2011 (1) TMI 1553 - AT - Income Tax

Summary

Issues involved: Appeal against deletion of addition u/s 41(1) for assessment year 2005-06.

The Department appealed against the deletion of an addition of Rs. 10,56,750 made on account of cessation of liability u/s 41(1) of the Income Tax Act for the assessment year 2005-06. The Assessing Officer added the amount as the liability was deemed to have ceased to exist since the creditor did not approach the assessee for payment. However, the ld. Commissioner of Income-tax (Appeals) deleted the addition, noting that the liability was carried forward from the previous assessment years and was consistently shown in the Balance-sheet. The Commissioner emphasized that without evidence of payment or cessation of the liability, invoking section 41(1) was unwarranted. The Tribunal concurred with the Commissioner's decision, highlighting that the mere absence of the creditor's address did not imply the cessation of the liability. Thus, the Tribunal upheld the deletion of the added amount and dismissed the Department's appeal.

In the appeal, the Department contended that the ld. CIT(A) erred in deleting the addition u/s 41(1) without proper consideration of the evidence. The Assessing Officer's basis for the addition was the belief that the liability had ceased to exist due to non-recovery by the creditor. Conversely, the ld. CIT(A) found that the liability had been consistently reflected in the Balance-sheet since 2001-02, indicating its ongoing existence. Citing a precedent from the Hon'ble Madras High Court, the ld. CIT(A) emphasized that without concrete proof of payment or cessation, the addition under section 41(1) was unjustified. The Tribunal supported this view, affirming that the liability's continuous presence in the Balance-sheet over several years negated the presumption of cessation. Consequently, the Tribunal upheld the ld. CIT(A)'s decision to delete the added amount, rejecting the Department's appeal.

The Department's appeal challenged the deletion of an addition u/s 41(1) for the assessment year 2005-06. The Assessing Officer added Rs. 10,56,750, asserting that the liability had ceased to exist as the creditor had not demanded payment. However, the ld. CIT(A) overturned this addition, noting that the liability had been carried forward from previous years and was consistently shown in the Balance-sheet. Relying on the absence of evidence indicating payment or cessation, the ld. CIT(A) deemed the addition unwarranted. The Tribunal concurred with this reasoning, emphasizing that the mere absence of the creditor's address did not prove the liability's cessation. Consequently, the Tribunal upheld the deletion of the added amount and dismissed the Department's appeal.