2018 (6) TMI 897 - AT - Income Tax

Additions u/s 41(1) for cessation of liability - Held that - Neither the assessee nor the creditor have written off the liability from their Books of Accounts. In such circumstances simply because the liability is outstanding for quite some years the liability does not seize to exist - In the case of CIT v. Smt Sita Devi Juneja 2009 (12) TMI 34 - PUNJAB AND HARYANA HIGH COURT considering judgment of CIT v. Sugauli Sugar Works (P.) Ltd 1999 (2) TMI 5 - SUPREME COURT held that mere entry in the books of accounts of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end - thus we hold that there is no cessation of liability in the case of the assessee - Decided in favor of assessee. Disallowance of expenses and discount allowed by the assessee - Held that - As additional evidences were filed along with a petition for admission of the same and in view of the additional evidences the matter may be examined afresh - hence we are of the considered view that since these additional evidences go to the root of the matter and assessee is prevented with reasonable cause in not submitting the same while completion of the assessment, we admit the additional evidences and restore the issue to the file AO for examining afresh - thus allowed for statistical purposes. Disallowance u/s. 40(a)(i) - remittance of tds - Held that - The assessee submitted that, assessee has deducted TDS in respect of the expenditure and remitted before the due date for furnishing of return of income u/s. 139(1) and therefore no disallowance is required to be made - hence, this issue is restored to the file of the AO who shall examined afresh in the light of the latest legal position and decide in accordance with law, after providing adequate opportunity of being heard to the assessee - thus allowed for statistical purpose.

Summary

Issues Involved:
1. Addition under Section 41(1) of the Income Tax Act.
2. Disallowance of expenses of ?1,00,640.
3. Disallowance of expenses of ?25,38,533 as discount/write-off.
4. Partial relief regarding addition of ?21,56,984 under Section 40(a)(i) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition under Section 41(1) of the Income Tax Act:
The Assessing Officer (AO) observed that the assessee had shown a liability of ?75,82,362 payable to M/s. Camy Plant and required the assessee to furnish confirmations from the creditors. The assessee argued that there was no remission or cessation of liability during the year under consideration and relied on various judicial decisions. However, the AO treated the amount as cessation of liability under Section 41(1) and taxed it, citing the assessee's failure to prove the genuineness of the transactions and lack of creditor confirmation. The CIT(A) upheld the AO's decision, relying on a Tribunal decision. The Tribunal, however, noted that the liability was acknowledged in the balance sheet, the dispute with the creditor was ongoing, and neither party had written off the liability. Citing the Supreme Court's decision in CIT v. Sugauli Sugar Works (P.) Ltd., the Tribunal concluded that there was no cessation of liability and allowed this ground of appeal.

2. Disallowance of expenses of ?1,00,640:
The assessee submitted additional evidence and requested a fresh examination of the disallowance. The Tribunal admitted the additional evidence, noting that it went to the root of the matter and that the assessee had reasonable cause for not submitting it earlier. The issue was restored to the AO for fresh examination in accordance with the law.

3. Disallowance of expenses of ?25,38,533 as discount/write-off:
Similar to the previous issue, the assessee submitted additional evidence regarding the disallowance of the discount allowed to a debtor who had gone into liquidation. The Tribunal admitted the additional evidence and restored the issue to the AO for fresh examination, considering the new evidence.

4. Partial relief regarding addition of ?21,56,984 under Section 40(a)(i):
The assessee argued that TDS had been deducted and remitted before the due date for filing the return of income under Section 139(1). The Tribunal noted the need to examine the issue in light of the latest legal position and restored it to the AO for fresh examination, providing the assessee with an adequate opportunity to be heard.

Conclusion:
The appeal was partly allowed. The Tribunal found no cessation of liability under Section 41(1) and allowed the related ground of appeal. The issues of disallowance of expenses and partial relief under Section 40(a)(i) were restored to the AO for fresh examination, considering the additional evidence and latest legal positions.