TaxTMI 
TaxTMI 
TaxTMI 
2018 (8) TMI 2025
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.... no merit in the instant argument. Case file suggests as per the CIT(A)'s relevant portion in para 3.2 that the assessee had received the amount in question from its director namely Sri Biswanath Beriwal for meeting its day-to-day expenses whose details already stood filed before the Assessing Officer during the course of assessment. Be that as it may, the fact remains that identity of assessee's director is nowhere in dispute. We therefore hold that genuineness and creditworthiness identity of the assessee's director hereinabove is nowhere in issue. Nor is there any material indicating admission of additional evidence under Rule 46A of Income Tax Rules. We therefore affirm the CIT(A)'s lower appellate findings under challenge regarding the instant issue. 3. Next comes the Revenue's second substantive ground that the CIT(A) has erred in law and on facts in deleting u/s 43B disallowance of Rs.12,64,109/- made during the course of assessment. We notice herein as well that there is no rebuttal on Revenue's part qua the CIT(A)'s clinching finding that the amount in question nowhere formed part of assessee's deduction claim(s) pertaining to impugned assessment year 2013-14. We affirm t....
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....ecting in the liability side of the balance sheet for the assessment year 2013-14. Prayer: In viw of the above analysis and explanation, the Hon'ble CIT(A) kindly may pass an order directing the AO to delete the addition amounting to Rs. 43,35,622/- asa the said amount not write back and still reflecting in the liability side of the balance sheet for the am year 2013-14. 8. Ground 10: The AO has added Rs. 1,25,30,000/- on account of cessation of liability in his assessment order which was stated in his assessment order as under:- 'As per audited B/sheet, the assessee had outstanding 'other advance received' liability of Rs. 1,25,30,000/-., The assessee was asked to produce details of such parties. The assessee could not submit details. This liability was outstanding even in earlier year. Assessee had no business / income during these years. There was o evidence to prove that such liability still exists. When asked by this office letter why this shall not be treated for cessation of liability, the assessee did not give any reply. The total liability as stated above is treated as income due to cessation of liability. Penalty u/s. 271(1)(c) of the Act initiated for the same.....
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....reditor against him. There is in terms no admission that there is no liability. It is a well-known principle that if a recovery of debt had become barred what is barred is only the remedy and not the right. A fortiori the corresponding obligation must continue even after the recovery of the debt had become bared. We require something tangible and for more specific than the material that was itself had ceased to exist. We cannot spell out such an admission from the fact that the debtor realized that the amount was not recoverable and that he need not make any provision for its payment in his account. The very first step in the argument of the department, therefore, cannot stand and there is, therefore, no need to consider the question whether there was any evidence that the admission was mistaken or not. We do not think that the decisions relied on by counsel for the revenue in Commissioner of Income-tax v. Gangadhar Banerjee and Co. (Private) Ltd., [[1995] 57 .T.R. 176 (SC)] and Associated Banking Corporation of India Ltd. v. Commissioner of Income-tax [[1965] 56 I.T.R 1 (SC)], have any application to the facts of this case. The decision of the Andhra Pradesh High Court in Semakurt....
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....annot be treated as ceased merely because of the act that the liability is being carried forward for years and the assessee is not completely able to prove the genuineness of the trading liability, at the time of application of Section 41(1) by the Income Tax Authorities. Considering the facts of the case as note above it is clear that the assessee had continued to show the admitted amounts as liabilities in its balance sheet. The liabilities reflected in the balance sheet cannot be treated as cessation of liabilities. Early because the liabilities re outstanding for last many years, it cannot be inferred that the said liabilities have ceased to exist. It is also a fact that the assessee has not written off the outstanding liabilities in the books of account and the outstanding liabilities are still in existence would prove that the assessee acknowledged his liabilities as per the books of account. Section 41(1) of the IT Act is attracted when there is cessation or remission of a trading liability. The AO shall have to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof. Merely because the assessee obta....
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....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. 5,63,402/-. Against the said order, the appellant preferred an appeal before the Ld. CIT(A)-XX. Kolkata. In the appellate order passed u/s 250 dated 31.03.2008, the Ld. C!T(A: deleted both the additions made by the AO. Against this appellate order, the Department preferred an appeal before the Hon'ble ITAT, Kolkata. The said appeal was adjudicated by the 'C' Bench of Hon'ble ITAT, Kolkata on 04.03.2014 in ITA No. 1326/Kol/2008. After giving consideration t....
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....ility 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 parties, set aside the order of CIT (A) and restore this issue to the file of AO with the direction that the AO shall reexamine this issue afresh and give proper and sufficient opportunity to the Assessee to prove that the interest payable which are more than 3 decades old are still liability in praesenti. The AO is also directed that while deciding the issue afresh, to look into the relevant provisions of the Income Tax Act as well as the relevant case laws on the issue for asc....
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.... 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 for the immediate preceding year as also for the relevant assessment year, and for the subsequent years till AY 2013-14, the assessee had declared the details of outstanding liabilities due to sundry creditors. Besides disclosing the liabilities in Annual Financial Statements, the assessee-firm had supported existence of liabilities by producing balance confirmations of the parties for the year ended 31.03.2001. The Ld. A.R for the assessee was directed to file copies of the assessment ord....
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....on 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 outstanding sums which together accounted for more than 850/0 of the outstanding liability considered as income u/s 41(1) and had issued summons u/s 131 on sample basis to six creditors. From the impugned order it is observed that all the summons were served upon all the six creditors. The summons was also complied with by four creditors. The remaining two creditors did not personally appear but furnished the details as sought by the Ld.AO by way of a letter which was submitted in receipt / by post. The ....
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....k 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 therefore in view these legal provisions if the Directors of the creditor companies expressed their inability to produce the books of the relevant year or provide explanations with regard transaction of FY 2000-01 then no adverse view appears to be permissible in law. The mere fact that the persons who had appeared were not aware of the transactions which had occurred more than 15 years back cannot be taken as an admission by them that the liabilities due by the appellant had ceased or they wer....
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....es 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 loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cas....
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....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's case that under the Industrial Disputes Act, the workmen's dues had become time-barred and therefore there was a cessation of liability within the meaning of Section 41(1) of the Act. On these facts therefore the Hon'ble High Court held that the unpaid dues of employees, whose recovery had got time barred, legally ceased to be the employer's liability and therefore it was rightly assessed as income by the AO u/s 41(1) of the Act. Applying the decision rendered by the Delhi High Court in the above said factual content the Ld. AO ju....
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....ent 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 Technology (P.) Ltd. [2012J 26 taxmann.com 109/210 Taxman 173 (Delhi) wherein the Hon'ble Delhi High Court on the facts of that case where the outstanding liability was wages of workman, expressed the view that it was illogical that wages of workman would remain unpaid for a long duration of time and therefore held that the liability should be considered as having ceased. The present case is a case of trading liability, which cannot stand on the same footing as due to workman. We are therefore of the view that the decision relied upon by the learned counse....
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....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. [1999J 236 ITR 518/102 Taxman 713. 9. I further find that the Supreme Court in the case of CIT v. Sugauli Sugar Works. (P.) Ltd. (236 ITR 518) had considered the issue concerning cessation or remission of liability and whether the cessation of liability can occur by reason of operation of the respective law. In the said judgment the Supreme Court referred to the decision of Hon'ble Bombay High Court in J.K. Chemicals Ltd. v. CIT (62 ITR 34), the relevant observations are as under: "The question to be considered is whether the transfer of these entries brings about a remission or cessation of its....
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....firmations 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 observed that to invoke Section 41(1) it was necessary to show that the assessee was actually granted remission of trading liabilities for which deduction was earlier allowed. The High Court further held that it was not enough that the assessee derived some benefit of trading liability but such benefit should necessarily arise on account of remission of the liability. The Court noted that the assessee had not transferred the outstanding amounts from the creditors' account to its Profit & Loss Account but the amounts were shown as "liabilities" in the Balance Sheet and the assessee had acknowledged the debts as due to the creditors....
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....ditors, 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, allowance of deduction had been in respect of any trading liability incurred by the assessee. It was also not proved that any benefit was obtained by the assessee concerning such trading liability by way of remission or cessation thereof during the concerned year. Thus, there did not accrue any benefit to the assessee which could be deemed to be the profit or gain of the assessee's business, which would otherwise not be the assessee's income. It has been further found as fact that the assessee had filed the copies of accounts of sundry creditors signed by the concerned creditors. In view of this fact, in our opinion, the ITAT has rightly come to the....
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....e 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 (ITA No. 2165/KoI/2010) On close examination of the foregoing Hon'ble ITAT decisions, I find that in all the 3 cases the Assessing Officers had invoked Section 41(1) of the Income Tax act; 1961 in respect of old trade creditors on the ground that either the assessee did not furnish the complete particulars of the creditors brought forward from the earlier years or that the notices issued u/s 133(6) remained un-served or nonITA complied. The CIT(A) & ITAT however held that so long as the assessee disclosed the amounts outstanding in its Balance Sheet and had acknowledged the liabilities as due, provisions of Section 41(1) had no application and therefore additions were not tenable. From the le....
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.... 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 proposing to treat the above sum as a mere book entry as ceased u/s 41(1) of the Act. The assessee stated reiterated the fact of having claimed the impugned liability in its books almost three decades earlier for the first time followed by similar treatment in the intervening assessment years without any change relevant in facts. Its case was that none of its creditors had ever remitted their respective sums so as to attract section 41(1) of the Act. It highlighted the fact that above random creditors had supported its case as per their written replies in response to the respective summons. All this failed to convince the Assessing Officer. He noticed that one of the said written replies did not contain even concerned party....
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....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 years involving regular assessment at least in assessment years 1998-99, 2000-01, 2003-04 and 2004-05. The CIT(A)'s clinching findings that four directors of corresponding entities have been appointed in financial year 2001-02 only whereas the impugned liability dates back to almost 30 years; have gone unrebutted from the Revenue side. We therefore do not see any merit in Revenue's above twin submissions. Its former plea that the impugned liability is not genuine at this belated stage carries no weight. Hon'ble Karnataka high court's decision in CIT vs. Alvares & Thomas (2010) 69 Taxman 257 (Kar) holds that mere none verification of such a liability for or for that any doubt raised thereupon does not attract cessation of ....