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Madan Mohla Versus Income-Tax Officer

2016 (11) TMI 944 - ITAT MUMBAI

Addition under section 41(1) - liability of the assessee on account of amount payable to sundry creditors ceased to exist - Held that:- The expiry of the period of limitation prescribed under the Limitation Act would not extinguish the debt but it would only prevent the creditors from enforcing the debt. It has further been clearly held that obtaining by the assessee a benefit by virtue of remission or cessation is the sine qua non for the application of section 41(1). Similar view has been take .....

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ber) And Ashwani Taneja (Accountant Member) For the Appellant : Sanjiv M. Shah, Authorised Representative For the Respondent : Rajguru, Departmental Representative ORDER Ashwani Taneja (Accountant Member) 1. This appeal has been filed by the assessee against the order of the learned Commissioner of Income- tax (Appeals), Mumbai-3 (in short "CIT(A)"), dated July 22, 2011, passed against the assessment order under section 143(3) of the Income-tax Act, 1961, dated December 24, 2010, for t .....

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of hearing, arguments were made by Shri Sanjiv M. Shah, authorised representative (AR) on behalf of the assessee and by Shri Rajguru, Departmental representative (DR) on behalf of the Revenue. 3. The solitary issue raised in this appeal is with regard to the addition of ₹ 17,71,210 made under section 41(1) on the ground that liability of the assessee on account of amount payable to sundry creditors ceased to exist. 3.1. During the course of assessment proceedings, it was found that the ba .....

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the learned Commissioner of Income-tax (Appeals) wherein it was contended that merely because the outstanding was for more than three years, it cannot be concluded that the assessee is not liable to pay these amounts. It was further submitted that there were no basis with the Assessing Officer to presume that these liabilities ceased to exist. But the learned Commissioner of Income-tax (Appeals) was not convinced with the submissions of the assessee and, therefore, he confirmed the order of the .....

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ued to the assessee during the year under consideration. The reliance has been placed on the following cases in support of the proposition that no addition could have been made under section 41(1), unless the liabilities actually ceased to exist and that too during the impugned year : 1. CIT v. Sugauli Sugar Works (P) Ltd. [1999] 236 ITR 518 (SC) ; 2. CIT v. S. I. Group India Ltd. [2015] 379 ITR 326 (SC) ; 3. Chief CIT v. Kesaria Tea Co. Ltd. [2002] 254 ITR 434 (SC) ; 4. CIT v. Jain Exports P. L .....

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be shown by the assessee in its balance-sheet. It means that the assessee continue to acknowledge these liabilities in its books of account. Under these circumstances, even if more than three years have passed, then at the best these liabilities may be termed as not enforceable in the court of law but that alone would not finally exonerate the assessee from these liabilities. The assessee is carrying in the business and for its respectful and peaceful existence in the business as well as in the .....

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in the year under consideration. It is further noted by us that for the application of the provisions of section 41(1), an assessee must get some benefit in real terms by way of remission or cessation of the liabilities. Our view is supported by many judgments which have been relied upon by the learned counsel. We find it appropriate to reproduce the relevant observation of the honourable Supreme Court form its judgment rendered in the case of CIT v. Sugauli Sugar Works (P) Ltd. [1999] 236 ITR 5 .....

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