M/S SURYA INTERNATIONAL,,AHMEDABAD vs. THE ASSESSING OFFICER, CIRCLE-5(2),, AHMEDABAD

Sole grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.1,71,917/- which was added by the AO with the aid of section 41 of the Income Tax Act, 1961.

With the assistance of the ld.representatives, we have gone through the record carefully. It emerges out from the record that while scrutinizing return of income of the assessee, the ld.AO has observed that there are five creditors whose credit balance is outstanding from many years. According to the AO, there is no change in the opening

The section 41(1) applies where a trading liability was allowed as a deduction in an earlier year in computing the business income of the assessee and the assessee has obtained a benefit in respect of such trading liability in a later year by way of remission or cessation of the liability. In such a case the section says that whatever benefit has arisen to the assessee in the later year by way of remission or cessation of the liability will be brought to tax in that year. The principle behind the section is that the provision is intended to ensure that the assessee does not get away with a double benefit - once by way of deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with reference to the liability earlier allowed as a deduction. At this stage it is pertinent to take note of finding recorded by the Hon'ble Gujarat High Court in the case of CIT v. Bhogilal Ramjibhai Atara [2014] 43 taxmann.com55/222 Taxman 313. It reads as under: "8. 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

The AO has not brought any evidence on the record to show that liability has ceased. The assessee has not written off the liability in the accounts. Therefore, there would not be any addition under section 41(1) of the Act. Hon'ble High Court in the case of Bhogilal Ramjibbhai Atara (supra) considered this aspect and observed that even if debt itself is found to be non-genuine from the very inception that also in terms of section 41(1) of the Act, there is no solution for that. In other words, addition cannot be made unless liability in the accounts has been written off. Therefore, following the decision of the Hon'ble Gujarat High Court in the case of Bhogilal Ramjibhai Atara (supra), we allow this ground of appeal and delete disallowance. 6. In the result, appeal of the assessee is allowed. Pronounced in the Open Court on 3rd May, 2019.