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TMI Blog2013 (11) TMI 892X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment and also did not provide show cause notice before treating non-payment to creditors as income to the assessee. 3. The learned CIT(Appeals) erred in concluding that the assessee has claimed expenses for which payments are not made to the sundry creditors. In fact the expenses not paid were capitalized and carried to the balance sheet as stocks. 4. Without prejudice to the above, the ld. CIT(Appeals) erred in not considering the special nature of business of the assessee which is production of television serials and have treated the debtors and creditors like the other trading or manufacturing organization. In a television serial production business debtors and creditors are directly related to each other and there is a complete and direct nexus, which is absent in a normal trading and manufacturing business. Hence, if creditors are considered income on account of non-payment, related debtors should be considered as expense on account of non receipt and accordingly, reduced from the total income of the assessee. 5. Your appellant prays that- (i) The addition of Rs.19,87,927/- u/s. 41(1) in respect of sundry creditors be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee, the AO treated the said money as trading liability. The AO further observed that the liability had become time barred as per the law of limitation and as such there was cessation of liability. So the AO treated the same as income of the assessee company. The remaining addition of Rs. 19,87,927/- was made by the AO on account of cessation of liability of sundry creditors. The ld. CIT(A) after hearing the parties deleted the additions made by the AO in respect of share application money. However, he confirmed the additions made by the AO on account of cessation of liability towards sundry creditors. The finding of the ld. CIT(A) regarding the issue relating to share application money is reproduced as under: "2.1.1 During appellate proceedings, Appellant has strongly argued against the same stating that while Appellant had not sought permission to raise authorized share application in the 7 years after the money was received, this was money received by Appellant from its Directors/share holders. Further, that it was a capital receipt and not a trading liability incurred for a revenue expenditure nor has any deduction been allowed in any previous assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. Appellant responded that it was under the process of getting confirmations made which would be submitted. However, till date of assessment i.e. about two weeks later to the Appellant's submission these were not received and the AO treated them as unexplained and added to the total income. Appellant argues that AO did not give them a show cause notice before adding sundry creditors to the income. Further, that the creditors pertain to the serial 'Sanjeevani (Kannada) where amount receivable from ETV Kannada was shown in Sundry Debtors. If the company received any payment from the said channel, the sundry creditors would be paid off. Appellant also argues that the AO has not justified in asking confirmations of old creditors and it was justified to retest the same after 6 years and after the assessment for A.Y. 03-04 having being passed u/s. 143(3). Appellant also states that less than 4 days were given and it was not possible to collect all confirmations. Further as the liability was time barred, collecting confirmations was not justified as it would allow creditors to take legal steps to recover money. 2.2.1 Facts and material on record are considered. The Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith sufficient time and opportunity to gather details of sundry creditors outstanding for more than eight years on the date of assessment. The next contention of the AR is that if the amount received from sundry creditors is to be treated as income then the amount outstanding towards sundry debtors should be treated as expenses on account of non-receipt. He has further relied upon the authority of the Hon'ble Delhi High Court styled as CIT v. Shri Vardhman Overseas Ltd. in ITA No.774/2009 and further that of Gujarat High Court styled as CIT v. Nitin Garg [2012] 208 Taxman 16 to stress the point that even though the debt has become time barred the liabilities have not ceased to exist. On the other hand, the ld. DR has relied upon the authority of the Hon'ble Delhi High Court styled as CIT v. Chipsoft Technology (P.) Ltd. (2012) 26 Taxman.com 109 to stress the point that even in case of omission to pay over a period of time and the resultant benefit derived by the assessee would therefore qualify as a cessation of liability. 7. So far as the grievance of the assessee of not being provided proper time and opportunity to submit the details and confirmation from the creditors is concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to say that a debtor or an employer, holding on to unpaid dues, should be given the benefit of his showing the amount as a liability, even though he would be entitled in law to say that a claim for its recovery is time barred, and continue to enjoy the amount. The second reason why the assessee's contention is unacceptable is because with effect from 1-4-1997 by virtue of Finance Act, 1996 (No.2), an Explanation was added to Section 41 which spells out that "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by an unilateral act by the first mentioned person under clause". The expression "include" is significant; Parliament did not use the expression "means". Necessarily, even omission to pay, over a period of time, and the resultant benefit derived by the employer/assessee would therefore qualify as a cessation of liability, albeit by operation of law." The Hon'ble High Court has categorically held that it would be illogical to say that a debtor or an employer, holding on to unpaid dues, should be given the benefit of his showing the amount as a liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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