2014 (2) TMI 85 - AT - Income Tax

Deletion made u/s 41(1) of the Act - Cessation of liability Notice issued u/s 133(6) of the Act - Held that - The closing balance cannot be considered as remission or cessation by the party, even after three years of outstanding balance, so as to qualify as income u/s 41(1) when the assessee is paying the liability and there is nothing to indicate, even remotely, that the creditor has given up his claim - The assessee was supposed to pay Rs.8.52 lakh to the party, out of which a sum of Rs.1.45 lakh has paid either by cheque or by cash - When the position is so and the assessee is regularly making payment to such party, there can be no question of treating the closing balance as income u/s 41(1) of the Act - the amount in respect of these four parties cannot be considered as income u/s 41(1) of the Act - We, therefore, upheld the impugned order on this issue Decided against Revenue.

Summary

Issues:
Appeal by Revenue and cross objection by assessee regarding deletion of addition made on account of cessation of liability u/s 41(1) for certain parties.

Analysis:
The appeal and cross objection arose from the Commissioner of Income-tax (Appeals) order for the assessment year 2009-2010. The main issue was the deletion of addition made by the Assessing Officer under section 41(1) concerning liability cessation for specific parties. The Assessing Officer added Rs. 52.39 lakh due to differences in creditor balances and unserved notices. The CIT(A) partially allowed relief, leading to the Revenue's grievance against the deletion of addition for four parties: Jagruti Corporation, Samidha Engineering, Universal Enterprises, and Argass Chemicals.

Jagruti Corporation:
The opening balance was Rs. 8.52 lakh, with a payment of Rs. 1.45 lakh made by the assessee, resulting in a closing balance of Rs. 7.07 lakh. The Tribunal found no evidence of cessation of liability as the assessee was making payments, indicating an existing obligation. Therefore, the closing balance couldn't be treated as income under section 41(1).

Samidha Engineering:
With an opening balance of Rs. 1.77 lakh, a payment of Rs. 10,000 was made during the year, leaving a balance of Rs. 1.67 lakh. Subsequently, the full amount was paid in the following year, making it unreasonable to consider the balance as income under section 41(1).

Universal Enterprises:
Although no payment was made during the year, the entire amount was paid in the subsequent year, leading to a nil balance. The outstanding amount at year-end couldn't be deemed taxable income under section 41(1).

Argass Chemicals:
Having an opening balance of Rs. 25.67 lakh, regular transactions were observed with various debits and credits, resulting in a closing balance of Rs. 26.54 lakh. The Tribunal noted the ongoing business relationship and regular transactions, concluding that the amount couldn't be treated as income under section 41(1).

The Tribunal upheld the CIT(A)'s decision, stating that the amounts for the mentioned parties didn't qualify as income under section 41(1). The cross objection by the assessee was dismissed, leading to the dismissal of both the Revenue's appeal and the assessee's cross objection. The order was pronounced on August 21, 2013.