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TMI Blog2018 (7) TMI 2063X X X X Extracts X X X X X X X X Extracts X X X X ..... ber By Appellant: Md. Usman CIT-DR By Respondent: Shri Akkal Dudhwewal, FCA ORDER S.S.Godara, This Revenue s appeal for assessment year 2001-02 calls into question correctness of the Commissioner of Income Tax (Appeals)-10, Kolkata s order dated 08.07.2016, passed in case No.142/CIT(A)/10/Cir-36/15-16/Kol, reversing Assessing Officer s action invoking section 41(1) after treating the assessee s liability amount of ₹12,97,47,322/- to be a case of cessation of liability assessment order dated 30.03.2015, involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short the Act . 2. We notice at the outset that CIT(A) s detailed discussion on the above sole issue of cessation of liability u/s 41(1)(a) of the Act reads as follows:- 06. DECISION: 1. I have carefully considered the action of the Ld.AO in adding an amount of ₹ 12,97,47,322/- u/s. 441(1) of the Income Tax Act, 1961, on grounds that there was a cessation of liability on the part of the assessee for the impugned amount, and that therefore it would constitute part of the income of the assessee-firm. It is to be observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the revenue, then the' revenue has to prove and bring evidence that the interest payable outstanding in the books got remitted or ceased during the year. In case, the onus lies on the Assessee, then the Assessee has to prove that there is no remission or cessation of the interest payable liability during the impugned assessment year. It is not denied that the liability respecting the interest payable is in existence for over 3 decades and under these facts, the immediate question that will arise in the mind of an ordinary person is how the liability for the interest was not paid for over 30 years, whether the liability could be regarded to remain in existence or not and whether the parties to whom the interest is payable by the Assessee are still surviving or not. In our opinion, all these questions are much more relevant to come to a concrete finding whether it can be said that there is remission or cessation of interest payable liability. We noted that the CIIT (A) has deleted the addition mainly on the basis that the AO has not brought any material or record to show that there had been a remission or cessation of the liability and benefit has been granted to the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities. However when the matter travelled before the Hon'ble Tribunal, it issued the directions as have been incorporated in the order, and these were required to be carried out both by the assessee-appellant, as well as the Ld.AO. I find that in the first instance the assessee was directed to demonstrate with evidence that there existed valid liability and these were properly accounted in its books of accounts. From the submissions made by the Ld. A.R before the AO as also in this forum, it is to be observed that the appellant had furnished the complete details of outstanding liabilities as on 31.03.2001 amounting to ₹ 12,97,47,322/-. The details furnished inter-alia included the names and complete addresses of the Creditors and the amounts due to each of them. The assessee also furnished copies of the Balance Sheet of the assessee-firm and the detailed list of sundry creditors for the AY.s 2000-01, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11, 2011-12, 2012-13 2013-14. With reference to these details, the Ld. A.R of the assessee demonstrated that the liability of ₹ 12,97,47,322/- which is the subject matter of dispute in the impugned proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y outstanding and due to the Creditors, as listed. Similarly in the subsequent assessments also the AO never disputed nor disbelieved the assessee's transactions with these sundry creditors when the assessee had made payments against outstanding balances due as on 31.03.2001. I also find that even though the same set of sundry creditors were shown outstanding as on 31.03.2004, in the assessment framed u/s 143(3) for AY 2004-05, the Ld.AO had not made any adverse comment about the genuineness of the outstanding liabilities. An assessee in the ordinary course of its dealing with the creditors is expected to maintain the basic records in support of the transactions with the parties. When called upon to substantiate the transaction, the assessee is required to furnish names and addresses and the details of financial transactions conducted. Further the assessee may also support the transactions by producing the party confirmations. Therefore with reference to the set of facts and documentary evidences as discussed, I am inclined to observe and hold that the assessee had discharged its onus of proving that as of 31.03.2001, that the assessee had subsisting liability to pay ₹ 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies to explain the transactions with the appellant in F.Y. 2000-01 established that the liabilities had ceased to exist in terms of Section 41(1) of the Act. In this factual matrix, it is observed that, firstly, the Ld. AO had attempted to comply with the directions of the ITAT, Kolkata as when the appellant had discharged its onus of establishing that the liabilities of ₹ 12,97,47,322/- were genuine and subsisting as on 31.03.2001, the Ld.AO conducted enquiries from such creditors to ascertain whether the liabilities actually existed or not. However on careful perusal of statements u/s 131 and the facts as available on record, I note that the conclusions drawn by the Ld.AO based on the statements recorded u/s 131 was without proper and complete consideration of the circumstances eminent. From the statements u/s 131, it is observed that none of the creditors had denied the fact that the debts were not outstanding nor had they stated that the liabilities due by the appellant had ceased to exist. It is further material to note that the letters of confirmations issued by these parties were filed before the Ld.AO, genuineness of which was never denied or disputed by the Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, so as to constitute as benefit contemplated in Section 41(1) of the Act. Therefore from the facts as were gathered in the course of assessment proceedings, I find that the material collected by the Ld.AO sufficiently indicate that the impugned liabilities of ₹ 12,97,47,322/- as reflected in the Balance Sheet for FY 2000-01 had not ceased to exist. For the reasons set out in the foregoing, and in light of the aforesaid facts as discussed, I hold that although the Ld. AO had enquired into the liabilities as reflected by the appellant as outstanding as on 31.03.2001, but the enquiries did not in any manner suggest or prove that the liabilities had ceases to exist or that the sundry creditors had granted remission of the liabilities to the appellant during the relevant previous year so as to assess the income under the deeming provisions of Section 41(1) of the Income Tax Act. 5. For the reasons discussed in the foregoing therefore, the second direction of the Hon'ble ITAT, Kolkata to the Ld.AO was not fully complied with as no convincing material or irrefutable evidence was brought on record to prove that the Sundry Creditors had granted remission of the amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (b) of that sub-section by way of writing off such liability in his accounts. A plain reading of Section 41(1) shows that the before the deeming provisions thereof are invoked, it is necessary for the Ld. AO to demonstrate with tangible material and admissible evidence that in reality the creditors had granted remission of the liabilities and such remission was granted during the relevant previous year. Since Section 41(1) is a deeming provision of the Act, in terms of which cessation or remission of a trading liability is deemed to be assessee's income; the onus is on the Revenue to prove that in fact there was a remission or cessation of the liability and secondly such remission or cessation occurred during the relevant previous year consequent to which the income accrued to the assessee. For this reason the Hon'ble ITAT in its order dated 04.03.2014 had required the Ld. AO to bring on record not only the fact the liability was remitted or there was a cessation of liability, but further the AO was required to bring on record sufficient material to prove that such remission or cessation of the liability was granted or occurred during the FY 2000-01 being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verned such liabilities, since the appellant had acknowledged the liabilities in its books of accounts, they had not become time-barred but remained subsisting and outstanding. After perusing the judgment of Hon'ble Delhi High Court and the facts involved therein vis-a-vis the facts of the appellant's case, I therefore find merit in the contentions of the Ld.A.Rs. I find that, in the present case, undeniably the outstanding liabilities are not workmen's dues and therefore not governed by Industrial Dispute Act. I find that unlike the facts involved in the judgment of Hon'ble Delhi High Court, there is no material on record that the liabilities of ₹ 12,97,47,322/- had become time-barred or there was a cessation thereof in the relevant year. In the course of appellate hearing, the Ld.A.Rs for the appellant filed copy of a decision of Hon'ble ITAT, Bangalore in the case of Asst. CIT Vs Alvares Thomas (62 taxman.com 286) wherein this particular aspect was considered by the Hon'ble Tribunal. In the decided case also the liabilities of the assessee had remained outstanding for several years. Before the Hon'ble Tribunal the Revenue relied on the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied, then only Section 41(1) could be invoked by the Assessing Officer. 8. Examining of the facts of the present case reveals that, it is not the case of the Department that, any benefit in respect of such trading liability was taken by the assessee but, the Revenue contends that since the burden was not discharged of existence of the liability, it be treated as cessation of the liability and therefore, Section 41(1) could be invoked. Further, stand of the Revenue is that, when in respect of debt in question, confirmation was called for, a letter was produced of the creditor with its address but, when the same was verified, the report was that, party could not be traced and therefore, it was not verifiable. 9. In our view, even if we accept the contention of the Revenue that the party could not be traced and therefore debt could not be verified then also, by no stretch of imagination can it be held that it would satisfy the requirement of cessation of liability. In legal parlance, merely because the creditor could not be traced on the date when the verification was made, same is not a ground to conclude that there was cessation of the liability. Cessation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. We have already held in Kohinoor Mills Co. Ltd. v. CIT (1963) 49 ITR 578 (Bom.) that the mere fact of the expiry of the period of limitation to enforce it, does not by itself constitute cessation of the liability. In the instant case, the liability being one relating to wages, salaries and bonus due by an employer to his employees in an industry, the provisions of the Industrial Disputes Act also are attracted and for the recovery of the dues from the employer, under s. 33C(2) of the Industrial Disputes Act, no bar of limitation comes in the way of the employees. From the observations as contained in the judgement of the Supreme Court, I find that it in fact the Court went a step ahead and held that even upon the expiry of the period of limitation prescribed under the Limitation Act, the debt or liability will not stand extinguished but it would only prevent the creditor from enforcing the debt and in that view of the matter the deeming provisions of Section 41(1) could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exports (P) Ltd (217 taxman 43) which was rendered after the decision of the same Court in the case of CIT Vs Chipsoft Technology (P) Ltd (supra). In view of. this factual legal position and the decisions discussed in the foregoing, I therefore find that the lone decision in the case of CIT Vs Chipsoft Technology (P) Ltd (supra) relied upon by the AO in facts was not applicable to appellant's case. Instead the reliance placed by the Ld. A.Rs on the subsequent decisions of Hon'ble Karnataka High Court in the case of CIT Vs Alvares Thomas (supra), Hon'ble Delhi High Court in the case of CIT Vs lain Exports (P) Ltd (supra) were more appropriate in the appellant's case. 12.It is to be further observed that the proposition put forth by the Hon'ble Delhi Karnataka High Courts was also laid down by the Hon'ble Punjab Haryana High Court in the case of CIT Vs Sita Devi luneja (325 ITR 593) wherein the Hon'ble High Court while allowing the assessee's claim observed as follows: After hearing learned counsel for the appellant and going through the impugned order, we do not find any merit in the instant appeal. It is the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts involved were almost similar to facts involved in the appellant's case. While decide the appeal the High Court took note of the fact that the assessee had not written back the outstanding liabilities in its books but continued to disclose the outstanding amounts as liabilities in the balance sheet from year on year. According to the Hon'ble High Court merely because the amounts remained outstanding for many years, it could not be inferred that the liabilities had ceased to exist. Merely because the assessee was allowed the deduction of trading liabilities in the earlier years and the balances were carried forward in the subsequent years, did not prove that the trading liabilities had ceased to exist. This decision was followed by the coordinate Benches of the same High Court while deciding the appeals in the cases of CIT Vs Puridevi M. Chaudhary (41 taxmann.com 329), CIT Vs Bhogilal Ramjibhai Atara (222 Taxman 313) CIT Vs Matruprasad C Pandey (59 taxmann.com 428). 14.The Ld. A.Rs reliance on the decision of the Hon'ble Madras High Court in the case of CIT vs Tamil Nadu Warehousing Corporation (292 ITR 310) also appears to be relevant since the facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was apparent from the audited accounts was that the assessee never claimed that it had no legal obligation to pay to the sundry creditors. Applying the ratio laid down in these decisions to the appellant's case, I therefore find that both on facts as well as in law the assessee has proved that no material was available with the Ld.AO which in any manner which established that the creditors had granted remission of liabilities to the assessee during the previous year relevant to A.Y. 2001-02. The Ld. AO did not bring on record any tangible material to prove that the creditors had granted remission of liabilities during the relevant previous year because of which the assessee's liabilities ceased to exist in FY 2000-01. I therefore agree with the submissions of the Ld.A.Rs, and hold that addition of ₹ 12,97,47,322/- u/s 41(1) was not sustainable in law. The Ld. AO is accordingly directed to delete the addition made u/s 41(1) of the Act. These grounds are therefore allowed in favour of the appellant-assessee. 3. We have heard both the parties reiterating their respective stands against and in support of impugned section 41(1) remission / cessation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to recover their respective dues nor the instant taxpayer had discharged even a single penny of the impugned liability. All this formed sufficient reason for him to opine that the assessee had no intention to pay that money in question. He alleged creditors non confirmation as well as lack of their identity in his assessment order based on an assumption that they had either vanished or there was no effort at their behest to claim this liability sum. The Assessing Officer was further of the opinion that hon'ble Delhi high court s decision in CIT vs. Chipsoft Technology Pvt. Ltd. on 20.07.2012 in ITA No. 598/2011 had made it clear that section 41(1) Explanation sufficiently indicated the same to be inclusive provision since the legislature had not used means clause therein. He therefore made the impugned addition u/s 41(1) on cessation of trading liability of ₹12,97,47,322/- in question. 5. The assessee preferred appeal. The CIT(A) has reversed the Assessing Officer s action in his above extracted detailed discussion. This leaves the Revenue aggrieved. 6. Learned Departmental Representative vehemently argues in the light of Assessing Officer s findin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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