2022 (9) TMI 717 - AT - Income Tax

Addition on account of cessation of liability u/s 41 - HELD THAT - For the application of section 41(1) it is necessary that the assessee must have obtained some benefit in respect of such trading liability by way of remission or cessation thereof. As per provision of section 41 such remission or cessation of liability also includes unilateral act of writing off such liability in the books of accounts by the assessee. Revenue without bringing anything on record that the assessee has received some benefit in respect of said trading liability, during the year under consideration, treated the same to be ceased and considered it to be income of the assessee. As in absence of any material to establish that the assessee has obtained any benefit in respect of the liability on account of sundry creditors, merely on surmises and assumptions it cannot be assumed that there is remission or cessation of liability in the year under consideration - when there is no unilateral act by the assessee in writing off of liability in its books of accounts. In order to attract the provisions of section 41(1) there should have been an irrevocable cessation of liability without any possibility of the same been revived, which has not so been established by the Revenue. Addition on account of sundry creditors is not sustainable in the year under consideration and therefore, is directed to be deleted. As a result, grounds raised by the assessee are allowed. Addition on account of advances received by the assessee - HELD THAT - AO did not agree with the plea of the assessee on the basis that some of the loans received from family members were in respect of the film produced by the assessee and therefore the said advances should have been adjusted against the loss incurred on the release of said film - in absence of details of shows not being held, the AO added the advances in respect of such shows. CIT(A) vide impugned order agreed with the submission of the assessee on the basis that loans/advances cannot be considered as the income irrespective of the operations of the company resulting into profit or loss. In the present case, it has not been denied that these loans/advances were taken by the assessee in earlier assessment years and no fresh advances were received in the current year - We deem it appropriate to remand this issue to the file of Assessing Officer for de novo adjudication after necessary verification in respect of the claim of the assessee. If upon verification, it is found that the creditor has shown the loan as refundable/receivable and the said position has been accepted by the Revenue in the case of creditor, AO is directed to grant relief to the assessee in respect of the said amount. As regards the advances in respect of various shows, the AO is directed to examine whether such shows/events have taken place. We further direct that such advances can only be taxed in the year in which respective shows have taken place. With the above directions, grounds raised by the Revenue are allowed for statistical purpose.

Summary

Issues:
1. Cessation of liability under section 41 of the Income Tax Act, 1961.
2. Treatment of advances received by the assessee.

Cessation of Liability under Section 41:
The appeal involved cross appeals by the assessee and the Revenue challenging an order under section 250 of the Income Tax Act for the assessment year 2002-03. The assessee contested the addition made on account of cessation of liability under section 41 of the Act. The Assessing Officer treated the liability as non-existent due to lack of documentary evidence and added the amount to the assessee's income. The Tribunal noted that the liability was continuing in the books of account from previous years, and there was no evidence of any benefit received by the assessee in relation to the trading liability. The Tribunal held that without proof of remission or cessation of liability, the addition was not sustainable. The Tribunal directed the deletion of the addition, stating that there was no irrevocable cessation of liability without the possibility of revival.

Treatment of Advances Received:
The Revenue's appeal focused on the deletion of an addition made on account of advances received by the assessee. The advances were taken from distributors/presenters for various shows/events. The Assessing Officer added the entire amount to the assessee's income, which was contested by the assessee. The Tribunal observed that the loans/advances were reflecting in the books since earlier years and some had already been refunded. The Tribunal directed a remand of the issue to the Assessing Officer for further verification. If the creditor had shown the loan as refundable/receivable and the position was accepted by the Revenue, relief was to be granted to the assessee. Regarding advances for shows/events, the Tribunal directed examination to determine if the events had taken place, and such advances could only be taxed in the year of the events. The grounds raised by the Revenue were allowed for statistical purposes.

In conclusion, the Tribunal allowed the assessee's appeal regarding the cessation of liability under section 41 and directed the deletion of the addition. The Revenue's appeal on the treatment of advances received was allowed for statistical purposes, with directions for further verification by the Assessing Officer.