2013 (11) TMI 727 - AT - Income Tax

Addition u/s 41(1) on account of cessation of liability Addition of sum of Rs.35,02,308/- - The assessee is in the business of Cine Laisoning/Co-ordination, and had in the course of its regular business incurred liabilities to the extent of the impugned sum in an earlier year Held that - Apart from the statement of the liability in her accounts, the assessee has furnished no positive material to establish the subsistence of the liability as at the year-end (31.03.2008) As per Dy. CIT vs. Hotel Excelsior Ltd. 2010 (12) TMI 1080 - ITAT DELHI there could be no cessation of liability solely on the ground that it is over three years old - Under the circumstances, it is fit and proper that the matter is restored back to the file of the assessing authority to decide the matter by issuing definite findings of fact. Addition u/s 68 in respect of unexplained cash credit Held that - Addition is not toward unexplained cash credits, but only toward unexplained source of the cash deposits in bank (Rs.44.30 lacs), stated to be sourced in part by way of receipt back of advances from various parties, i.e., at Rs.17.85 lacs - It would only be fair and in the interest of justice to allow assessee an opportunity to plead its case before the ld. CIT(A) qua this ground. Disallowance of expenditure in respect of expenses pertaining to electricity, professional fee, staff salary, etc Held that - This is not a case of a temporary lull in the business. The same stands discontinued since f.y. 2003-04, with the assessee having not commenced any new project since. In fact, by own admission, she could not do so as she had admittedly not settled her dues to several persons in relation to her last project - In fact, it was found that she to be having even no resources for being able to undertake any such project. The assessee, as it would appear, has been engaging herself in laisoning/coordination business. The film production business having been discontinued for the past several years, with no signs of revival - Assessee s claim for business expenditure does not satisfy the test of s. 37(1) r.w.s. 28 of the Act, and stands rightly disallowed Decided against the Assessee.

Issues Involved:
1. Addition under Section 41(1) of the Income Tax Act, 1961 for cessation of liabilities.
2. Addition under Section 41(1) for an advance from a company.
3. Unexplained cash credits under Section 68 of the Income Tax Act, 1961.
4. Disallowance of business expenditure due to non-continuation of business.

Detailed Analysis:

1. Addition under Section 41(1) for Cessation of Liabilities:
The primary issue revolves around whether the assessee has obtained any benefit by way of remission or cessation of liabilities amounting to Rs. 35,02,308/-. The assessee, engaged in Cine Laisoning/Co-ordination, had liabilities outstanding since the financial year 2003-04. The Assessing Officer (A.O.) inferred cessation of liability due to non-payment for over seven years and absence of creditor confirmations. The assessee contended that the liabilities were still due and some creditors had approached the Federation of Western India Cine Employees (FWICE). The Tribunal emphasized that the onus to prove the subsistence of liability lies with the assessee, referencing the case of Kesoram Industries & Cotton Mills Ltd. vs. CIT. The Tribunal found that the assessee failed to provide sufficient evidence to establish the subsistence of the liabilities as of 31.03.2008 and thus restored the matter to the assessing authority for a factual determination.

2. Addition under Section 41(1) for Advance from a Company:
The second issue pertains to an advance of Rs. 5 lakhs from M/s. Fairdeal International P. Ltd. (FIPL), outstanding since financial year 2003-04. The assessee explained that the amount was to be adjusted against future productions. However, due to the absence of any commitment for future sales and the prolonged non-payment, the Revenue treated the amount as income. The Tribunal noted the contingent nature of the arrangement and the lack of any development in subsequent years. The Tribunal held that the non-adjustment of the debt despite several years indicated a change in the character of the receipt, supporting the Revenue's inference of it being a trade surplus. The matter was restored to the CIT(A) to allow the assessee to establish the liability's subsistence with appropriate evidence.

3. Unexplained Cash Credits under Section 68:
The third issue involved unexplained cash credits amounting to Rs. 17,85,202/-. The assessee claimed these were receipts back of advances made in the past. However, the names of the parties were not reflected in the balance-sheet, and no further details were provided. The CIT(A) upheld the addition as unexplained income under Section 68. The Tribunal noted that the addition was due to the unexplained source of cash deposits in the bank. The Tribunal decided to restore the matter to the CIT(A) to allow the assessee an opportunity to substantiate its claims with evidence, subject to verification by the A.O.

4. Disallowance of Business Expenditure:
The fourth issue concerned the disallowance of business expenditure amounting to Rs. 1,94,136/-. The expenses were related to electricity, professional fees, staff salary, etc. The Revenue disallowed the expenses as no business had been conducted during the previous year. The Tribunal found that the assessee's business had been discontinued since financial year 2003-04, with no signs of revival. The Tribunal upheld the disallowance, stating that the claim for business expenditure did not satisfy the test of Section 37(1) read with Section 28 of the Income Tax Act.

Conclusion:
In conclusion, the Tribunal partly allowed the assessee's appeal for statistical purposes, restoring certain matters to the assessing authority and CIT(A) for further examination and factual determination. The order emphasized the importance of substantiating claims with adequate evidence and the onus on the assessee to prove the subsistence of liabilities and the source of cash deposits.

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