9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (6) TMI 139 - AT - Income TaxAddition made on account of cessation of liability Held that - Following CIT vs. Nitin Garg 208 Taxman 2012 (5) TMI 30 - Gujarat High Court - the assessee had continue to show admitted amount as liability in the balance sheet cannot be added u/s 41(1) of the Act on the ground remission or cessation of trading liability - even the liability itself seems under serious doubt - The AO undertook the exercise to verify the records of the so called creditors - Many of them were not found at all in the given address - In one or two cases, the response was that they had no dealing with the assessee nor did they know him - the inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest the findings - the liability as it stands perhaps holds that there was no cessation or remission of liability - the amount in question cannot be added back as a deemed income u/s 41(c) of the Act - The assessee has not credited the liability in the book of account and had not shown as income during the year - The AO found that the lenders had not shown this amount in the balance sheet as debtors but, the assessee s intention is to pay the amount to the lenders - the order of the CIT(A) is set aside Decided in favour of Assessee. Addition made Outstanding amount of money borrowed Held that - Both the parties M/s. Ambica Mills and M/s. Shatmurti Investment and Trading Pvt. Ltd. had gone into liquidation assessee being secured creditor, filed a case for recovery of amount through liquidator for amount of Rs.2,57,04,019/- (principal interest) - The details of the case filed by both the parties, were considered by the CIT(A) in his findings - M/s. Shatmurti Investment and Trading Pvt. Ltd. also filed Civil Suit against M/s. Ambica Mills Ltd. for recovery of Rs.1,14,12,473 - The Skylark Finance Ltd. had confirmed the outstanding balance as on 31.03.1998 from its books of account thus, the CIT(A) was justified in deleting the addition - Decided against Revenue.
Issues Involved:
1. Delay in filing the appeal by the assessee. 2. Addition of outstanding liabilities as income under Section 41(1) of the IT Act. 3. Taxability of cessation of liabilities under Section 28(iv) of the IT Act. Issue-wise Detailed Analysis: 1. Delay in Filing the Appeal by the Assessee: The assessee filed the appeal with a delay of 13 days and provided reasons for the delay. The tribunal condoned the delay, allowing the appeal to proceed. 2. Addition of Outstanding Liabilities as Income under Section 41(1) of the IT Act: The Assessing Officer (A.O.) observed that certain amounts were shown as outstanding liabilities under the head 'sundry creditors' in the balance sheet for several years without any transactions. The A.O. treated these amounts as income, arguing that the liabilities had ceased to exist. The amounts involved were: - Skylark Finance Ltd.: Rs. 1,59,25,000/- - Mrubee Exports: Rs. 15,00,000/- - Ajanta Chem & Plast P. Ltd.: Rs. 1,62,324/- - Kunjan Enterprises P. Ltd.: Rs. 3,00,000/- The A.O. relied on the Supreme Court decision in CIT vs. T.V. Sundaram Iyengar and Sons Ltd., where it was held that amounts initially received as capital receipts could be treated as income if they became the assessee's own money over time. 3. Taxability of Cessation of Liabilities under Section 28(iv) of the IT Act: The A.O. argued that the cessation of liability resulted in a benefit to the assessee, making it taxable under Section 28(iv) and Section 41(1) of the IT Act. The A.O. added the total amount of Rs. 1,78,87,324/- to the assessee's income. CIT(A) Findings: The Commissioner of Income Tax (Appeals) [CIT(A)] partly allowed the appeal, deleting the additions for Skylark Finance Ltd., Mrubee Exports, and Kunjan Enterprises P. Ltd. The CIT(A) accepted the assessee's contention that these were business transactions, and the liabilities were still considered outstanding by the assessee. However, the addition for Ajanta Chem & Plast P. Ltd. was upheld as the assessee could not provide satisfactory evidence that the liability still existed. Tribunal's Decision: The tribunal upheld the CIT(A)'s decision, agreeing that the liabilities for Skylark Finance Ltd., Mrubee Exports, and Kunjan Enterprises P. Ltd. had not ceased and should not be taxed under Section 41(1). The tribunal found that the assessee's intention to pay these amounts was clear, and the case laws cited by the assessee supported this view. The tribunal dismissed the Revenue's appeal and allowed the assessee's appeal. Conclusion: - The delay in filing the appeal by the assessee was condoned. - The addition of Rs. 1,77,25,000/- for Skylark Finance Ltd., Mrubee Exports, and Kunjan Enterprises P. Ltd. was deleted. - The addition of Rs. 1,62,324/- for Ajanta Chem & Plast P. Ltd. was upheld. - The tribunal dismissed the Revenue's appeal and allowed the assessee's appeal.
|
