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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: MRS. ANNAPURNA GUPTA
IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT [CONDUCTED THROUGH E-COURT AT AHMEDABAD] BEFORE MRS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER आयकर आयकर अपील आयकर आयकर अपील अपील संसंसंसं./ Assessment Year : 2007-08 Ramila R. Bhadra, C/o. Laxmi Enterprise, Vs The Income-tax Officer, C-2-35/2, GIDC, Shankar Tekri, Ward 1(2), Udhyog Nagar, Jamnagar Jamnagar-361004 PAN : AFWPB 3443 F अपीलाथ� अपीलाथ�/ (Appellant) अपीलाथ� अपीलाथ� �� �� यथ� �� �� यथ� यथ�/ (Respondent) यथ� Assessee by : Shri Dushyant Maharshi, AR Revenue by : Shri B.D. Gupta, Sr DR सुनवाई क� तारीख/Date of Hearing : 10/04/2023 घोषणा क� तारीख /Date of Pronouncement: 21/04/2023 आदेश/O R D E R आदेश आदेश आदेश PER MS. MADHUMITA ROY, JUDICIAL MEMBER:-
The instant appeal filed by the assessee is directed against the order dated 14.08.2017 passed by the learned Commissioner of Income-tax (Appeals), Jamnagar (hereinafter referred to as the "CITA"), arising out of the order dated 26.03.2015 passed by the Income-tax Officer, Ward-1(2), Jamnagar under Section 143(3) r.ws. 254 of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for the Assessment Year 2007-08, whereby and whereunder the addition to the tune of Rs.49,39,297/- made by the Assessing Officer under Section 41(1) of the Act has been confirmed by the learned CIT(A).
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:-
i. In the course of the assessment for an earlier year, allowance or deduction has been made in respect of trading liability incurred by the assessee; ii. Subsequently, a benefit is obtained in respect of such trading liability by way of remission or cessation thereof during the year in which such event occurred; iii. 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 iv. Such value of benefit is made chargebale to income-tax as the income of the previous year wherein such benefit was obtained.
Unless and until, therefore, the liability of the assessee can be said to have been ceased finally without any possibility of reviving it in future, invocation of provisions of Section 41(1) of the Act is not cognizable; hence, in our considered opinion, when the assessee has not written off the creditors of the impugned amount and still showing the amount as liabilities in the Smt. Ramilaben Ramji Bhadra Vs. ITO AY : 2007-08 4 balance-sheet, the addition invoking Section 41(1) of the Act is not permissible in the eye of law; the same is, therefore, not found to be sustainable and thus deleted.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 21st April, 2023 at Ahmedabad.