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2016 (1) TMI 220 - ITAT CHENNAI

2016 (1) TMI 220 - ITAT CHENNAI - TMI - Addition under sec.41(1) on account of cessation of liability - Held that:- As rightly highlighted by the lower authorities, in the present case, the assessee has drawn balance sheet based on its books of accounts in which the above amounts were being claimed as liabilities due to the various parties as at the end of the accounting year under dispute. However, the assessee failed to establish the genuineness of these liabilities by citing credible evidence .....

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at the creditors in its books of account are genuine. To put it differently, the assessee has failed to discharge its onus cast on it to substantiate its claim. Being so, the lower authorities are justified in holding that such liabilities did not exist at the end of the accounting year under dispute and rightly added the said liabilities which had ceased to exist. Accordingly, the addition sustained by the CIT(A) is confirmed. - Decided against assessee - ITA No. 260/Mds/2015 - Dated:- 16-10-20 .....

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sation of liability. 3. The brief facts of the case are that there was a balance of ₹ 6,86,825/- in the name of Indian Textiles, Bombay, which is carried forward from year to year and the assessee failed to reconcile the same. The Assessing Officer called for details and the assessee filed a letter dated 7.12.2010 stating as under: The credit balance appearing in the account of Indian Textiles, Bombay amounting to ₹ 6,86,825/-, since the assessee is not in a position to get details o .....

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erseas Ltd. in ITA No.774/2009, wherein it was held that the Assessing Officer was not correct in invoking sec.41(1) as the liability is still in the balance-sheet. However, the Commissioner of Income-tax(Appeals), has not agreed with the contention of the assessee and dismissed the appeal of the assessee. Against this, the assessee is in appeal before us. 5. The ld. AR has submitted the following documents : (i). Xerox copy of the letter dated 7.12.2010 filed with the ACIT, Circle-I, Salem. (ii .....

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.3.2007. no doubt, under the Limitation Act, the recovery of the amount by the creditor is three years. After expiry of three years period, the creditor may not be able to enforce the payment through court of law. However, in this case, when the liability continues, the creditor can recover the amount otherwise than a civil suit. In other words, the creditor has every right to recover the money whenever an opportunity comes to it outside the court of law. Moreover, the assessee accepts the liabi .....

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es, this Tribunal is of the considered opinion that addition of ₹ 3,19,901/- is not sustainable. Accordingly the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition of ₹ 3,19,901/- made u/s 41(1) of the Act. 6. On the other hand, the ld. DR relied on the order of the Commissioner of Income-tax(Appeals). 7. We have heard both the parties and perused the material available on record. In this case, in the course of assessment, the A .....

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to this, the assessee went in appeal before the CIT(A) stating that the above amount was not agreed for addition before the AO and also argued before the CIT(A) that it cannot be considered as cessation of liability in the current assessment year 2008-09. 7.1 According to the assessee s Counsel, there was no cessation of liability in the assessment year under consideration and the debts are existing in the books of accounts of the assessee in this assessment year and it cannot be considered as .....

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I.T. Act, if any sum is found credited in the books of account of the assessee maintained in the previous year, then only it could be possible to make addition u/s. 68 of the I.T. Act. In the case of carry forward credit which is from earlier year, provisions of sec. 68 cannot be applied. However, in the case of the assessee, the liability is outstanding in the books of account of the assessee for the assessment year under consideration. As per the recent judgment of the Delhi High Court in the .....

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ical one which does not ground itself in reality. The interpretation of law, particularly fiscal and commercial legislation, is to be based on pragmatic realities. It would be indeed paradoxical, if not illogical, to allow the assessee-debtor to, while avoiding a liability on the basis that it is no longer enforceable in law, yet claim his status as a debtor, so that he was indeed liable for the amount reflected as a liability in accounts. 7.4 Further, Explanation 1 to the provision to sec. 41(1 .....

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re not sacrosanct, cannot assume a stand contrary to his own accounts. Explanation 1, accordingly, could not be interpreted to conclude that there is or could be no remission or cessation of liability unless the same is written off in accounts. The argument that there was no period of limitation in respect of a liability being disputed under the Industrial Disputes Act was also repelled by the hon ble court in Chipsoft Technology (P.) Ltd. (supra) on the basis of the decision by the apex court i .....

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& Cotton Mills Ltd. vs. CIT [1992] 196 ITR 845 (Cal.) to the effect that the non-discharge of a liability over a long period of time, coupled with absence of any dispute and/or of legal recourse, would lead to a firm basis to infer remission or cessation of liability. The said decision by the hon ble court stands followed and adopted by the tribunal, as in ITO vs. Shailesh D. Shah (in and Yusuf R. Tanwar vs. ITO (in I.T. Act No.8408/Mum/2010 dated 28.02.2013). Accordingly, an omission to pay .....

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e provisions of sec. 41(1) could be applied rather than sec. 68 of the I.T. Act. Section 68 of the Act is not applicable to the cash credits recorded in the books of account of the assessee in the earlier previous year not relevant to the assessment year under consideration. When the cash credits pertain to the earlier previous year, no addition can be made u/s. 68 of the I.T. Act in this assessment year. In this background, the applicability of sec. 41(1) is to be considered. 7.6 As rightly hig .....

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