December 2008
(a) S. 68 — Since no new amount credited in accounts of creditors during year, addition could not be made u/s.68. (b) S. 41(1) — Brought forward balances of creditors could not be added to assessee’s income.
By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
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19 (2008) 24 SOT 393 (Delhi)
Shri Vardhman Overseas Ltd. v. ACIT
ITA No. 440 (Delhi) of 2006
A.Y. : 2002-03. Dated : 11-7-2008
(a) S. 68 of the Income-tax Act, 1961 — Since no new
amount had been credited in accounts of creditors during year under
consideration, addition could not be made u/s.68.
(b) S. 41(1) of the Income-tax Act, 1961 — Brought
forward balances of creditors could not be added to assessee’s income, as
question of genuineness could be examined only in the year in which they were
credited to the account.
During the relevant assessment year, the Assessing Officer
asked the assessee-company to prove the genuineness of certain sundry creditors.
The assessee could not file confirmations from the said creditors except one.
The Assessing Officer, thus, treated the credit balances appearing in the
assessee’s books of account as unexplained credits u/s.68. On appeal, the CIT(A)
confirmed the additions u/s.41(1).
The Tribunal deleted the additions made u/s.68 and u/s.41(1).
The Tribunal followed the decisions in the cases of :
(a) CIT v. Sugauli Sugar Works (P.) Ltd., (1999) 236
ITR 518; 102 Taxman 713 (SC)
(b) Chief CIT v. Kesaria Tea Co. Ltd., (2002) 254
ITR 434/122 Taxman 91 (SC)
The Tribunal noted as under :
(a) No new amount had been credited by the assessee in
their accounts during the year under consideration. Therefore, applicability
of S. 68 was ruled out and addition could not be made under this Section.
(b) The balances were brought forward balances. If the same
were added on account of their non-genuineness, then also those amounts could
not be added to the income of the assessee for the year under consideration,
as the question of genuineness thereof could be examined only in the year in
which they were credited to the account.
(c) The amount could also not be considered to be the
income of the assessee on the ground of expiry of limitation, as according to
well-settled law explained by the Supreme Court in the case of CIT v.
Sugauli Sugar Works (P.) Ltd., (1999) 236 ITR 518; 102 Taxman 713 in the
absence of creditor, it is not possible for the Department to come to the
conclusion that the debt is barred and has become un-enforceable as there may
be some 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, 1963.
(d) It had not been shown by the CIT(A) that the assessee
had acquired any benefit from these liabilities which were still outstanding
in the balance sheet of the assessee and it had also not been shown that these
liabilities had ceased finally without the possibility of revival. Thus, the
onus had wrongly been shifted by the Revenue on the assessee. The assessee had
shown these liabilities outstanding in its balance sheet. Therefore, there was
no occasion to treat the said amounts as taxable u/s.41(1) and if the
Department intended to assess the same by applying the provisions of S. 41(1),
then the onus was on the Revenue to show that the liabilities which were
appearing in the balance sheet had ceased finally and there was no possibility
of their revival.
