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आदेश /ORDER PER O. P. MEENA, AM 1. This appeal by the Assessee is directed against the order dated 31.03.2011of learned Commissioner of Income tax (Appeals)-II, Surat (in short “the CIT (A)”) for the Assessment Year 2007-08. 2. Ground no. 1: States that Ld. CIT (A) has erred in confirming the addition of Rs.5,22,000 on account of unexplained deposits under section 41(1) of the Act. 3. Succinct facts are that the AO noticed that the assessee has shown opening balance of Rs. 1 Lakh in the name of Shri Sirajbhai, Rs. 2.22 lakhs in the name of Shri Sheikh Mohammad Amin Gulam, and Rs. 2 Lakh in the name of Shri Prakashchandra P. Soni aggregating to Rs. 5,22,000. However, in compliance to verification of the same, the assessee furnished incomplete addresses and wrong and incomplete PAN
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hence, notice under section 133(6) could not be served on these depositors. Therefore, Assessing Officer treated the same as unexplained under section 41(1) of the Act. 4. In appeal, CIT (A) observed that during the course of appellate proceedings, the appellant has not filed any evidence that the amount was received as advance against the booking of flats and same is neither is loss nor expenditure , nor a trading liability in any of earlier years. Hence, the addition so made was confirmed. 5. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned Authorized Representative (the ld. A.R.) submitted that due to defective addresses supplied by the depositors, the notice issued by the AO could not be served for which the assessee cannot be held responsible. In the case of Shri Prakashachandra Soni, the addition was made, as he could not respond to notice issued under section 133(6) to him. However, the AO has not carried out the proper enquiries. Further, the addition made under section 41(1) is erroneous as the AO has not given any finding that the assessee has taken any benefit in earlier years of the said sums. Therefore, relying on the decision of Hon’ble Gujarat High Court in the case of CIT V. Bhogilal Ramjibhai Atara [Tax Appeal No. 588 of 2013 dtd. 04.02.2014] wherein it was observed that Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so- called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of
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course, these enquiries were made ex-parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte enquiries, the liability as it stands perhaps holding that there was no cessation or remission of liability and therefore, the amount in question cannot be added back as deemed income under section 41 (c) of the Act. This is one of the strange case, where even if the debt itself is found to be non-genuine from very inception, at least in terms of section 41(1) of the Act is no cure for it. Be that as it may, insofar orders of Revenue authorities are concerned, the tribunal not having made any error, this Tax Appeal is dismissed. The Ld. AR further relied on the decision of Hon’ble Gujarat High Court in the case of CIT v. Shankar U Jatwani [Tax Appeal No. 583 of 2016 dtd. 27.07.2016] wherein following the decision of Hon’ble Gujarat High Court in the case of CIT V. Bhogilal Ramjibhai Atara [Tax Appeal No. 588 of 2013 dtd. 04.02.2014] by observing that the provisions of section 41(1) would apply in a case where there has been remission and cessation of liability during the year under consideration, subject to conditions contained in the statute being fulfilled and such cessation or remission has been during the previous year relevant to the assessment year under consideration. The order of Tribunal in allowing appeal of the assessee was upheld. The Ld. AR further relied in the case of CIT v. G.K. Patel & Co. [2013] 212 Taxman 384 (Gujarat), CIT v. Nitin S. Garg [2012] 208 Taxman 16 (Guj) and CIT v. Miraa Processors (P) Ltd. [2012] 208 Taxman 93 (Guj) and CIT
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v. Sugauli Sugar Works (P) Ltd.[1999] 236 ITR 518 (SC) / [1999] 102 Taxman 713 (SC) in support of his contentions. 6. Conversely, Learned Departmental Representative vehemently contended that the creditors whose details given by the assessee were incomplete and not responded to notice issued by the AO. He, therefore, submitted that the CIT (A) was justified in sustaining the addition so made. 7. We have heard the rival submissions and perused the relevant material on record. In order to appreciate the provisions of section 41(1) the same are re- produced as under:
"41. Profits chargeable to tax.- (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income tax as the income of that previous year."
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The perusal of the above provision would show that section 41(1) would apply where following ingredients are satisfied : (1) In the course of assessment for an earlier year, allowance or deduction has been made in respect of trading liability incurred by the assessee; (2) Subsequently, a benefit is obtained in respect of such trading liability by way of remission or cessation in cash or in kind thereof during the year in which such event occurred; (3) in that situation the value of benefit accruing to the assessee is deemed to be the profit and gains of business which otherwise would not be his income; and (4) such value of benefit is made chargeable to income tax as the income of the previous year wherein such benefit was obtained. Thus, it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. 9. In the present case, the CIT (A) has confirmed the addition under section 41(1) of the Act as address furnished in confirmation letter in the case of Shri Sirajbhai and Shaikh Mohd. Gulam was incomplete therefore, the AO could not serve notice under
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section 133(6) and Shri Prakashchandra Soni could not responded to notice under section 133(6) of the Act. However, there is no declaration by the assessee that it does not intend to honour its liability nor there is any discharge of any liability. Therefore, provision of section 41(1) would not be applicable to the facts of the case in the light of principle enunciated in the section 41(1) of the Act. Thus, in the present case, the above elements are missing. Additionally, there is no loss cessation or remission of liability has taken place during the year under consideration. There was nothing on record to suggest that there was an omission or cessation of liability. The AO has issued notices under section 133 (6) to verify the so-called creditors. However, the letter so issued could not be served or not replied means that the liability itself seems under serious doubt. Therefore, when the debt itself is found to be non-genuine, then the provisions of section 41 (1) could not be applied. As held by Hon`ble Gujarat High Court in the case of CIT V. Bhogilal Ramjibhai Atara [Tax Appeal No. 588 of 2013 dtd. 04.02.2014] wherein it was observed that Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so-called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these enquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte enquiries, the liability as it stands
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perhaps holding that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as is deemed income under section 41 (c) of the Act. This is one of the strange case where even if the debt itself is found to be non-genuine from very inception, at least in terms of section 41(1) of the Act is no cure for it. Be that as it may, insofar orders of Revenue authorities are concerned, the tribunal not having made any error, this Tax Appeal is dismissed. 10. In the light of ratio laid down in above decision and the facts and circumstances of the case, we are of the view that impugned liabilities were trading liability is in respect of which, the assessee has not obtained any benefit or advantage either by way of their remission or cessation in the year under appeal. The assessee has not written off the impugned liabilities shown in the accounts. The AO has not brought sufficient material on record to establish as to how ingredient of section 41(1) are satisfied so as to bring the impugned addition within its ambit. In view of this matter, the addition Rs. 5,22,000 sustained by the CIT (A) is accordingly deleted. This ground of appeal is therefore allowed. 11. Ground No. 2 States that Ld. CIT (A) has erred in confirming the addition of Rs. 7,80,000 on account of alleged unexplained deposits treated as unexplained cash credit under section 68 of the Act. 12. The assessee has taken loan of Rs. 80, 000 from Mohammad Rafiq Y. Ghadiali and Rs. 7 Lakhs from Smt. Ushaben Yogeshbhai of which confirmation was filed. However, notices issued under section 133(6), on the address as given by the assessee
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were not complied with. Further, the perusal of Ledger accounts as furnished by the assessee showed that the aforesaid persons have made deposits in cash during the year under consideration. Since the assessee has not offered any explanation of the nature and source thereof and the explanation offered by the him was not found to be satisfactory. Accordingly, the AO has added the same to the total income of the assessee under the provisions of section 68 of the Act. 13. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). It was claimed before the CIT (A) that these amounts were received in cash for booking the shops/ flats and repaid in cash. However, CIT (A) has observed that the appellant has neither during the course of remand proceedings or appellate proceedings not furnish any evidence to show that these amounts were received for booking of shops. Which were subsequently cancelled and the amount was returned to these persons. The above, persons namely Shri Mohammad and Smt. Ushaben in whose name the above amounts are appearing are also failed to appear before the Assessing Officer. Therefore, the CIT (A) held that the identity, creditworthiness and the genuineness of the of all transactions have not been established by the appellant. Therefore, the addition to this extent was confirmed. 14. Feeling aggrieved and dissatisfied, the assessee has come up before this Tribunal by way of this appeal. The ld. A.R. submitted that the assessee has taken cash deposits of Rs. 80,000 for booking of shops from Shri Mohammad Rafiq is still appearing in balance sheet (PB-38) as on end of financial year under consideration.
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However, the amount of Rs. 7 Lakh has been returned during the year under consideration hence, same is not reflecting in the balance sheet. The ld. A.R. further relied in the case of CIT v. Ayachi Chandrasekhar Narsangji [2014] 42 taxmann.com 251 (Gujarat) wherein head note reads as _ it was found that total loan of Rs. 1.60 crores was advanced to assessee, out of which Rs. 15 Lakh was repaid – Therefore, an amount of Rs. 1.45 crores remained outstanding to be paid to IÍA”- Balance amount was repaid by assessee in immediately next financial year –whether when Department has accepted same , addition made by Assessing Officer was to be deleted – held, yes. Therefore, the ld. A.R. contended that the amount of Rs. 80,000 was remained as payable at the end of the year and same was paid in subsequent year, therefore, no addition f said amount could be sustained, in the light of ratio of above decision of Hon’ble Gujarat High Court of Gujarat. 15. We have heard the rival submissions and perused the relevant material on record. We find that the amount of Rs. 80, 000 in respect of Shri Mohammad has remained to be payable and same is reflected in balance sheet at the end of the year. Hence, said amount could not be treated as unexplained cash credit in view of the foregoing, the ratio laid down by Hon’ble Gujarat High Court in the case of CIT v. Ayachi Chandrasekhar Narsangji [2014] 42 taxmann.com 251 (Gujarat) wherein it was held that where Department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit. In view of this matter, the addition of Rs. 80,000 is therefore, deleted. However, with regard
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to advance of Rs. 7 Lakh in respect of Smt. Ushaben, We find that no details whatsoever has been filed. Further, the said amount is not reflected in balance sheet at the close of the year. The amount is claimed to have been received in cash and how the same is paid is not explained, which admittedly repaid in cash during the year under consideration. Therefore, in such circumstances, the provision of section 68 are very much applicable. Hence, addition of Rs. 7 Lakh sustained by the CIT (A) is accordingly confirmed. This ground of appeal is therefore, partly allowed. 16. In the result, the appeal of the assessee is partly allowed. 17. Order pronounced in the open court on 18.09.2018.
(सी.एम.गग� /C.M. GARG) (ओ.पी.मीना/O.P.MEENA) �याियकसद�यतथा/JUDICIAL MEMBER लेखासद�यकेसम� /ACCOUNTANT MEMBER सुरत Dated: 18-09-2018. आदेश क� �ितिलिप अ�ेिषत/Copy of the Order is forwarded to : 1.अपीलाथ�/ The Appellant; 2. ��थ�/ The Respondent; 3. आयकरआयु� (अपील) The CIT(A)4.आयकरआयु� / Pr. CIT 5.िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण/D.R. (ITAT) 6. गाड�फाईल / Guard file ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat