TMI Blog2013 (3) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of notices u/s. 133(6) and given detailed reasons in the Assessment Order for holding that liabilities in question had ceased to exist. 3. We have heard rival submissions and gone through facts and circumstances of the case. Brief facts leading to the above issue are that during the course of assessment proceedings AO noticed that there is credit balance i.e. sundry creditors to the extent of ₹ 24,69,889/- relating to the following parties: i) M/s. Ganesh Trading Company, ii) M/s. Grand Steel Alloy, iii) M/s. Sial Prasad Vindhyachal Prasad, iv) M/s. Vivek Steel Enterprises, v) M/s. Bansal Udyog and vi) M/s. Mohit Steel. The AO mentiontioned that in the case of M/s. Ganesh Trading Company it was observed by the AO that the assessee has shown the credit balance in the name of said party at ₹ 1,37,199/, whereas the said party has confirmed the balance of ₹ 10,000/-. In the cases of M/s. Grand Steel Alloy, M/s. Sital Pd. Bindhyachal Pd. and Vivek Steel Enterprises the notices u/s. 133(6) were returned unserved . In the cases of M/s. Bansal Udyog and M/s. Mohit Steel, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t having the business transactions with the such creditors from the last several years or that the notices u/s.133(6) were returned un-served or the appellant was not having the current addresses of the said creditors, it does not mean that the liability on account of said creditors has ceased to exist in the year under appeal. The appellant has also argued that the balances shown in the name of creditors were old balances and since last several years the opening and closing balances in the name of said creditors were same. Therefore, it cannot be said that in the year under appeal the liability of the appellant with regard to these creditors have been ceased. It was also argued before me that the AO has not brought anything on record to prove that in the year under consideration the appellant has obtained the value of any benefit out of the sundry credit balances so that the credit balances may be deemed to be the profit and gains of the business. Further the appellant has not transferred the credit balances to its profit and loss account, hence, same cannot be brought to tax by invoking provisions of section 41(1) of the I.T. Act. On careful consideration of the facts and in law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed under the Limitation Act could not be extinguished the debt but it would only prevent the creditor from enforcing the debt, has been well-settled. If that principle is applied, it is clear that mere entry in the books of accounts of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the section. 7. In the case of UP Steels Ltd. Vs CIT, 303 ITR 318 (All), the amount of ₹ 9,38,575/- was shifted in the profit and loss account of the assessee from the debit to the credit side. Upon this the AO treated the same to be the income of the assessee u/s.41(1) of the Act, on the ground that the liability had ceased or had been remitted. This was upheld by the Tribunal. On a reference, it was held by the Hon ble Allahabad High court that no finding was recorded in any of the orders to up to the Tribunal that there was anything else other than alteration in the profit and loss account which could lead to this inference about cessation or remission of the liability without any possibility o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor had not expressed about giving up of a claim of debt or it has also not been communicated that the impugned debt was waived by the said creditor. Therefore, the existence of the debt could not be denied. (11) In the case of CIT, Faridabad vs Smt Sita Devi Juneja, 2010-TMT- 35250 - Punjab Haryana High Court, an addition was made on account of cessation of liability. The liability was six years old and on enquiry conducted by the AO, creditors were untraceable and also the assessee failed to produce the creditors, their income tax particulars and even present address of the creditor despite opportunity being afforded to the assessee. The AO made the addition u/s.41(1) of the Act. The CIT(A) and ITAT deleted the additions. The AO in his assessment order has observed that though copies of accounts of sundry creditor appearing in the books of assessee signed by the concerned person were filed by the assessee, the assessee herself admitted during the assessment proceedings that she had lost contact with the creditors and their latest addresses are being located and further, the addresses of creditors and their PAN were also not given during the assessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter was restored back to the file of the AO for further and proper examination by directing and observing as under: In our considered opinion the issue needs further and proper examination so as to ascertain as to whether the liabi1ties shown by the assessee as payable at the end of the year are real or in fact are payable by the assessee to the persons concerned as claimed by the assessee. We, therefore, set aside the issue to the file of the AO for fresh adjudication after ascertaining and examining all the relevant facts and circumstances of the case and after providing reasonable opportunity of being heard to the assessee, who shall be at liberty to produce all evidences, materials and accounts before the AO to establish that no liability had ceased in favour of the assessee so as to attract the provision of section 41(1) of the Act. The AO shall take into account the principles laid down by the various courts with regard to the question as to when and how the cessation of liability has occurred. The AO shall pass a well reasoned and speaking order in this respect. On reading the aforesaid Tribunals order dated 14-11-2002, it is seen that the AO was direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. When the liability to pay has not come to an end or has not been ceased, section 41(1) is not attracted. It is also not the case of the department that the assessee has written back outstanding the amount in its accounts. The assessee has been showing continuously this Iiabiiity in its accounts, and the assessee has ultimately discharged the same in the year 1998-99. If the AO was of the view that the liability on account of labour charges were created falsely by the assessee in the F.Y. 1 995-96, the AO could have examined the matter in that year according to the provisions of law. But no case has been made out by the AO to make this addition in the year under consideration as no evidences or materials have brought on record by the AO to prove and establish that the liability to pay the outstanding labour charges pertaining to the F.Y. 1995-96 has come to an end in this year under consideration and the assessee has accordingly derived benefit in respect of such trading liability by way of remission or cessation thereof. The AO has not decided this issue in its right and correct perspective while invoking the provision of section 41(1) of the Act. The reasons given by the AO doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound of cessation of liability u/s.41(1) of the I.T. Act. (14) In the present case, the appellant has continued to show the amount as admitted liability in the balance sheet. The AO has brought no material on record to show that there is any cessation of liability. Also, there is no material on record to show that the liabilities no longer exist. If the AO is of the opinion that the admitted liabilities, shown in the audited balance sheet of the appellant, are bogus or have ceased to exist, the onus was on him to bring positive material on record to establish that the liabilities had actually ceased to exist and there was no chance of revival of the same. In view of above facts and respectfully following the principles laid down in various judicial pronouncements (supra). I am of the opinion that the AO was not justified in holding that the outstanding liabilities had ceased to exist in the year under consideration. The provisions of section 41(1) are not attracted in the case of the appellant. Therefore, the addition made by the AO amounting to ₹ 24,69,889/- is directed to be deleted. The ground no.1 is allowed. 4. From the above order of CIT(A) it is c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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