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TMI Blog2017 (2) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... ity cannot cease to exist until and unless it is written off in the books of account of assessee. In this view of the matter, we hold that the liability which has actually been written off can only be treated as income of assessee u/s 41(1) of the Act - ITA No. 2389/Kol /2013 & IT(SS)A No. 91/Kol /2013 - - - Dated:- 8-2-2017 - Shri Aby.T Varke, Judicial Member And Shri Waseem Ahmed, Accountant Member By Assessee : Smt. Nilima Joshi, FCA By Revenue : Shri Sallong Yoden, ACIT-SR-DR ORDER Per Waseem Ahmed, Accountant Member:- Both appeal filed by the same assessee are directed against different orders of Commissioner of Income Tax (Appeals)-I, Kolkata dated 22.07.2013 23.07.2013. Different assessments were framed by DCIT, Central Circle-VII Kolkata u/s 143(3)/251/154/254/153A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his orders dated 13.12.2010 31.12.2010 for assessment year 2004-05. Smt. Nilima Joshi, Ld. Authorized Representative appeared on behalf of assessee and Shri Sallong Yoden, Ld. Senior Departmental Representative represented on behalf of Revenue. First we take up ITA No. 2389/Kol/2013. 2. Facts in brief ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 41(1) of the Act. The balance trading liability was continued to be shown for ₹ 26,27,186.69 (45,66,425- 19,39,239.60) in the balance-sheet as on 31.03.2004. As such, the liability for the amount of ₹ 26,27,186/- has not ceased to exist in the books of account. Therefore, the question for making the addition u/s 41(1) of the Act does not arise. 5. Assessee further submitted that cheques were issued to specific parties which they got en-cashed from the bank by putting their stamp and signatures on the reverse side of the said cheque. Therefore, the allegation of AO that assessee herself has drawn the money from the bank in the name of such creditors are not tenable. There is also no report from the bank the suggesting that assessee herself has withdrawn the money from the bank. Further, assessee submitted that out of total trading liability of ₹ 45,46,425/- and payment of ₹ 9,55,194.98 was issued through account payee cheque only. Therefore, the disallowance of the entire amount made by AO is without the application of his mind. However, AO disregarded the plea of assessee by observing as under:- i) The cheques were issued to the parties based in Nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the current addresses. It is also noted that no confirmation from the creditors was filed by the assessee. When the assessee was confronted with the fact that the notices u/s 133(6) were not served on the creditors at the given addresses, the onus was on the assessee to bring positive material on record to show that the creditors were actually in existence. The assessee has admitted that payments to the extent of ₹ 36,11,230/- were made by bearer cheques. But, the assessee has failed to explain before the AO or even before me as to why the payments to the creditors were made by bearer cheques (which is also in contravention of the provisions of section 40A(3) of the Act). It is a matter of fact that the bearer cheques were encashed across the counter at Kolkata. I find merit in the argument of the AO that the creditors situated at remote places of the North-Eastern States could not encash the cheques on the same day or within 1 or 2 days from the date of the issue. The assessee has also failed to produce supporting evidence to prove that the payments made through the bearer cheques actually reached the creditors. In this factual background, I find merit in the finding o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee that payments totaling to ₹ 9,55,195/- were made to the creditors by account payee drafts though relevant detail was available before him. Even in course of the remand proceedings, the AO has failed to bring positive material on record to rebut the claim of the assessee. In this factual background, I am of the considered view that section 41(l) cannot be pressed into operation in so far as the sundry creditors of ₹ 9,55,195/- are concerned. In view of the above, the addition u/s 41 (1) is restricted to ₹ 36,11,230/-. The grounds raised in this regard are partly allowed. Ground no 10 and 11 relate to charging of interest u/s 234B and 220(2) which are consequential in nature. Aggrieved by this, assessee has come up in appeal before us on the following grounds. 7. Before us Ld. AR filed paper book which is running pages 1 to 164 and reiterated submission as made before Ld. CIT(A). He drew our attention on page 123 of the paper book and demonstrated that the trading liability of ₹ 26,27,186/- is still reflecting in the balance-sheet for the year under consideration. On the other hand, Ld. DR submitted that notice u/s 133(6) of the Act was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he balance-sheet for ₹ 26,27,186/-. Merely the notices issued under section 133(6) of the Act to the parties returned as un-served cannot be ground for the addition under section 41(1) of the Act as the liability has not ceased to exist. Therefore, it cannot be concluded that the liability has ceased to exist. It has not actually been written off in the books of account of assessee and the ld. DR has not brought anything on record suggesting that the trading liability has actually been written off in the books of account. In the instant case, the Authorities Below has presumed that the trading liability ceased to exist as the notice u/s 133(6) of the Act issued were not served. As such on examination of orders of Authorities Below, we find that the liability has not been written off in the books of account of assessee. In our considered view, liability cannot cease to exist until and unless it is written off in the books of account of assessee. In this view of the matter, we hold that the liability which has actually been written off can only be treated as income of assessee u/s 41(1) of the Act. Considering the facts and circumstances of the case, we partly allow assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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