TMI Blog2013 (7) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... ere transferred to the existing partners' account in order to show the sufficiency of the capital invested by the existing partners so that the loan facility from the banks etc., could be availed - The transfer of amount from the account of old partners and loan account to the existing partners account amounts to cessation of liability – Held that:- By no stretch of imagination, it can be said that there has been cessation of liability as held in the case of C.I.T. vs. Auto Kashyap India Pvt. Ltd. [2010 (4) TMI 53 - DELHI HIGH COURT] - The transfer of amount from one account to another which ultimately remained with the firm is not a cessation of liability - The existing partners were personally liable to the old partners as well as to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard outstanding balances of the old partners were transferred to the existing partners' account in order to show the sufficiency of the capital invested by the existing partners so that the loan facility from the banks etc., could be availed. With this background, the amounts of the old partners' account and the loan account were transferred to the existing partners' account. 3.2 During the course of assessment proceedings, the Assessing Officer required the assessee to show cause as to why the amount of Rs. 17,59,866/- may not be treated as deemed income in view of the provision of sub-section (1) of Section 41 of the Act and as also in view of the judgement of the Hon'ble Supreme Court in the case of C.I.T. vs. T.V. Sundaram Iyengar S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I therefore, reject all the plea of the assessee and, the amount of Rs. 17,58,866/- (capital of Rs. 17,59,866/-) is hereby added to the income of the assessee." 4. Upon assessee's appeal Ld. Commissioner of Income Tax (A) has held as under:- "I have considered the submissions of the Ld. Authorised Representative as well as the assessment order. The Assessing Officer basically has made the addition on the ground that the transfer of amount from the account of old partners account/ loan accounts amounts to cessation of liability and has tried to justify the addition on two counts - one by invoking the provision of Section 41(1) and secondly based on the judgement of the Supreme Court in the case of T.V. Sundaram Iyengar (Supra). The tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as the Jurisdictional High Court in the case of J.K. Synthetics Ltd. vs. O.S. Bajpai, ITO (Supra) are not existing. Similarly, the judgement of Supreme Court in the case of C.I.T. vs. T.V. Sundaram Iyengar (Supra) is also not applicable to the facts of the present case. In the case of T.V. Sundaram Iyengar, the said assessee had received the business advances from the customers which were credited to the profit and loss account, where in the case of the assessee the amounts transferred to the accounts of the existing partners were not received as trading advances but were not on capital field. Moreover, in the case of T.V. Sundaram, the said assessee had treated such advances as cessation of liability on account of long term period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were personally liable to the old partners as well as to the creditors. The Scheme of entries made by the assessee has only clarified this point and it cannot be said that there is a cessation of liability. 6.1 Furthermore, we find that for invoking the provision of section 41((1) certain pre-conditions are required to be fulfilled, such conditions are as under:- i) In earlier assessment year an allowance or deduction has been made in respect of loss, expenditure or trading liability incurred by the assessee and ii) The assessee must have subsequently - (A) obtain any amount in respect of such loss or expenditure, or (B) obtain any benefit in respect of such trading liability way of remission or cessation thereof. 6.2 We find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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