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2017 (2) TMI 560 - ITAT KOLKATA

2017 (2) TMI 560 - ITAT KOLKATA - TMI - Additions u/s 41(1) on account of seizure of current liability - whether the liability of assessee has ceased to exist in the books of account - Held that:- The liability has been shown in the balance-sheet for ₹ 26,27,186/-. Merely the notices issued under section 133(6) of the Act to the parties returned as un-served cannot be ground for the addition under section 41(1) of the Act as the liability has not ceased to exist. Therefore, it cannot be co .....

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e liability has not been written off in the books of account of assessee. In our considered view, liability cannot cease to exist until and unless it is written off in the books of account of assessee. In this view of the matter, we hold that the liability which has actually been written off can only be treated as income of assessee u/s 41(1) of the Act - ITA No. 2389/Kol /2013 & IT(SS)A No. 91/Kol /2013 - Dated:- 8-2-2017 - Shri Aby.T Varke, Judicial Member And Shri Waseem Ahmed, Accountant Mem .....

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.2010 for assessment year 2004-05. Smt. Nilima Joshi, Ld. Authorized Representative appeared on behalf of assessee and Shri Sallong Yoden, Ld. Senior Departmental Representative represented on behalf of Revenue. First we take up ITA No. 2389/Kol/2013. 2. Facts in brief are that assessee in the present case is an individual and engaged in business of timber under its proprietary concern M/s R.K. Timber & Co. The assessee for the year under consideration filed her return of income dated 27.10. .....

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appeal is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance of ₹ 36,11,230/- u/s 41(1) of the Act on account of seizure of current liability. In the original assessment, AO in his order vide dated 29.12.206 held that the trading liability of ₹ 45,66,426.21 has ceased to exist. Therefore, AO treated the same as income of assessee under the provision of Sec. 41(1) of the Act. The matter was carried before Ld. CIT(A) who confirmed the orde .....

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377; 45,66,426.29 As per the assessee, liability of ₹ 45,66,425/- was reflecting as on 31.03.2003 in the balance-sheet. A part of such liability was paid in the year under consideration for ₹ 19,39,239.60 and the balance was reflecting in the balancesheet as on 31.03.2004. During the year, the liability of ₹ 1,86,236/- was paid through account payee cheque. Therefore, the liability of ₹ 17,53,003/- (1939239.60 - 1,86,236) at the most can attract the provisions of Sec. 41( .....

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natures on the reverse side of the said cheque. Therefore, the allegation of AO that assessee herself has drawn the money from the bank in the name of such creditors are not tenable. There is also no report from the bank the suggesting that assessee herself has withdrawn the money from the bank. Further, assessee submitted that out of total trading liability of ₹ 45,46,425/- and payment of ₹ 9,55,194.98 was issued through account payee cheque only. Therefore, the disallowance of the .....

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own the payment through bearer cheque failed to furnish the evidence in support her claim that the payment was made to those parties. iv) It is not disputed that the aforesaid amount represents the trading liability and reflecting in balance-sheet since AYs 1996-97. In view of above, AO opined that assessee herself has withdrawn the cash from bank and liability has ceased to exist in assessee s book. Accordingly, AO invoked the provision of Sec. 41(1) of the Act and added the amount of ₹ 4 .....

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e creditors for ₹ 26,27,186/- were reflecting in the balancesheet of the relevant assessment year. Therefore, the same cannot be held as ceased to exist. The payment to these creditors was paid in subsequent years also. After considering the submission of assessee, Ld. CIT(A) granted partly relief to assessee by observing as under:- 8. I have perused the relevant orders and the material on record. I have also considered the rival submissions. It is an admitted fact that sundry creditors of .....

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ditors to the AO. It appears that the assessee 'was not even aware of the current addresses. It is also noted that no confirmation from the creditors was filed by the assessee. When the assessee was confronted with the fact that the notices u/s 133(6) were not served on the creditors at the given addresses, the onus was on the assessee to bring positive material on record to show that the creditors were actually in existence. The assessee has admitted that payments to the extent of ₹ 3 .....

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same day or within 1 or 2 days from the date of the issue. The assessee has also failed to produce supporting evidence to prove that the payments made through the bearer cheques actually reached the creditors. In this factual background, I find merit in the finding of the AO that the assessee had failed to establish that the creditors were actually in existence. The AO was justified in concluding that the liability to the extent of ₹ 36,11,230/- had ceased to exist; and consequently, the .....

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haveer Timbers during the relevant year was made by account payee draft; and further, that payment of ₹ 3,17,902/- to M/s P Bocha and ₹ 4,51,056/- to M/s Raiesh Timber was also made in the subsequent year by account payee draft (copy of the drafts was enclosed). These facts have been acknowledged by the AO at page 7 of his original assessment order. Again, the submission was reiterated in course of the subsequent assessment proceedings and all the relevant details were also produced .....

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14 of the paper- book. It was contended that the relevant material produced before the AO was neither considered nor discussed by him in his assessment order. My learned predecessor vide his letter dated 18-01- 2012 sent copy of the paper- book to the AO and directed him to verify the contentions of the assessee. As no report was received from the AO, a reminder was issued on 21-06-2013. The AO has eventually submitted his remand report on 12-07-2013 wherein he has simply stated that the issue h .....

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nsidered view that section 41(l) cannot be pressed into operation in so far as the sundry creditors of ₹ 9,55,195/- are concerned. In view of the above, the addition u/s 41 (1) is restricted to ₹ 36,11,230/-. The grounds raised in this regard are partly allowed. Ground no 10 and 11 relate to charging of interest u/s 234B and 220(2) which are consequential in nature. Aggrieved by this, assessee has come up in appeal before us on the following grounds. 7. Before us Ld. AR filed paper b .....

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h-Eastern region and it is not possible for all of them to en-cash the same within one or two days from the date of issuance of cheque. Ld. DR was of the view that the liability has ceased to exist and therefore liability to be taxed u/s. 41(1) of the Act and he vehemently relied on the order of Authorities Below. 8. We have heard rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we find that liability was reflecting in the books .....

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ion of Sec. 41(1) of the Act. (1) where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of rem .....

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exist in the books of account. In the instant case, admittedly the trading liability as shown by assessee is very old which has been duly accepted by Revenue in all the earlier years. In the case on hand, the liability has been shown in the balance-sheet for ₹ 26,27,186/-. Merely the notices issued under section 133(6) of the Act to the parties returned as un-served cannot be ground for the addition under section 41(1) of the Act as the liability has not ceased to exist. Therefore, it cann .....

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he liability has not been written off in the books of account of assessee. In our considered view, liability cannot cease to exist until and unless it is written off in the books of account of assessee. In this view of the matter, we hold that the liability which has actually been written off can only be treated as income of assessee u/s 41(1) of the Act. Considering the facts and circumstances of the case, we partly allow assessee s ground. AO is directed accordingly. 9. Next issue raised by as .....

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