ITA NO. 4541DEL/2017 MEYER APPAREL LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER & SHRI K.N. CHARY, JUDICIAL MEMBER ITA NO.-4541/DEL/2017 (ASSESSMENT YEAR:2012-13) DCIT CIRCLE 16(2) NEW DELHI. VS. MEYER APPAREL LTD. D-219, SUSHIL BHAWAN, VIVEK VIHAR-1, NEW DLEHI. PAN NO. AAACG3928L APPELLANT RESPONDENT REVENUE BY SH. JAGDISH SINGH DAHIYA, SR. DR ASSESSEE BY SH. VINOD KUMAR BINDAL, CA MS. RINKY SHARMA, CA DATE OF HEARING: 30.12.2020 DATE OF PRONOUNCEMENT : 30.12.2020 ORDER PER K. NARASIMHA CHARY, JM AGGRIEVED BY THE ORDER DATED 6/4/2017 IN APPEAL NO. 122/16-17 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)-18, NEW DELHI (LD. CIT(A)) FOR THE ASSESSMENT YEAR 2012-13 IN T HE CASE OF M/S MEYER APPAREL LTD (EARLIER KNOWN AS M/S GIVO LTD), REVENU E PREFERRED THIS APPEAL CHALLENGING THE DELETION OF THE ADDITION OF RS. 8, 44, 0 22/-MADE BY THE ASSESSING OFFICER BY INVOKING 14A OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) READ WITH RULE 8D OF THE INCOME TAX RULES1962 (THE RULES) AND ALSO ITA NO. 4541DEL/2017 MEYER APPAREL LTD. 2 REDUCING THE BOOK PROFIT UNDER SECTION 115 JB OF TH E ACT; DELETING THE ADDITION OF RS. 6, 77, 24, 250/-MADE BY THE ASSESSI NG OFFICER ON ACCOUNT OF UNDISCLOSED SOURCES IN THE FORM OF TRADE CREDITORS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF MANUFACTURING, TRADING AND JOB WORK OF MENS SUITS, JACKETS AND TROUSERS AND TRADING OF SHIRTS. FOR THE ASSESSMENT YEAR 2012 -13 THEY HAVE FILED THEIR RETURN OF INCOME ON 24/9/2012 DECLARING A NIL INCOM E AFTER SETTING OF LOSSES BROUGHT FORWARD TO THE TUNE OF RS. 88, 36, 327/-FRO M THE EARLIER YEARS BUT COMPUTED THE BOOK PROFITS UNDER SECTION 115 JB OF T HE ACT AT RS. 72, 42, 919/-AND PAY TAXES OF RS. 13, 80, 138/-UNDER SECTIO N 115 JB OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, LEARNE D ASSESSING OFFICER FOUND THAT THE ASSESSEE COMPANY HAD INVESTED IN SHA RES FOR THE PURPOSE OF LONG TERM CAPITAL GAINS AND THEREFORE INVOKING THE PROVISIONS UNDER 14A OF THE ACT READ WITH RULE 8D OF THE RULES MADE AN ADDI TION OF RS. 8, 44, 0 22/-. FURTHER ON A PERUSAL OF THE DETAILS OF CREDITORS, T HE LEARNED ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS BEEN SHOWING STATIC CRE DITORS IN THE NAME OF 4 PARTIES SINCE 2008, BUT IN VIEW OF THE FACT THAT MO RE THAN 5 YEARS ELAPSED, LEARNED ASSESSING OFFICER OPINED THAT THE SAME IS A FICTITIOUS LIABILITY AND ADDED A SUM OF RS. 6, 77, 24, 250/-TO THE INCOME OF THE ASSESSEE. 3. AGGRIEVED BY SUCH ADDITIONS ASSESSEE PREFERRED A PPEAL BEFORE THE LD. CIT(A) AND ARGUED THAT ANY ADDITION INVOKING THE PR OVISIONS UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES IS NO T JUSTIFIED WHEN THE ASSESSEE PLEADS THAT THEY EARNED NO EXEMPTED INCOME DURING THE YEAR. ASSESSEE FURTHER PLEADED THAT THE ASSESSING OFFICER HIMSELF REFERRED TO THE CONFIRMATION LETTERS ISSUED BY THE CREDITORS WHO HA VE BEEN THERE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FOR THE LAST MORE THAN 5 YEARS AND THE ITA NO. 4541DEL/2017 MEYER APPAREL LTD. 3 IDENTITY OF THE CREDIT WORTHINESS CANNOT BE SUSPECT ED AND GENUINENESS OF THE TRANSACTION IS ALSO BEYOND DOUBT. LD. CIT(A) FO LLOWED THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CH EMINVEST LTD VS. CIT (2015) 94 CCH 0002 (DEL) AND OTHER EDITIONS OF THE HONBLE JURISDICTIONAL HIGH COURT AND DELETED THE ADDITION MADE IN VIEW OF THE FACT T HAT NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE DURING THE YEAR. SO ALSO , LD. CIT(A) CONSIDERED THE COPY OF THE APPLICATION FURNISHED BY THE ASSESS EE BEFORE THE BIFR DATED 19 FOR 2016 WHERE THE LATEST STATUS OF THE IMPUGNED FOREIGN ADVANCES WERE DECLARED AND SPECIFIC REFERENCE WAS MADE TO SERIAL NUMBER 26 (II) WHERE A SUM OF RS. 7 89.14 LACS WAS SHOWN DUE TO THE PRESSI NG CREDITORS OF THE COMPANY WHICH INCLUDE ADVANCE PAYMENT AGAINST THE O RDER RECEIVED FROM TRUST EXPORT TO THE TUNE OF RS. 3 32.65 LACS, AROUN D POINT LTD TO THE TUNE OF RS. 79.80 LACS AND THAKRAL INVESTMENT HOLDINGS PVT. LTD TO THE TUNE OF RS. 79.8 LACS AND ALSO THE NOTE IN RESPECT OF EACH OF T HE FOREIGN ADVANCES AND OTHER DOCUMENTS PRODUCED BY THE ASSESSEE IN RESPECT OF ALL THE 4 ENTITIES AND THEIR LIABILITY TOWARDS THEM, REACHED A CONCLUS ION THAT IN VIEW OF THE FACT THAT THE GENUINENESS OF THE CREDITORS OR THE C REDITWORTHINESS IS NOT UNDER ANY SUSPICION AND THE GENUINENESS OF THE TRAN SACTION ALSO STANDS PROVED. HE ACCORDINGLY DELETED SUCH AN ADDITION ALS O. HENCE THIS APPEAL BY THE REVENUE. 4. INSOFAR AS THE ISSUE RELATING TO THE LOCATION OF THE PROVISIONS UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RUL ES IS CONCERNED, LD. DR ARGUED THAT THE LD. CIT(A) FAILED TO CONSIDER THE L EGISLATIVE INTENT OF INTRODUCING THE PROVISIONS UNDER SECTION 14 A BY FI NANCE ACT 2001 AS CLARIFIED BY THE CBDT CIRCULAR NO. 5/2014, DATED 10 /2/2014; THAT THE LD. CIT(A) FAILED TO CONSIDER THE LEGAL PRINCIPLES THAT ALLOWABILITY/DISABILITY OF ITA NO. 4541DEL/2017 MEYER APPAREL LTD. 4 EXPENDITURE UNDER THE ACT IS NOT CONDITIONAL UPON T HE EARNING OF THE INCOME IN VIEW OF THE DECISION OF THE HONBLE APEX COURT I N THE CASE OF RAJENDRA PRASAD MOODY. PER CONTRA, IT IS THE SUBMISSION OF T HE LD. AR THAT WHEN ONCE THE REVENUE DOES NOT DISPUTE THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE PARTICULAR YEAR, THE PROVISIONS U NDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES CANNOT BE INVOKE D IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CHEMINVEST LTD (SUPRA) AND OTHER DECISIONS. 5. IN THE ASSESSMENT ORDER ITSELF, LEARNED ASSESSIN G OFFICER RECORDED THAT THE ASSESSEE HAS BEEN PLEADING THAT NO EXEMPT DIVIDEND INCOME WAS EARNED BY THE ASSESSEE DURING THE YEAR AND THEREFOR E THE PROVISIONS UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RUL ES CANNOT BE INVOKED. RELIANCE IS BASED ON THE DECISION REPORTED IN CIT V S. HOLCIM INDIA PVT. LTD. 90 CCH 81 (DEL) (HC), WHEREIN IT WAS HELD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. FURTHER, HONBLE JURISDICTIONAL HIGH COURT IN PCIT VS. IL & FS ENERGY DEVELOPMENT COMPAN Y LTD. (2017) 99 CCH 0190 DELHC, (2017) 297 CTR 0452 (DEL) DECIDED ON 16 TH AUGUST, 2017 9. MR. ZOHEB HOSSAIN, LEARNED SENIOR STANDING COUNS EL FOR THE REVENUE, SUBMITTED THAT, IN CHEMINVEST LTD. (SUPRA), THIS CO URT HAD NO OCCASION TO CONSIDER THE CBDT CIRCULAR NO. 5/2014 DATED 11TH FE BRUARY 2014 WHICH CLARIFIED THAT SECTION 14A WOULD APPLY EVEN WHEN EX EMPT INCOME WAS NOT EARNED IN A PARTICULAR AY. ACCORDING TO HIM, THE OT HER DECISIONS OF THIS COURT IN CIT-IV V. TAIKISHA ENGINEERING INDIA PVT. LTD. [2015] 370 ITR 338 (DEL) AND CIT-IV V. HOLCIM INDIA PVT. LTD. (2014) 2 72 CTR (DEL) 282 DID NOT ACTUALLY DISCUSS THE ABOVE CIRCULAR OF THE CBDT AND , THEREFORE, WOULD BE DISTINGUISHABLE. 10. MR. HOSSAIN FURTHER SUBMITTED THAT THERE WAS NO THING IN SECTION 14A OF THE ACT WHICH SUGGESTED THAT EXEMPT INCOME HAD TO N ECESSARILY BE EARNED IN THE AY IN QUESTION FOR THE APPLICABILITY OF THE SAID PROVISION. HE SUBMITTED THAT IF THE INTERPRETATION PLACED ON SECTION 14 A O F THE ACT BY THE ABOVE ITA NO. 4541DEL/2017 MEYER APPAREL LTD. 5 CBDT CIRCULAR WAS NOT ACCEPTED, THE VERY PURPOSE OF SECTION 14A WOULD BE DEFEATED. HE REFERRED TO THE DECISIONS OF THE ITAT IN ACIT V. RATAN HOUSING DEVELOPMENT LTD. (ORDER DATED 23RD MAY 2008 OF ITAT LUCKNOW) RELAXO FOOTWEAR LTD. V. ADDL. CIT [2012] 50 SOT 102 (DEL). XXX XXX XXX XXX XXX XXX 19. IN THE CONSIDERED VIEW OF THE COURT, THIS WILL BE A TRUNCATED READING OF SECTION 14 A AND RULE 8D PARTICULARLY WHEN RULE 8D (1) USES THE EXPRESSION SUCH PREVIOUS YEAR. FURTHER, IT DOES NOT ACCOUNT FOR THE CONCEPT OF REAL INCOME. IT DOES NOT NOTE THAT UNDER SECTION 5 OF T HE ACT, THE QUESTION OF TAXATION OF NOTIONAL INCOME DOES NOT ARISE. AS EX PLAINED IN COMMISSIONER OF INCOME TAX V. WALFORT SHARE AND STOCK BROKERS PV T. LTD [2010] 326 ITR 1 (SC), THE MANDATE OF SECTION 14A OF THE ACT IS TO C URB THE PRACTICE OF CLAIMING DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME BEING TAXABLE INCOME AND AT THE SAME TIME AVAIL OF THE TA X INCENTIVES BY WAY OF EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPOR TIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. CON SEQUENTLY, THE COURT IS NOT PERSUADED THAT IN VIEW OF THE CIRCULAR OF THE C BDT DATED 11TH MAY 2014, THE DECISION OF THIS COURT IN CHEMINVEST LTD. (SUPRA) REQUIRES RECONSIDERATION. 20. IN M/S. REDINGTON (INDIA) LTD. V. THE ADDITIONA L COMMISSIONER OF INCOME TAX, COMPANY RANGE V, CHENNAI (ORDER DATED 23RD D ECEMBER, 2016 OF THE HIGH COURT OF MADRAS IN TCA NO. 520 OF 2016), A SIM ILAR CONTENTION OF THE REVENUE WAS NEGATED. THE COURT THERE DECLINED TO AP PLY THE CBDT CIRCULAR BY EXPLAINING THAT SECTION 14A IS CLEARLY RELATABL E TO THE EARNING OF THE ACTUAL INCOME AND NOT NOTIONAL INCOME OR ANTICIPATE D INCOME. IT WAS FURTHER EXPLAINED THAT, THE COMPUTATION OF TOTAL INCOME IN TERMS OF RULE 8 D IS BY WAY OF A DETERMINATION INVOLVING DIRECT AS WELL AS INDIRECT ATTRIBUTION. THUS, ACCEPTING THE SUBMISSION OF THE REVENUE WOULD RESUL T IN THE IMPOSITION OF AN ARTIFICIAL METHOD OF COMPUTATION O N NOTIONAL AND ASSUMED INCOME. WE BELIEVE THUS WOULD BE CARRYING T HE ARTIFICE TOO FAR. 21. THE DECISIONS IN CIT V. M/S LAKHANI MARKETING I NC. 2014 SCC ONLINE P&H 20357, CIT V. WINSOME TEXTILE INDUSTRIES LIMITED [2 009] 319 ITR 204 (P&H), CIT V. SHIVAM MOTORS (P) LTD. (2014) 272 CTR (ALL) 277 HAVE ALL TAKEN A SIMILAR VIEW. THE DECISION IN TAIKISHA ENGINEERING INDIA PVT. LTD. (SUPRA) DOES NOT SPECIFICALLY DEAL WITH THIS ISSUE. ITA NO. 4541DEL/2017 MEYER APPAREL LTD. 6 22. IT WAS SUGGESTED BY MR. HOSSAIN THAT, IN THE CO NTEXT OF SECTION 57(III), THE SUPREME COURT IN COMMISSIONER OF INCOME TAX, WE ST V. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 (SC) EXPLAINED THAT DEDUCTION IS ALLOWABLE EVEN WHERE INCOME WAS NOT ACTUALLY EARNED IN THE AY IN QUESTION. THIS ASPECT OF THE MATTER WAS DEALT WITH BY THIS COURT IN M/S CHEMINVEST LTD. (SUPRA) WHERE IT REVERSED THE DECIS ION OF THE SPECIAL BENCH OF THE ITAT BY OBSERVING AS UNDER: 20. SINCE THE SPECIAL BENCH HAS RELIED UPON THE DE CISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY (SUPRA), IT IS CONSIDERED NECESSARY TO DISCUSS THE TRUE PURPORT OF THE SAID D ECISION. IT IS NOTICED TO BEGIN WITH THAT THE ISSUE BEFORE THE SUP REME COURT IN THE SAID CASE WAS WHETHER THE EXPENDITURE UNDER SECTION 57 (III) OF THE ACT COULD BE ALLOWED AS A DEDUCTION AGAINST DIVIDEN D INCOME ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S. UNDER SECTION 57 (III) OF THE ACT DEDUCTION IS ALLOWED IN RESPECT OF ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIV ELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THE SUPRE ME COURT EXPLAINED THAT THE EXPRESSION 'INCURRED FOR MAKING OR EARNING SUCH INCOME?, DID NOT MEAN THAT ANY INCOME SHOULD IN FAC T HAVE BEEN EARNED AS A CONDITION PRECEDENT FOR CLAIMING THE EX PENDITURE. THE COURT EXPLAINED: WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITURE M UST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITUR E THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF S. 57(III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. S. 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE E XPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHA LL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS IN F ACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFI T BY WAY OF RETURN IN THE SHAPE OF INCOME. THE PLAIN NATURAL CO NSTRUCTION OF THE LANGUAGE OF S. 57(III) IRRESISTIBLY LEADS TO THE CO NCLUSION THAT TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDI TURE.' 21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA T HAT THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY (SUPRA) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION UNDER SECTION 57(III) OF THE ACT, WHERE THE EXPRESSION USED IS 'FOR THE PURPOSE OF MAKING O R EARNING SUCH INCOME.' SECTION 14A OF THE ACT ON THE OTHER HAND CONTAINS T HE EXPRESSION 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME.' THE DECISION IN RAJENDRA PRASAD MOODY (SUPRA) CANNOT BE USED IN THE REVERSE TO ITA NO. 4541DEL/2017 MEYER APPAREL LTD. 7 CONTEND THAT EVEN IF NO INCOME HAS BEEN RECEIVED, T HE EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SECTION 14A OF THE ACT. 23. THE DECISIONS OF THE ITAT IN ACIT V. RATAN HOUS ING DEVELOPMENT LTD. (SUPRA) AND RELAXO FOOTWEAR LTD. V. ADDL. CIT (SUPR A), TO THE EXTENT THAT THEY ARE INCONSISTENT WITH WHAT HAS BEEN HELD HEREI NBEFORE DO NOT MERIT ACCEPTANCE. FURTHER, THE MERE FACT THAT IN THE AUDI T REPORT FOR THE AY IN QUESTION, THE AUDITORS MAY HAVE SUGGESTED THAT THER E SHOULD BE A DISALLOWANCE CANNOT BE DETERMINATIVE OF THE LEGAL P OSITION. THAT WOULD NOT PRECLUDE THE ASSESSEE FROM TAKING A STAND THAT NO D ISALLOWANCE UNDER SECTION 14 A OF THE ACT WAS CALLED FOR IN THE AY IN QUESTION BECAUSE NO EXEMPT INCOME WAS EARNED. 6. IN VIEW OF THE ABOVE POSITION OF LAW, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) IS JUSTIFIED IN HIS FIN DINGS THAT IN VIEW OF THE UNDISPUTED POSITION THAT NO DIVIDEND HAS BEEN EARNE D DURING THE YEAR, NO DISALLOWANCE IS CALLED FOR UNDER SECTION 14 A OF TH E ACT AND THE SAME DOES NOT WARRANT ANY INTERFERENCE. WE ACCORDINGLY HOLDIN G SO, DISMISS GROUND NUMBERS 1 TO 4. 7. NOW COMING TO THE ADDITION OF RS. 6,77,24,250/-A DDED BY THE ASSESSING OFFICER ON ACCOUNT OF UNDISCLOSED SOURCES IN THE FORM OF TRADE CREDITORS, LEARNED ASSESSING OFFICER IN THE ASSESSM ENT ORDER RECORDED THAT THE STATIC CREDITORS IN THE NAME OF 4 PARTIES ARE S TANDING SINCE THE YEAR 2008. IN RESPECT OF M/S TRUST EXPORTS PVT LTD, SING APORE THE ASSESSEE COMPANY HAD SUPPLIED CERTAIN GARMENTS TO THIS ENTIT Y AGAINST PART PAYMENT OF THE ADVANCE RECEIPTS, BUT IT DUE TO QUALITY PROB LEM AND HIGHER COST OF PRODUCTS, THE ASSESSEE COMPANY OSGOOD THE OVERSEAS BUYER TO REVISE THE PRICE SUPPORTS WHICH THE CUSTOMER DID NOT ACCEPT AN D THE EXPORT ORDER WAS CANCELLED, IN RESPECT OF WHICH THE ADVANCE IS WITH THE ASSESSEE. IN RESPECT OF M/S RIGHT POINT LTD, SINGAPORE AND M/S THAKRAL INVE STMENT HOLDING PVT. LTD, SINGAPORE THE EXPORT ORDERS WERE CANCELLED BY THE B UYERS AND HAD ITA NO. 4541DEL/2017 MEYER APPAREL LTD. 8 REPEATEDLY BEEN ASKING FOR A REFUND OF ITS ADVANCE AMOUNT WHICH THE ASSESSEE COMPANY COULD NOT DO SO DUE TO ITS FINANCI AL CRUNCH. IN RESPECT OF M/S KANWALJEET SINGH DHILLON, SINGAPORE THE ASSESSE E IS DUTY BOUND TO REFUND THE ADVANCE AMOUNT FOR A JUST THE SAME AGAIN ST THE FUTURE SUPPLIES TO SUCH PARTY. ALL THESE PARTIES FILED THE CONFIRMA TION LETTERS CONFIRMING THE RECEIVABLES. 8. LD. CIT(A) CONSIDERED ALL THESE ASPECTS IN DETA IL. SINCE THE LEARNED ASSESSING OFFICER TOOK THE VIEW THAT NOT ONLY THE C REDITS HAVE BEEN CONTINUED FOR LONG SPAN OF TIME WITHOUT BEING REPAI D, BUT THE CRYSTALLISATION OF FOREIGN CURRENCY TO RUPEE TIMES WAS MADE WITHOUT ANY APPROVAL OF THE RBI, LD. CIT(A) SOUGHT CLARIFICATION FROM THE ASSES SEE AND OBTAINING THE COPY OF APPLICATION BEFORE THE BIFR DATED 19 FOR 2016 WH ERE THE LATEST STATUS OF THE IMPUGNED FAR AND ADVANCES WERE DECLARED WITH A SPECIFIC REFERENCE TO SERIAL NO. 26 (II) WHERE A SUM OF RS. 7 89.14 LACS WAS SHOWN DUE TO THE PRESSING THE CREDITORS OF THE COMPANY WHICH INCLUDE ADVANCE PAYMENT AGAINST THE ORDER RECEIVED FROM TRUST EXPORTS, RIGH T POINT LTD AND THAKRAL INVESTMENT HOLDINGS PVT. LTD. 9. LD. CIT(A) ALSO VERIFIED VARIOUS DOCUMENTS RELA TING TO THESE ENTITIES AND MADE AN OBSERVATION THAT IF THE LOAN AMOUNT WAS NOT RECEIVED IN THE COURSE OF TRADING TRANSACTIONS, BUT WAS TREATED AS UNSECURED LOANS AND DULY RETURN OF, IT COULD NOT BE BROUGHT TO TAX UNDER SEC TION 41 AS HAS BEEN HELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CIT VS. VELOCIENT TECHNOLOGIES LTD (2015) 60 TAXMAN.COM 353 (DELHI) W HEREIN IT WAS HELD THAT THE BASIC AND PRIMARY REQUIREMENT UNDER SECTION 41 (1) OF THE ACT IS THAT LOAN AMOUNT SHOULD HAVE BEEN RECEIVED IN THE COURSE OF TRADING TRANSACTIONS OR IT HAD ARISEN OUT OF ORDINARY TRANS ACTIONS; THAT WHEN THE ITA NO. 4541DEL/2017 MEYER APPAREL LTD. 9 AMOUNTS IN QUESTION WERE NEVER RETREATED AS A TRADI NG RECEIPTS BUT AS UNSECURED LOANS, PROVISIONS OF SECTION 41 (1) OF TH E ACT WOULD NOT APPLY. 10. LD. CIT(A) FURTHER OBSERVED THAT REMISSION OR C ESSATION OF TRADING LIABILITY IS GOVERNED BY SECTION 41 (1) OF THE ACT AND NOT BY SECTION 28 (IV) AS HELD IN CIT VS. SH. VARDHAMAN OVERSEAS (2011) 16 TA XMAN.COM 350 WHEREIN IT WAS HELD THAT WHILE SECTION 28 (IV) WOULD APPLY GENERALLY TO ALL BENEFITS ARE PERQUISITES WHICH ARISE TO ASSESSEE FROM BUSINE SS CARRIED ON BY HIM, BENEFIT WHICH HE OBTAINS BY WAY OF REMISSION OR CES SATION OF TRADING LIABILITY IN A LATER YEAR, IN RESPECT OF WHICH HE HAS OBTAINE D A DEDUCTION IN AN EARLIER YEAR IN COMPUTING BUSINESS INCOME, HAS TO BE GOVERN ED BY SECTION 41 (1) OF THE ACT WHICH IS A SPECIFIC PROVISION GOVERNING FAC TUAL SITUATION AND NOT BY SECTION 28 (IV). LD. CIT(A) FURTHER OBSERVED THAT I T IS WELL SETTLED BY MAJORITY DECISIONS THAT IN ORDER TO ATTRACT THE PROVISIONS O F SECTION 41 (1) OF THE ACT, THERE SHOULD HAVE BEEN AND IRREVOCABLE CESSATION OF LIABILITY WITHOUT ANY POSSIBILITY OF THE SAME BEING REVIVED AND IN VARDHA MANS (SUPRA) IT WAS HELD THAT UNPAID LIABILITY CANNOT BE ADDED AS THE ASSESS EES INCOME UNDER SECTION 41 (1) OF THE ACT MERELY BECAUSE THEY REMAINEDUNPAI D FOR A SUFFICIENTLY LONG TIME AND THAT IT IS REQUIRED OF THE REVENUE AUTHORI TIES TO SHOW THAT THE LIABILITY TO PAY THE CREDITORS HAS A SOLICITOR OR H AS BEEN REMITTED BY THE CREDITORS. 11. SINCE THE LD. CIT(A) CORRECTLY APPLIED THE LAW TO THE FACTS ON THE CASE IN THE LIGHT OF THE DECISIONS REFERRED TO BY HIM IN HIS ORDER, WE DO NOT FIND ANY LEGAL INFIRMITY IN SUCH FINDINGS AND, THEREFORE , UPHOLD HIS CONCLUSION THAT UNLESS AND UNTIL THERE IS AN IRREVOCABLE CESSATION OF LIABILITY WITHOUT ANY POSSIBILITY OF THE SAME BEING REVIVED, MERELY BECAU SE THE AMOUNTS REMAINED UNPAID FOR A SUFFICIENTLY LONG TIME IS NOT A GROUND TO INVOKE THE ITA NO. 4541DEL/2017 MEYER APPAREL LTD. 10 PROVISIONS UNDER SECTION 41 (1) OF THE ACT. THE FA CT REMAINS THAT SO LONG AS THE ASSESSEE IS ACKNOWLEDGING THE DEBT, THE LAW OF LIMITATION DOES NOT RUN AGNISTTHE ASSESSEE TO CONCLUDE THAT THERE IS AN IRR EVOCABLE CESSATION OF THE LIABILITY OF THE ASSESSEE. WE DO NOT FIND ANY REASO N TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). WE ACCORDINGLY, DISMISS ED GROUNDS NO. 5 TO 7. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT IMMEDIATELY AFTE R THE CONCLUSION OF THE HEARING IN THE VIRTUAL COURT ON 3 0/12/2020. SD/- SD/- (PRASHANT MAHARISHI) (K. N ARSIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMB ER DATED:30/12/2020 *KAVITA ARORA, SR. PS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI