2015 (8) TMI 1198 - AT - Income Tax

Additions u/s 41(1) on account of cessation of liability - Held that - It is not a case where the CIT(A), in the absence or because of the failure of the assessee to provide addresses, confirmations etc. from the alleged creditors, has assumed that the liability has ceased to exist, but he himself made further enquiries to find out the alleged creditors through the official machinery. When he had satisfied himself that neither in the last so many years those parties had ever been seen by anybody, nor any known address of them was available, there was never any demand of payment by any of the above named parties from the assessee for the last more than 10 years, no income tax returns had been filed by them, only then he concluded that the liability of the assessee, in fact, had ceased to exist. In our view, merely because the assessee now has offered the said amount as income, that itself, does not support the case of the assessee that the liability had not ceased to exist in the year under consideration, rather, this fact supports, the case of the Revenue that even after passing of further 5 years from the date of assessment, the assessee could not trace his creditors. We, therefore, do not find any infirmity in the well-reasoned order of the Ld. CIT(A) in this respect. There being no merit in the appeal of the assessee, the same is accordingly dismissed - Decided against assessee.

Summary

Issues Involved:
Appeal against order of Commissioner of Income Tax (Appeals) for assessment year 2007-08. Validity of Assessment Order under section 142(1). Addition made under section 41(1) due to cessation of liability.

Analysis:

Issue 1: Validity of Assessment Order under section 142(1)
The appellant challenged the validity of the Assessment Order due to an unsigned notice under section 142(1). The Commissioner of Income Tax (Appeals) upheld the order, citing provisions of Sec. 292B and 29213. The appellant argued that the unsigned notice rendered the assessment invalid. However, the issue was dismissed as the appellant did not press Ground Nos. 1 to 3.

Issue 2: Addition under section 41(1) due to cessation of liability
The Assessing Officer added an amount to the income of the assessee under section 41(1) based on the assumption that the liability to two creditors for purchases had ceased to exist. The appellant contended that the liabilities were still valid, as there was no write-off or transfer to Profit and Loss Account. The Commissioner required detailed documentation, but the appellant failed to provide confirmations or current addresses of the creditors. Further inquiries revealed that the alleged creditors were non-existent, with no demand for payment in over 10 years. The Commissioner concluded that the liability had ceased to exist, adding the full amount to the income of the assessee under section 41(1).

Judgment:
The Appellate Tribunal upheld the Commissioner's decision, stating that the evidence supported the cessation of liability. The Tribunal noted that even after several years, the assessee could not trace the creditors, indicating the liability had indeed ceased to exist. The appeal was dismissed, with the assessee advised to claim refunds or adjustments to avoid double taxation. The Tribunal found no merit in the appellant's case and upheld the Commissioner's well-reasoned order.

This detailed analysis covers the issues raised in the legal judgment, providing a comprehensive understanding of the decision made by the Appellate Tribunal.