TMI Blog2017 (6) TMI 1286X X X X Extracts X X X X X X X X Extracts X X X X ..... dry creditors of writing off the liability in its books of account cannot be held to be an afterthought but has to be considered to have been done in good faith. We are of the view that there is no remission or cessation of liability of the sundry creditors appearing in the books of assessee in the impugned assessment year. In view of the aforesaid factual position, we do not consider it necessary to dwell much upon the decisions relied upon by the DR. Thus, in the ultimate analysis, we do not find any infirmity in the order of ld.CIT(A) which is accordingly confirmed. - Decided against revenue. - I.T.A. No.5979/Mum/2012 (Assessment Year : 2009-10) - - - Dated:- 21-6-2017 - Shri Saktijit Dey And Shri Rajesh Kumar, JJ. Appellant by: Shri Rajesh Kumar Yadav Respondent by: Shri Nitesh Joshi ORDER Saktijit Dey, The aforesaid appeal, at the instance, of the department is against the order dated 20.1.2012 of ld.CIT(A)-7, Mumbai for the assessment year 2009-10. 2. The only issue raised by the department is challenging the deletion of addition made by the Assessing Officer of ₹ 7,29,35,535/- under section 41(1) of the Income tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of assessee amounting to ₹ 7,29,35,535/- is to be treated as deemed income of the assessee u/s 41(1) of the Act due to cessation of such liability and accordingly added back to the total income of the assessee. Being aggrieved of such addition, the assessee preferred an appeal before ld.CIT(A). 4. Ld.CIT(A) after considering the submissions of the assessee in the light of relevant case laws cited before him deleted the addition by holding that until the benefit is passed on to the assessee in respect of such liability or the said liability ceased to exist then only the same can become income of the assessee under section 41(1) of the Act,. He observed, only because liabilities are old or continued for long time that cannot be the sole basis to apply the provisions of section 41(1) without satisfying the condition mentioned therein. He observed, when the assessee has not written back the liability in its books of account, the question of applying section 41(1) will not arise. 5. The ld.DR relying upon the reasoning of the AO submitted that in course of assessment proceedings, the assessee had not furnished any evidence to prove the sundry creditors except f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors u/s 41(1) of the Act. In support of his contention, the ld.AR relied upon the following decisions : i) CIT V/s Jain Exports (P) Ltd-(2013) 89 DTR Judgments 265; ii) Principal CIT V/s Matruprasad C Pandey (2015) 377 ITR 363 (Guj); iii) CIT V/s Bhogilal Ramjibhai Atara (2014) 222 Taxman 313 (Guj); iv) CIT V/s Nitin S Garg (2012) 22 Taxmann.com 59 (Guj) 7. We have heard the ld.Counsels appearing for the parties and perused the material on record. As could be seen, the AO himself in the assessment order has stated that the sundry credits amounting to ₹ 7.29 crores originated in assessment years 1997-98 to 2002-03 and continuing unchanged till the impugned assessment year. Therefore, the AO has assessed the liability since it continued in the books of account of the assessee for such a long period without being paid off by the assessee hence, such liability have ceased to exist and to be treated as income of the assessee. He further held that the assessee has failed to prove genuineness of the sundry creditors by furnishing the confirmations or any other documentary evidences. As far as the second allegation of the AO is concerned, we are unabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings the assessee had furnished the necessary details and submitted that part of the liability has already been written off or paid back in the subsequent years. However, the AO without any valid reasons has failed to recognise such facts. In fact, as pointed out by the ld. AR, such repayment or writing off of the liability in subsequent years was prior to the query raised by the AO on 07.12.2011 for invoking the provisions of section 41(1) of the Act. Thus, the Act of the assessee in repaying a part of the sundry creditors of writing off the liability in its books of account cannot be held to be an afterthought but has to be considered to have been done in good faith. Moreover, a part of the liability is due to Government agencies. Unless there is any communication by the Government giving tie-up its right to recovery of the debt there cannot be remission of the liability. The Hon ble Delhi High Court in the case of Jain Exports (P) Ltd (supra) held as under : 21. Although, enforcement of a debt being barred by limitation does not ipso facto lead to the conclusion that there is cessation or remission of liability, in the facts of the present case, it is also no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and is, accordingly, dismissed. 8. In the case of Matruprasad C Pandey (supra), the Hon ble Gujarat High Court has held as under : 6.1 At the outset, it is required to be noted that the Assessing Officer made the addition of ₹ 56,96,645/- invoking Section 41(1) of the Income Tax Act by doubting certain sundry creditors amounting to ₹ 56,96,645/- appearing in the balance sheet of the assessee since past several years. However, it is required to be noted that as such those sundry creditors mentioned in the balance sheet of the assessee were shown as sundry creditors since past several years from the relevant assessment year and at no point of time earlier the Assessing Officer doubted the creditworthiness and/or identity. In any case the addition on the aforesaid ground under Section 41(1) of the Act cannot be made unless and until it is found that there was remission and/or cessation of the liability that too during the previous year, relevant to the assessment year in question, there cannot be any addition invoking the provision of Section 41(1) of the Act. Identical question came to be considered by the Division Bench of this Court in the case of Nitin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) f the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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