2015 (7) TMI 830 - AT - Income Tax

Addition on written back liability - addition of ₹ 6,94,272/- outstanding in the books in the name of Shri Amir Mohammad (wrongly written as Amit Chand in this year) - assessee submitted that there was a typographical mistake in the books of account of the assessee, wherein wrong name was written as Shri Amir Chand whereas the correct name was Shri Amir Mohd which was correctly shown in the details of books of accounts filed before the AO - Held that - When the assessee has shown this liability as creditor in the previous assessment year in the name of Shri Amir Mohd then this inadvertent mistake in the entry of name cannot create any doubt about the existing liability of assessee during the relevant period under consideration. We further observe that in the similar set of facts and circumstances, the ITAT Delhi G Bench has allowed appeal of Shri Sunil Kumar Bhatia (2013 (10) TMI 699 - ITAT DELHI) wherein held that there cannot be cessation of liability twice and the present case is squarely covered in favour of the assessee by this order. We may also point out that when the assessee has offered impugned liability to tax in AY 2013- 14 and tax has been paid thereon then the similar addition cannot be upheld for AY 2007-08 an addition made by the AO and upheld by the CIT(A) cannot be held as sustainable and thus, in accordance with law and we direct the AO to delete the same. Decided in favour of assessee.

Summary

Issues Involved:
Appeal against order of CIT(A)-IV for AY 2007-08 regarding addition of outstanding liability in books.

Detailed Analysis:

1. Facts of the Case:
- Assessee filed return for AY 2007-08 declaring income of Rs. 68,780, selected for scrutiny.
- AO made addition of Rs. 6,94,272 as no supporting documents or confirmations regarding transaction with Shri Amir Mohd were provided.

2. Grounds of Appeal:
- Assessee challenged CIT(A)'s order sustaining the addition of outstanding liability.
- Assessee claimed typographical error in books, stating correct name as Shri Amir Mohd, an old creditor.

3. Assessee's Arguments:
- Assessee explained inability to contact Shri Amir Mohd due to circumstances in Afghanistan.
- Asserted that liability cannot cease unilaterally and offered the amount to tax in AY 2013-14.

4. Department's Response:
- Department did not dispute the liability being shown in the name of Shri Amir Mohd in previous years.
- Accepted that similar addition was deleted by ITAT in another case with comparable circumstances.

5. Judgment and Legal Analysis:
- ITAT referred to a similar case where liability cessation was considered under Section 41(1) of the Act.
- Explanation (1) to Section 41(1) deems remission or cessation of liability when written off in books.
- Held that since liability was offered to tax in AY 2013-14, addition for AY 2007-08 was not sustainable.
- Citing precedent, ITAT directed AO to delete the addition, allowing the sole ground of the assessee.

6. Conclusion:
- Appeal of the assessee was allowed, and the addition of outstanding liability was directed to be deleted.
- Stay application became infructuous and was dismissed accordingly.

This judgment highlights the importance of correctly reflecting liabilities in books, the application of Section 41(1) for assessing cessation of liabilities, and the significance of consistency in tax treatment across assessment years.