2013 (2) TMI 723 - AT - Income Tax

Cessation of liability of sundry creditors invoking provisions of section 41(1) - Held that - It is only after the completion of the arguments that the assessee has come with a new fact that he has been regularly repaying the loan amount to the creditors as detailed in the list. This type of explanation given by the assessee at this stage seems to be suspicious. However the interest of justice demands that this explanation though suspicious is required to be verified. If the assessee has really repaid the amount to the creditors then it will be injustice to him if the amount is added to his income. Under such circumstances we remand this case back to the file of the Assessing Officer for fresh assessment in accordance with law and with direction to scrutinize verify and make necessary investigations regarding the genuineness of the assessee s claim of repayment to the sundry creditors

Summary

Issues Involved:
- Addition of sundry creditors' liability to the income of the assessee under section 41(1) of the Income Tax Act for A.Y. 2007-08.

Detailed Analysis:
1. Background: The appellant, an individual engaged in civil contract business, declared income at Rs. 2,10,060. The Assessing Officer found Rs. 48,89,025.96 as current liabilities towards sundry creditors, treated it as income, and added it to the total income.

2. Assessee's Claims: The appellant claimed the liabilities were from before A.Y. 2002-03, and providing details would start the limitation period. The liabilities were not extinguished, only the right to recovery ceased.

3. Assessing Officer's Observations: Despite multiple opportunities, the appellant failed to provide creditor details. The Assessing Officer noted the liabilities should be proven genuine and existing, citing legal precedents.

4. Appellant's Defense: The liabilities were not written back, continuously shown in the balance sheet, and the right to recovery barred by limitation. Authorities were cited to support non-assessability under section 41(1).

5. Department's Argument: Citing a recent High Court case, it was argued that liabilities should cease when not paid over time, qualifying as cessation under the law.

6. Judgment: The Tribunal noted two High Court judgments, stating they supplement each other. The appellant's actions of withholding creditor details while claiming the liability was legally payable were deemed contradictory and impermissible.

7. Remand Order: Due to new facts presented by the appellant regarding repayments, the case was remanded to the Assessing Officer to verify the genuineness of the repayments. The Tribunal emphasized the need for thorough investigation despite the suspicious timing of the new explanation.

8. Conclusion: The appeal was partly allowed, and the case was remanded for fresh assessment to verify the genuineness of the appellant's repayment claims, ensuring justice is served in accordance with the law.