TMI Blog2010 (6) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... R D E R PER BHAVNESH SAINI, JM: All the appeals by the assessee are directed against different orders of the learned CIT (A)-II, Ahmedabad dated 01-10-2009 for the above assessment years. 2. In ITA No.172/Ahd/2009 for assessment year 2006-07, the learned Counsel for the assessee did not press Ground Nos. 4, 5 and 6, these grounds are accordingly dismissed being not pressed. 3. In all the appeals the assessee challenged the orders of the learned CIT(A) in confirming the additions u/s 41(1)(a) of the IT Act on old and outstanding liabilities of Rs.38,17,601/-, Rs.1,60,090/-, Rs.40,032/- and Rs.1,32,118/- respectively observing that the said liability had ceased to exist irrespective of the fact that the assessee had not written it off in its books of account. It is further stated in the grounds of appeal that the learned CIT(A) erred in not considering that in the regular assessment for the assessment year 2002-03 and 2005-06, no addition was made in respect of these liabilities. 4. We have heard the learned representatives of both the parties, perused the findings of the authorities below and the materials available on record. 5. Briefly, the facts of the case are th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year and cannot be assessed as income. Here the issue is application of section 41(1) for cessation of liabilities which is different. Further, for the amount to be paid to Royal Engg. Works, the party has not confirmed that this was the receipt of amount relating to A. Y.2001-02. Hence, the additions are confirmed and this ground is rejected . 6. The learned Counsel for the assessee reiterated the submissions made before the authorities below. He has filed copies of the balance sheets of assessment years 2000-01 to 2007-08 in the paper book and demonstrated that on the same issue there was outstanding liability of Rs. 1,29,83,564/- in assessment year 2000-01 (PB -2), which was reduced in the subsequent assessment years by making the payments to the parties. The list of the parties is filed at page 1 of the paper book and separate chart is also filed. The learned Counsel for the assessee, therefore, demonstrated that since it was old liability in earlier years and outstanding balances/liabilities have been carried forward in assessment years under appeal, therefore, no addition u/s 41(1) of the IT Act can be made. He has submitted that it is admitted fact that all the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO in respect of these parties whose amounts were shown as liabilities in the balance sheet. Copies of the accounts of the parties are filed in the paper book. The learned Counsel for the assessee further submitted that ultimately the income of the assessee is computed by the learned CIT(A) by applying the provisions of section 44AE of the IT Act. Therefore, no addition u/s 14(1) of the IT Act could be made. He has relied upon the decision in the case of Tirunelveli Motor Bus Service Co. P. Ltd. Vs CIT 78 ITR 55. He has further submitted that once the income is computed u/s 44 AE of the IT Act, provisions of section 41(1) of the IT Act would not apply. 7. On the other hand, the learned DR relied upon the orders of the authorities below. The learned DR submitted that the expenses were claimed by the assessee in respect of outstanding liabilities in the earlier years and deductions have been allowed. The learned DR submitted that liabilities have however, still existing in the books of the assessee being sundry creditors. The learned DR submitted that the assessee has failed to furnish addresses of the parties, their Permanent Account Numbers and confirmations of outstanding balanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned DR submitted that there is no movement in any of the years, therefore, by applying the principle of preponderance of probabilities which is applicable to the IT Act, it could be reasonably inferred that the assessee has no intention to make the payment against the outstanding liabilities. The learned DR submitted that the assessee has not made any offer to pay the parties. Similarly, no effort is made by the parties whose outstanding balances are reflected in the balance sheet of the assessee to make recovery against the assessee. Therefore, these are squared up liabilities and should be treated as liabilities against unknown parties for which no evidence has been filed. Therefore, provisions of section 41(1) of the IT Act have been rightly applied in the matter. The learned DR submitted that since the assessee claimed deduction, therefore, onus is upon the assessee to prove that deduction is admissible for the purpose of the business. The learned DR in his concluding submissions submitted that the assessee has no liabilities to make the payment as on date. The assessee has no evidence whatsoever to back up its claim and he failed to produce the creditors before the AO for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable . 8.2 Hon ble Punjab and Haryana High Court in the case of Smt. Sita Devi Juneja (supra) held as under: It is the conceded position that in the assessee s balance sheet the aforesaid liabilities have been shown, which are payable to the sundry creditors. Such liabilities, shown in the balance sheet, indicate the acknowledgement of the debts payable by the assessee. Merely because, such liability is outstanding for the last six years, it cannot be presumed that the said liabilities have ceased to exist. It is also conceded positin that there is no bilateral act of the assessee and the creditors, which indicates that the said liabilities have ceased to exist. In absence of any bilateral act, the said liabilities could not have been treated to have ceased . 8.3 ITAT Ahmedabad Bench in the case of N. R. Chauhan (supra) held as under: The ld. Counsel for the assessee specifically drawn our attention to the account copies and stated that these are outstanding as on date and this amount are not written off in the books of account. Accordingly, the same cannot be added u/s. 41(1) of the Act as the liability of outstanding and the parties are in existence. We are in full a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of the assessee during the year but it was a case in which the assessee had invested the capital in the business and this amount was shown as a closing capital as on March 31, 1992 and on April 1, 1992, it was an opening balance. Therefore the Tribunal held that what was already credited in the books of account ending on March 31, 1992, for financial year 1991-92 relevant to assessment year 1992-93 could not be unexplained cash credit or investment in the books of account maintained for the financial year 1992-93, the accounting period for which ended on March 31, 1993. On appeal: Held, dismissing the appeal, that the carried forward amount of the previous year did not become an investment or cash credit generated during the relevant year 1993-94. This alone was sufficient to sustain the order of the Tribunal in deleting the amount of R.1,55,316 from the assessment for the assessment year 1993-94 . 8.6 ITAT Mumbai Bench in the case of ACIT Vs VIP Industries (supra) held as under: Section 41(1) is attracted when there is cessation for remission of a trading liability. Simply because a period of three years has expired and the creditor cannot lawfully enforce his claim, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tails filed in the paper book. It would show that these are the current liabilities of the assessee in the assessment year 2003-04. Similarly, in assessment year 2006-07 the AO made addition of Rs.1,32,118/- in respect of amount of Rs.45,409/- and Rs.86,709/- in respect of Mahalaxmi Roadways and Nihal Roadways. These were the credit balances in the assessment year under appeal which were carried forward in the preceding assessment year 2005-06 and in that year there were debit balances against these parties as per the details submitted by the learned Counsel for the assessee. These facts would show that the authorities below have not applied their mind to the facts of the case that these are not the fit cases for invoking the provisions of section 41(1) of the IT Act in the matter as done by the AO. 9.1 Considering the facts of the case as noted above it is clear that the assessee had continued to show the admitted amounts as liabilities in its balance sheet. The liabilities reflected in the balance sheet cannot be treated as cessation of liabilities. Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have ceased to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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