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2016 (11) TMI 1047 - ITAT MUMBAI

2016 (11) TMI 1047 - ITAT MUMBAI - TMI - Addition u/s 41 - cessation of liability - Held that:- When the Assessing Officer was of the view that there was cessation of liability in the case on hand, it was incumbent upon him to cause necessary enquiries to be made in order to bring on record material evidence to establish the requirement for invoking the provisions of section 41(1) of the Act. The very fact that the assessee reflects these amounts as creditors in his Balance Sheet as on 31/3/2007 .....

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rary. In the case on hand, the creditors aggregating to ₹ 33,44,827/- continue to be reflected in the assessee’s Balance Sheet as on 31/3/2007. We are of the opinion that the Assessing Officer has not brought on record any material evidence to establish that there was cessation of liability in respect of the outstanding creditors balances represented in the assessee’s Balance Sheet as on 31/3/2007, and concur with the finding of the Ld. CIT(A) that the addition under section 41(1) of the A .....

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ale of various educational products to schools through his proprietary concern M/s.Brainwave Interactive & Brainwave Visualizers and production of films in another proprietary concern M/s. Brainwave Production. The assessee filed his return of income for assessment year 2008-09 on 23/3/2009 declaring an income of ₹ 5,53,180/-. The return was processed under section 143(1) of the Income Tax Act, 1961( in short the Act ) and the case was subsequently taken up for scrutiny. The assessment .....

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ssment year 2008-09, the assessee preferred an appeal before the CIT(Appeals)-31, Mumbai challenging the aforesaid three additions list at para 2.1 of this order(supra). The ld. CIT(Appeals) disposed of the assessee s appeal vide the impugned order dated 31/1/2011 allowing the assessee partial relief. 3.1 The Revenue being aggrieved by the order of the CIT(Appeals)-31, Mumbai dated 31/1/2011 for assessment year 2008-09 has preferred this appeal raising the following grounds:- I The learned.CIT(A .....

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rcumstances of the case has not appreciated that the assessee shifted his business from Indore to Mumbai, the creditors are admittedly based in Indore. Even in most cases liability ., is 7-8 year old and its recovery by legal means stands barred by limitation IV The appellant prays that the order of the CIT(Appeals) on the above grounds be set aside and that of the AO be restored. IV The appellant craves leave to amend or alter any ground or to submit additional new ground which may be necessary .....

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l Representative was present and ready to argue for Revenue. In these circumstances, we are of the view that the assessee is not interested in seriously pursuing this appeal and we, therefore, proceed to dispose off this appeal with the assistance of the Ld. Departmental Representative and the material on record. 3.3 From a perusal of the grounds raised, it appears to us that the only issue for consideration and adjudication before us is with respect to the issue of the deletion by the CIT(Appea .....

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as not filed. It is further contended that since these creditors was admittedly in most cases 7-8 years old, its recovery by legal means stands barred by limitation. The Ld. Departmental Representative was heard in support of the grounds raised and prayed that in the light of the above submissions, the finding of the CIT(Appeals) be reversed and the order of the Assessing Officer be restored. 3.4.1 We have heard the Ld. Departmental Representative in support of the grounds raised on the issue of .....

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the assessee submitted that the same are old creditors pertaining to the period when he carried out business in Indore and have been carried forward for the last 7-8 years and not paid so far due to certain dispute with the creditors. The Assessing Officer, however, brushing aside the averments of the assessee considered the entire creditors balance outstanding aggregating to ₹ 33,44,827/- as income of the assessee by invoking the provisions of section 41(1) of the Act as cessation of lia .....

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to certain disputes with the creditors. According to the assessee, the aforesaid liability of the assessee is liable to make the payment thereof as and when the disputes are resolved and the amount is crystallized, and therefore, there is no cessation of liability as held by the Assessing Officer to warrant invocation of the provisions of section 41(1) of the Act in the year under consideration and prayed that the entire addition be deleted. The Ld. CIT(A) after considering the material on reco .....

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reditors have written off the debts appearing in their respective account. In that view of the matter, the Ld. CIT(A) went on to hold that the Assessing Officer was not justified in unilaterally deciding that the liabilities existing in the Balance Sheet of the assessee to the extent of ₹ 33,44,827/- had ceased to exist within the meaning of section 41(1) of the Act and directed that the entire addition on this account be deleted. 3.4.3 According to the averments of the assessee before the .....

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ssee in their books of account. The fact that the creditors outstanding balances were not written back in the assessee s books of account, but rather stood reflected in the assessee s Balance Sheet as on 31/3/2007 clearly establishes that is no cessation of liability. On the contrary, it is an acknowledgement by the assessee of existing debts it owes to its creditors. We observe that no material has been brought on record by the Assessing Officer to show that there was remission or cessation of .....

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