TaxTMI 
TaxTMI 
2011 (12) TMI 90
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.... trading in television sets. In respect of the assessment year 2005-06, it filed a return of income declaring income of Rs.1,79,90,660/-. The return was processed under Section 143(1) of the Act but was later selected for scrutiny and notice was issued to the assessee under Section 143(2) asking for details in support of the return. In the course of the assessment proceedings, the Assessing Officer called upon the assessee to furnish the details of advances received from customers and also show when those advances were repaid. From the reply filed by the assessee, the Assessing Officer noticed that there were several advances which had not been repaid till date. He, therefore, called upon the assessee to explain why in the case of advances ....
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....so received advances against supplies, that it would be evident from the balance sheet that the credit balances in favour of the customers represented a running account with them and were pending adjustment for claims and counter claims and that in these circumstances it is not permissible to hold that the assessee was no longer liable to return the amounts to the creditors. It was thus contended that the addition was unsustainable. 4. The CIT (A) observed that the conditions for the applicability of Section 41(1) of the Act were satisfied in the present case. He noted that the credit balances remained static for the past several years as noticed by the Assessing Officer in the assessment order. He further held that by establishing this fa....
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....w as substantial questions of law: "1. Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in law in deleting the addition of Rs.50,27,731/- made by the AO on account of cessation of liability? 2. Whether on the facts and circumstances of the case, the order of the Income Tax Appellate Tribunal is not perverse as, it being a final fact finding authority, has failed to appreciate that necessary conditions u/s 41(1) of the Income Tax Act are satisfied in this case? 3. The appellant craves leave to add, alter and modify any question of law at the time of admission of appeal." After hearing both the sides the following substantial question of law is framed: "Whether on the facts and in the circumst....
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....ng Officer who has invoked Section 41(1). It is he who has stated that there was a remission or cessation of the assessee's liability. It was, therefore, incumbent upon him to make inquiry and bring on record material. By virtue of the powers vested in him under Section 133(6) or any other provision of the Income Tax Act to seek clarification or confirmation from the creditors, the said material/evidence could have been ascertained. The assessee herein is a limited company and as per the legal position the acknowledgment of the liability in favour of the creditors in its balance sheet extends the period of limitation for the purpose of Section 18 of the Limitation Act. It is the assessee's claim that the debts are subsisting and it continue....
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....eld as under:- "We are unable to accept the reasoning of the Bombay High Court in that case. Just because an assessee makes an entry in his books of account unilaterally, he cannot get rid of his liability. The question whether the liability is actually barred 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 the expiry of the normal per....