2016 (1) TMI 1266 - AT - Income Tax

Addition on account of cessation of liability - Held that - The original concern will look the identity and need not file I.T. Return. As Orgo Pharma Chemicals is existing after the transfer of certain assets and liabilities, hence, the condition no.(iii) that there is succession in business is not factually correct. As there is no succession business as per sec.41(1) Explanation of Sec. 170 of I.T. Act, hence condition no. (ii) was not fulfilled. A.O s addition is not tenable in law. In the present case there was no deduction from return of income from any of the predecessor interest of the assessee rather it is an assignment of liability on transfer/amalgamation of company and assets and the CIT(A) after considering the entire fact available before him, the addition was correctly deleted. - Decided in favour of assessee.

Summary

Issues:
Deletion of addition of Rs. 4,04,02,671/- made by AO on account of cessation of liability.

Analysis:
1. The appeal was filed by the Revenue against the deletion of the addition by the CIT(A) in the order dated 21.05.2013. The earlier appeal by the assessee was remanded to the CIT(A) for proper opportunity, leading to the present appeal focusing on the single ground of deletion of the mentioned amount.

2. The AO observed that the assessee credited Rs. 4,04,87,771/- in the Profit & Loss A/c as 'balances written back'. However, the computation of income showed a waiver of loan amounting to Rs. 4,04,02,671/- which was reduced from the net profit taxable under sections 28(iv) or 41(1). The AO sought details of the waiver of loan along with documentary support.

3. The CIT(A) analyzed the conditions of section 41(1) for the deletion of the addition. It was observed that the loan amount was utilized for repayment, which was considered capital in nature. The CIT(A) further examined the returns of Orgo Pharma Chemicals and concluded that no deduction or allowance was claimed in the relevant years, thus not attracting section 41(1).

4. The CIT(A) also delved into the succession of business aspect, citing relevant legal precedents. It was noted that Orgo Pharma Chemicals continued as a business entity after the transfer of assets and liabilities, indicating no factual succession as per law. The AO's addition was deemed untenable in law based on these findings.

5. The AO's reliance on certain cases was refuted by the CIT(A) due to the differing facts and circumstances. The CIT(A) found no infirmity in the order while deleting the addition, leading to the dismissal of the Revenue's appeal.

6. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal and pronouncing the order on 13th January 2016.