TaxTMI 
TaxTMI 
TaxTMI 
2014 (6) TMI 253
X X X X Extracts X X X X
X X X X Extracts X X X X
....tant appeal is the maintainability in law of the addition u/s. 41(1) of the Act qua trade credits in the sum of Rs.12,16,920/- reflected as liabilities in the assessee's books of account, in the facts and circumstances of the case. The primary facts are not disputed. Liability in favour of four trade creditors, for an aggregate sum of Rs.53.76 lacs, were observed as outstanding in the assessee's final accounts. The same being so for long, the assessee, on being called upon to prove the same, i.e., of the liability existing in the stated sum as at the year-end (31.03.2007), could produce confirmations from only two parties, so that the liability qua the other two, at the impugned sum of Rs.12.17 lacs, as under, came to be added u/s.41(1) of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., so that the liability having been claimed and allowed in the past, it continuing to be reflected as so in the assessee's regular books of account, which have evidentiary value u/s.34 of the Evidence Act, the presumption in law would only be that the outstanding liability indeed continues to obtain as at the relevant year-end. So, however, when the liability continues to subsist year after year, for several years, serious and valid doubts as to its existence or as representing an extant liability, would arise. This is as in the very nature of events nobody would ordinarily, i.e., without justifiable reason, not claim his dues, representing his hard earned money or capital built up over years. Then, again, why would one not agitate the matt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ability on the basis that it is no longer enforceable in law, yet claim his status as a debtor, so that he was indeed liable for the amount reflected as liability in accounts. Further, Explanation 1 to the provision inserted by Finance (No.2) Act, 1996 w.e.f. 01.04.1997 proscribes an assessee to claim an indebted status while writing back the amount in books, even if unilaterally, in its respect. The word employed in the said Explanation is 'include' and not 'means', so that it is not to be read in a restrictive manner. The tribunal explained the scope of the said Explanation in the case of Kalyani Maan Singh vs. ITO (in ITA No. 6500/Mum(A)/2011 dated 14.11.2013) to mean that the assessee, even as the accounts are not sacrosanct, cannot ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rpara Co. Ltd. [1986] 158 ITR 78 (Cal.). Accordingly, an omission to pay could give rise to the legal inference of cessation of liability. In our clear view, therefore, even as observed during hearing, the decision in the case of Hotline Electronics Ltd. (supra) would not be of much assistance to the assessee. The matter would, therefore, have to be decided in light of the conspectus of the facts of each case. 3.2 Continuing further, the assessee failing to furnish confirmations from the two creditors under reference, the A.O. inferred the said credits, notwithstanding their being reflected as payables, as not representing the assessee's liability thereto as on the relevant date (31.03.2007), so that there was a cessation of liability ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the assessee for job work stands not properly processed or worked upon, rendering it in unfit for consumption/sale, the assessee's accounts would reflect that materials/goods, if not also the loss thus sustained. Why, the assessee would rather raise a claim for the said loss on the parties, adjusting the same against the bills raised on it by the creditors. There is in fact no iota of any dispute on record qua both the sums under reference, contracted during the financial year (f.y.) 2003-04 (at Rs.6.88 lacs) and f.y. 2004-05 (Rs.1.50 lacs) for Sawant Engineering and during f.y. 2004-05 for Khandelwal Engineering (PB pg.31). Could a liability continue to outstand for years without any reason, and reasons for which could only be explain....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rty to verify the genuineness of the payments, but the onus on the assessee stands discharged, so that unless some material controverting the assessee's claim stands brought on record, the Revenue could not validly dispute the existence of the trade liability or the amount outstanding as representing one. It is indeed inexplicable that the assessing authority on being furnished positive material by the assessee, and who in fact had very fairly dropped the proceedings in respect of the other two creditors, i.e., from whom confirmations were furnished by the assessee, not acted thereon; his order being in fact silent in the matter. Again, likewise, by the first appellate authority, before whom in fact this would be or ought to have been the f....