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2019 (3) TMI 901 - MADRAS HIGH COURTAddition u/s 41(1) - cessation of liability of Sundry Creditors of timber business which was closed more than 10 years back- non production of written confirmation from such trade creditors - concurrent finding of facts by all authority below - 'common sense principles' application - HELD THAT:- The crucial words in the said provisions are the 'remission or cessation' of such trading liability which has been claimed as an allowance or deduction taken by the Assessee in a previous year and if such liability is remitted by the creditor or had ceased to exist, then in the year of remission or cessation, the said trading liability can be brought to tax as profit chargeable to tax under the said provision. Obviously, the word "cessation" in the said provision means cessation de facto and de jure. The cessation of liability should cease to exist in the eye of law. While the remission of liability can be by way of conscious act on the part of the creditor, the cessation of such liability can be inferred on the basis of facts and circumstances surrounding such trading liability. After Explanation was added on Section 41(1), it can be even by the unilateral act on the part of Assessee viz., by writing back or writing off such liability amounting to cessation of liability in his hands attracting Section 41(1) of the Act and attracting tax thereon. Once the Assessee was called upon to prove the credit entries with regard to the Sundry Creditors of its erstwhile business, the burden shifted upon him to establish the current existence of those creditors and their debts due from Assessee and that there was a live link between the creditors and the outstanding debts and therefore, in the absence of Assessee discharging that burden shifted upon him, the case of cessation of liability made out by the Revenue against him so as to bring back those dead debts of the Assessee to tax under Section 41(1) of the Act, was justified. Assessment Year 2003-04 in question has passed by for last 15-16 years by now. When we took up the cases for hearing, we asked the learned counsel for the Assessee that even in past 15-16 years, if any creditor has raised any claim against the Assessee with regard to these credit entries, he may produce the evidence of the same. But we drew a blank from the learned counsel for the Assessee, despite the grant of an opportunity in this regard. Thus, it is also more fortified now that the liability to pay for these Sundry Creditors had ceased long back and the authorities under the Act, up to the Tribunal, were justified in applying Section 41(1) and bring to tax the liability to pay back their old debts, as having ceased in law and in fact. A reasonable time line of period has to be drawn while considering the words “cessation of trading liability” as employed in Section 41(1). The lapse of ten years of time, coupled with the fact that there was a change of business altogether by the Assessee, in our opinion, absolutely justified the Assessing Authority to draw an adverse inference against the Assessee about the cessation of liability, especially when the Assessee failed to produce the written confirmation from such trade creditors of its erstwhile timber business, despite grant of opportunity to the Assessee. The debts had not only become time barred long ago, but, in fact also, no creditor made any claim for recovery from the Assessee during any of these years even up to now. We find considerable support in the judgments relied upon by the Revenue, especially the 'common sense principles' propounded by Lord Atkinsons, as applied by the Supreme Court in the case of T.V.Sundaram Iyengar [1996 (9) TMI 1 - SUPREME COURT] and also Gujarat High Court in the case of Gujtron Electronics, whereas we are unable to draw any contra support on the basis of ratio of the judgments relied upon by the learned counsel for the Assessee, albeit without any quarrel on the principles laid down therein, especially when it remains a mixed finding of fact and law as to when a trading liability ceases de facto and de jure and therefore, finally it should depend upon the facts and circumstances of each case as to whether such trading liability could be said to have ceased in law or not so as to apply Section 41(1) of the Act. In the present case, we are fully satisfied that the authorities under the Act, all the three authorities, were perfectly justified in drawing such an inference against the Assessee and holding that the trading credits of erstwhile timber business of the Assessee were liable to be taxed as profits of the business under Section 41(1) in the Assessment Year 2003-04 in question. Accordingly, the appeal of the Assessee is dismissed
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