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TMI Blog2017 (6) TMI 1286X X X X Extracts X X X X X X X X Extracts X X X X ..... itors amounting to Rs. 7,79,12,165/- called upon the assessee to furnish the details of sundry creditors with supporting evidences. As observed by the AO, in response to the show cause notice, the assessee in letter dated 15.11.2011, simply submitted the list of creditors and date of such credits. On examination of the details submitted by the assessee, the AO found that the credit balances outstanding in the name of the concerned parties were on account of purchases and expenses and were outstanding for a pretty long period starting from the year 1997-98 to 2002-03 and there is no change in the credit balances. He also noticed that there are no transactions with the concerned creditors in the recent years. Thus, the AO finally called upon the assessee to explain why the amount remaining outstanding in the name of the sundry creditors should not be treated as income of the assessee in terms of section 41(1) of the Act. In response to the said show cause notice, the assessee submitted the reply stating therein that out of the total amount shown as sundry creditors as on 31.3.2009 an amount of Rs. 3,91,50,613/- was either paid or written back in the subsequent period or part of it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for restoration of the addition made by the AO. 6. The ld. AR strongly supporting the order of the ld.CIT(A) submitted, before the AO the assessee has furnished all the details of the sundry creditors and purpose for which such credit entries are appearing in the books of account. He submitted, the assessee has submitted before the AO in detail status of sundry creditors and has brought to the notice of the AO that in subsequent assessment years part of the liabilities on account of sundry creditors was either written back and offered as income or have been paid to the concerned creditors. He submitted, part of liabilities also related to government agencies which under no circumstances can be treated as non-genuine and cannot be held that they ceased to exist. He submitted, in any case of the matter burden is heavily on the department to establish by bringing evidence on record that there is remission or cessation of liability in terms of section 41(1) of the Act. The ld. AR submitted, that when the liabilities on account of sundry creditors is continuing for last so many years, there is no reasons on the part of the AO to conclude that such liability ceased to exist in the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceased to exist in the assessment year in terms of section 41(1), on plain reading of the provisions of section 41(1) of the Act, we are of the view that before treating the amount outstanding towards sundry creditors as deemed income of the assessee u/s 41(1) on account of remission/cessation of liability, the AO is duty bound to examine whether the condition laid down u/s 41(1) are fulfilled or not. As per the reading of section 41(1) along with explanation (1) to section 41(1), the liability ceases to exist in the books of account of the assessee in a particular previous year, if the person showing such liability had obtained benefit either in cash or in any other manner in respect of such liability. It further provides that such remission or cessation of liability is also acceptable by unilateral act of writing off such liability in its account by the person showing such liability. Thus, before applying the provisions of section 41(1), it is necessary to establish on record that the assessee has obtained a benefit either in cash or in any form in respect of such liability in the relevant previous year. Thus, when in AO's own admission liability continued from past so many years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the amount reflected as payable to it by the assessee. Admittedly, winding up proceedings against M/s Elephanta Oil & Vanaspati Ltd. are pending and there is no certainty that any claim that may be made by the assessee with regard to the amounts receivable from M/s Elephanta Oil & Vanaspati Ltd. would be paid without the liquidator claiming the credit for the amounts receivable from the assessee company. It is well settled that in order to attract the provisions of Section 41(1) of the Act, there should have been an irrevocable cession of liability without any possibility of the same being revived. The assessee company having acknowledged its liability successively over the years would not be in a position to defend any claim that may be made on behalf of the liquidator for credit of the said amount reflected by the assessee as payable to M/s Elephanta Oil & Vanaspati Ltd. 22. We may also add that, admittedly, no credit entry has been made in the books of the assessee in the previous year relevant to the assessment year 2008- 2009. The outstanding balances reflected as payable to M/s Elephanta Oil & Vanaspati Ltd. are the opening balances which are being carried forward for seve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee has written off the outstanding liabilities in the books of account. The Appellate Tribunal is justified in taking the view that as assessee had continued to show the admitted amounts as liabilities in its balance sheet the same cannot be treated as assessment of liabilities. Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have seized to exist. The Appellate Tribunal has rightly observed that the Assessing Officer shall have to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof which is not the case before us. Merely because the assessee obtained benefit of reduction in the earlier years and balance is carried forward in the subsequent year, it would not prove that the trading liabilities of the assessee have become non existent." "6.2 The aforesaid decision of the Division Bench in the case of Nitin S. Garg (supra) has been considered and followed by the Division Bench of this Court in the case of Bhogilal Ramjibhai Atara (supra) and the addition made under Section 41(1) of the Act in the similar facts and circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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