TMI Blog2011 (8) TMI 1232X X X X Extracts X X X X X X X X Extracts X X X X ..... moneys standing to their credit, the debts were very old and were barred by limitation. Since the creditors were not coming forward to demand their dues, the AO was of the view that provisions of section 41 (1) of the IT Act would attract in this case. It was found that credits were of three types. Some were already added back in assessment year 2003-04, credit balance of sister concerns which were still continuing as on 31-03-2005 and sundry creditors disallowed in assessment year 2003-04. The AO, therefore, made additions in respect of parties whose confirmations were not forthcoming. The learned CIT(A) found that credits are very old and had the credits been genuine the assessee could have filed the confirmations from the creditors. The learned CIT(A) also noted that in spite of the credits being so old, none of the creditors have come forward till date to claim the amount nor the assessee possesses any correspondence in this regard. Further, no law suits are pending in respect of these credits. It was also noted in the appellate order that at the assessment proceedings the assessee furnished confirmation of the creditors from the sister concern, therefore, no addition is made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 8.1 Hon ble Madras High Court in the case of Tamilnadu Warehousing Corporation (supra) held as under: The assessee filed its return for the assessment year 1989-90 and assessment eras completed under section 143(3) of the Income-tax Act, 1961. The assessee had surrendered the Group Gratuity Scheme with LIC and received a sum of ₹ 8,22,925/- during the year relevant to the assessment year 1989-90. As there was no proper enquiry made by the Assessing Officer in the assessment completed on January 21,1992, the Commissioner passed order under section 263 of the Act and set aside the assessment with a direction to the Assessing Officer to assess the said amount under section 41(1) of the Act for the assessment year 1989-90. The Tribunal set aide the order of the Commissioner. On appeal to the High Court: Held, that the assessee had continued to show the admitted amount of ₹ 8,22,925 as liability in the balance-sheet. The undisputed fact was that it was a liability reflected in the balance-sheet. Once it was shown as liability by the assessee, the Commissioner was wrong in holding that it was assessable under section 41(1) of the Act. Unless and un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under section 68. It can be considered only under section 28, i.e. it can be considered for disallowance while examining the claim of expenses or outgoings against revenue receipts. Current year s genuine trading liabilities, waved/remitted or ceased to exist in the current year itself will not form part of trading/manufacturing or P/L account except a note appended to them as disclosure of information. 21.10 Even in a case where a liability ceased to exist due to limitation i.e. the claim of the creditor is barred by limitation under Limitation Act of 1963 but if the liability subsist or has not been written off by the assessee, or the assessee does not absolve himself from the liability, though not legally enforceable, it cannot be taxed under section 41(1) . 8.5 The Hon ble Rajasthan High Court in the case of CIT VS Prameshwar Bohra (supra) has held as under: The assessee on the first day of the previous year relevant to the assessment year 1993-94 i.e. on April 1, 1992, credited an amount of investment/cash credit of ₹ 1,55,316 in his books of account. The Assessing Officer added this amount in the income of the assessee as unexplained investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 2000-01 were in a sum of ₹ 1,29,83,564/-. The particulars of those parties against whom the liabilities were shown is mentioned at PB-3, 4 and 5. The same parties continued in the assessment year 2001-02 under appeal but the balances of some of the parties have reduced which would show that part payments have been made to them. The above facts would show that the liabilities shown in the balance sheet in the assessment year under appeal i.e. 2001-02 which are opening balances which are carried forward fro the preceding assessment year. The liabilities have been shown in the balance sheet of the assessee which would show that the assessee acknowledged the liabilities of the outstanding amounts. The balances were thus carried forward from earlier years. In assessment year 2002-03, the AO made addition of ₹ 1,60,590/- in respect of Royal Engineering Work whose balance was also outstanding in the assessment year 2000-01 and 2001-02. It would, therefore, show that similar addition is made in the assessment year 2002-03 which would amount to double addition in respect of the same party. In assessment year 2003-04 the AO made addition of ₹ 40,032/- in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 41 (1) (a) of the IT Act have been wrongly applied in the matter. We may also note here that the learned Counsel for the assessee has filed details of particulars of payments of liabilities in subsequent years which are in the nature of adjustment through journal entry, cash payment and some payments by banking channel. The learned DR objected to the filing of such details at this stage and further submitted that the payment by cash and journal entry would not prove genuineness of the payments. We do not agree with the submission of the learned DR because those details were called for by the Bench during the course of hearing and even payment by cheques and/or journal entry would not absolve the AO for making out a case u/s 41 (1) (a) of the IT Act. The last contention of the learned Counsel for the assessee was that since income of the assessee is computed u/s 44AE of the IT Act, therefore, provisions of section 41(1) of the IT Act would not apply. However, considering the finding given above that provisions of section 41 (1) would not apply to the facts and circumstances of the case; there is no need to give further findings on this issue. 10. On consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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