2015 (11) TMI 1809 - AT - Income Tax

Addition u/s 41(1) - cessation of liability - Liabilities of overseas creditors as continuously outstanding - HELD THAT - Cessation of liability may occur either by the reason of liability becoming unenforceable in law by the creditor coupled with debtor declaring his/their intention not to owner his liability or by a contract between the parties or by discharge of the debt. We note that the Ld. AO invoked the provisions of section 41(1) by adding a sum being aggregates of amounts shown as payable to various sundry creditors as income u/s 41(1). AO came to a particular conclusion only on the premise that since the outstanding balances remained static in the books of the assessee for several years therefore there was no possibility of any claim being made by the creditors therefore he added to the income of the assessee - genuineness of the transactions entered in the books has not been questioned by the AO herself. For invoking the provisions of section 41 there should be an irrevocable cessation of liability without any possibility of being revived. In the present appeal the assessee having acknowledges liability successively over the years reflected in his books as payable therefore we find no infirmity in the conclusion of CIT (Appeals) therefore his stand is affirmed. Finally the appeal of the Revenue is dismissed.

Summary

Issues:
Appeal against impugned order invoking section 41(1) of the Act and admitting additional evidence under rule 46A of the Income Tax Rules.

Analysis:
The Revenue contested the impugned order dated 05/02/2014 of the ld. First Appellate Authority, Mumbai, primarily focusing on the deletion of the addition made under section 41(1) of the Act and the admission of additional evidence under rule 46A of the Rules. The Assessing Officer had raised concerns regarding outstanding sundry creditors, especially overseas liabilities, of the assessee. The assessee explained financial constraints leading to non-payment, asserting periodic payments were made. The Assessing Officer invoked section 41(1) despite the assessee's explanations. On appeal, the Ld. Commissioner of Income Tax (Appeals) ruled in favor of the assessee, citing various legal precedents. The Tribunal analyzed the facts, noting the substantial overseas liabilities against the business turnover, lack of current assets to clear liabilities, and the assessee's financial position. The assessee submitted additional evidence under rule 46A, duly considered by the Assessing Officer, supporting the assessee's claims. The Tribunal upheld the Ld. Commissioner's decision, emphasizing the absence of irrevocable cessation of liability for invoking section 41(1). Citing legal precedents, the Tribunal dismissed the Revenue's appeal, affirming the Ld. Commissioner's conclusion.

This detailed analysis of the judgment showcases the progression of the case, from the Assessing Officer's concerns to the Tribunal's final decision, highlighting the key arguments, evidence, and legal principles involved in the dispute.