VENUS INTERNATIONAL,MUMBAI vs. DCIT 14(2), MUMBAI

ORDER

PER OM PRAKASH KANT, AM

M/s Venus International 2 0184] and Elde Electricals Agencies Private Limited Vs CIT [Bom HC -2015 (7) TMI 16] were cited by the Ld. counsel of the assessee, but not considered by the Tribunal, the Tribunal in its order in Miscellaneous Application No. 36/Mum/2020, recalled the order dated 23/05/2019 to the limited extent of examining the application of decision in “Elde Electricals Agencies Private Limited (supra)” and “Lotus India Ltd (supra)” to the present case.

M/s Venus International 3 “4. We have heard the counsels for both the parties and we have also perused the material placed on record, judgment cited by the parties, respective written submissions as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the assessee by taking into consideration the submissions made by the assessee, remand report submitted by the AO in para no. 4 to 7 of its order and the same is reproduced below:-

" This addition of Rs.32,51,157/- claimed to be payable to INIs, gravity India P.Ltd. was treated as unexplained expenditure, as the assessee had no reply to the show cause, where it was asked to explain why it should not be treated as paid out or its unaccounted income, when the client, M/s. gravity India P./td., had stated under summons issued u/s,131 of the Income-tax Act, 1961 that there is no dues pending from 14/s. Venus International, all the payments were received in the month of September, 2009 and that they have not claimed any amount as bad debts from M/s. Venus International.

M/s Venus International 4 For remand proceedings, this office issued a notice to M/s. gravity India P.Itd. calling for information u/s.133(6) of the LT, Act and asked to furnish a copy of bank statement highlighting the cheque No. and amount received from M/s. Venus International. M/s. Gravity India P.Itd. submitted its bank of Haroda Account No.04050500000029 statement copies for the month of Sept., 2009 highlighting the amount and cheque No. received from M/s. 'Yentis International where the exact amount of payment received is tallied ( copy attached for your reference). Further, a notice u/s.133(6) was issued to the bank for classification of the receipt wherein the bank has confirmed the payment received by M/s, Gravity India P.Itd. from various account since M/s. Gravity India P.Ltd, has liability from M/s. Venus International. Hence, the assessee's claim of sundry creditors of the party is not justified and the addition is sustained."

4.2. Needless to say, the appellant was given an opportunity by the AC during the remand proceedings thereby the appellant was provided with the copy of the bank statement of M/s.Gravity India Ltd. However, it is the contention of the appellant that these amounts are not paid by him. The cheques deposited into the account of M/s.Gravity India have come from various parties and not from the appellant. The Ld, Counsel claims that the amount of Rs.32,51,157 is still payable as on 31.2.2010 and cannot be added u/s.69C.

4.2.1. The amounts credited into the account of M/s,Gravity India in Sept.09 exactly tally with the amount payable by the appellant. Even though the cheques are issued by various parties, the possibility of the payments being made by the appellant through other parties is not ruled out. For example, P.D. Sinar, who is the agent of the appellant has collected the amount due to the appellant from its clients and adjusted it against tn dues from the appellant. Similarly, the appellant would have some of its debtors pay to M/s.Gravity India Ltd. M/s, Gravity India is confirming that it had received the payment from the appellant

M/s Venus International 5 and is showing the bank account statement as a proof. Therefore, this is a payment made by the appellant which has not gone through the books and the AO has rightly brought this to tax u/s.69C as unexplained expenditure.

4.2.2. Even for a moment, if it is presumed that the appellant has not made this payment and the amounts are still due to M/s.Gravity India Ltd., when the creditor itself is saying that it has received the payments and there is nothing receivable from the appellant, it amounts to cessation of liability. The party (self is clearly saying that there is nothing receivable from ehe appellant. Therefore, if the appellant has not paid the amount to the party, it need not pay in future also as M/s. Gravity India Ltd. has clearly stated that there is nothing receivable from the party. So if not u/ 9C, this aunt will be taxable u/s,41(1) of the 1.1. Act, The addition made by the AO is confirmed. This ground of appeal is dismissed,

5. The second ground of appeal is against the addition u/s.41(1) of Rs.41,90,675/ which was payable to M/s. R.D. textiles.

5.1. The Ld. Counsel for the appellant submitted that the AO relied on some alleged information/confirmation or some statement u/s.131 from Mr. Harish Chandra Singh, Prop. of M/s. RD. Textiles in which he confirmed that no amount is receivable from the appellant. The Ld. Counsel for the appellant submitted that the purchases from RD. Textiles were made in July, 2003 and according to the proprietor's statement, the fire took place on 9.9.2003. and he has stopped the business after that. According to the Ld. Counsel, the reply of the proprietor was based on his memory and recollection and is not absolute truth. No adverse i;iference ought to be drawn as the statement given by Mr. Harish Singh is based on his memory or to the best of his knowledge specially when no cross examination has been provided. This is a case where the creditor is stating that he does not remember any such receivable from the appellant which is good for the appellant as he is waving off the amounts payable. The Ld. Counsel contended that the cross examination was not provided and the statement has been recorded behind his back. However, the statement copy has been given to M/s Venus International 6 him during the remand proceedings, The AD has submitted as under in the remand report :-

The addition of Rs.2,49,39,6201- for ceased liability claimed of sundry creditors, out of the above Rs.41,90,6751- claimed as outstanding payment to Mr. H.V. Singh, proprietor of M/s. R.D. Textiles, Surat has been claimed by the assessee. The statement was recorded on oath u/s.131 of the I.T.Act, wherein question was put to the proprieto, by the AO which is annexed herewith.

Q.No.4. My assessee M/s, Venus International in his return of income for AY.2010-11 claims that they had purchased material from M/s. R.I), textile and shown creditors of Rs,41,90,675.20, please explain whether an amount of Rs.41,90,675.20 was receivable by you,?

Ans - To the best of my know/edge, no such big amount i.e. Rs.41,90,672,20 as stated above is receivable by me.

This itself is satisfactory that there is no amount payable to P4/s. P.D. textiles or Mr. H.V.Singh, the proprietor ( copy of the statement is attached herewith for your reference and perusal)

Assessee's claim for cross examination is not justifiable as such a huge amount receivable by a person cannot he waived out, hence, there is no justification for the claim of sundry creditors ad the addition made stands."

5.2. It is also a fact that the matter pertains to purchases made in July, 2003 and the proprietor issued a statement in 2013 stating that he does not remember anything as receivable from the appellant. Even till the end of 2016, which is a good 13 years after the purchases, the party has not taken any steps for recovery. It is amply clear from this that the party is not interested in pursuing recovery if it all it was due from the appellant, and there is no chance " of any M/s Venus International 7 further measures for recovery as the business of the appellant was closed down in 2003 itself. The appellant is carrying a fictitious liability, When it is very clear that there are absolutely no steps taken by the party for recovery from 2003 to 2016, it does not make any sense to still show it as a liability. Further, he had himself stated that to the best of his knowledge, no such amount is receivable by him. The AO is right in treating this as a cessation of liability and bring it to tax u/s,41(1) of the I,T. Act, 1961. This ground of 'appeal is dismissed.

6. The third ground of appeal is against the addition of Rs.2,07,48,845/- u/s.41(1) of the I.T. Act.

6,1. The party wise break up of this amount is as under :-- Name of the creditors Balance as on 31.3.2010 LM/s. Sunrise Textiles 1,71,26,130/- M/s, Paaneri Print 6,22,823/- M/s. S.R. Prints 967174/- M/s. Shri. Sai Leela Dyg & ptg.Mills 7,70,375/- Mr. Pradeep Kher 5,05,799/- Mrs. Om Textiles Pvt. ltd. 7156,544/- 6.2The Ld. Counsel for the appellant submitted that out: of the above six parties, the balances with respect to 4 parties which are Paaneri Print, Pradeep Kher, SR Prints and Shri Sai Leela dying and printing Mills have been appreciated by the CIT(A) while passing the order for the A.Y.2004-05 where a similar addition has been made by the AO. As regards other 2 parties, i.e. M/s.Sunrise Textiles and M/s.C_)rn Textiles Pvt. Ltd., he contents that the balances are genuine and still remain payable. The Ld. counsel was asked by the undersigned if there was any correspondence with the said parties, if the parties had followed up with the M/s Venus International 8 appellant for recovery and if any amounts have been paid till now. It is seen that the balances as on 31.3.2004 in respect of the above parties are more or less the same even as on 31.3.2010. Till date i.e. till Dec., 2016, no payments have been made by the appellant. However, the appellant has produced some letters which were supposed to be correspondence between the appellant and the parties, 1) M/s. Sunrise Textiles H This is a Surat based party to whom the - appellant claims to have a liability of Rs.1,71,26,130/-. No amount has been paid by the appellant till now. Even though this is due for so many years, the Ld. Counsel for the appellant has furnished 2 letters dated 8.3.2016 and 26.7.2016 where the party had requested the appellant to make the payment. The appellant also seems to have replied stating that he would start making the payments by the end of Dec., 2016. It is not understood why no legal action has been taker by this party even after so many years. The letters from the parties submitted by the appellant also appear to be fabricated. There is no phone no. given on the letter head even though it is a very big party to whom the appellant's dues itself is 1,71,26,130/-. 11 s strange and surprising that somebody would keep quiet without initiating any legal action when the party i.e. the apellant is non- cooperative and defiant.

2) MIs. Paanerj Print : The amount payable to this party is Rs.6,22,823/- and the address is Sakinaka, Andheri(E), Murnhai. This amount is being carried forward from A.Y.2004-05 i.e. for about 17 years. No payment whatsoever has been made by the appellant for all these years At the time of appellate proceedings for 2004- 05, the CIT(A) has observed that the balance has hoen confirmed by the party and therefore he deleted the addition. He was deciding the matter for A.Y,2004- 05. The current appeal is against the additions made for A.Y.2010-11 and the situation remains the same The Ld. Counsel for the appellant was asked to submit any correspondence between the appellant and the party, He had submitted 2 letters dt18 12016 and 19.8.2016 supposedly written by M/s Venus International 9 M/s.Paaneri Print, requesting for clearing the dues. It is surprising that after keeping silent for about 12 years, the party is writing letters in 2016. Further surprising is that the party has not initiated any legal action till date. Even more surprising is the fact that the phone number of the party i.e. M/s.Paaneri Print given in its letter head is 022 6369979 which is ony seven digits All the phone numbers in Metros have been converted to 8 digits many years ago. If somebody is keeping a seven digit phone no. on the letter head in 2016, the genuineness of the letter is anybody's guess. The appellant no doubt has furnished a fabricated piece of paper for which no credence can be given.

3) M/s.S. Print The amount due to this party is Rs.9,67,174/ and the address is Sakinaka, Andheri(E), Mumbal. This balance is being carried forward for many years. ' No payment what so even has been made by the appellant for all these years. At the time of appellate proceedings for 2004-05, the CIT(A) has observed that the balance has been confirmed by the party and therefore he deleted the addition, He was deciding the matter for A.Y.2004-05 and it was too early to apply section 41(1). The current appeal is against the additions made for 2010- 11 and the situation remains the same. The Ld. Counsel for the appellant was asked to submit any correspondence between the appellant and the party. The appellant submitted copies of 2 letters dated 17.2.2016 and 3.9.2016 where the party is requesting for payment of the dues. It is surprising that after keeping silent for about 12 years, the party is writing letters in 2016. FuFther surprising is that the party has not initiated, any legal .action till date. Even more surprising is the fact that the phone number of the party i.e. M/s.S.R. Print given in its letter head is 022- B523863/8505623 which are only seven digits. All the phone numbers in Metros have been converted to 8 digits many years ago. If somebody is keeping seven digit phone no. on the letter head in 2016, the genuineness of the letter is anybody's guess. The appellant no doubt has furnished a fabricated piece of paper for which no credence can be given.

M/s Venus International 10 4) Shri Sai Leela Dyeing and PN.Mills The amount due to this party was Rs.7,70,375/- which is due from A,Y.2004-05. This amount is being carried forward from A.Y.2004-05 i.e. for about 12 years. No payment whatsoever has been made by the appellant for all these years. At the time of appellate proceedings for 2004-05, the CIT(A) has observed that the balance has been confirmed by the party and therefore he deleted the addition. He was deciding the matter for A.Y.2004-05 when it was too early to apply Sec.41(1). The current appeal is against the additions made for 2010-11 and the situation remains the same. The Ld. Counsel for the appellant was asked to submit any correspondence between the appellant and the party. He had submitted 3 letters dt.25.12,2015, 30,06.2016 and 13.9.2016 supposedly written by M/s.Saileela Dyeing Ptg.Mills requesting for clearing the dues. It is surprising that: after keeping silent for about 12 years, the party is writing letters in 2016. Further surprising is that the party has not initiated any legal action till date. The appellant, no doubt has furnished a fabricated piece of paper for which non credence can be given. The letters from the parties submitted form the appellant also appear to be fabricated. There is no phone no. given on the letter head even though it is a very big party to whom the appellant's dues itself is 7,70,375/-. It is strange and surprising that somebody would keep quiet without initiating any legal action when the party i.e. the appellant is non-cooperative and defiant.

5) Mr. 'Pradeep Kher : The amount due to this party is Rs.5,05,799/-, This amount is being carried forward from A.Y.2004-05 i.e. for about 12 years, No payment whatsoever has been made by the appellant for all these years. At the time of appellate proceedings for 2004 05, the CIT(A) has observed that the balance has been confirmed by the party and therefore he deleted the addition. He was deciding the matter for A.Y.2004-05. The current appeal is against the additions made for 2010-11 and the situation remains the same, The Ld. Counsel for the appellant was asked to submit any correspondence between the appellant and the party. He had submitted a letter dt.28.07.2016 supposedly written by Mr.Pradeep Kher requesting for clearing the dues. It is surprising that M/s Venus International 11 after keeping silent for about 12 years, the party is writing letters in 2016. 'Further surprising is that the party has not initiated any legal action till date, Liven more surprising is the fact that the phone number of the party i.e. Mr. Pracieep Kher given in this letter head is 3108181 which is only seven digits. All the phone numbers in Metros have been converted to 8 digits many years ago. If somebody is keeping seven digit phone no, on the letter head in 2016, the genuineness of such letter is anybody's guess. The appellant, no doubt, has furnished a fabricated piece of paper for which no credence can be given. Also, verification reveals that this number is not existing.

6) M/s. Om Textiles Pvt. Ltd. : The amount due to this party is Rs.7,56,544/-. No amount has been paid by the appellant till now. Even though this is due for so many years, the Lb. Counsel for the appellant has furnished 2 letters dated 2.3,7,2016 and 2.5.8.2016 where the party had requested the appellant to make the payment. The appellant also seems to have replied stating that he would start making the payments by the end of Dec., 2016. It is not understood why no legal action has been taken by this party even after so many years. The letters from the parties submitted form the appellant also appear to be fabricated, 6.2.1. The Ld. Counsel for the appellant was asked to submit any correspondence between the appellant and the party. He had submitted 2 letters dt.18.1 .2016 and 19.8.2016 supposedly written by MIs. Om Textiles P,Ltd, requesting for clearing the dues. It is surprising that after keeping silent for about 12 years, the party is writing lettefs in 2016. Further surprising is that the party has not initiated any legal action till date. Even more surprising is the fact: that the phone number of the arty i.e. Om Textiles P.Ltd. given in this lettei head is 7685926 which is only seven digits. All the phone numbers in Metros have been converted to 8 digits many years ago. if somebody is keeping seven digit phone no, on the letter head in 2016, the genuineness of such a letter is anybody's guess. The appellant no doubt has furnished a fabricated piece of paper for which non credence can be given.

M/s Venus International 12 6.2.2. It is clear from the above, that none of the parties have been pursuing for recovery and it is as good as not recoverable. All the parties seem to have given up on recovery. Otherwise there would have been legal suits initiated against the appellant. There is no such 'thing. Further, the appellant has furnished some fabricated letters supposedly written by these parties. The CIT(A) while deciding the appeal for A.Y,200405 has allowed the outstanding liabilities in 4 cases i.e. M/s.Paneeri Print, 'Mr.Pradee'p Kher, Shri. Sai Leela and M/s,S.R. Prints. The reason given by him is that these parties have confirmed the balances as on 31.3.2004. In the instant case, we are dealing with A.Y.201011 and the facts are being appreciated in 2016. The CIT(A) has further observed that there were some transactions and part payments to some .of these parties. However, it is seen that there is no payment made in the last so many years and in the case of 2 parties, the balance is exactly the same as on 31.3.2004. The appellant has not made any payment in about 12 years and none of the parties have initiated legal action for recovery.

6.2.3.The Ld. counsel for the appellant relied on various case laws to support his case. However, the facts of all of them are different from the facts of the present case. In the case of CIT vs. Sugauli Sugar works(P) Ltd. relied upon by the appellant, the Hon'ble Apex court held that :

" Sec.41 contemplates the obtaining by the assessee of an amount either in cash or in any other manner whatsoever or a benefit by way of remission or cessation and it should be of a particular amount obtained by him. Thus, the obtaining by the assessee of a benefit by virtue of remission or Cessation is sine qua non for the application of this section. The mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not enable the department to say that s.41 would apply and the amount should be included in the total income of the assessee. Just because an assessee makes an entry in his books of accounts unilaterally, he cannot get rid of his liability. The question whether the liability is actually barred

M/s Venus International 13 by limitation is not a matter which can be decided by considering the assessee's case alone but it is a matter which has to be decided only if the creditor is before the concerned authority. In the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt is barred and has become unenforceable. 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. The principle that expiry of 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. 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."

6.2.4. In the instant case, there is no unilateral write off in the books of accounts. In fact, the appellant has net written off the liabilities but the facts and circumstances showed that there is no possibility of any recovery. Therefore, the additions made u/s.41(1) are justified. The appellant further relied upon UT Jain Exports Pvt. Ltd. 35 Taxman.com 540 (Del.) wherein the Delhi High Court held that credit amount outstanding for several years cannot be held as cessation of trading liability on ground that assessee could not prove genuineness of transaction, where assessee had acknowledged its liability successively over several years, Genuineness of the transactions is not an issue in this case. Therefore, this case cannot be applied. In the case of ITO Mumbai vs. PAN International 2013 (4 IMI 638) the ITA Mumbai held that outstanding creditors even for more than 3 years cannot be considered as sufficient evidence of cessation of liability. In the instant case, the liabilities have been existing for more than 12 years, without any efforts for recovery by the creditors, Therefore, this case is not relevant to the instant case. In the case of Aasia Business Ventures vs. ITO 2013 (430/Mum/2011), the issue is of advance against export received

M/s Venus International 14 from the party which was treated as income. In the present case it is not an advance shown in the balance sheet, but it is for purchases. In the case of CIT vs, Rajivbhai Becharbhai Dhamelia 34 Taxmarn.com.11 (Guj,) the issue was that the outstanding liabilities have already been paid in the subsequent year by way of account payee cheques. In this case, no such payments have been made by the appellant. Therefore, none of the cases relied upon by the appellant come to the aid of the appellant.

6.2.5. On the other hand, in the case of Mrs. Adarsh Sodh vs. CIT 47 Taxman.corn 268 (P & H), the Hon'ble High court of P & H held that when the two parties denied of having any amount payable to them, the amount found credited in books of account of the assessee , the liability to pay back ceased to exist and the income will be treated as assessee's taxable income. In this case also, M/s. Gravity India Ltd. and M/s, R.D.. Textiles have denied any outstanding liability and therefore the amount shown as outstanding by the appellant has been rightly treated as the appellant's income.

6.2.6. In the case of Natural Gas Co. Pvt. Ltd. Vs. DCIT 70 SOT 1, the Hon'ble ITAT Mumbai held that - revenue found that certain liabilities were outstanding in assessee's books for periods from 3 to 25 years - revenue was of the view that liability no longer existed- whether since assessee has not adduced any material or evidence or even explanation as to why the impugned amounts were not paid in normal course, the same amounted to cessation or remission of liability/s.41( I ): held .yes, 6.2.7. In view of the facts and circumstances discussed above and in view of the judgments cited above, the additions made by the AO in the cases of R.D. Textiles, MI/s. Sunrise Textiles, M/s. Panneri Print, M/s. S.R. Prints, NI/s. Shri. Sai Leena Dyg. & Ptg.Mills, Mr. Pradeep Kher and M/s. Om.Textiles Pvt. Ltd. have to be upheld.

M/s Venus International 15 6.2.8. In view of the facts and circumstances discussed above, the addition made by the AO u/s,41(1) is upheld. This ground of appeal is dismissed.

5. After having gone through the facts of the present case, we find that the AO had made additions by identifying the creditors who were outstanding for more than five years and in this respect, summons were issued separately u/s 131 to them. In the case of M/s Gravity (I) Ltd, where the amount outstanding was shown at Rs. 32,51,157/-, the said party categorically stated that it had received the entire amount during financial year 2009-10 and thus there was nothing which was receivable by the assessee. Ld. CIT(A) during the appellate proceedings had also called for the remand report seeking AO’s comments and the AO in his remand report had stated that notices u/s 133(6) of the I.T. Act were issued upon the said party i.e. M/s Gravity (I) Pvt. Ltd. for furnishing copy of bank statements highlighting the payments received from the assessee. In this regard, M/s. Gravity India P Itd. submitted its bank of Baroda Account No.04050500000029 statement copies for the month of Sept., 2009 highlighting the amount and cheque No. received from M/s. Venus International where the exact amount of payment received was tallied. Thus in this way, the assessee was also given an opportunity by the AO during the remand proceedings by providing the copies of the bank statement of M/s. Gravity India Ltd.

6. The amounts credited into the account of M/s,Gravity India in Sept.09 exactly tally with the amount payable by the assessee. Thus in this way, AO had rightly brought this amount to tax u/s.69C as unexplained expenditure. We are also of the same view that even if for a moment, if it is presumed that the assessee had not made this payment and the amounts are still due to M/s. Gravity India Ltd. But in the present case, when the creditor itself is saying that it has received the payments and there is nothing receivable from the assessee, thus it amounts to cessation of liability.

7. As far as the additions of Rs. 41,90,675/ which was payable to M/s. R.D. textiles is concerned, we noticed that AO had relied upon the statement of Mr. Harish Chandra Singh, Prop. of M/s. RD. Textiles recorded u/s 131 of the Act, in which he confirmed that no amount is receivable from the assessee. Even the said Harish Singh M/s Venus International 16 submitted that he had stopped the business in 2003 and had no knowledge of receiving any amount from the assessee. Thus this is a case where the creditor is stating that he does not remember any such receivable from the assessee which is good for the assessee. In this case, the copy of statement was provided to the assessee with regard to Shri Harish Singh, the proprietor of R. D. Taxtile.

8. It is important to mention here that the matter pertains to purchases made in July, 2003 and the proprietor issued a statement in 2013 stating that he does not remember anything as receivable from the assessee. Even till the end of 2016, which is a good 13 years after the purchases, the party has not taken any steps for recovery. Thus in such circumstances, it was rightly concluded that the party is not interested in pursuing recovery if it all it was due from the assessee, and there is no chance " of any further measures for recovery. The assessee is carrying a fictitious liability, 9. As far as addition of Rs.2,07,48,845/- u/s.41(1) of the I.T. Act is concerned, we have minuently gone through the orders passed by Ld. CIT(A), wherein each party wise details have been provided, wherein it was categorically admitted that no amount has been paid by the assessee to any of the parties till date. As far as furnishing of communication in the shape of letter are concerned, the same was rightly considered as fabricated as none of the parties personally appeared before the AO and even in the case of sunrise textile, there is no phone no. given on the letter head even though it is a very big party to whom the assessees dues itself is 1,71,26,130/-. Thus it is strange and surprising that somebody would keep quiet without initiating any legal action when the party i.e. the assessee is non-cooperative and defiant.

10. As far as in the case of other parties, admittedly assessee had not made payment to any of them and the letters submitted by the assessee contains the phone numbers of the parties, which are only in 7 digits, which itself shows that no phone numbers are less than 8 digits since many years ago. These 7 digit phone numbers on the letter heads in 2016 itself doubted the genuiness of the letters.

M/s Venus International 17

12. In the instant case, there is no unilateral write off in the books of accounts. In fact, the assessee has net written off the liabilities but the facts and circumstances showed that there is no possibility of any recovery. Therefore the additions made u/s.41(1) are justified. The assessee had not adduced any material or evidence or even explanation as to why the impugned amounts were not paid in normal course, the same amounted to cessation or remission of liability u/s.41(1) of the Act 13. During the course of arguments, the Ld. AR relied upon the judgment of Hon'ble Gujarat High Court in the case of Bhogilal Ramjibhai Atara (2014) 222 Taxmann 0313 (Gujarat). Whereas Ld. DR relied upon the decision of the Coordinate Bench of ITAT, Ahmedabad in the case of Dattatray Poultry Breeding Farm (P.) Ltd dated 19.6.2018. 14. We are of the view that the facts and circumstances of the present case are distinguishable from the decision relied upon by Ld. AR as in the case of Bhogilal Ramjibhai Atara, the creditors outstanding were not Trading Creditors whereas in the present case, the outstanding creditors are trading creditors. Moreover, in the decision in the case of Dattatry Poultry, the case of Bhogilal Ramji Bhal Atara was duly referred by the Hon'ble ITAT while passing the decision. The Coordinate Bench of ITAT had also discussed the case of M/s Gujtron Electronics (P.) Ltd. v. ITO:1.20171 83 taxmann.com 389/249 Taxman 443 (Guj.) which was passed subsequent to the decision of Bhogilal Ramjilal Atara ie on 12-07-2017 and the Hon'ble Gujarat High Court had also referred to the case of Bhogilal Ramjibhai Atara while passing the judgment in the case of Gujtron Electronics (P.) Ltd. v. ITO referred supra

M/s Venus International 18

We have carefully considered the rival submissions and perused the orders of the authorities below and the case laws cited at bar. The applicability of section 41(1) of the Act on outstanding trading liabilities as reflected in the balance sheet has been called into question. Section 41(1) of the Act states that where an allowance in respect of an expenditure or trading liability etc. is made in a year and the assessee obtains any benefit, whether in cash or otherwise in a subsequent year, such benefit shall be deemed to be profits & gains of the business of that subsequent year, whether such business is in existence or not in that subsequent year. The Section has an effect of deeming such cessation or remission of liability as income in departure with the general law where such remission or cessation is not regarded as an income. Coming to the facts, as noted above, it is the case of the Revenue that the trading liabilities of Rs. 74.40 Lakhs claimed to be payable to several parties was not found to be subsisting liability as per the outcome of inquiries made in this regard. The AO noted on facts that the creditors shown in the books are for purchase of goods whereas the assessee is engaged in job work and therefore outstanding towards purchase of goods is a high suspect. The AO based on inquiry; observed that many of the M/s Venus International 19 creditors could not be traced on the address given by the assessee. Many others have denied making any transaction with the assessee. Coupled with this, such huge amounts of outstanding remains in the books for last six to twenty years without any repayment. On these facts, the AO concluded that liability shown in the balance sheet to be a nonexisting liability and accordingly invoked Section 41(1) of the Act for the purposes of taxability of such non-existent liability as chargeable income of the assessee owing to the fact that the assessee has obtained benefit in the past against such outstanding trading liabilities. The CIT(A), in first appeal, however, has set aside the action of the AO primarily on the ground that the assessee has not written back of these amounts in the books of accounts. The CIT(A) granted relief to the assesse placing reliance upon the decision of the hon'ble Gujarat High Court in its decision in the case of Bhogilal Ramjibhai Atara (supra).

11. Adverting to the legal claim made before us on behalf of the assessee that liabilities shown in the balance sheet was itself sufficient to hold such liability exists and bonafide is not understood at all. The liabilities shown in the balance sheet as existing by assessee was found to be symbolic by AO. 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. In this view of the matter, the incidence of taxation under s.41(1) of the Act cannot be escaped on non-existing liability. Our this view also finds support from yet another decision of the hon'ble Bombay High Court in the case of Palkhi Investments & Trading Co. (P.) Ltd. v. ITO 120161 71 taxmann.com 322 where the hon'ble Bombay High Court went to the extent of confirming penalty för not offering such trading liability under s. 41(1) of the Act. Thus, the conclusion apparently leans against the Assessee. However, we are left with one pertinent question hurled at us on behalf of the Assessee i.e. year of taxability. In this regard, we are not impressed by the plea the AO did not bring anything on record to allege that cessation took place during the financial year in question for the purposes of taxability under s. 41(1) of the Act. We find that AO has assertive justification to bring the outstanding liability within the net of s.41(1) of the Act in the Financial Year under inquiry. The onus is on the Assessee to show that year of cessation is different. In the instant case, the Assessee does not admit cessation at first place. The AG therefore is within its right to hold the Financial Year in question as the right year for taxability when the facts concurring the non-existence were unrevealed. The Assessee was failed to discharge onus. Besides, the defect of year of taxation U any can be cured under s. 153(6) in such cases. However, we do not consider it expedient to dwell further. In the totality of the facts and circumstances, we find ourselves in agreement with the view taken by the AO that addition made in respect of M/s Venus International 22 trading liabilities which had ceased to exist represents taxable business income in terms of Section 41(1) of the Act. The IT(A) in our view has committed error in disregarding the gross facts unearthed in the present case while deciding in favour of the assessee. The order of the CIT(A) is therefore set aside and the order of the AG on the issue is restored.

M/s Venus International 23

by the assessee stands dismissed.”

4. The Ld. counsel submitted that decision in the case of Lotus Investment Ltd. (supra) has not been considered by the Tribunal. In said case, the Assessing Officer observed outstanding expenses, the liability of which was continued in the books of accounts for a long period. In absence of party-wise details, along with confirmation to whom such expenses were payable, the Assessing Officer treated as income under section 41 of the Act by holding that assessee has failed to prove the genuineness of the liability. The Tribunal after considering decisions in the case of ACIT Vs Trans freight containers (supra), CIT Vs Jain

M/s Venus International 24 exports Private Limited (supra), PCIT Vs Matruprasad C Pandey (supra), held as under:

“12. In view of the above principles laid down and keeping in view the facts of the present case, we also find that the expenses have been claimed by the assessee in earlier years and are continuing unchanged till the impugned assessment year. But the disallowance was made by holding that assessee had failed to file confirmations and no payments have been made for years together. We are of the view that when the AO accepts that the liabilities were created in the earlier years, then the genuineness of such transactions have to be examined in those assessment years and not in assessment year under consideration. Even on plain reading of the provisions of section 41(1) of the Act, we are of the view that before treating the amount outstanding as deemed income of the assessee u/s 41(1) on account of remission/cessation of liability, the AO is duty bound to examine whether the condition laid down u/s 41(1) are fulfilled or not. As per the reading of section 41(1) along with explanation (1) to section 41(1), the liability ceases to exist in the books of account /Mum/2014 M/s Lotus Investment Ltd. of the assessee in a particular previous year, if the person showing such liability had obtained benefit either in cash or in any other manner in respect of such liability. It further provides that such remission or cessation of liability is also acceptable by unilateral act of writing off such liability in its account by the person showing such liability. Therefore, before applying the provisions of section 41(1), it is necessary to establish on record that the assessee had obtained a benefit either in cash or in any form in respect of such liability in the relevant previous year. Thus, when in AO's own admission liability continued from past so many years, then what prompted the AO to conclude that the assessee has obtained benefit in respect of such liability in the impugned assessment year must be clearly brought on record. In the absence of any material to establish that the assessee had obtained any benefit in M/s Venus International 25 respect of the liability in the impugned assessment year, so merely on the basis of surmises and assumptions it cannot be said that there is remission/cessation of liability in the impugned assessment year.”

“Addition made under Section 41(1) - creditors outstanding for more than three years in the books of respondent-assessee - ITAT deleted the addition - Held that:- In the present facts, the amount of R 64.27 lacs continues to be show as the liability in the respondent assessee's balance-sheet for the subject assessment year. The occasion to write back the amount of & 4.27 lacs in this particular case,

M/s Venus International 26 even unilaterally by the respondent-assessee has not arisen. This is so as the amount of & 64.27 lacs continues to be shown in its balance-sheet as a liability. Consequently, the occasion to invoke the Explanation 1 to Section 41 of the Act does not arise. The settled position in law is that showing the amount due to the creditors in the balance-sheet amounts to acknowledgment of liability. Consequently, the decision of the Apex Court in Kesaria Tea Co. Ltd. (supra) continues to apply in the facts of this case. -Decided against revenue.” 6.1 We find that in above case of Elde Electricals (supra) also there is no finding of denying of existence of liability in the year under consideration by the alleged trade creditors. Therefore, the decision relied upon by the assessee is distinguishable on facts.