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TMI Blog2020 (6) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09 and that the amount could not be paid due to shortage of funds. It was further submitted that the assessee company was to get lot of money from the main contractor and the amount payable will be cleared as and when the receivables are collected from the main contractor. The assessee was directed to furnish the details of the creditors including the name & address, PAN and ledger a/c. The assessee furnished a common ledger a/c for the year 1.4.2011 to 31.3.2012 consisting of 195 pages, each page containing the names of 14 creditors and the details included only the name of the alleged creditor and the amount. In the narration, it was simply stated that as "the balance brought forward" and almost all the entries were below Rs. 1.00 lakh. It is also observed that the creditors included filling stations, auto services, mechanical works, etc., Therefore, the assessee was asked to produce further details including address, PAN and an individual ledger a/c for the year in which the credit was originated. In response to the said notice, the assessee vide reply dated 22.12.2014 stated that the creditors are mobile people who works in the work-sites of the company and are not confine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 41(1) of the I.T.Act, 1961. 10. The Ld. CIT (A) ought to have appreciated that the AO has invoked the provisions of section 41(1) of the Act, without establishing that there is remission or cessation of the liability in the year under consideration. 11. The Ld. CIT (A) ought to have appreciated that the amount of Rs. 19, 62, 86, 726/represents sundry creditors that are brought forward from earlier assessment years. 12. The assessee may add, alter or modify or substitute any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal". 3. The learned Counsel for the assessee, while reiterating the submissions made before the authorities below submitted that there is no cessation of liability during the relevant A.Y, as the assessee company is still liable to pay liabilities to the creditors in future and the assessee also has not written off the outstanding liabilities in its books of account. He submitted that the AO has made the addition u/s 41(1) without corroborative evidence that the said liabilities no more exists. According to the learned Counsel, merely because the liability is being carried forward for years and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Paper Book to prove that M/s. Madhucon Projects Ltd is the parent company of the assessee nor that they owned up trading liability of M/s. Nama Properties Ltd. It is also submitted that there is nothing in the additional evidence to prove that the liabilities are still existing in the books of account of the assessee company. 7. The learned DR has also filed written submissions along with the report of the AO on the additional evidence filed by the assessee and placed reliance upon the following case law: a) ITAT Ahmedabad Bench in the case of ACIT vs. Dattatray Poultry Breeding Farm (P) Ltd, 95 Taxmann.com 130 b) Bombay High Court in the case of Palki Investments & Trading Co. (P) Ltd vs. ITO Mumbai 71 Taxmann.com 322 c) Hon'ble' Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar & Sons Ltd (1996) 88 Taxmann 429 (S.C) d) Hon'ble Rajasthan High Court in the case of Rama Steel Rolling Mills & General Engg. Works (2013) 35 Taxmann.com 262 e) Hon'ble Gujarat High Court in the case of Gujtron Electronics (P) Ltd vs. ITO, 83 Taxmann.com 389 f) Hon'ble Delhi High Court in the case of CIT vs. Chipsoft Technology (P) Ltd 26 Taxmann.com 109. g) ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has filed the Annual Report of Madhucon Projects Ltd for financial year 2012-13 wherein, in the list of related party transactions, the name of the assessee is mentioned under the head "Enterprises where significant Influence Exists". The AO can examine the genuineness of the expenditure in the year in which it is claimed to have accrued to it and can only bring it to tax in the year there is cessation of liability. The genuineness or otherwise of the expenditure should have been questioned by the AO in the year in which it is claimed by the assessee. As far as the A.Y 2012-13 is concerned, we find that the AO has invoked only the provisions of section 41(1) of the Act and the same can be invoked only if there is a cessation of liability and the AO cannot unilaterally treat it as cessation of liability without there being any evidence that such liabilities cannot be enforced on the assessee or that the assessee has written it off. Therefore, assessee's appeal is treated as allowed. 9. The assessee has relied upon the following decisions in support of its contention that the genuineness or otherwise of the trade liability should have been considered in the year in which they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2007-08 - Whether in peculiar facts of case amount in question could not be added back in income of assessee as deemed income under section 41(1) - Held, yes [Para 8] [In favour of assessee] iii) ITAT Mumbai in the case of Maharashtra State Coop. Consumers Federation Ltd, 13 Taxmann.com 163 (Mum). I. Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessment year 2005-06 - During assessment proceedings, Assessing Officer observed that there was a liability of Rs. 10,85,531 pending for more than 5 years on assessee and same had not been claimed by creditors; therefore, he added this amount to total income of assessee presuming that assessee's liability had seized - Whether in absence of any contrary materials placed on record by revenue to show that no such liability existed in books of account or assessee had obtained any benefit by cash or in any manner, merely because said liability was more than 5 years old it could not be said that there was cessation of liability - Held, yes [In favour of assessee] iv) ITAT Delhi in the case of Sri Vardhman Overseas Ltd 24 SOT 393 (Del.) held as under: Section 68 of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everal years - Held, yes [Para 22] [In favour of assessee] vi) Hon'ble Gujarat High Court in the case of Matruprasad C Pandey, 59 Taxmann.com 428 held as under: Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Cessation of trading liability) - Assessment year 2007 08 - Assessing Officer observed certain liabilities (sundry creditors) in balance sheet of assessee, which were very old - As assessee failed to furnish complete identity, creditworthiness of creditors, etc., as sought by Assessing Officer, he treated said creditors as no longer payable and made addition under section 41(1) - Whether addition under section 41(1) cannot be made unless and until it is found that there was remission and/or cessation of liability that too during relevant assessment year - Held, yes - Whether since there was no remission and/or cessation of liability during year under consideration, addition made under section 41(1) was liable to be deleted - Held, yes [Para 6.2] [In favour of assessee] vii) ITAT Kolkata in the case of Jashojit Mukherjee 93 Taxmann.com 366 held as under: I. Section 41(1) of the Income-tax Act, 1961 - Remission and cessation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 41(1) - Held, yes - Whether merely because liabilities were shown in books of account by assessee as outstanding and not written back, would not, tie down revenue to hold such liabilities to be subsisting liability - Held, yes [Paras 9 and 10] [In favour of revenue"]. b) In the case of Palki Investments & Trading Co. (P) Ltd vs. ITO Mumbai 71 Taxmann.com 322, Hon'ble Bombay High Court held as under: Section 271(1)(c), read with section 41(1), of the Income-tax Act, 1961 - Penalty - For concealment of income (False claims) - Assessment year 2005-06 - During assessment proceedings Assessing Officer made certain additions under section 41(1) in respect of trade liabilities which had ceased to exist - Penalty under section 271(1)(c) was also levied for furnishing inaccurate particulars of income - Facts revealed that in quantum proceedings Tribunal recorded that one of creditors had denied any amount to be due to it from assessee and some of creditors named by assessee were not found available at addresses given - Further, in penalty proceedings all three authorities had concurrently arrived at a finding of fact that claim made by assessee with regard to its outstandin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - While remitting matter to Assessing Officer, it was left open for Assessing Officer to verify discharge of liability till date of fresh assessment and if liability had been discharged till date then there would be remission or cessation of liability and if assessee failed to produce creditor or unable to give exact address then such liability would stand ceased during year and Assessing Officer would be free to add back same as per law - Whether liability of Rs. 34 lakhs in respect of 'T' at end of year if not proved could certainly be added to income of assessee under section 41(1) - Held, yes - Whether in facts and circumstances of case no substantial question of law arose for consideration regarding effect of section 41(1) resulting into remission or cessation of trade liability standing in books of account - Held, yes [Paras 3 & 4] [In favour of revenue] e) Hon'ble Gujarat High Court in the case of Gujtron Electronics (P) Ltd vs. ITO, 83 Taxmann.com 389 held as under: Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Customer advances) - Assessment year 2012-2013 - Under a sales promotion scheme launched during financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view that creditors in question were not genuine, made addition to assessee's income under section 41(1) - Whether since liability towards creditors remained in existence for a long time and, moreover, assessee failed to establish genuineness of those liabilities by producing supporting evidence, impugned addition was to be confirmed - Held, yes [Para 7] [In favour of revenue] h) ITAT Mumbai Bench in the case of ITO vs. Sajjan Kumar Didwani, 47 Taxmann.com 381 held as under: I. Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Cessation of trading liability) - Assessment year 2009-10 - Assessee's books showed trading liabilities which worked out to approx. 40 per cent of purchase and were outstanding for a period of almost six years - Entertaining doubts with regard to genuineness of outstanding liabilities, notices were issued to four parties - One party gave its confirmation and other notices were received as unserved - Assessing officer observed that said liabilities ceased to exist and invoked section 41(1) - Whether since, confirmation was furnished by one party, application of section 41(1) was unjustified and matter neede ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case on hand. 13. In the case of CIT vs. TV Sundaram Iyengar & Sons Ltd, the Hon'ble Supreme Court was considering the case where certain deposits from customers in course of its business were originally treated as capital receipts by the assessee and unclaimed credit balances, which were time barred, were written back by the assessee to its P&L A/c and were treated as assessee's income and were held to be liable to tax. Thus, in the said case, the assessee therein had recognized the cessation of its liability and the issue was whether capital receipts can thereafter be treated as revenue receipt. In the case before us, the assessee has not recognized the cessation of liability as in the case of TV Sundaram Iyengar & Sons and hence the case is distinguishable on facts. Therefore, the said judgment cannot be applied to the facts of the case before us. 14. In the case of Rama Steel Rolling Mills & General Engg. Works, the Hon'ble Rajasthan High Court has held that the liability at the end of the year, if not proved could certainly be added u/s 41(1) of the Act but still it is open for the AO to verify the discharge of liability and if liability had been discharged till the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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