TaxTMI 
TaxTMI 
2014 (7) TMI 549
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....or the year, being at Rs. 652.95 lacs, i.e., approximating to nearly five month's purchases, which in his view was definitely quite high. Entertaining doubts with regard to the genuineness of the credits, notices were issued u/s.133(6) by him to four creditors having outstandings since long, liability qua which aggregated to Rs. 78.70 lacs. Replies were received from two parties, for a total credit of Rs. 65.41 lacs. For the balance liability of Rs. 13.29 lacs, detailed as under, notices were either returned or not responded to by the concerned creditors: Sr. No. Parties Amt (Rs.) Remarks 1 Swastik Enterprises 2,94,345/- Returned 2 Pasad Steels 10,34,124/- No Reply No confirmation or any other material evidencing the existence of any liability to the concerned parties being furnished in the assessment proceedings, the A.O. considered the same as not representing an extant liability, and added the same as the assessee's income for the year applying section 41(1) of the Act, i.e., on account of remission or cessation of liability. In appeal, the assessee found favour with the ld. CIT(A) on the basis that the relevant details stood submitted. The parties were existing, and ther....
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....anding 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 existing liability, may arise. This is as in the very nature of the 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 matter or take legal recourse to effect recovery. That is, the said presumption fails on the test of human probabilities in the facts and circumstances of the case. Of course, there could be genuine and valid reasons obtaining in a particular case, so that a credit though outstanding in the books for long, represents a genuine liability. Why, loans on interestfree basis or toward risk or seed capital by way of subscription to shares, is given with no time prescribed for its return back or even any stipulation with regard to return thereon. Again, in a given case it could be that the liability remains to be recovered for want of time or resources with the creditor, i.e., to pursue the legal recours....
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....afore-referred decisions to the decision in the case of Kesoram Industries & Cotton Mills Ltd. vs. CIT [1992] 196 ITR 845 (Cal.) to the effect that the non-discharge of a liability over a long period of time, coupled with absence of any dispute and/or of legal recourse, would lead to a firm basis to infer remission or cessation of liability. The said decision by the hon'ble court stands followed and adopted by the tribunal, as in ITO vs. Shailesh D. Shah (in ITA No.7012/Mum/2010 dated 11.12.2013) and Yusuf R. Tanwar vs. ITO (in ITA No.8408/Mum/2010 dated 28.02.2013). Accordingly, an omission to pay could give rise to the legal inference of cessation of liability. True, an amount may continue to outstand in accounts, so that the assessee is prima facie liable in its respect. However, it is the veracity or the truth of those very accounts, constituting the assessee's evidence, that the assessee is required to establish. The matter would, therefore, have to be decided in light of the conspectus of the facts of each case. 4.2 Continuing further, the assessee failing to furnish confirmations from the two creditors under reference, the A.O. inferred the said credits, notwithstanding the....
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....tice to allow the assessee that latitude. What would, accordingly, be required of us is an examination of the facts and circumstances of the case to draw a finding of fact based thereon, as to the existence or otherwise of the liabilities under reference. 4.3 Coming to the facts of the case, we firstly observe that no reason or explanation whatsoever stands furnished by the assessee at any stage for the trade liabilities to subsist for years, raising genuine doubts as to their existence as at the relevant year-end. Could a liability continue to outstand for years without any reason, and which could only be furnished or explained by the assessee, the debtor, being in the intimate know of its affairs? Coming to the specifics of the two trade credits, i.e., the positive materials, if any, furnished by the assessee to establish the existence of the liability as at the relevant yearend, we find confirmation of the account statement as appearing in the assessee's books of account from Pasad Steels (PB pgs.13-14). The same bears the PAN of the creditor as well as the fact of payment thereto in the impugned sum vide cheque no. 201088 on 28.03.2012. Even though the said confirmation is ac....
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....nother 1 ½ years. Under the circumstances, the same can clearly be said to be unproved, and we therefore confirm the application of section 41(1) in relation to the said credit. We decide accordingly. Assessee's appeal 5. The assessee's appeal raises three grounds. While ground no. 1 was not pressed during hearing, the other two, i.e., ground nos. 2 & 3, are in relation to the confirmation of the addition in the sum of Rs. 3,52,090/- effected and sustained u/s.68 of the Act. The facts in brief are that the assessee's accounts reflected advances from debtors at Rs. 76.78 lacs as at the year-end. The same continuing from year to year, the A.O. entertained doubts as to the genuineness of the said credits. The assessee being unable to, in spite grant of opportunity, furnish confirmations therefrom or even their addresses, the entire amount stood added as income u/s.68 of the Act. In appeal, the assessee submitted that of the total sum only the impugned sum of Rs. 3,52,090/- pertained to the current year; the Advance account bearing an opening balance (as on 01.04.2008) of Rs. 73,25,923/-. Relying on the decisions in the case of CIT vs. P. Mohanakala [2007] 291 ITR 278 (SC) and....