TaxTMI 
TaxTMI 
2018 (7) TMI 2063
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....t of Rs. 12,97,47,322/- u/s. 441(1) of the Income Tax Act, 1961, on grounds that there was a cessation of liability on the part of the assessee for the impugned amount, and that therefore it would constitute part of the income of the assessee-firm. It is to be observed that this is the 2nd round of the assessment order for the A.Y 2001-02, and in the first round the matter had travelled to the Hon'ble ITAT. Briefly, the facts are that the appellant is a very old partnership firm and has been carrying Sundry Creditors over an extended passage of time. 2. For the subject Assessment Year, 2001-02 the appellant-firm had filed return of income u/s 139(2) on 30th July, 2001, declaring loss of Rs. 18,740/-. The appellant firm thereafter received notice u/s 148 of the Income Tax Act, 1961, dated 21.11.2006 reopening the assessment for AY 2001-02. In response the appellant filed a return of income declaring loss of Rs. 83,923/-. Thereafter, the Ld.AO framed the assessment u/s 148 on 31.12.2007, at an income of Rs. 13,02,16,901/-. In the aforesaid order the Ld.AO had made addition on account of Section 41(l) amounting to Rs. 12,97,47,322/- and disallowed bad debts of Rs. 5,63,40....
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....iability. We noted that the CIIT (A) has deleted the addition mainly on the basis that the AO has not brought any material or record to show that there had been a remission or cessation of the liability and benefit has been granted to the Assessee by the loan creditor in any modes of remission without deciding the issue first whether the onus lies on the AO to prove the remission or cessation of the liability during the year or the onus lies on the Assessee to prove that the liability is in existence during the year. If the onus lies on the AO, then the AO was duty bound to prove that there is remission or cessation of the liability during the year. In our opinion, whether the liability is in existence or not, the burden of proving is on the Assessee and Assessee has to bring evidence on record which may prove that the liability is in existence during the assessment year even if it is barred by limitation. It cannot be within the domain of the AO to prove that the liability has ceased or remitted during the year even if the Assessee has not filed any confirmation or evidence to prove the existence of the liability. We, therefore, in the interest of justice and fair play to both the....
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....9, 2009-10, 2010-11, 2011-12, 2012-13 & 2013-14. With reference to these details, the Ld. A.R of the assessee demonstrated that the liability of Rs. 12,97,47,322/- which is the subject matter of dispute in the impugned proceedings was consistently disclosed by the assessee on its liability side and by including the amounts due to the said parties in its financial statements filed with the tax authorities the assessee had acknowledged that the liabilities were subsisting and outstanding. In making the complete declaration in the form of liabilities shown in the Balance Sheet, the assessee was acknowledging that it had obligation to pay these amounts to the Sundry Creditors named in the financial statements and the liabilities had not ceased to exist. From the perusal of the assessment order as also from the details available in record, I find that the assessee had not only furnished the detailed list of sundry creditors outstanding as on 31.03.2001, but the assessee had also filed letters of confirmations issued by the parties wherein they had confirmed the balances shown outstanding as per assessee's books of accounts. I thus find that as per the Balance Sheets of the assessee ....
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....the set of facts and documentary evidences as discussed, I am inclined to observe and hold that the assessee had discharged its onus of proving that as of 31.03.2001, that the assessee had subsisting liability to pay Rs. 12,97,47,322/- to sundry creditors; details whereof were not only furnished before the Ld.AO but the assessee had also furnished confirmations from these creditors. In the light of the aforesaid facts, I therefore hold that the assessee had duly discharged the onus cast upon it of proving the fact that the assessee had subsisting and genuine obligation to pay Rs. 12,97,47,322/- to the sundry creditors. The directions contained in the order Hon'ble ITAT, Kolkata which the assessee was required to comply were thus satisfactorily carried out by the assessee and therefore the onus of carrying out the other directions of the Hon'ble ITAT, Kolkata shifted on the Revenue, more specifically the Ld A.O. 4.From perusal of the assessment order, it is observed that the Ld. AO had also carried out enquiries and investigation into the details of creditors as furnished by the appellant. It is noted that the Ld. AO had identified the parties who had large outstand....
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.... appellant had ceased to exist. It is further material to note that the letters of confirmations issued by these parties were filed before the Ld.AO, genuineness of which was never denied or disputed by the Directors when they were examined on oath by the Ld.AO. The Directors who had appeared on behalf of the Creditor Companies had only expressed their inability to explain the transactions which were conducted with the appellant during FY 2000-01 since they were not on the Board of Directors back then and that such old books of accounts were not available with them. Taking into account the fact that these Directors were not the Directors during the relevant previous year and also that more than 15 years had elapsed since then, I find myself in agreement with the contentions of the Ld. A.Rs for the appellant that the inability of the Directors to explain the transactions conducted by their companies with the appellant in F.Y 2000-01 could not be viewed adversely. I also note that even under the Companies Act, 1956; the corporate creditors were required to maintain and preserve the books of accounts and other records of their business transactions for period not exceeding 8 years and....
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....on'ble ITAT, Kolkata to the Ld.AO was not fully complied with as no convincing material or irrefutable evidence was brought on record to prove that the Sundry Creditors had granted remission of the amounts due or otherwise the assessee's liability due to the sundry creditors had ceased by 31.03.2001. 6. Further, it is to be observed that in the appellate order dated 04.03.2014, the Hon'ble ITAT had further directed the Ld.AO to bring on record clinching evidence to show that the liabilities if existed, the same were remitted during the relevant year or there was a cessation of the liability during the FY 2000-01 so as to constitute as appellant's income chargeable for AY 2001-02. In this regard I find that the relevant provision of the Act reads as follows: "(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such los....
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....sation of liability, but further the AO was required to bring on record sufficient material to prove that such remission or cessation of the liability was granted or occurred during the FY 2000-01 being the relevant previous year for AY 2001-02. From a careful perusal of the impugned assessment order, however I find that the Ld. AO did not bring on record any evidence or document which proved that the assessee derived the benefit in the form of remission granted by the creditor during FY 2000-01 so as to constitute as income under Section 41(1) of the Act. 7. The last direction of the Hon'ble ITAT, Kolkata required the Ld. AO to consider the scope of Section 41(1) of the Income Tax Act, 1961 in light of the prevailing judicial views on the subject. It is observed that In the impugned order the Ld.AO referred to a solitary judgment of the Delhi High Court in the case of CIT Vs Chipsoft Technology (P) Ltd (26 taxmann.com 109) for justifying invocation of S. 41(1) of the Act. On analysis of this decision it was noted that in the decided case, unpaid dues of the employees had remained outstanding in assessee's books for more than 7-8 years. It was therefore the Revenue....
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....y the Hon'ble Tribunal. In the decided case also the liabilities of the assessee had remained outstanding for several years. Before the Hon'ble Tribunal the Revenue relied on the judgment of the Delhi High Court in the case of CIT Vs Chipsoft Technology (P) Ltd (supra) to claim that the liabilities had become time barred and therefore there was a cessation of liability. The Tribunal however distinguished the said judgment as it found that the liabilities involved were not workmen dues but they were trading liabilities and therefore the judgment of Hon'ble Delhi High Court had no application to the facts of the assessee's case. The relevant findings of the ITAT, Bangalore in this regard were as follows: "The learned DR placed reliance on a decision of the ITAT Mumbai in the case of ITO v. Shailesh D. Shah [IT Appeal No. 7012 (Mum) of 2010, dated 11-12-2013}. We have perused the said decision and we find that was a case where the liability in question was outstanding labour charges in the case of an Assessee engaged in the business of civil construction. The Tribunal followed the decision of the Hon'ble Delhi High Court in the case of CIT v. Chipsoft Tech....
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....parlance, merely because the creditor could not be traced on the date when the verification was made, same is not a ground to conclude that there was cessation of the liability. Cessation of the liability has to be cessation in law, of the debt to be paid by the assessee to the creditor. The debt is recoverable even if the creditor has expired, by the legal heirs of the deceased creditor. Under the circumstances, in the present case, it can hardly be said that the liability had ceased. If the liability had not ceased or the benefit was not taken by the assessee in respect of such trade liability, in our view, the conditions precedent were not satisfied for invoking Section 41(1) the Act in the instant case. 10. The Tribunal has rightly relied upon the decision of Delhi High Court in case of Shri Vardhman Overseas Ltd. (supra). The discussion of the decision of Delhi High Co was relevant, for consideration of the facts of the case in order to find out as to under what circumstances it could be said that there is cessation of liability. Further, the decision of Delhi High Court is after considering the view taken by the Apex Court case of CIT v. Sugauli Sugar Works (P.) Ltd.....
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....t or liability will not stand extinguished but it would only prevent the creditor from enforcing the debt and in that view of the matter the deeming provisions of Section 41(1) could not be invoked on the premise that the liability had become time-barred. 10. I further note that in another decision of the Hon'ble Delhi High Court in the case of CIT Vs Vardhaman Overseas Ltd (343 ITR 408) facts involved were similar to one involved in the appellant's case. Facts involved in this case were; the liabilities in question were trading liabilities and not workmen dues. Before the AO, the assessee was unable to furnish confirmations from the creditors which appeared to be old and the assessee was unable to furnish the complete addresses of all the creditors. The outstanding creditors were therefore assessed as income u/s 68. On appeal the CIT(A) though deleted addition u/s 68 but confirmed the addition by invoking Section 41(1) of the Act. On appeal the ITAT found that in the assessee's books, the amounts payable to the creditors were not written back but shown as outstanding to the parties and therefore Section 41(1) was held inapplicable. On appeal the High Court obs....
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....claim observed as follows: "After hearing learned counsel for the appellant and going through the impugned order, we do not find any merit in the instant appeal. It is the conceded position that in the assessee's balance sheet, the aforesaid liabilities have been shown, which are payable to the sundry creditors. Such liabilities, shown in the balance sheet, indicate the acknowledgement of the debts payable by the assessee. Merely because, such liability is outstanding for the last six years, it cannot be presumed that the said liabilities have ceased to exist. It is also conceded position that there is no bilateral act of the assessee and the creditors, which indicates that the said liabilities have ceased to exist. In absence of any bilateral act, the said liabilities could not have been treated to have ceased. In view of these facts, the CIT(A) as well as the ITAT have rightly come to the conclusion that the Assessing Officer has wrongly invoked the Explanation I of section 41(1) of the Act and made the aforesaid addition on the basis of presumption, conjectures and surmises. It has been further found that the Assessing Officer failed to show that in any earlier year....
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....reliance on the decision of the Hon'ble Madras High Court in the case of CIT vs Tamil Nadu Warehousing Corporation (292 ITR 310) also appears to be relevant since the facts of the assessee's case were similar to the facts of the decided case. The High Court in the decided case found that the assessee had disclosed in its balance sheet the liabilities outstanding to the trade creditors which were old and brought forward from earlier years. The AO assessed the outstanding liabilities u/s 41(1). The Hon'ble High Court upheld the ITAT's order allowing relief on the ground that there was no evidence that there was cessation of liability. The Court found that in fact the assessee had acknowledged the liabilities by disclosing them as payables in the Balance Sheet. Following the foregoing decision of the Madras High Court, the Hon'ble jurisdictional ITAT, Kolkata Benches in the following cases deleted additions made u/s 41(1) in respect of the old & outstanding creditors. • ITO Vs M.L. Sarkar & Bros (ITA No. 1550/KoI/2010), • ITO Vs Amusar Services & Suppliers Pvt Ltd (ITA No. 609/KoI/2012) • ITO Vs Multiwyn Industrial Corporation....
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....ur of the appellant-assessee." 3. We have heard both the parties reiterating their respective stands against and in support of impugned section 41(1) remission / cessation of liability involving the amount of Rs.12,97,47,322/-. The instant proceedings appear to be second round of litigation between the parties qua the very issue before this tribunal. Earlier co-ordinate bench had remitted the instant issue back to the assessing authorities for afresh adjudication (supra). 4. The Assessing Officer took up consequential proceedings. There is no dispute about the assessee to have been carrying forward the impugned liability in its books for a time span of almost three decades. It is an admitted fact that the department did not raise any issue in all intervening assessment years in question. It emerges that Assessing Officer had issued summons to six directors of the concerned entities on test check basis in the instant second round. Four of the said six entities' directors put in appearance. They expressed their ignorance about any such trading transactions with the assessee in their respective statements. This made the Assessing Officer to issue a show-cause dated 12.03.2015 pr....
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....iscussion. This leaves the Revenue aggrieved. 6. Learned Departmental Representative vehemently argues in the light of Assessing Officer's findings that assessee's impugned liability is not a genuine one first of all as per the four parties's directors' statements. He thereafter submits that it can be safely assumed that the liability in question as ceased u/s. 41(1) of the Act. We do not find merit in either of these two arguments. Case file revealed that the assessee has throughout been claiming the impugned liability for a time span of almost three decades without any such objection from department. Relevant sundry creditors list runs into 96 parties; amount and address-wise, particularly in paper book pages 55 to 56 as on 31.03.2001. The assessee partly paid the sum in case of five of the said parties involving gross amount of Rs.21,95,04,000/-. Paper book pages 93 to 95 and 57 to 59 contains the summarized statement of liability in question as to 31.03.2000 and from 01.04.1989 to 31.03.2013 involving the sum of Rs.12,87,24,079/-; respectively. 7. Case file further suggests that the impugned liability claim has nowhere been doubted in preceding or succeeding assessment ye....