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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 ..... craves leave to amend, alter or add a new ground, which may be necessary. 2. Facts of the case are as emanated from the assessment order: 3 Cessation of Liability U/S 41(1) Over verification of balance sheet, it is noticed that the assessee company has shown trades payable of Rs. 20,773,910/- . It was also observed that the the assessee had shut operations in March 2005 and for the assessment year under consideration, almost 7 years have past after its closure.Perusal of balance sheet revealed that all the assets and liabilities are shown unchanged over the last year. Therefore the assessee was asked to submit proof regarding the existing liabilities on account of trade payable. 3.1 In response, assessee filed reply dtd. 15.12.2014 in which the assessee produced a list of trade payables as under:- SrNo Name of the party Amount payable 1 Balaji Plastic Industries 47925 2 Bhavani Packaging Industries 58446 3 Comet Clearing Agency 22413 4 Gurunanak Engineering Works 202400 5 Heat Transformers Equipment P Ltd 340060 6. Hindustan Petroleum Corp Ltd 45685 7 Krupa Trading Corporation 165868 8 Mangalam Cargo Movers 24200 9 Patel Servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities of Rs. 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. For the purpose of submission to MMCB, the company had obtained Valuation Report in respect of its Plant & Machinery located at its Plant at GIDC, Vatva, Ahmedabad, from an Government Registered Valuer Mr. BD. Gajera. The valuation was carried out on gth August, 2008. The valuer has noticed that the plant is closed since March, 2005, power connection to the plant is cut off and all the machineries were in rotten condition an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 either to prove that these liabilities still exist or to show cause , why the same should not be considered to be ceased liability U/s 41(1) of the IT Act. The hearing for this purpose was fixed on 31.12.2014. Till date the assessee has not been able to bring any additional evidences / materials to substantiate its claim and therefore the balance amount of Rs. 1,79,75,009/- is considered to be ceased liability. 3. Against the addition of Rs. 1,79,75,009/-, assessee preferred first statutory appeal before the ld. CIT(A) who granted relief to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 creditors and they had confirmed that they had given up the claims against the assessee, no decision could be taken by the AO merely on the ground that the debts remained unpaid in the books of accounts for a number of years that the liability had ceased or had been remitted. Thus, it was mentioned by the appellant that the conditions specified under the provisions of section 41(1) of the I. T. Act, 1961 is not complied with and hence the same are not applicable over the facts of the case. 3.5. In respect of the applicability of the provisions of Section 41(1) of the Act, the appellant has relied upon the various ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 cannot be added back as a deemed income u/s.41(l) of the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of s. 4] (1) of the Act there is no cure for it." 3.6.3. Further in the case of CIT Vs. Miraa Processors (P) Ltd. (2012) 208 Taxman 93 (Guj.) in which Division Bench of this Court observed as under:- "14. As pointed out in the case of Sugauli Sugar Works (P) Ltd. (supra), vide the last five lines of the paragraph-6 of the judgment, the question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but has to be decided only if the creditor is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itor, 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 consideration to indicate remission or cessation of the liabilities in question, the provisions of section 41(1) of the Act could not have been invoked. The reasoning adopted by the Tribunal while holding that section 41(1) would not be applicable to the facts of the present case is in the line with the principles enunciated in the above decision. The Tribunal, therefore, committed no legal error so as to give rise to any question of law warranting interference by this court." 3.6.6. Further in the case of CIT Vs. Willard India Ltd. (2008) 302 ITR 221 (All),it has been held as under:- Business income - Profits chargeable to tax under s. 41(1) - Time-barred debts taken to P & L a/c - Unilateral act of assessee debtor in writing back time-barred debts does not amount to cessation of liability, hence not chargeable under s. 41 (1)- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cessation of trading liability (Applicability of) - Assessment year 2010-11 - Assessee was engaged in business of job work of hatching of eggs for 'S1 Farm Ltd. - During course of scrutiny assessment, Assessing Officer noted from balance sheet that assessee had shown huge amount of sundry creditors - Assessing Officer took a view that assessee company was doing job work only and hence, there would be no purchases and hence, there was no possibility of such huge amount outstanding in respect of such sundry creditors - He therefore forming an opinion that there was no genuine creditors appearing in balance sheet, treated amount in question as cessation of liability within meaning of section 41(1) - Tribunal upheld addition made by Assessing Officer - Whether, on facts, if existence of liabilities was doubted, same could have been disallowed in year in which it was claimed, or could have been treated as unexplained cash credit in hands of assessee under section 68, but same could not be taxed under sec ..... 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