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TMI Blog2024 (11) TMI 1019X X X X Extracts X X X X X X X X Extracts X X X X ..... ent order as to how the assessee s relevant details had failed to discharge its onus even if it is presumed that this not an instance of cessation of liability u/s. 41(1) of the Act. We conclude in these peculiar facts and circumstances that be it section 41(1) cessation of liability addition or that section 68 unexplained cash credits, the learned Assessing Officer could not have made the impugned addition in assessee s hands on both counts. Rejected accordingly. - Shri R.K. Panda, Vice President And Shri S.S. Godara, Judicial Member For the Assessee : Ms. Chandni Shah And Mr. Hardik Nirmal For the Revenue : Shri Ramnath P Murkunde ORDER PER S.S. GODARA, JM : This Revenue s appeal for AY 2018-19 arises against the NFAC, Delhi s order dated 31.05.2023 passed in case No. ITBA/NFAC/S/ 250/2023-24/1053345968(1) in proceedings under Section 250 of the Income Tax Act, 1961, in short the Act . 2. This Revenue s appeal raises the following substantive grounds: 1. On the facts and the circumstances and in law, the Ld.CIT(A) erred in allowing the appeal of the assessee on the issue of unproved creditors, despite failure on the part of the assessee in providing complete details in this asp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed details of Sundry Creditors on 09.04.2021 so he did not have any time to make verification of genuineness of Creditors. AO simply added the closing balance of S. Creditors as on 31.03.2018 to total income. AO has not even specified the relevant section of the Act under which the said addition was made. ii) On other hand the Appellant contended that delay was due to the worldwide Covid Pandemic. On 09.04.2021 the Appellant filed following details: List of S. Creditors with names and amount due PAN of S. Creditors Ledger a/cs of high value S. Creditors As per Appellant, the AO had time till 30.04.2021 to make verification and pass the order u/s. 143(3). Due date of passing order was extended up to 30.04.2021 vide notification of CBDT dated 27.02.2021. It was further extended to 30.06.2021 and then to 30.09.2021. Thus, as per appellant the AO had sufficient time to pass the order u/s. 143(3) after making verification. iii) As per Appellant these S. Creditors are genuine trade payables and corresponding amounts were paid off in subsequent AY's. In majority of cases of these S. Creditors the outstanding payment was made in the subsequent AY only. These payments substantiate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law //. In our opinion, this rule should be applied to the interpretation and understanding of the words remission and cessation // used in the section. 13. In Bombay Dyeing Manufacturing Co. Ltd. v. State of Bombay, AIR 1958 SC 328, the legal position was summarized by T.L.Venkatarama Aiyar, J., in the following manner:- -It has been already mentioned that when a debt becomes time-barred, it does not become extinguished but only unenforceable in a Court of law. Indeed, it is on that footing that there can be statutory transfer of the debts due to the employees, and that is how the Board gets title to them. If then a debt subsists even after it is barred by limitation, the employer does not get, in law, a discharge therefrom. The modes in which an obligation under a contract becomes discharged are well-defined, and the bar of limitation is not one of them. The following passages in Anson's Law of Contract, 19th Edition, page 383, are directly in point: - At Common Law lapse of time does not affect contractual rights. Such a right is of a permanent and indestructible character, unless either from the nature of the contract, or from its terms, it be limited in point of duration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To recapitulate, the learned standing counsel contended before us that since a period of more than 4 years has admittedly elapsed from the debt on which the debts were incurred and since the creditors had not taken any steps to recover the amount, there was a cessation of the debts which brought the matter under Section 41(1). Turning back to the judgment of the Supreme Court, we find that the judgment of the Calcutta High Court under appeal was affirmed for two reasons. The first reason was based on a judgment of the Full Bench of the Gujarat High Court in Commissioner of Income-Tax v. Bharat Iron and Steel Industries (1993) 199 ITR 67. It was held by the Supreme Court that the Gujarat High Court was right in saying that in order to attract taxability under Section 41(1) the assessee should have obtained, whether in cash or in any other manner whatsoever, any amount in respect of the loss or expenditure earlier allowed as a deduction. This part of the reasoning, in the light of the amended clause(a) of sub-section (1) of Section 41 may not be relevant after substitution of the said clause by the Finance Act, 1992 with effect from 1st April, 1993, by which the words -some benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 33C(2) of the Industrial Disputes Act, no bar of limitation comes in the way of the employees. 15. The Supreme Court noticed that the above observations of the Bombay High Court were quoted by the Calcutta High Court in the judgment under appeal before them, and observed as under while upholding the judgment of the Calcutta High Court: -This judgment has been quoted by the High Court in the present case and followed. We have no hesitation to say that the reasoning is correct and we agree with the same. To reinforce the conclusion, the Supreme Court also noticed its earlier judgment in Bombay Dyeing and Manufacturing Company Ltd. v. State of Bombay AIR 1958 SC 328 wherein it was held that the expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt. 16. In our opinion, the judgment of the Supreme Court in CIT v. Suga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tence 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 creditors 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 than also, by no stretch of imagination can it be held that is 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 the liability has to be cessation in law, of the debt to be paid by the assessee to the creditor. The debit is recoverable even if the creditors has expired, by the legal heirs of the deceased creditor. Under the circumstances, in the present case, it can hardly be said that the liability had ceased. If the liability had not ceased or the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance is also placed on the decision of Sita Devi Juneja 325 ITR 593(P H). 8.2 It is settled law by number of decisions including the decision of the Hon'ble Apex Court in the case of Sugauli Sugar Works vs CIT 236 ITR 518 (SC) that the cessation of the liability can be done not by the unilateral act but it can certainly be so by the bilateral act. So long as the appellant is recognizing its liability to pay to these creditors, then it cannot be held that these liabilities cease to exist. 8.3 Section 41(1) of the Act is a deeming fiction according to which an amount which does not have any trace of income is treated as income. Therefore, as per the established canons of law, the burden to prove that a particular amount falls within the four corners of section 41(1) is on the shoulder of the Assessing Officer. The first pre-requisite for the applicability of section 41(1) is there must be a trading liability in respect of which the deduction has been claimed and allowed and burden to prove the twin conditions to the effect of the above facts, it goes without saying, is on revenue. There is not even an iota of whisper as to whether the impugned creditors were in respect of tradin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of liability as on 31.03.2018. c. To invoke the provisions of section 41(1) there should be a clear finding that these liabilities had ceased to exist as on 31.03.2018. No such finding has been recorded by the AO. In absence of such a finding, the invocation of provisions of section 41(1) of the Act as deemed income does not arise in the hands of appellant. d. The appellant has not obtained any benefit in respect of these liabilities and has duly acknowledged the debt payable to these parties in the books of accounts. e. Thus, in the present case the AO has not discharged the onus cast on him to establish that liability of appellant towards creditors has ceased in law and some benefit in respect of such liability has been taken by the appellant or so has been remitted to the creditor finally. The AO has not brought any finding to show that the said creditors are fake or incorrect. f. Thus, conditions precedents were not satisfied for invoking section 41(1) of the Act in this case. g. Without prejudice to above, the non-mentioning of the precise provision i.e. Sec 41(1) of the Act while making addition makes the said addition as bad in law in view of the judgment in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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