2019 (3) TMI 1973 - AT - Income Tax

Cessation of liability u/s 41(1) - liability against the total addition made by the AO towards outstanding land advance treated as income u/s 41(1) - HELD THAT - In this case the Assessing Officer had considered the liability as ceased/non-existence because of the fact that the liability is being shown as outstanding and the assessee has not provided confirmation from the creditors or has failed to provide necessary details like PAN/Address of the creditors or there is no possibility of the creditors claiming their debts in future and applied section 41(1) of the Act by adding the liability to the taxable income of the debtor. It is an agreed position that in the assessee s balance sheet the impugned liabilities have been shown which are payable to the sundry creditors. Such liabilities shown in the balance sheet indicate the acknowledgement of the debts payable by the assessee. Merely because such liability is outstanding for the last two to three years it cannot be presumed that the said liabilities have ceased to exist. It is also conceded position that there is no bilateral act of the assessee and the creditors which indicates that the said liabilities have ceased to exist. In absence of any bilateral act the said liabilities could not have been treated to have ceased. CIT(A) has rightly held that the AO was not correct in coming to the conclusion that the entire land advances of .2, 84, 45, 000/- should be treated as income for the assessment year 2014-15 under section 41(1) of the Act by rejecting the contention of the assessee that the portion of the outstanding liability amounting to .1, 66, 90, 000/- had been admitted in the Return of Income filed for the assessment year 2014-15. Thus in view of the above facts and circumstances of the case we are of the considered opinion that the CIT(A) has rightly directed the Assessing Officer to delete the balance liability amounting to .1, 17, 55, 000/- which the assessee claims not having been written off yet in its books of account. Thus the ground raised by the Revenue stands dismissed.

Summary

Issues:
Appeals challenging deletion of balance liability against total addition under section 41(1) of the Income Tax Act, 1961.

Analysis:
The appeals filed by the Revenue before the Appellate Tribunal ITAT Chennai involved a common issue regarding the deletion of balance liability against the total addition made by the Assessing Officer under section 41(1) of the Income Tax Act, 1961. The Revenue contended that the ld. CIT(A) erred in deleting the balance liability, while the assessee argued that the deletion was justified based on the provisions of section 41(1) and relevant case law. The Tribunal consolidated the appeals for efficiency.

The Assessing Officer had treated the outstanding land advances as income for the assessment year 2014-15 under section 41(1) due to lack of evidence regarding the genuineness of the transactions and absence of confirmation from creditors. The ld. CIT(A) observed that section 41(1) applies when a trading liability allowed as a deduction earlier is remitted or ceases in a later year, ensuring no double benefit for the assessee. The ld. CIT(A) noted that the liability continued to be shown in the assessee's books, and the Assessing Officer failed to provide evidence that the debts had been extinguished.

The ld. CIT(A) emphasized that unpaid liabilities cannot be added as income under section 41(1) solely based on their age, requiring proof that the liability has ceased or been remitted by the creditors. The Tribunal agreed that the liabilities shown in the balance sheet indicated acknowledgment of debts by the assessee, and absence of bilateral action with creditors meant the liabilities had not ceased to exist. The ld. CIT(A) referred to relevant High Court decisions supporting the assessee's position.

Ultimately, the Tribunal upheld the ld. CIT(A)'s decision to delete the balance liability, dismissing the Revenue's appeals. By following the decision in the lead case, the Tribunal confirmed the ld. CIT(A)'s order in all related appeals. Consequently, all appeals filed by the Revenue were dismissed, affirming the deletion of the balance liability against the total addition under section 41(1) of the Income Tax Act, 1961.

This comprehensive analysis of the judgment highlights the key arguments, legal principles, and decision-making process involved in the case, providing a detailed understanding of the issues addressed and the ultimate outcome of the appeals before the Appellate Tribunal ITAT Chennai.