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2019 (12) TMI 1253
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....fficer may be restored to the above extent. 4.. The appellant craves leave to amend, alter or add a new ground, which may be necessary. 2. Facts of the case are as emanated from the assessment order: 3 Cessation of Liability U/S 41(1) Over verification of balance sheet, it is noticed that the assessee company has shown trades payable of Rs. 20,773,910/- . It was also observed that the the assessee had shut operations in March 2005 and for the assessment year under consideration, almost 7 years have past after its closure.Perusal of balance sheet revealed that all the assets and liabilities are shown unchanged over the last year. Therefore the assessee was asked to submit proof regarding the existing liabilities on account of trade payable. 3.1 In response, assessee filed reply dtd. 15.12.2014 in which the assessee produced a list of trade payables as under:- SrNo Name of the party Amount payable 1 Balaji Plastic Industries 47925 2 Bhavani Packaging Industries 58446 3 Comet Clearing Agency 22413 4 Gurunanak Engineering Works 202400 5 Heat Transformers Equipment P Ltd 340060 6. Hindusta....
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....mpany was incurring huge losses and there was complete lack of liquidity, the company has not been able to pay the creditors in respect of the goods and services supplied the them up to March, 2005. These liabilities are still outstanding and payable by the company as per legal and contractual terms. It is submitted that there is no remission or cessation of liabilities of Rs. 2,07,73,910/-. Even though these liabilities have become barred by the law of limitations, there is neither remission by the creditors of such liabilities nor cessation of the liability as the liability is not extinguished. This liability represents a bonafide and genuine trade debt, which is payable by the company as on 31st March, 2012. Though the company is liable and legally committed to pay these amounts to the creditors, on account ofnon -availability of funds, the same could not be paid and they are still outstanding. It is submitted that as the liabilities are still a legal obligation of the company and are payable and in absence of remission or cessation of these liabilities, the provisions of Section 41(1) do not apply to these amounts. For the purpose of submission to MMCB, the company had....
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....relevant documents showing whether the creditors have filed any claim before the court or any other agency. c) The onus is on the assessee to provide the complete details since only he has special knowledge of the liability and only on furnishing of such information, the AO can examine whether the liability still exists or not. The onus was on the assessee to establish that any liability for which deduction had been claimed in earlier year/years is continuing and it still continues to exist. The assessee has failed to discharge it onus and therefore an adverse inference is drawn against the assessee. It was pointed out to the assesee that in case of failure to submit any concrete information in respect of these creditors or to adduce any evidence to the effect that these liabilities are infact payable, then it will be concluded logically that these creditors were no more payable and these liabilities had ceased to exists. 3.3 In light of the above, vide order sheet dated 15.12.2014, a final opportunity was granted to the assessee either to prove that these liabilities still exist or to show cause , why the same should not be considered to be ceased liability U/s 4....
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.... that during the year under appeal, there has been no cessation or remission of any trade liability and that the appellant has not obtained any benefit either in cash or otherwise on account of cessation or remission of trading liability. Thus, the provisions of section 41 (1) of I. T. Act are not applicable to the facts of the appellant's case. It was further submitted that during the year under appeal, there had been no remission or cessation of liability as erroneously presumed by the AO. The liability on account of sundry creditors was very much in existence and the appellant was under legal obligation to make payment of such liability. During the year under appeal, the appellant has not obtained any benefit in respect of such liability by way of remission or cessation thereof. Even in the assessment order, the AO has not recorded any finding or fact to the effect that there was remission / cessation of liability. The appellant further argued that unless notices were issued to the concerned creditors and they had confirmed that they had given up the claims against the assessee, no decision could be taken by the AO merely on the ground that the debts remained unpaid in the b....
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....been remission or cessation of liability during the year under consideration. In the present case, there was nothing on record to suggest there was remission or cessation of liability in the AY 2007-08. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The AO undertook the exercise to verify the records of the socalled creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parfe and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income u/s.41(l) of the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of s. 4] (1) of the Act there is no cure for it." ....
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....t the cost of repetition it may be stated that in this case there is no unilateral act on the part of the debtor so as to bring about a cessation of its liability. Therefore, the other part of the decision would still apply to the facts of the present case, namely that the cessation of liability has to be either by reason of operation of law, i.e. on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor, or a contract between the parties, or by discharge of the debt - the debtor making payment thereof to his creditor. In the present case, admittedly there is no declaration by the assesse that it does not intend to honour its liabilities nor is there any discharge of the debt. In the aforesaid premises, as no event had taken place in the year under consideration to indicate remission or cessation of the liabilities in question, the provisions of section 41(1) of the Act could not have been invoked. The reasoning adopted by the Tribunal while holding that section 41(1) would not be applicable to the facts of the present case is in the line with the principle....
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....rcy, 2005. There being no business activity, there was no income or expenditure, it was submitted to the A.O. also that the liability was on account of money payable to the creditors in respect of goods and services supplied by them prior to March, 2005 and that during the year under consideration, there has been no cessation or remission of any trade liability and that the appellant has not obtained any benefit either in cash or otherwise on account of cessation or remission of trading liability. 7. In support of its contention, assessee cited an order of Hon'ble Jurisdictional High Court in the case of Dattatray Poultry Breeding Farm (P.) Ltd. [2019] 104 taxmann.com 366 (Guj.) : "Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Applicability of) - Assessment year 2010-11 - Assessee was engaged in business of job work of hatching of eggs for 'S1 Farm Ltd. - During course of scrutiny assessment, Assessing Officer noted from balance sheet that assessee had shown huge amount of sundry creditors - Assessing Officer took a view that assessee company was doing job work only and hence, there would be no purchases and hence,....