2017 (11) TMI 1991 - AT - Income Tax

Addition u/s 41 of the Act or u/s 68 - outstanding liabilities due towards few parties - HELD THAT - We are of a strong conviction that the year in which the benefit from cessation or remission of trading liabilities under consideration was obtained by the assessee had been lost sight of by the CIT(A) while justifying the addition under Sec. 41(1) in the hands of the assessee for the year under consideration. We have also deliberated on the judicial pronouncements relied upon by the ld. A.R and find that the same are distinguishable on facts. We find that in the case of Sita Devi Juneja 2009 (12) TMI 34 - PUNJAB AND HARYANA HIGH COURT the sundry creditors had confirmed the outstanding liabilities. However, unlike the facts involved in the aforesaid case before the Hon ble High Court, in the present case the sundry creditors had themselves stated that nothing was due to them by the assessee. That in the case of Sugauli Sugar Works Pvt. Ltd. 1999 (2) TMI 5 - SUPREME COURT the debt had become unenforceable in view of the A.O and though the assessee had unilaterally made an entry in its books of accounts, however, there was no such act on the part of the creditors. We thus are of the considered view that the case laws relied upon by the ld. A.R, being distinguishable on facts, would thus not be of any assistance to him in the backdrop of the facts of the case before us. We thus restore the matter to the file of the A.O, with a direction to readjudicate the issue after making necessary verifications as to when the aforementioned amounts had been written off by the abovementioned parties in their books of accounts, and the consequential benefit had been obtained by the assessee in terms of Sec. 41(1) - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of the addition under Section 41(1) of the Income Tax Act.
2. Whether the cessation of liability occurred in the assessment year under consideration.

Detailed Analysis:

Issue 1: Validity of the addition under Section 41(1) of the Income Tax Act
The assessee filed an appeal against the order of the CIT(A) which upheld the addition made by the A.O under Section 41(1) of the Income Tax Act. The A.O had added ?27,29,325 to the assessee's income, claiming that the liabilities towards M/s Gee Dee Stonex Pvt. Ltd. and M/s Jindal Tiles Pvt. Ltd. had ceased. The CIT(A) supported this addition, noting that the creditors had denied any outstanding balances owed by the assessee. The assessee argued that no benefit was obtained in the year under consideration, hence no addition should be made under Section 41(1). The CIT(A) concluded that the liability ceased when the creditors confirmed no dues, thus justifying the addition under Section 41(1).

Issue 2: Whether the cessation of liability occurred in the assessment year under consideration
The Tribunal examined whether the cessation of liability occurred in the assessment year 2013-14. It was noted that the statutory provision under Section 41(1)(a) specifies that the benefit from the cessation of liability should be taxed in the year it was obtained. The Tribunal found no evidence that the benefit was obtained in the assessment year 2013-14. The Tribunal criticized the lower authorities for not verifying the exact year when the liabilities were written off by the creditors. The Tribunal emphasized that the addition should relate to the year in which the benefit was actually obtained, not merely when the A.O discovered it during assessment proceedings.

Conclusion:
The Tribunal restored the matter to the A.O for re-adjudication, directing necessary verifications to determine the exact year the liabilities were written off by the creditors and the benefit was obtained by the assessee under Section 41(1). The appeal was allowed for statistical purposes, and the addition of ?27,29,325 was set aside pending fresh adjudication.

Order Pronounced:
The order was pronounced in the open court on 17.11.2017.