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TMI Blog2018 (6) TMI 897X X X X Extracts X X X X X X X X Extracts X X X X ..... t in facts. 2. Because, the Id. CIT(A) has erred in law and on facts in upholding the disallowance of expenses of Rs..1,00,640/- although complete explanation in that regard was placed on record. 3. Because, the Id. CIT(A) has erred in law and on facts in disallowing the expenses of Rs..25,38,533/- allowed as discount to one of its debtors which was in the nature of write off of debt since the debtor had gone into liquidation. 4. Because, the Id. CIT(A) has erred in law and on facts in granting only partial relief in respect of the addition of Rs..21,56,984/- u/s 40(a)(i) of the Act by referring to AO for verification although all relevant material was already on record". 3. In so far as Ground No. 1 &.2 i.e. the addition made u/s. 41(1) of the Act is concerned the Assessing Officer after going through the balance sheet of the assessee noticed that assessee has shown liability of Rs..75,82,362/- as payable to M/s. Camy Plant, the assessee was required to furnish the confirmations from the creditors and also required to explain as to why the same should not be treated as cessation of liability u/s. 41(1) of the Act. Assessee vide letter dated 01.03.2014 submitted that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, a rebate of 20% of the order amount i.e. Rs..25,36,720/- was granted to M/s. Flo-Dyne Limited, UK. 6. Learned Counsel for the assessee further submitted that in view of the delay, the payment to M/s Camy Plant was halted to renegotiate the amount payable in view of the loss suffered by the assessee because of delay by M/s Camy Plant. M/s Camy Plant has issued legal notice to the assessee in this regard. It is submitted that the relevant documentary evidences showing job done by M/s Camy Plant are attached in the paper book. Learned Counsel for the assessee submitted that confirmation could not be obtained because of the ongoing dispute because of which the creditor is not co-operating. A Liability acknowledged by the assessee as payable in Balance Sheet cannot be considered as cessation where the creditor has not waived off the amount. 7. Ld. Counsel for the assessee in support of the above contentions placed reliance on the following decisions: - (i) CIT v. Smt Sita Devi Juneja in ITA.No. 619/2009 Punjab and Haryana High Court. (ii) Nitin S. Garg v. ACIT [40 SOT 253 (Ahmedabad)] (iii) Hareshbhai Jagmiohandas Mehta (HUF) v. ACIT [50 taxman.com 112 (Ahmedabad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese liabilities were payable to the assessee and unless demonstrated, they were to be shown as outstanding. These liabilities were appearing in the assessee's balance-sheet, indication acknowledgment of the debts payable by the assessee, as has been held in "CIT v. Tamil Nadu Warehousing Corpn." 292 ITR 310 (Mad), and "Ambika Mills Ltd. v. CIT" 54 ITR 167 (Guj.). As such, these liabilities could not have been treated to have ceased and so, invocation of the provisions of Section 41 (1) was not at all called for. Moreover, as held by the Hon'ble Supreme Court in "Sugauli Sugar Works v. CIT" 236 ITR 518 (SC), the cessation of the liability can come about only by a bilateral act and not unilateral act. In the present case, the assessee treated the liability as existing. Further, section 41 (1) of the Act provides for a deeming fiction, as per which an amount not having the nature of income is treated as income. That being so, the burden of proving the fiction is in the department. Sans the discharging of this burden, the addition cannot be made. Here, the AO has not made out any case of applicability of section 41 (1). To attract section 41 (1), there must exist a trading lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h could be deemed to be the profit or gain of the assessee's business, which would otherwise not be the assessee's income. It has been further found as fact that the assessee had filed the copies of accounts of sundry creditors signed by the concerned creditors. In view of this fact, in our opinion, the ITAT has rightly come to the conclusion that confirmation from the creditors were produced." 10. The Hon'ble Supreme Court in the case of CIT v. Sugauli Sugar Works (P.) Ltd. (supra) while dismissing he appeal of the Revenue held as under: - "7. One aspect of the matter has been completely ignored by the judgment of the Division Bench of the Bombay High Court. As pointed out already, the crucial words in the Section require that the assessee has to obtain in cash or in any other manner some benefit. That part of the Section has been omitted to be considered by the Division Bench of the Bombay High Court. The said words have been considered by a Full Bench of Gujarat High Court in detail in The Commissioner of Income-tax, Gujarat-II, Ahmedabad v. M/s. Bharat Iron & Steel Industries, Bhavnagar, (1993) Tax L R 188. The following passages in the judgment brings out of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The cessation of the liability may occur either by reason of the operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor, or a contract between the parties or by discharge of the debt - the debtor making payment thereof to his creditor. Transfer of an entry is neither an agreement between the parties nor payment of the liability......."(at page 41) 9. This judgment has been quoted by the High Court in the present case and followed. We have no hesitation to say that the reasoning is correct and we agree with the same. 10. The principle that expiry of period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt, has been well settled. It is enough to refer to the decision of Court in Bombay Dyeing & Manufacturing Co. Ltd. v. The State of Bombay and Others, [1958] SCR 1122, If that principle is applied, it is clear that mere entry in the books of accounts of the debtor made unilaterally without any act on the part of the creditor will not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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