2017 (12) TMI 1284 - AT - Income Tax

Addition u/s 41 - remission / cessation of liability - Held that - When the assessee has furnished names and addresses of the sundry creditors and other relevant details the Assessing Officer could have conducted necessary enquiry with the concerned creditors for ascertaining the fact whether the liability is still continuing or not. Without making any such enquiry, the Assessing Officer cannot presume cessation of liability. More so, when the evidence brought on record indicate that the assessee has continued payment to the concerned parties subsequently to discharge the liability. Though, DR has submitted before us that the first appellate authority has considered additional evidences in violation of rule 46A, however, after perusing the record we have found that the so called additional evidences are nothing but details of payment made to sundry creditors subsequent to the relevant financial year and part of such evidence was also produced before the Assessing Officer during the assessment proceedings. That being the case, we do not accept the contention of the learned Departmental Representative that the first appellate authority has committed any grave error which could invalidate the order passed by him. - Decided against revenue

Summary

Issues:
Deletion of addition under section 41(1) of the Income Tax Act, 1961 based on outstanding sundry creditors for more than three years.

Analysis:
The appeal concerned the deletion of an addition of ?97,75,838 under section 41(1) of the Income Tax Act, 1961, for the assessment year 2012-13. The Assessing Officer added back the amount as the sundry creditors had remained outstanding for more than three years, presuming remission or cessation of liability. The assessee objected, providing evidence of continued business transactions and payments made to the creditors subsequent to the Balance Sheet date. The first appellate authority, considering the evidence, ruled in favor of the assessee, citing legal precedents that non-payment for three years does not necessarily imply remission of liability. The authority deleted the addition made by the Assessing Officer.

Upon further review, the Appellate Tribunal found that the liability in question was indeed a trading liability, and the assessee had not received any benefit from the creditors in the relevant financial year. The Tribunal highlighted that the burden of proof lies with the Assessing Officer to demonstrate the fulfillment of conditions under section 41(1) of the Act to treat a liability as income due to remission or cessation. The Tribunal criticized the Assessing Officer for not investigating further, as the assessee had provided details and evidence of payments made to the creditors subsequent to the relevant financial year. The Tribunal dismissed the argument that the first appellate authority considered additional evidence improperly, as the evidence presented was part of the original record. Ultimately, the Tribunal upheld the decision of the first appellate authority, concluding that the order did not have any flaws, and dismissed the Revenue's appeal.

In conclusion, the Appellate Tribunal upheld the deletion of the addition under section 41(1) of the Income Tax Act, 1961, as the Assessing Officer failed to prove the cessation of liability based on the conditions outlined in the Act. The Tribunal emphasized the importance of thorough investigation and proper evidence before concluding on the remission or cessation of a liability, ultimately ruling in favor of the assessee and dismissing the Revenue's appeal.