9911796707
TMI Blog2010 (6) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in not considering that in the regular assessment for the assessment year 2002-03 and 2005-06, no addition was made in respect of these liabilities. 4. We have heard the learned representatives of both the parties, perused the findings of the authorities below and the materials available on record. 5. Briefly, the facts of the case are that the AO made the above additions in all the assessment years respectively u/s 41(A) of the IT Act as cessation of liabilities. The AO made the additions on the basis that the assessee had shown the liabilities in respect of the expenditure incurred during the years but he has not given the details and addresses of the parties and thus are not verifiable, hence, the liabilities claimed in respect of the expenditure incurred, has ceased and income is liable to tax u/s 41 (1) of the IT Act. The assessee submitted before the learned CIT(A) that these are very old creditors and hence does not have Permanent Account Numbers and confirmations of these parties. Further, there was no remission or cessation of liabilities and in the books of account the assessee has not written off these amounts. Hence, these are not covered u/s 41(1) of the IT Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt is also filed. The learned Counsel for the assessee, therefore, demonstrated that since it was old liability in earlier years and outstanding balances/liabilities have been carried forward in assessment years under appeal, therefore, no addition u/s 41(1) of the IT Act can be made. He has submitted that it is admitted fact that all the above amounts in question under appeal pertain to the earlier years in which the AO did not disputed genuineness of the expenditure and even outstanding balances against names of several parties have also not been doubted by the AO in the preceding assessment year in which outstanding balances were reflected in the balance sheet. Therefore, opening balances of the existing liabilities in the assessment years in question cannot be added u/s 41(1) of the IT Act. He has relied upon the following judgments in support of his contentions: 1) CIT Vs Tamilnadu Warehousing Corporation (292 ITR 310) 2) CIT Vs Smt. Sita Devi Juneja (187 Taxman 96) 3) N. R. Chauhan Vs ITO (ITAT Ahmedabad- dated 23-01-2009) 4) DCIT VI, Kanpur Vs Alied Leather Industries (P) Ltd.(32 SOT 549) 5) General Industries Corporation Vs ITO (33 ITD 524) 6) CIT Vs Parmeshwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the earlier years and deductions have been allowed. The learned DR submitted that liabilities have however, still existing in the books of the assessee being sundry creditors. The learned DR submitted that the assessee has failed to furnish addresses of the parties, their Permanent Account Numbers and confirmations of outstanding balances. The learned DR submitted that the AO because of the above facts found that the said trading liabilities have ceased as no evidence and confirmation of existence of the parties have been filed. The learned DR submitted that since the assessee failed to produce relevant material on record, therefore, adverse inference shall have to be drawn against the assessee. Therefore, the AO would be justified in applying provisions of section 41(1) of the IT Act because the issue would arise as to on what date the liability is ceased. Since no proof is filed by the assessee, therefore, the authorities below were justified in rejecting the claim of the assessee. The learned DR submitted that the AO has given a categorical finding that the assessee has claimed certain deduction against the income earned during earlier year. Therefore, non-existing liabiliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, onus is upon the assessee to prove that deduction is admissible for the purpose of the business. The learned DR in his concluding submissions submitted that the assessee has no liabilities to make the payment as on date. The assessee has no evidence whatsoever to back up its claim and he failed to produce the creditors before the AO for verification. Therefore, it is clear that liability to make the payment to the outstanding creditors has ceased. Therefore, addition was rightly made u/s 41(1) (a) of the IT Act. 8. We have considered the rival submissions and material available on record. Section 41 (1) (a) of the IT Act reads as under: "41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel for the assessee specifically drawn our attention to the account copies and stated that these are outstanding as on date and this amount are not written off in the books of account. Accordingly, the same cannot be added u/s. 41(1) of the Act as the liability of outstanding and the parties are in existence. We are in full agreement with the argument of the Ld. Counsel for the assessee, as is seen from the documents and papers filed before us that the parties do exist and these amounts are outstanding in the books of the assessee as payable. In view of these facts and circumstances, we feel that these amounts cannot be added either u/s. 68 or 41(1) of the Act. We delete the addition and this issue of the assessee's appeal is allowed". 8.4 ITAT Lucknow Bench in the case of DCIT Vs Allied Leather Finishers (P) Ltd. (supra) held as under: "21.7 A liability could not be treated as a cessation if it was being merely carried forward for years. A non-genuine non-trading liability standing in the balance sheet can be taxed but under section 68 if it came in the books in the current year. If such nongenuine non-trading liability came in the books in an earlier year than same cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the assessment for the assessment year 1993-94". 8.6 ITAT Mumbai Bench in the case of ACIT Vs VIP Industries (supra) held as under: "Section 41(1) is attracted when there is cessation for remission of a trading liability. Simply because a period of three years has expired and the creditor cannot lawfully enforce his claim, it does not mean that there is a cessation or remission of liability. There may be several situations when the money is not claimed or paid by one party to another within three years and thereafter the claim is made and honoured by the other. So, simply because a particular amount is outstanding for a period of more than three years, that does not constitute income under section 41(1)". 9. Considering the facts of the case in the light of the above provisions and the decision referred to above, it is clear that the expenditure claimed as deduction in the earlier year have not been disallowed in the earlier year in which they were claimed. Even the AO in the earlier year has not doubted the existence of the parties. The learned Counsel for the assessee filed copies of balance sheet of the all years under appeal, as well as proceedings earlier assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that the assessee had continued to show the admitted amounts as liabilities in its balance sheet. The liabilities reflected in the balance sheet cannot be treated as cessation of liabilities. Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have ceased to exist. It is also a fact that the assessee has not written off the outstanding liabilities in the books of account and the outstanding liabilities are still in existence would prove that the assessee acknowledged his liabilities as per the books of account. Section 41(1) of the IT Act is attracted when there is cessation or remission of a trading liability. The AO shall have to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof. Merely because the assessee obtained benefit of deduction in the earlier years and balances are carried forward in the subsequent year, would not prove that the trading liabilities of the assessee have become non-existent. It may also be noted here that the assessee has not claimed any deduction of the expenditure in all the assessment years under appeal. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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