2015 (1) TMI 1429 - AT - Income Tax

Addition u/s. 41(1) - cessation of liability on account of sundry creditors and advance from customers - HELD THAT - In the present case it is an admitted fact that assessee was showing the impugned liabilities year after year in its balance sheets which were accepted by the Department and there was no new liability during the year under consideration. The assessee was also making the payments whenever funds were available with it but due to want of funds amount could not be repaid after 31st March 2005. In the instant case the assessee reflected the liabilities in its books of account when those were incurred those liabilities were accepted as genuine by the Department in the earlier years assessee did not write off liabilities to its profit and loss account and there was no cessation of liability. Therefore the provisions of Sec. 41(1) were not applicable because the liabilities ceases only when the assessee equivocally expresses its intention not to honour of the liability as and when demanded. In the present case nothing was brought on record to substantiate that the assessee expressed its intention not to honour the liability when the creditors demanded the same rather the assessee had continued to acknowledge its liability which who evident from its audited balance sheets furnished along with returns of income for the earlier years which were accepted as genuine by the Department. No valid ground to interfere with the findings of Ld. CIT(A). Accordingly we do not see any merit in the appeal of Department.

Summary

Issues:
- Deletion of addition under section 41(1) of the Income Tax Act related to sundry creditors and advance from customers.

Analysis:

1. Deletion of Addition under Section 41(1):
- The Department appealed against the deletion of an addition of a substantial amount under section 41(1) of the Income Tax Act related to sundry creditors and advance from customers. The Assessing Officer had made the addition due to the cessation of liability, but the CIT(A) deleted the addition.

2. Assessing Officer's Findings:
- The Assessing Officer noted that the assessee had significant balances under sundry creditors for goods, sundry creditors for others, and advance from customers. The AO was not satisfied with the explanation provided by the assessee and made the addition under section 41(1) of the Act.

3. Assessee's Contentions:
- The assessee argued before the CIT(A) that the liabilities had been static for several years, and there was no change in the amount owed. The assessee continued to acknowledge the liabilities in its balance sheets, and there was no remission or cessation of the liabilities.

4. CIT(A)'s Decision:
- The CIT(A) observed that there was no increase in the liabilities, and the assessee had no access to the books of accounts due to external factors. The CIT(A) found that the liabilities were genuine, and there was no cessation of liability during the year under consideration.

5. Appellate Tribunal's Decision:
- The Appellate Tribunal considered the submissions of both parties and reviewed the records. It noted that the liabilities were consistently shown in the balance sheets, accepted by the Department, and there was no new liability during the relevant year. The Tribunal found that the provisions of section 41(1) did not apply as there was no intention expressed by the assessee to not honor the liabilities.

6. Conclusion:
- The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decision to delete the addition under section 41(1). The Tribunal found no merit in the Department's arguments as the assessee had consistently acknowledged the liabilities, and there was no cessation of liability during the relevant period.