2019 (11) TMI 982 - AT - Income Tax

Disallowance u/s 41(1) - allegation of the Revenue that learned Commission (Appeals) had deleted the addition by admitting fresh evidences in violation of Rule 46A of the Income Tax Rules - HELD THAT - There is neither remission nor cessation of liability as envisaged under Section 41(1). Insofar as the allegation of the Revenue that learned Commission (Appeals) had deleted the addition by admitting fresh evidences in violation of Rule 46A of the Income Tax Rules, we are not convinced with the same. It is noticed that in the course of assessment proceedings also, the assessee vide letter dated 15.03.2016 had furnished all the evidences including approval from RBI to demonstrate that the liability has not ceased to exist. It appears that the AO has completely ignored the submissions of the assessee and the materials brought on record, whereas, Commission (Appeals) after appropriately appreciating the relevant facts and material on record as well as the submissions of the assessee had taken a correct view by deleting the addition under Section 41(1), since, factually there was neither remission or cessation of liability under Section 41(1). In view of the aforesaid, we do not find any infirmity in the decision of learned Commission (Appeals) on the issue. The grounds raised by the Revenue are dismissed.

Summary

Issues:
Deletion of disallowance under Section 41(1) of the Income Tax Act, 1961.

Analysis:
The case involved an appeal by the Revenue against an order passed by the Commission of Income Tax (Appeals) concerning the deletion of disallowance under Section 41(1) of the Income Tax Act for the assessment year 2012-13. The Revenue contended that the liability remaining outstanding for over three years should be considered as cessation of liability under Section 41(1) of the Act. The Assessing Officer added the outstanding amount to the assessee's income, but the Commission (Appeals) deleted the addition based on the facts that the liability continued to be shown in the books and was eventually discharged after obtaining approval from the RBI.

The Departmental representative argued that the Commission (Appeals) erred in deleting the addition without following Rule 46A of the Income Tax Rules and without confronting the fresh evidence submitted by the assessee to the Assessing Officer. However, the AR for the assessee contended that the liability was not ceased as it continued to exist, and the amount was repaid after obtaining RBI approval. The AR also highlighted that the Assessing Officer ignored the submissions and evidence provided by the assessee during the assessment proceedings.

After considering the submissions and evidence, the Tribunal found that the Assessing Officer failed to establish that the conditions of Section 41(1) were met. The liability did not cease to exist merely because it remained outstanding for over three years. The Tribunal noted that the liability was eventually repaid after obtaining necessary approvals, indicating no remission or cessation of liability as required by the Act. Additionally, the Tribunal rejected the Revenue's claim of Rule 46A violation, stating that the Commission (Appeals) had appropriately considered all relevant facts and materials before making the decision to delete the addition.

Ultimately, the Tribunal dismissed the Revenue's appeal, upholding the decision of the Commission (Appeals) to delete the disallowance under Section 41(1) of the Act for the assessment year in question.

This detailed analysis of the judgment highlights the key arguments, legal provisions, and reasoning behind the decision to delete the disallowance under Section 41(1) of the Income Tax Act, providing a comprehensive overview of the case.