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2018 (7) TMI 2063 - AT - Income TaxCessation of liability u/s 41(1)(a) - HELD THAT - 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 AO has who has to show that concerned assessee has drawn any benefit by way of cessation or remission thereof. 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 of to be a case of cessation of liability u/s 41(1) of the Act - Decided against revenue.
Issues Involved:
1. Cessation of liability under section 41(1) of the Income Tax Act, 1961. 2. Onus of proving the existence or cessation of liability. 3. Compliance with Tribunal directions. 4. Application of judicial precedents. Detailed Analysis: 1. Cessation of Liability under Section 41(1): The core issue revolves around whether the assessee's liability of ?12,97,47,322/- constitutes a cessation of liability under section 41(1) of the Income Tax Act, 1961. The Assessing Officer (AO) had added this amount to the assessee's income, considering it a case of cessation of liability. However, the Commissioner of Income Tax (Appeals) [CIT(A)] reversed this decision, observing that the AO did not provide material evidence to demonstrate that the liability had ceased or been remitted. 2. Onus of Proving the Existence or Cessation of Liability: The Tribunal highlighted that the onus to prove the existence or cessation of liability lies on the assessee. The assessee provided detailed lists of sundry creditors, balance confirmations, and balance sheets for several years, demonstrating that the liabilities were consistently disclosed and acknowledged. The AO, however, inferred cessation based on the inability of some creditor directors to explain old transactions, which the Tribunal found unjustified since the directors were not in position at the relevant time and old records were not available. 3. Compliance with Tribunal Directions: The Tribunal had earlier remitted the issue back to the AO for fresh examination with specific directions. The CIT(A) found that while the assessee complied with these directions by providing necessary evidence, the AO did not bring any irrefutable evidence to prove cessation of liability. The Tribunal noted that the AO's reliance on statements from creditor directors, who expressed ignorance due to the age of transactions, was insufficient to establish cessation. 4. Application of Judicial Precedents: The CIT(A) and Tribunal referred to several judicial precedents, including: - CIT vs. Sugauli Sugar Works (P) Ltd. (1999) 236 ITR 518 (SC): The Supreme Court held that mere expiry of the limitation period does not constitute cessation of liability. - CIT vs. Vardhaman Overseas Ltd (343 ITR 408): The Delhi High Court ruled that showing liabilities in the balance sheet as outstanding does not amount to cessation under section 41(1). - CIT vs. Alvares & Thomas (239 taxman 456): The Karnataka High Court emphasized that cessation of liability must be proven with tangible evidence. - CIT vs. Chipsoft Technology (P) Ltd (26 taxmann.com 109): The Delhi High Court case cited by the AO was distinguished as it dealt with time-barred workmen dues, not trading liabilities. The Tribunal concluded that the AO did not comply with the Tribunal's directions to bring on record evidence of remission or cessation of liability during the relevant year. The CIT(A)'s detailed examination of facts and legal precedents was upheld, leading to the dismissal of the Revenue's appeal and the deletion of the addition made under section 41(1). Conclusion: The Tribunal affirmed the CIT(A)'s decision, holding that the assessee's liability had not ceased to exist and the addition of ?12,97,47,322/- under section 41(1) was not sustainable. The Revenue's appeal was dismissed, and the CIT(A)'s order was upheld.
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