2019 (2) TMI 1724 - AT - Income Tax

Cessation of liability addition u/s 41(1) - claim of sundry creditors liability in books of account since 2009-10 - HELD THAT - Then is no dispute between the parties the very amount stood allowed as a liability in the past very many assessment years involving both summary as well as regular assessments. The assessee s books have also not indicated the impugned sum as a case of cessation of liability. Hon'ble Gujarat high court s judgment in CIT vs. Nitin S Garg 2012 (5) TMI 30 - GUJARAT HIGH COURT has placed reliance on much a celebrate judgment of hon'ble apex court in CIT vs. Sugauli Sugar Works (P) Ltd. 1999 (2) TMI 5 - SUPREME COURT to hold that the mere fact of a liability having continued to be shown for very many years would not attract section 41(1) since it is for the Assessing Officer has who has to show that concerned assessee has drawn any benefit by way of cessation or remission thereof. We further make it clear that CIT(A) s above extracted detailed discussion has examined all the facts as well as the relevant legal position at length which has nowhere been rebutted from the Revenue side. We therefore conclude that the CIT(A) has rightly reversed the assessment findings holding the amount in question to be a case of cessation of liability u/s 41(1) - Decided in favour of assessee.

Summary

Issues involved:
Cessation of liability addition under section 41(1) of the Income Tax Act for the sum of ?65.50 lac claimed as sundry creditors liability in books of account since 2009-10.

Detailed Analysis:

Issue 1: Cessation of liability addition under section 41(1) of the Income Tax Act
The primary issue in this case revolves around whether the lower authorities were correct in invoking cessation of liability addition under section 41(1) of the Income Tax Act for the amount of ?65.50 lac claimed as sundry creditors liability in the assessee's books since 2009-10. The tribunal considered the history of the liability, noting that it had been allowed as a liability in previous assessment years without any change in facts. The Assessing Officer raised concerns about the genuineness of the liability, citing statements from directors of entities related to the transactions. However, the tribunal found that the liability had been consistently claimed for almost three decades without any objection from the department. The tribunal also highlighted that the liability had not been doubted in preceding or succeeding assessment years, further supporting the assessee's claim. Additionally, legal precedents were cited to emphasize that the mere continuation of a liability does not automatically trigger section 41(1) unless the Assessing Officer can demonstrate a benefit derived from its cessation. The tribunal ultimately agreed with the CIT(A) and reversed the Assessing Officer's decision, concluding that the amount in question was not a case of cessation of liability under section 41(1) of the Act.

Judgment Outcome:
The tribunal allowed the assessee's appeal, ruling in favor of the assessee regarding the sundry creditors liability income case of M/s XYZ & Co. The impugned addition was deemed unsustainable and subsequently deleted. The order was pronounced in accordance with Rule 34(4) of the ITAT Rules on 15/02/2019.

This detailed analysis provides a comprehensive overview of the judgment, focusing on the key issue of cessation of liability addition under section 41(1) of the Income Tax Act and the tribunal's decision in favor of the assessee based on the evidence presented and legal precedents cited.