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TMI Blog2019 (12) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... - GUJARAT HIGH COURT] - Decided in favour of assessee. - ITA. No: 3074/AHD/2015 - - - Dated:- 10-12-2019 - Shri Pradip Kumar Kedia, Accountant Member And Shri Mahavir Prasad, Judicial Member For the Appellant : Shri Lalit P. Jain, Sr. D.R. For the Respondent : Shri Tushar Hemani P.B. Parmar ORDER PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. This appeal filed by the Revenue is directed against the order of the Ld. CIT(A)-2, Ahmedabad dated 28.08.2015 pertaining to A.Y. 2012-13 and following grounds have been taken: 1. The Ld.CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,79,75,009/- made by the AO on account of ceased liabilities u/s.41(l) of the Act, without properly appreciating the facts of the case and the material brought on record. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 3. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gency 29545 11 Sapphire Exim Agency 54964 12 Sarr Freight Clearing Agency 116223 13 Shree Jalaram Enterprise 96104 14 Shree Shakti Roadways 24072 15 S.K.Punjabi 38144 16 S.P.U Consultants 18894 17 Surendra Industries 15548 18 Ambica Products 38063 19 ATC International ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hadra Int Pvt Ltd 131368 39 Shraddha Finechem Pvt Ltd 110081 40 Shreeji Chemical Industries 35755 41 Shreeji Ice Factory 675733 42 Shree Krishna Sulphite Pvt Ltd 32761 43 Shree Rasayan Enterprise 331279 44 Shree Sumkit Enterprise 42731 45 Siddhi Intermediaries Pvt Ltd 1642450 46 Simaline Chemicals Ind Ltd 133491 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is as under :- As the company was incurring huge losses and there was complete lack of liquidity, the company has not been able to pay the creditors in respect of the goods and services supplied the them up to March, 2005. These liabilities are still outstanding and payable by the company as per legal and contractual terms. It is submitted that there is no remission or cessation of liabilities of ₹ 2,07,73,910/-. Even though these liabilities have become barred by the law of limitations, there is neither remission by the creditors of such liabilities nor cessation of the liability as the liability is not extinguished. This liability represents a bonafide and genuine trade debt, which is payable by the company as on 31st March, 2012. Though the company is liable and legally committed to pay these amounts to the creditors, on account ofnon -availability of funds, the same could not be paid and they are still outstanding. It is submitted that as the liabilities are still a legal obligation of the company and are payable and in absence of remission or cessation of these liabilities, the provisions of Section 41(1) do not apply to these amounts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .The assessee could not clearly state when the liability would be possibly paid and also could not produce any relevant documents showing whether the creditors have filed any claim before the court or any other agency. c) The onus is on the assessee to provide the complete details since only he has special knowledge of the liability and only on furnishing of such information, the AO can examine whether the liability still exists or not. The onus was on the assessee to establish that any liability for which deduction had been claimed in earlier year/years is continuing and it still continues to exist. The assessee has failed to discharge it onus and therefore an adverse inference is drawn against the assessee. It was pointed out to the assesee that in case of failure to submit any concrete information in respect of these creditors or to adduce any evidence to the effect that these liabilities are infact payable, then it will be concluded logically that these creditors were no more payable and these liabilities had ceased to exists. 3.3 In light of the above, vide order sheet dated 15.12.2014, a final opportunity was granted to the assessee eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure. It was submitted to the AO also that the liability was on account of money payable to the creditors in respect of goods and services supplied by them prior to March, 2005 and that during the year under appeal, there has been no cessation or remission of any trade liability and that the appellant has not obtained any benefit either in cash or otherwise on account of cessation or remission of trading liability. Thus, the provisions of section 41 (1) of I. T. Act are not applicable to the facts of the appellant's case. It was further submitted that during the year under appeal, there had been no remission or cessation of liability as erroneously presumed by the AO. The liability on account of sundry creditors was very much in existence and the appellant was under legal obligation to make payment of such liability. During the year under appeal, the appellant has not obtained any benefit in respect of such liability by way of remission or cessation thereof. Even in the assessment order, the AO has not recorded any finding or fact to the effect that there was remission / cessation of liability. The appellant further argued that unless notices were issued to the concerned cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case as the liabilities had not been written back in the accounts by the appellant. The relevant portion of the finding of the Hon'ble Gujarat is as under:- S.41(l) would apply in a case where there has been remission or cessation of liability during the year under consideration. In the present case, there was nothing on record to suggest there was remission or cessation of liability in the AY 2007-08. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The AO undertook the exercise to verify the records of the socalled creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parfe and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court held and observed as under: 'To the extent the said decision holds that a unilateral act on the part of the debtor cannot bring about a cessation of his liability, the same would not be applicable to the facts of the present case, in view of the insertion of Explanation 1. However, at the cost of repetition it may be stated that in this case there is no unilateral act on the part of the debtor so as to bring about a cessation of its liability. Therefore, the other part of the decision would still apply to the facts of the present case, namely that the cessation of liability has to be either by reason of 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. In the present case, admittedly there is no declaration by the assesse that it does not intend to honour its liabilities nor is there any discharge of the debt. In the aforesaid premises, as no event had taken place in the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat assessee could not bring any confirmation from the creditors nor could it produce supporting evidences to prove the liability in respect of balance creditors totaling to ₹ 1,79,75,009/-. 6. On the other hand, appellant contention was that company was engaged in the business of manufacture of dyes, intermediates. But it became defunct and not carried out any business operations since Marcy, 2005. There being no business activity, there was no income or expenditure, it was submitted to the A.O. also that the liability was on account of money payable to the creditors in respect of goods and services supplied by them prior to March, 2005 and that during the year under consideration, there has been no cessation or remission of any trade liability and that the appellant has not obtained any benefit either in cash or otherwise on account of cessation or remission of trading liability. 7. In support of its contention, assessee cited an order of Hon ble Jurisdictional High Court in the case of Dattatray Poultry Breeding Farm (P.) Ltd. [2019] 104 taxmann.com 366 (Guj.) : Section 41(1) of the Income-tax Act, 1961 - Remission or c ..... 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