOUNTS-IN-QUESTION WERE BROU GHT FORWARD BALANCES, THEY COULD NOT BE ADDED TO INCOME OF ASSESSEE FOR YEAR U NDER CONSIDERATION, AS QUESTION OF GENUINENESS THEREOF COULD BE EXAMINED ONLY IN YE AR IN WHICH THEY WERE CREDITED TO ACCOUNT OF ASSESSEE - HELD, YES - WHETHER, EVEN OTHERWISE SINCE REVENUE HAD ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 10 OF 17 FAILED TO SHOW THAT LIABILITIES WHICH WERE APPEARIN G IN BALANCE-SHEET HAD CEASED FINALLY AND THERE WAS NO POSSIBILITY OF THEIR REVIV AL, IMPUGNED ADDITION COULD NOT BE MADE UNDER SECTION 41(1) - HELD, YES V) HON'BLE DELHI HIGH COURT IN THE CASE OF JAIN EXP ORTS (P) LTD 35 TAXMANN.COM 540 HELD AS UNDER: SECTION 41(1) OF THE INCOME-TAX ACT, 1961 - REMISSI ON OR CESSATION OF TRADING LIABILITY [CESSATION OF LIABILITY] - ASSESS MENT YEAR 2008-09 - DURING SCRUTINY, ASSESSING OFFICER ADDED AMOUNTS SH OWN AS CREDIT BALANCES OF CREDITORS, OUTSTANDING FOR SEVERAL YEAR S UNDER SECTION 41(1) - COMMISSIONER (APPEALS) CONFIRMED ADDITION O NLY IN RESPECT OF CREDITOR 'E' AS ASSESSEE COULD NOT PROVE GENUINENES S OF TRANSACTION, BUT DELETED ADDITION IN RESPECT OF OTHER CREDITORS - WHETHER, AS PER SECTION 41(1), CESSATION OF LIABILITY MAY OCCUR EIT HER BY REASON OF IT BECOMING UNENFORCEABLE IN LAW BY CREDITOR COUPLED W ITH DEBTOR'S INTENTION NOT TO HONOUR HIS LIABILITY, OR BY A CONT RACT BETWEEN PARTIES OR BY DISCHARGE OF DEBT - HELD, YES - WHETHER, ESTABLI SHMENT OF GENUINENESS OF TRANSACTION WAS REQUIRED IN YEAR WHE N LIABILITY HAD ARISEN AND ADDITION COULD NOT BE MADE ON SUCH GROUN D, TREATING IT AS CESSATION OF TRADING LIABILITY, WHEN ASSESSEE HAD A CKNOWLEDGED ITS LIABILITY SUCCESSIVELY OVER SEVERAL YEARS - HELD, Y ES [PARA 22] [IN FAVOUR OF ASSESSEE] VI) HON'BLE GUJARAT HIGH COURT IN THE CASE OF MATRU PRASAD C PANDEY, 59 TAXMANN.COM 428 HELD AS UNDER: SECTION 41(1) OF THE INCOME-TAX ACT, 1961 - REMISSI ON OR CESSATION OF TRADING LIABILITY (CESSATION OF TRADING LIABILITY) - ASSESSMENT YEAR 2007 08 - ASSESSING OFFICER OBSERVED CERTAIN LIABILITIES (SUNDRY CREDITORS) IN BALANCE SHEET OF ASSESSEE, WHICH WERE VERY OLD - AS ASSESSEE FAILED TO FURNISH COMPLETE IDENTITY, CREDITWORTHINESS OF C REDITORS, ETC., AS SOUGHT BY ASSESSING OFFICER, HE TREATED SAID CREDIT ORS AS NO LONGER PAYABLE AND MADE ADDITION UNDER SECTION 41(1) - WHE THER ADDITION UNDER SECTION 41(1) CANNOT BE MADE UNLESS AND UNTIL IT IS FOUND THAT THERE WAS REMISSION AND/OR CESSATION OF LIABILITY T HAT TOO DURING RELEVANT ASSESSMENT YEAR - HELD, YES - WHETHER SINC E THERE WAS NO REMISSION AND/OR CESSATION OF LIABILITY DURING YEAR UNDER CONSIDERATION, ADDITION MADE UNDER SECTION 41(1) WA S LIABLE TO BE DELETED - HELD, YES [PARA 6.2] [IN FAVOUR OF ASSESS EE] VII) ITAT KOLKATA IN THE CASE OF JASHOJIT MUKHERJEE 93 TAXMANN.COM 366 HELD AS UNDER: I . SECTION 41(1) OF THE INCOME-TAX ACT, 1961 - REMISSION AND CESSATION OF TRADING LIABILITY (CESSATION OF LIABIL ITY) - ASSESSMENT YEAR 2012-13 - ASSESSEE HAD SHOWN PROVISION FOR SUNDRY C REDITORS - ASSESSING OFFICER HELD THAT SINCE PRESENT WHEREABOU TS OF CREDITORS WERE NOT KNOWN TO ASSESSEE, SUM CLAIMED TOWARDS SUN DRY CREDITORS WERE TO BE TREATED AS DEEMED INCOME OF ASSESSEE UND ER SECTION 41(1) ON ACCOUNT OF CESSATION OF LIABILITY - IT WAS NOTED THAT ASSESSEE HAD SHOWN BALANCES OUTSTANDING TOWARDS SUNDRY CREDI TORS EVEN IN NEXT ASSESSMENT YEAR - ASSESSEE HAD NOT WRITTEN BAC K THESE CREDITORS ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 11 OF 17 IN HIS PROFIT AND LOSS ACCOUNT AS LIABILITIES NO LO NGER PAYABLE - HENCE, THERE WAS NO UNILATERAL WRITE BACK OF CREDITORS TO HIS PROFIT AND LOSS ACCOUNT BY ASSESSEE AND FROM SAME IT COULD BE SAFEL Y CONCLUDED THAT ASSESSEE HAD PROVED THAT LIABILITIES HAD NOT CEASED TO EXIST - WHETHER SINCE ASSESSEE HAD DULY ACKNOWLEDGED HIS DEBT BY AC CEPTING CREDITORS LIABILITY TO BE DISCHARGED IN FUTURE, THE RE COULD NOT BE ANY CESSATION OF LIABILITY UNDER SECTION 41(1), THUS IM PUGNED, ADDITIONS TO INCOME OF ASSESSEE WAS UNJUSTIFIED - HELD, YES [PAR A 5] [IN FAVOUR OF ASSESSEE] 10. THE LEARNED DR HAS RELIED UPON THE FOLLOWING DE CISIONS IN SUPPORT OF HIS CONTENTION WHERE THE ASSESSEE IS NOT ABLE TO PROVE THE GENUINENESS OF THE LIABILITY, THEY CAN BE BROUGHT TO TAX U/S 41(1) OF THE ACT. A) IN THE CASE OF ACIT VS. DATTATRAY POULTRY BREEDI NG FARM (P) LTD, 95 TAXMANN.COM 130, ITAT AHMEDABAD BENCH HELD AS UNDER: SECTION 41(1) OF THE INCOME-TAX ACT, 1961 - REMISSION AND CESSAT ION OF TRADING LIABILITY (CREDITOR'S CONFIRMATION) - ASSES SMENT YEAR 2010-11 - WHETHER LIABILITY CEASE TO EXIST IN TERMS OF SECTIO N 41(1) WHERE IT IS OUTSTANDING FOR A LONG PERIOD WITHOUT ANY PAYMENT, DESPITE IT BEING REFLECTED IN BOOKS OF ACCOUNT - HELD, YES - ASSESSE E COMPANY, HAD SHOWN SUNDRY CREDITORS OUTSTANDING FOR SIX TO TWENT Y YEARS - ASSESSING OFFICER MADE INQUIRIES UNDER SECTION 133(6) ABOUT S AID CREDITORS IN WHICH IT WAS FOUND THAT CERTAIN CREDITORS HAD CATEG ORICALLY DENIED THAT THEY HAD NOT MADE ANY TRANSACTION WITH ASSESSEE - N OTICES IN SOME CASES HAD RETURNED UNSERVED - ASSESSEE HAD FAILED T O PRODUCE SAID CREDITORS AS DIRECTED - ASSESSEE HAD NOT EVEN FURNI SHED CORRECT ADDRESS OF ALL CREDITORS, THEIR PAN NUMBERS AND CONFIRMATIO N - WHETHER, ON FACTS, ASSESSING OFFICER WAS JUSTIFIED IN HOLDING THAT THE RE WAS CESSATION OF LIABILITY AND MAKING ADDITIONS TO INCOME OF ASSESSE E UNDER SECTION 41(1) - HELD, YES - WHETHER MERELY BECAUSE LIABILITIES WE RE SHOWN IN BOOKS OF ACCOUNT BY ASSESSEE AS OUTSTANDING AND NOT WRITTEN BACK, WOULD NOT, TIE DOWN REVENUE TO HOLD SUCH LIABILITIES TO BE SUBSIST ING LIABILITY - HELD, YES [PARAS 9 AND 10] [IN FAVOUR OF REVENUE]. B) IN THE CASE OF PALKI INVESTMENTS & TRADING CO. ( P) LTD VS. ITO MUMBAI 71 TAXMANN.COM 322, HON'BLE BOMBAY HIGH COURT HELD AS UNDER: SECTION 271(1)(C), READ WITH SECTION 41(1), OF THE INCOME-TAX ACT, 1961 - PENALTY - FOR CONCEALMENT OF INCOME (FALSE CLAIMS) - ASSESSMENT YEAR 2005-06 - DURING ASSESSMENT PROCEEDINGS ASSESSING O FFICER MADE CERTAIN ADDITIONS UNDER SECTION 41(1) IN RESPECT OF TRADE LIABILITIES WHICH HAD CEASED TO EXIST - PENALTY UNDER SECTION 271(1)( C) WAS ALSO LEVIED FOR FURNISHING INACCURATE PARTICULARS OF INCOME - F ACTS REVEALED THAT IN QUANTUM PROCEEDINGS TRIBUNAL RECORDED THAT ONE OF C REDITORS HAD ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 12 OF 17 DENIED ANY AMOUNT TO BE DUE TO IT FROM ASSESSEE AND SOME OF CREDITORS NAMED BY ASSESSEE WERE NOT FOUND AVAILABLE AT ADDRE SSES GIVEN - FURTHER, IN PENALTY PROCEEDINGS ALL THREE AUTHORITI ES HAD CONCURRENTLY ARRIVED AT A FINDING OF FACT THAT CLAIM MADE BY ASS ESSEE WITH REGARD TO ITS OUTSTANDING LIABILITIES FOR SUBJECT ASSESSMENT YEAR WAS FALSE - WHETHER SHOWING A NON-EXISTENT LIABILITY AS AN EXIS TING LIABILITY AND NOT OFFERING SAME TO TAX AMOUNTED TO FURNISHING INACCUR ATE PARTICULARS OF INCOME AND, THEREFORE, PENALTY WAS JUSTIFIED - HELD , YES [PARA 8] [IN FAVOUR OF REVENUE] C) HON'BLE SUPREME COURT IN THE CASE OF CIT VS. T. V. SUNDARAM IYENGAR & SONS LTD (1996) 88 TAXMANN 429 (S.C) HELD AS UNDER: SECTION 28(I) OF THE INCOME-TAX ACT, 1961 - BUSINES S INCOME - CHARGEABLE AS - ASSESSMENT YEARS 1982-83 AND 1983-84 - ASSESSEE RECEIVED CERTAIN DEPOSITS FROM CUSTOMERS IN COURSE OF ITS BUSINESS WHICH WERE ORIGINALLY TREATED AS CAPITAL RECEIPT - UNCLAIMED CREDIT BALANCES WHICH WERE TIME BARRED WERE WRITTEN BACK B Y ASSESSEE TO ITS PROFIT AND LOSS ACCOUNT - ASSESSING OFFICER TREATED SUCH AMOUNT AS ITS TRADING RECEIPT AND MADE ADDITION - WHETHER IF AN A MOUNT IS RECEIVED IN COURSE OF TRADING TRANSACTION, EVEN THOUGH IT IS NO T TAXABLE IN YEAR OF RECEIPT AS BEING OF CAPITAL CHARACTER, AMOUNT CHANG ES ITS CHARACTER WHEN AMOUNT BECOMES ASSESSEE'S OWN MONEY BECAUSE OF LIMITATION OR BY ANY OTHER STATUTORY OR CONTRACTUAL RIGHT AND SUC H AMOUNT SHOULD BE TREATED AS INCOME OF ASSESSEE - HELD, YES - WHETHER THEREFORE AMOUNT REPRESENTING UNCLAIMED CREDIT BALANCES WRITTEN BACK TO PROFIT AND LOSS ACCOUNT BY ASSESSEE DURING ASSESSMENT YEAR UNDER CO NSIDERATION, COULD BE TREATED AS ASSESSEE'S INCOME AND LIABLE TO BE TAXED - HELD, YES D) HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF RAMA STEEL ROLLING MILLS & GENERAL ENGG. WORKS (2013) 35 TAXMANN.COM 262 HAS HELD AS UNDER: SECTION 41(1), READ WITH SECTION 260A, OF THE INCOM E-TAX ACT, 1961 - REMISSION OR CESSATION OF TRADING LIABILITY [UNPROV ED CREDITS] - ASSESSMENT YEAR 2007-08 - DURING FINANCIAL YEARS 20 01-02 AND 2002- 03, ASSESSEE HAD PURCHASED GOODS FROM ONE 'T' - THE RE WAS DISPUTE BETWEEN ASSESSEE AND 'T' AND ASSESSEE FAILED TO MAK E PAYMENT OF RS. 34 LAKHS TO 'T' - IN BALANCE-SHEET OF ASSESSEE FOR YEAR ENDING ON 31-3- 2007 AFORESAID AMOUNT OF RS. 34 LAKHS STOOD IN NAME OF 'T' - ASSESSING OFFICER ADDED SAID AMOUNT TO INCOME OF ASSESSEE FOR ASSESSMENT YEAR 2007-08 IN VIEW OF PROVISIONS OF SECTION 41(1) - TR IBUNAL HELD THAT LIABILITY OF RS. 34 LAKHS IN RESPECT OF 'T' AT END OF YEAR AS ON 31-3-2007 IF NOT PROVED COULD BE ADDED TO INCOME OF ASSESSEE UND ER SECTION 41(1) - WHILE REMITTING MATTER TO ASSESSING OFFICER, IT WAS LEFT OPEN FOR ASSESSING OFFICER TO VERIFY DISCHARGE OF LIABILITY TILL DATE OF FRESH ASSESSMENT AND IF LIABILITY HAD BEEN DISCHARGED TIL L DATE THEN THERE WOULD BE REMISSION OR CESSATION OF LIABILITY AND IF ASSESSEE FAILED TO PRODUCE CREDITOR OR UNABLE TO GIVE EXACT ADDRESS TH EN SUCH LIABILITY WOULD STAND CEASED DURING YEAR AND ASSESSING OFFICE R WOULD BE FREE TO ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 13 OF 17 ADD BACK SAME AS PER LAW - WHETHER LIABILITY OF RS. 34 LAKHS IN RESPECT OF 'T' AT END OF YEAR IF NOT PROVED COULD CERTAINLY BE ADDED TO INCOME OF ASSESSEE UNDER SECTION 41(1) - HELD, YES - WHETHER IN FACTS AND CIRCUMSTANCES OF CASE NO SUBSTANTIAL QUESTION OF LA W AROSE FOR CONSIDERATION REGARDING EFFECT OF SECTION 41(1) RES ULTING INTO REMISSION OR CESSATION OF TRADE LIABILITY STANDING IN BOOKS O F ACCOUNT - HELD, YES [PARAS 3 & 4] [IN FAVOUR OF REVENUE] E) HON'BLE GUJARAT HIGH COURT IN THE CASE OF GUJTRO N ELECTRONICS (P) LTD VS. ITO, 83 TAXMANN.COM 389 HEL D AS UNDER: SECTION 41(1) OF THE INCOME-TAX ACT, 1961 - REMISSION OR CESSATI ON OF TRADING LIABILITY (CUSTOMER ADVANCES) - ASSESSMENT YEAR 2012-2013 - UNDER A SALES PROMOTION SCHEME LAUNCHED DURING FINA NCIAL YEAR 1986- 87, ASSESSEE COMPANY COLLECTED A SUM OF RS 500 FROM EACH OF ITS CUSTOMER BY SALE OF COUPONS - ASSESSEE COLLECTED A HUGE SUM UNDER SAID SCHEME - SINCE THEN, ASSESSEE HAD BEEN SHOWING SUCH SUM AS OUTSTANDING TRADE LIABILITY UNDER HEAD CUSTOMER ADV ANCES - DURING RELEVANT ASSESSMENT YEAR, ASSESSING OFFICER HELD TH AT THERE WAS CESSATION OF LIABILITY AND, THEREFORE, ADDED SUCH S UM TO INCOME OF ASSESSEE - IT WAS FOUND THAT SCHEME WAS VALID ONLY FOR PERIOD OF TWELVE MONTHS - THERE WAS NO ACTIVITY AT HANDS OF ASSESSEE IN CONNECTION WITH SCHEME FOR PAST SEVERAL YEARS - NOT A SINGLE CUSTOM ER HAD DEMANDED MONEY BACK NOR ASSESSEE HAD MADE ANY ATTEMPT TO REP AY SAME - IN ALL INVOICES, SIGNATURES OF MEMBER CUSTOMERS WERE MISSI NG - THEIR ADDRESSES WERE NOT SUFFICIENT - OVER YEARS, COMPANY HAD ALSO INVESTED SUCH AMOUNT AND EARNED INTEREST AND USED SUCH INTER EST FOR ITS PURPOSE - WHETHER ON FACTS, THERE WAS CESSATION OF TRADING LIABILITY, THUS, ASSESSING OFFICER WAS JUSTIFIED IN ADDING IMPUGNED AMOUNT TO INCOME OF ASSESSEE - HELD, YES [PARAS 10 & 12] [IN FAVOUR OF REVENUE] F) HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. CHIPSOFT TECHNOLOGY (P) LTD 26 TAXMANN.COM 109 HELD AS UNDER: SECTION 41(1) OF THE INCOME-TAX ACT, 1961 - REMISSI ON OR CESSATION OF TRADING LIABILITY - ASSESSMENT YEAR 2006-07 - UNPAI D DUES OF EMPLOYEES HAD BEEN OUTSTANDING FOR 6-7 YEARS AND RE COVERY OF SUCH DUES WAS TIME BARRED - WHETHER ASSESSEE COULD NOT C LAIM BENEFIT OF SHOWING SAID AMOUNT AS A LIABILITY - HELD, YES - WH ETHER THERE WAS CESSATION OF SUCH LIABILITY AND, HENCE, SAID AMOUNT HAD TO BE ADDED TO INCOME OF ASSESSEE - HELD, YES [PARAS 9 & 10] [IN F AVOUR OF REVENUE] WORDS & PHRASES : WORD 'INCLUDE' OCCURRING IN EXPLA NATION TO SECTION 41(1) OF THE INCOME-TAX ACT, 1961 INTERPRETATION OF STATUTE : RULE OF PRAGMATIC CONST RUCTION. ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 14 OF 17 G) ITAT MUMBAI BENCH IN THE CASE OF BHARAT DANA BER A VS. ITO, 56 TAXMANN.COM 388 I. SECTION 41(1) OF THE INCOME-TAX ACT, 1961 - REMI SSION OR CESSATION OF TRADING LIABILITY (CESSATION OF LIABIL ITY) - ASSESSMENT YEAR 2007-08 - ASSESSEE WAS ENGAGED IN BUSINESS OF MANUFACTURING AND TRADING IN READYMADE GARMENTS - I N RETURN OF INCOME, ASSESSEE DECLARED CERTAIN AMOUNT PAYABLE TO CREDITORS ON ACCOUNT OF PURCHASES MADE FROM THEM - ASSESSING OFF ICER ISSUED NOTICES TO VARIOUS CREDITORS WHICH WERE RETURNED UN SERVED WITH REMARKS NOT KNOWN - HE THUS TAKING A VIEW THAT CRED ITORS IN QUESTION WERE NOT GENUINE, MADE ADDITION TO ASSESSEE'S INCOM E UNDER SECTION 41(1) - WHETHER SINCE LIABILITY TOWARDS CRE DITORS REMAINED IN EXISTENCE FOR A LONG TIME AND, MOREOVER, ASSESSEE F AILED TO ESTABLISH GENUINENESS OF THOSE LIABILITIES BY PRODU CING SUPPORTING EVIDENCE, IMPUGNED ADDITION WAS TO BE CONFIRMED - H ELD, YES [PARA 7] [IN FAVOUR OF REVENUE] H) ITAT MUMBAI BENCH IN THE CASE OF ITO VS. SAJJAN KUMAR DIDWANI, 47 TAXMANN.COM 381 HELD AS UNDER: I. SECTION 41(1) OF THE INCOME-TAX ACT, 1961 - REMI SSION OR CESSATION OF TRADING LIABILITY (CESSATION OF TRADIN G LIABILITY) - ASSESSMENT YEAR 2009-10 - ASSESSEE'S BOOKS SHOWED T RADING LIABILITIES WHICH WORKED OUT TO APPROX. 40 PER CENT OF PURCHASE AND WERE OUTSTANDING FOR A PERIOD OF ALMOST SIX YEARS - ENTERTAINING DOUBTS WITH REGARD TO GENUINENESS OF OUTSTANDING LI ABILITIES, NOTICES WERE ISSUED TO FOUR PARTIES - ONE PARTY GAVE ITS CO NFIRMATION AND OTHER NOTICES WERE RECEIVED AS UNSERVED - ASSESSING OFFICER OBSERVED THAT SAID LIABILITIES CEASED TO EXIST AND INVOKED SECTION 41(1) - WHETHER SINCE, CONFIRMATION WAS FURNISHED B Y ONE PARTY, APPLICATION OF SECTION 41(1) WAS UNJUSTIFIED AND MA TTER NEEDED RE- ADJUDICATION - HELD, YES - WHETHER AS REGARDS OTHER LIABILITY, SINCE NO CONFIRMATION OR ANY OTHER MATERIAL FURNISHED AND NO CLAIMS WERE MADE SAME WOULD BE SAID TO BE CLEARLY UNPROVED AND SECTION 41(1) WAS RIGHTLY INVOKED - HELD, YES [PARA 4.3] [PARTLY IN FAVOUR OF REVENUE] I) THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CAS E OF A.K. BABU KHAN VS. CWT 102 ITR 757 HELD AS UNDER: SECTION 24 OF THE WEALTH-TAX ACT, 1957, READ WITH R ULE 29 OF THE INCOME-TAX (APPELLATE TRIBUNAL) RULES, 1963 - APPELLATE TRIBUN AL - ORDERS OF - ASSESSMENT YEARS 1959-60 TO 1963-64 - WTO MADE EX-P ARTE ASSESSMENTS FOR RELEVANT ASSESSMENT YEARS ON GROUND THAT ASSESSEE D ID NOT SUBMIT RETURNS IN ANY ONE OF ASSESSMENT YEARS DESPITE SEVERAL NOTICES ISSUED IN THAT REGARD - AAC UPHELD SAID ASSESSMENT - EVEN BEFORE AAC THOUGH ASSESSEE TOOK TIME TO ADDUCE EVIDENCE BUT NO EVIDENCE WAS PRODUCED BY HIM IN SUPPORT OF HIS CASE - AFTER DEATH OF ASSESSEE HIS LEGAL REPRESENTATIVES FILED APPEAL BEFORE TRIBUNAL AND FILED AN APPLICATION TO ADDUCE FURTHER EVIDENCE TRIBUNAL, ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 15 OF 17 HOWEVER, REJECTED APPLICATION FOR ADDUCING FURTHER EVIDENCE - WHETHER THERE WAS ANY INFIRMITY IN ORDER OF TRIBUNAL - HELD, NO 11. HAVING CONSIDERED THE ABOVE CASE LAW RELIED UPO N BY THE LEARNED DR, IN THE CASE OF DATTATRAY POULTRY BR EEDING FARM (P) LTD, WE FIND THAT THE SUNDRY CREDITORS WERE OUTSTAN DING FOR 6 TO 20 YEARS AND DURING THE ENQUIRY MADE BY THE AO U/S 133 (6) OF THE ACT, SOME OF THE CREDITORS CATEGORICALLY DENIED THA T THEY HAD MADE ANY TRANSACTION WITH THE ASSESSEE WHILE IN SOME CAS ES, THE NOTICES WERE RETURNED UNSERVED. IT WAS IN THESE CIRCUMSTANC ES THAT THE AO HAD HELD THAT THERE WAS A CESSATION OF LIABILITY AND THE ADDITION WAS MADE U/S 41(1) OF THE ACT. 12. IN THE CASE OF PALKY INVESTMENTS & TRADING CO. (P) LTD, THE HON'BLE BOMBAY HIGH COURT WAS DEALING WITH THE CASE OF LEVY OF PENALTY U/S 271(1)(C) OF THE ACT FOR ALLEGED CON CEALMENT OF INCOME WITH RESPECT TO ADDITION MADE U/S 41(1) OF T HE ACT ON ACCOUNT OF CESSATION OF LIABILITIES. THE HON'BLE HI GH COURT HAS CONSIDERED THAT IN THE CASE IN THE PENALTY PROCEEDI NGS, ALL THE THREE AUTHORITIES HAD CONCURRENTLY ARRIVED AT A FAC T THAT CLAIM MADE BY ASSESSEE WITH REGARD TO ITS OUTSTANDING LIA BILITIES FOR SUBJECT A.Y WAS FALSE. THEREFORE, THE FACTS OF THIS CASE ARE DIFFERENT AND DISTINGUISHABLE FROM THE FACTS BEFORE US AND TH EREFORE, CANNOT BE APPLIED TO THE CASE ON HAND. 13. IN THE CASE OF CIT VS. TV SUNDARAM IYENGAR & SO NS LTD, THE HON'BLE SUPREME COURT WAS CONSIDERING THE CASE WHERE CERTAIN DEPOSITS FROM CUSTOMERS IN COURSE OF ITS BU SINESS WERE ORIGINALLY TREATED AS CAPITAL RECEIPTS BY THE ASSES SEE AND UNCLAIMED CREDIT BALANCES, WHICH WERE TIME BARRED, WERE WRITTEN BACK BY THE ASSESSEE TO ITS P&L A/C AND WERE TREATE D AS ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 16 OF 17 ASSESSEES INCOME AND WERE HELD TO BE LIABLE TO TAX . THUS, IN THE SAID CASE, THE ASSESSEE THEREIN HAD RECOGNIZED THE CESSATION OF ITS LIABILITY AND THE ISSUE WAS WHETHER CAPITAL RECEIPT S CAN THEREAFTER BE TREATED AS REVENUE RECEIPT. IN THE CASE BEFORE U S, THE ASSESSEE HAS NOT RECOGNIZED THE CESSATION OF LIABILITY AS IN THE CASE OF TV SUNDARAM IYENGAR & SONS AND HENCE THE CASE IS DISTI NGUISHABLE ON FACTS. THEREFORE, THE SAID JUDGMENT CANNOT BE AP PLIED TO THE FACTS OF THE CASE BEFORE US. 14. IN THE CASE OF RAMA STEEL ROLLING MILLS & GENER AL ENGG. WORKS, THE HON'BLE RAJASTHAN HIGH COURT HAS H ELD THAT THE LIABILITY AT THE END OF THE YEAR, IF NOT PROVED COU LD CERTAINLY BE ADDED U/S 41(1) OF THE ACT BUT STILL IT IS OPEN FOR THE AO TO VERIFY THE DISCHARGE OF LIABILITY AND IF LIABILITY HAD BEE N DISCHARGED TILL THE DATE OF ASSESSMENT, THEN THERE WOULD BE NO REMI SSION OR CESSATION OF LIABILITY, BUT IF ASSESSEE FAILED TO P RODUCE THE CREDITOR OR WAS UNABLE TO GIVE EXACT ADDRESS OF THE CREDITOR S, THEN SUCH LIABILITY WOULD STAND CEASED DURING THE YEAR AND AO WOULD BE FREE TO ADD BACK SAME AS PER LAW. 15. IN THE CASE OF GUJTRON ELECTRONICS (P) LTD, THE HON'BLE GUJARAT HIGH COURT HELD THAT WHERE THERE IS LIMITAT ION PERIOD IN CLAIMING THE AMOUNT BACK AND IF THERE IS ABSOLUTELY NO MOVEMENT OR CORRESPONDENCE BETWEEN THE ASSESSEE AND ITS MEMB ERS WITH RESPECT TO THE CLAIM OR WITH RESPECT TO DEPOSIT AMO UNT, THE SAME CAN BE BROUGHT BACK TO TAX U/S 41(1) OF THE ACT. 16. THUS, IT CAN BE SEEN THAT THE FACTS OF THE CASE RELIED UPON BY THE LEARNED DR ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE BEFORE US. IN THE DECISIONS RELIED UPON BY TH E LEARNED ITA NO 1831 OF 2 017 NAMA PROPERTIES LTD. PAGE 17 OF 17 COUNSEL FOR THE ASSESSEE IT WAS HELD THAT THE GENUI NENESS OF THE TRADE PAYABLES OR CREDITORS HAS TO BE EXAMINED IN T HE YEAR IN WHICH THEY ORIGINATE AND THAT UNLESS THE LIABILITY BECOMES UNENFORCEABLE OR IS WRITTEN OFF BY THE ASSESSEE OR IS GIVEN UP BY THE OTHER PARTY OR SOMETHING IS BROUGHT ON RECORD T HAT THERE IS CESSATION OF LIABILITY, THE SAME CANNOT BE BROUGHT TO TAX U/S 41(1) OF THE ACT. THEREFORE, THEY ARE VERY MUCH APPLICABL E TO THE FACTS OF THE CASE BEFORE US AND RESPECTFULLY FOLLOWING THE S AME, SINCE THERE IS NO EVIDENCE THAT THERE IS A CESSATION OF LIABILI TY DURING THE RELEVANT A.Y, WE HOLD THAT IT CANNOT BE BROUGHT TO TAX U/S 41(1) OF THE ACT DURING THE RELEVANT A.Y. THE ADDITION IS AC CORDINGLY DELETED. 17. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH MARCH, 2020. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 5 TH MARCH, 2020. VINODAN/SPS COPY TO: 1 M/S. NAMA PROPERTIES LTD. C/O P MURALI & CO. C.A, 6-3-655/2/3 SOMAJIGUDA, HYDERABAD 500082 2 DY. CIT, CENTRAL CIRCLE 2(1) HYDERABAD 3 CIT (A)-12 HYDERABAD 4 PR. CIT CENTRAL, HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER