TaxTMI 
TaxTMI 
2020 (6) TMI 366
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.... 31.03.2008 relevant to the A.Ys 2006- 07 & 2008-09 and that the amount could not be paid due to shortage of funds. It was further submitted that the assessee company was to get lot of money from the main contractor and the amount payable will be cleared as and when the receivables are collected from the main contractor. The assessee was directed to furnish the details of the creditors including the name & address, PAN and ledger a/c. The assessee furnished a common ledger a/c for the year 1.4.2011 to 31.3.2012 consisting of 195 pages, each page containing the names of 14 creditors and the details included only the name of the alleged creditor and the amount. In the narration, it was simply stated that as "the balance brought forward" and almost all the entries were below Rs. 1.00 lakh. It is also observed that the creditors included filling stations, auto services, mechanical works, etc., Therefore, the assessee was asked to produce further details including address, PAN and an individual ledger a/c for the year in which the credit was originated. In response to the said notice, the assessee vide reply dated 22.12.2014 stated that the creditors are mobile people who works in the w....
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....ining of a benefit by the assessee by virtue of remission or cessation is sine qua non for invoking the provisions of section 41(1) of the I.T.Act, 1961. 10. The Ld. CIT (A) ought to have appreciated that the AO has invoked the provisions of section 41(1) of the Act, without establishing that there is remission or cessation of the liability in the year under consideration. 11. The Ld. CIT (A) ought to have appreciated that the amount of Rs. 19, 62, 86, 726/represents sundry creditors that are brought forward from earlier assessment years. 12. The assessee may add, alter or modify or substitute any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal". 3. The learned Counsel for the assessee, while reiterating the submissions made before the authorities below submitted that there is no cessation of liability during the relevant A.Y, as the assessee company is still liable to pay liabilities to the creditors in future and the assessee also has not written off the outstanding liabilities in its books of account. He submitted that the AO has made the addition u/s 41(1) without corroborative evidence that the said ....
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....sessee company nor does it clarify the nature of the balance receivable by the assessee company. It is also submitted that nothing is available on record or additional evidence submitted in the Paper Book to prove that M/s. Madhucon Projects Ltd is the parent company of the assessee nor that they owned up trading liability of M/s. Nama Properties Ltd. It is also submitted that there is nothing in the additional evidence to prove that the liabilities are still existing in the books of account of the assessee company. 7. The learned DR has also filed written submissions along with the report of the AO on the additional evidence filed by the assessee and placed reliance upon the following case law: a) ITAT Ahmedabad Bench in the case of ACIT vs. Dattatray Poultry Breeding Farm (P) Ltd, 95 Taxmann.com 130 b) Bombay High Court in the case of Palki Investments & Trading Co. (P) Ltd vs. ITO Mumbai 71 Taxmann.com 322 c) Hon'ble' Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar & Sons Ltd (1996) 88 Taxmann 429 (S.C) d) Hon'ble Rajasthan High Court in the case of Rama Steel Rolling Mills & General Engg. Works (2013) 35 Taxmann.com 2....
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....t there is nothing available on record to prove that M/s. Madhucon Projects Ltd is the parent company of the assessee, nor that they have owned up the trade liabilities of the assessee company. In reply to this report of the AO, the learned Counsel for the assessee has filed the Annual Report of Madhucon Projects Ltd for financial year 2012-13 wherein, in the list of related party transactions, the name of the assessee is mentioned under the head "Enterprises where significant Influence Exists". The AO can examine the genuineness of the expenditure in the year in which it is claimed to have accrued to it and can only bring it to tax in the year there is cessation of liability. The genuineness or otherwise of the expenditure should have been questioned by the AO in the year in which it is claimed by the assessee. As far as the A.Y 2012-13 is concerned, we find that the AO has invoked only the provisions of section 41(1) of the Act and the same can be invoked only if there is a cessation of liability and the AO cannot unilaterally treat it as cessation of liability without there being any evidence that such liabilities cannot be enforced on the assessee or that the assessee has writt....
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....r further having found that debts were outstanding since several years applied section 41(1) and added above amount in income of assessee as deemed income - There was nothing on record to suggest that there was remission or cessation of liability that too during previous year relevant to assessment year 2007-08 - Whether in peculiar facts of case amount in question could not be added back in income of assessee as deemed income under section 41(1) - Held, yes [Para 8] [In favour of assessee] iii) ITAT Mumbai in the case of Maharashtra State Coop. Consumers Federation Ltd, 13 Taxmann.com 163 (Mum). I. Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessment year 2005-06 - During assessment proceedings, Assessing Officer observed that there was a liability of Rs. 10,85,531 pending for more than 5 years on assessee and same had not been claimed by creditors; therefore, he added this amount to total income of assessee presuming that assessee's liability had seized - Whether in absence of any contrary materials placed on record by revenue to show that no such liability existed in books of account or assessee had obtained a....
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....lity, or by a contract between parties or by discharge of debt - Held, yes - Whether, establishment of genuineness of transaction was required in year when liability had arisen and addition could not be made on such ground, treating it as cessation of trading liability, when assessee had acknowledged its liability successively over several years - Held, yes [Para 22] [In favour of assessee] vi) Hon'ble Gujarat High Court in the case of Matruprasad C Pandey, 59 Taxmann.com 428 held as under: Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Cessation of trading liability) - Assessment year 2007 08 - Assessing Officer observed certain liabilities (sundry creditors) in balance sheet of assessee, which were very old - As assessee failed to furnish complete identity, creditworthiness of creditors, etc., as sought by Assessing Officer, he treated said creditors as no longer payable and made addition under section 41(1) - Whether addition under section 41(1) cannot be made unless and until it is found that there was remission and/or cessation of liability that too during relevant assessment year - Held, yes - Whether since there....
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....ction with assessee - Notices in some cases had returned unserved - Assessee had failed to produce said creditors as directed - Assessee had not even furnished correct address of all creditors, their PAN numbers and confirmation - Whether, on facts, Assessing Officer was justified in holding that there was cessation of liability and making additions to income of assessee under section 41(1) - Held, yes - Whether merely because liabilities were shown in books of account by assessee as outstanding and not written back, would not, tie down revenue to hold such liabilities to be subsisting liability - Held, yes [Paras 9 and 10] [In favour of revenue"]. b) In the case of Palki Investments & Trading Co. (P) Ltd vs. ITO Mumbai 71 Taxmann.com 322, Hon'ble Bombay High Court held as under: Section 271(1)(c), read with section 41(1), of the Income-tax Act, 1961 - Penalty - For concealment of income (False claims) - Assessment year 2005-06 - During assessment proceedings Assessing Officer made certain additions under section 41(1) in respect of trade liabilities which had ceased to exist - Penalty under section 271(1)(c) was also levied for furnishing inaccurate particula....
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....n balance-sheet of assessee for year ending on 31-3- 2007 aforesaid amount of Rs. 34 lakhs stood in name of 'T' - Assessing Officer added said amount to income of assessee for assessment year 2007-08 in view of provisions of section 41(1) - Tribunal held that liability of Rs. 34 lakhs in respect of 'T' at end of year as on 31-3-2007 if not proved could be added to income of assessee under section 41(1) - While remitting matter to Assessing Officer, it was left open for Assessing Officer to verify discharge of liability till date of fresh assessment and if liability had been discharged till date then there would be remission or cessation of liability and if assessee failed to produce creditor or unable to give exact address then such liability would stand ceased during year and Assessing Officer would be free to add back same as per law - Whether liability of Rs. 34 lakhs in respect of 'T' at end of year if not proved could certainly be added to income of assessee under section 41(1) - Held, yes - Whether in facts and circumstances of case no substantial question of law arose for consideration regarding effect of section 41(1) resulting into remission or cess....
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....ction 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Cessation of liability) - Assessment year 2007-08 - Assessee was engaged in business of manufacturing and trading in readymade garments - In return of income, assessee declared certain amount payable to creditors on account of purchases made from them - Assessing Officer issued notices to various creditors which were returned unserved with remarks not known - He thus taking a view that creditors in question were not genuine, made addition to assessee's income under section 41(1) - Whether since liability towards creditors remained in existence for a long time and, moreover, assessee failed to establish genuineness of those liabilities by producing supporting evidence, impugned addition was to be confirmed - Held, yes [Para 7] [In favour of revenue] h) ITAT Mumbai Bench in the case of ITO vs. Sajjan Kumar Didwani, 47 Taxmann.com 381 held as under: I. Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Cessation of trading liability) - Assessment year 2009-10 - Assessee's books showed trading liabilities which worked out to approx. 40 p....
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....ed concealment of income with respect to addition made u/s 41(1) of the Act on account of cessation of liabilities. The Hon'ble High Court has considered that in the case in the penalty proceedings, all the three authorities had concurrently arrived at a fact that claim made by assessee with regard to its outstanding liabilities for subject A.Y was false. Therefore, the facts of this case are different and distinguishable from the facts before us and therefore, cannot be applied to the case on hand. 13. In the case of CIT vs. TV Sundaram Iyengar & Sons Ltd, the Hon'ble Supreme Court was considering the case where certain deposits from customers in course of its business were originally treated as capital receipts by the assessee and unclaimed credit balances, which were time barred, were written back by the assessee to its P&L A/c and were treated as assessee's income and were held to be liable to tax. Thus, in the said case, the assessee therein had recognized the cessation of its liability and the issue was whether capital receipts can thereafter be treated as revenue receipt. In the case before us, the assessee has not recognized the cessation of liability as in the c....