TMI Blog2019 (3) TMI 467X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the condition laid down u/s 41(1) are fulfilled or not. Remission or cessation of liability is also acceptable by unilateral act of writing off such liability in its account by the person showing such liability. Therefore, before applying the provisions of section 41(1), it is necessary to establish on record that the assessee had obtained a benefit either in cash or in any form in respect of such liability in the relevant previous year. Thus, when in AO’s own admission liability continued from past so many years, then what prompted the AO to conclude that the assessee has obtained benefit in respect of such liability in the impugned assessment year must be clearly brought on record. In the absence of any material to establish that the assessee had obtained any benefit in respect of the liability in the impugned assessment year, so merely on the basis of surmises and assumptions it cannot be said that there is remission/cessation of liability in the impugned assessment year. Addition u/s 41 to be deleted - Decided in favour of assessee. - I.T.A. No. 1417/Mum/2014 - - - Dated:- 1-3-2019 - Sh. Sandeep Gosain, JM And Sh. G. Manjunatha, AM For the Appellant : Sh. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re Ld. CIT(A) and submitted that the assessee had claimed outstanding expenses of ₹ 4,26,66,276/- and in this respect, assessee had shown outstanding expenses payable in its balance sheet. It was further submitted that the AO had wrongly treated the same as income u/s 41 of the Act in absence of party details and confirmations. 5. Ld. AR further submitted that the AO had completely ignored the specific reply vide letter dated 18.12.09, wherein it was pleaded that the outstanding amount was payable to various parties and since the assessee could not make the payment as there was insufficient revenue generation and the company had been incurring losses for the past several years. 6. It was further submitted that assessee had specifically mentioned in its reply that they are in the process of generating revenue which will enable them to clear the outstanding sums. But the said reply was not accepted by the AO. Ld. AR further submitted that the liability of making payment of expenses is continued in the books of account of the assessee for a long period and the assessee had not any benefit in respect of such liability in the year under consideration, therefore the same c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 unable to accept the same. When the AO accepts that the liabilities were created in assessment years 1997-98 to 2002-03, the genuineness of such transactions have to be examined in those assessment years and not in assessment year under consideration. The sundry creditors shown by the assessee in the year of origin having been accepted by the department, the genuineness of such transactions cannot be called into question in the impugned assessment year. As far as the allegation of the AO that liability on account of sundry creditors has ceased to exist in the assessment year in terms of section 41(1), on plain reading of the provisions of section 41(1) of the Act, we are of the view that before treating the amount outstanding towards sundry creditors as deemed income of the assessee u/s 41(1) on account of remission/cessation of liability, the AO is duty bound to examine whether the condition laid down u/s 41(1) are fulfilled or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Coordinate bench of ITAT, we also draw strength from the decision of Hon ble Delhi High Court in the case of CIT vrs. Jain Exports (P) Ltd (2013 89 DTR judgments 265), wherein it was 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 not possible to conclude that the debt has become unenforceable. It is well settled that reflecting an amount as outstanding in the balance sheet by a company amounts to the company acknowledging the debt for the purposes of Section 18 of the Limitation Act, 1963 and, thus, the claim by M/s Elephanta Oil Vanaspati Ltd. can also not be considered as time barred as the period of limitation would stand extended. Even, otherwise, it cannot be stated that M/s Elephanta Oil Vanaspati Ltd. would be unable to claim a set-off on account of the amount reflected as payable to it by the assessee. Admittedly, winding up proceedings against M/s Elephanta Oil Vanaspati Ltd. are pending and there is no certainty that any claim that may be made by the assessee with regard to the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 S. Garg (supra) and in the similar set of facts and circumstances of the case when the addition was made invoking Section 41(1) of the Act by doubting the creditworthiness and/or identity of the sundry creditors mentioned in the balance sheet and it was found that those sundry creditors were very old and no interest had been paid on those loans, the Division Bench has deleted such addition made under Section 41(1) of the Act. In paragraph 15 the Division Bench has observed and held as under; 15. In the case before us, it is not been established that the assessee has written off the outstanding liabilities in the books of account. The Appellate Tribunal is justified in taking the view that as as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , even if such facts were established through biparte 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 the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed. In the present case there was no remission and/or cessation of the liability during the previous year relevant to the assessment year under consideration. As such, there is no remission and/or cessation of the liability during the year under consideration subject to the conditions contained in the statute being fulfilled. In the present case, both the aforesaid elements are missing. 9. Thus, applying the ratio laid down in the aforesaid decisions to the facts of the present case, we are of the view that there is no remission or cessation of liability of the sundry creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X
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