SMT RAMILABE RAMJI BHADRA,JAMNAGAR vs. THE ITO, WARD 1 (2), JAMNAGAR

We have heard the rival submissions made by the respective parties and also perused the relevant material available on record. The brief facts leading to this case is this that the appellant is an individual engaged in the business of Smt. Ramilaben Ramji Bhadra Vs. ITO AY : 2007-08 2 manufacturing and trading of brass items in the name and style as “M/s. Laxmi Enterprise”. The assessee filed its return of income for the year under consideration declaring income at Rs.1,31,250/- along with Audit Report and other allied accounts. The Assessing Officer finalized the said assessment under Section 144 of the Act treating the liabilities being sundry creditors amounting to Rs.63,50,779/- as fictitious liabilities within the meaning of Section 41(1) of the Act and disallowed the same, which was in turn deleted by the First Appellate Authority in appeal upon considering the remand report filed by the Assessing Officer on the details provided to it. The Co-ordinate Bench, in an appeal preferred by the Department, restored the issue to the file of the Assessing Officer to determine the issue afresh upon reassessing the books of accounts, purchase vouchers etc. on 21.06.2013. The consequential assessment was completed under Section 143(3) r.w.s. 254 of the Act determining total income at Rs.50,70,547/- on 26.03.2015 which was in turn confirmed by the First Appellate Authority on 14.08.2017. Hence, the instant appeal before us.

The case of the assessee is this that the addition made by the learned Assessing Officer does not fall within the purview and ambit of Section 41(1) of the Act as there is no cessation of trading liability, neither any benefit had been taken in respect of such trading liability by the assessee which are primary conditions to be fulfilled in terms of the provisions of Section 41(1) of the Act by the authorities below. More so, where the liabilities to be remitted or ceased during the year under consideration which is absent in the instant case. Neither it is the case of the Revenue that the assessee has written off the outstanding liability in the books of accounts, rather the assessee continued to show the impugned liability in the balance-sheet. There is no unilateral act by way of remission or cessation by the assessee as the assessee had not written off the Smt. Ramilaben Ramji Bhadra Vs. ITO AY : 2007-08 3 creditors of Rs.49,39,297/-. On this aspect, the assessee relied upon the judgment of Hon’ble Apex Court in the case of CCIT Vs. Kesaria Tea Co. Ltd. [2002] 122 Taxman 91 (SC). On the other hand, the case of the Revenue is this that the assessee did not submit the requisite details to substantiate its claim. The transaction lacks clarity and genuineness with regard to the details submitted in respect of the sundry creditors being carried forward from forgoing years. In order to invoke the provisions of Section 41(1) of the Act, in our considered opinion, the following points are to be kept in mind:-

In the result, the appeal of the assessee is allowed.