TMI Blog2020 (6) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee : Sri P. Murali Mohan Rao For the Revenue : Smt. Nivedita Biswas, DR ORDER PER SMT. P. MADHAVI DEVI, J.M. This is assessee s appeal for the A.Y 2012-13 against the order of the CIT (A)-12, Hyderabad, dated 10.08.2017 2. Brief facts of the case are that the assessee company filed its return of income for the A.Y 2011-12 electronically on 28.09.2012 declaring total loss of ₹ 25,802/-. During the assessment proceedings u/s 143(3) of the Act, the AO observed from the balance sheet of the company, that there are trade payables to the extent of ₹ 19,63,11,404/- out of which ₹ 19,62,86,726/- is lying outstanding since several years against the suppliers. When the assessee was questioned, the assessee submitted that he has executed civil contract works during the year ending 31.03.2006 31.03.2008 relevant to the A.Ys 2006- 07 2008-09 and that the amount could not be paid due to shortage of funds. It was further submitted that the assessee company was to get lot of money from the main contractor and the amount payable will be cleared as and when the receivables are collected from the main contractor. The assessee was directed to furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable and not in existence. 6. The Ld. CIT (A) ought to have appreciated that the provisions of sec 41(1) of the Act are not applicable in respect the liability of ₹ 19,62,86,726/- which was existing in the Balance Sheet as on 31-03-2012. 7. The Ld. CIT(A) ought to have appreciated that the amount of ₹ 19,62,86,726/does not represent any deduction claimed in respect of any loss, expenditure incurred by the assessee or trading liability by way of remission of cessation thereof for the assessment year under consideration. 8. The Ld. CIT(A) ought to have appreciated that merely because the liability of ₹ 19,62,86,726/ - has been outstanding for the last more than eight years, it cannot be held that the liability has ceased to exist as on 31-3-2012. 9. The Ld. CIT (A) ought to have appreciated that obtaining of a benefit by the assessee by virtue of remission or cessation is sine qua non for invoking the provisions of section 41(1) of the I.T.Act, 1961. 10. The Ld. CIT (A) ought to have appreciated that the AO has invoked the provisions of section 41(1) of the Act, without establishing that there is remission or cessation of the liability in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Gujarat High Court in the case of Matruprasad C Pandey, 59 Taxmann.com 428 h) ITAT Kolkata in the case of Jashojit Mukherjee 93 Taxmann.com 366 6. The CIT (DR) had objected to the admission of such additional evidence and also had called for a report from the AO on the additional evidence filed by the assessee. The AO has filed the remand report stating that the assessee was given sufficient opportunity to substantiate the nature of the creditors during the assessment as well as first appellate proceedings, but the assessee has been unable to avail the said opportunities. On the merits of the additional evidence filed, the AO submitted that this did not contain any documentary evidence or the circumstances enabling M/s. Madhucon Projects Ltd to take over the trade liability from the assessee company nor does it clarify the nature of the balance receivable by the assessee company. It is also submitted that nothing is available on record or additional evidence submitted in the Paper Book to prove that M/s. Madhucon Projects Ltd is the parent company of the assessee nor that they owned up trading liability of M/s. Nama Properties Ltd. It is also submitted that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 41(1) of the Act. In the case of the assessee before us, the assessee has been claiming it as trade payables. Thus, the assessee must have been allowed expenditure in the year in which it had accrued to the assessee and can be brought to tax in the year in which it ceases to exist. It is pointed out by the learned Counsel for the assessee that the liability is still existing in the books of account of the assessee. It is the case of the assessee that subsequently, its sister concern Madhucon Projects Ltd has taken over the liability of the assessee company and to this effect, the confirmation of M/s. Madhucon Projects Ltd is filed, wherein it is confirmed that a sum of ₹ 14,49,60,055/- is receivable from the assessee. In his report, AO has expressed that there is nothing available on record to prove that M/s. Madhucon Projects Ltd is the parent company of the assessee, nor that they have owned up the trade liabilities of the assessee company. In reply to this report of the AO, the learned Counsel for the assessee has filed the Annual Report of Madhucon Projects Ltd for financial year 2012-13 wherein, in the list of related party transactions, the name of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve discussion, I do not find any reason to interfere with the order of the CIT(A) and, accordingly, the order of the CIT(A) is hereby upheld dismissing the ground raised by the revenue on this count . ii) Hon'ble Gujarat High Court in the case of Bhogilal Ramjibhai Atara 43 Taxmann.com 55 (Guj.). Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Cessation of liability) - Assessment year 2007-08 - In return of income for assessment year 2007-08, assessee had shown a certain amount by way of his debts - He supplied details of 27 different creditors - Assessing Officer undertook exercise to verify records of so called creditors and found that creditors had no dealing with assessee - Assessing Officer further having found that debts were outstanding since several years applied section 41(1) and added above amount in income of assessee as deemed income - There was nothing on record to suggest that there was remission or cessation of liability that too during previous year relevant to assessment year 2007-08 - Whether in peculiar facts of case amount in question could not be added back in income of assessee as deemed income under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Jain Exports (P) Ltd 35 Taxmann.com 540 held as under: Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability [Cessation of liability] - Assessment year 2008-09 - During scrutiny, Assessing Officer added amounts shown as credit balances of creditors, outstanding for several years under section 41(1) - Commissioner (Appeals) confirmed addition only in respect of creditor 'E' as assessee could not prove genuineness of transaction, but deleted addition in respect of other creditors - Whether, as per section 41(1), cessation of liability may occur either by reason of it becoming unenforceable in law by creditor coupled with debtor's intention not to honour his liability, or by a contract between parties or by discharge of debt - Held, yes - Whether, establishment of genuineness of transaction was required in year when liability had arisen and addition could not be made on such ground, treating it as cessation of trading liability, when assessee had acknowledged its liability successively over several years - Held, yes [Para 22] [In favour of assessee] vi) Hon'ble Gujarat High Court in the case of Matruprasad C Pandey, ..... 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IT vs. Dattatray Poultry Breeding Farm (P) Ltd, 95 Taxmann.com 130, ITAT Ahmedabad Bench held as under: Section 41(1) of the Income-tax Act, 1961 - Remission and cessation of trading liability (Creditor's confirmation) - Assessment year 2010-11 - Whether liability cease to exist in terms of section 41(1) where it is outstanding for a long period without any payment, despite it being reflected in books of account - Held, yes - Assessee company, had shown sundry creditors outstanding for six to twenty years - Assessing Officer made inquiries under section 133(6) about said creditors in which it was found that certain creditors had categorically denied that they had not made any transaction with assessee - Notices in some cases had returned unserved - Assessee had failed to produce said creditors as directed - Assessee had not even furnished correct address of all creditors, their PAN numbers and confirmation - Whether, on facts, Assessing Officer was justified in holding that there was cessation of liability and making additions to income of assessee under section 41(1) - Held, yes - Whether merely because liabilities were shown in books of account by assessee as outstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account by assessee during assessment year under consideration, could be treated as assessee's income and liable to be taxed - Held, yes d) Hon'ble Rajasthan High Court in the case of Rama Steel Rolling Mills General Engg. Works (2013) 35 Taxmann.com 262 has held as under: Section 41(1), read with section 260A, of the Income-tax Act, 1961 - Remission or cessation of trading liability [Unproved credits] - Assessment year 2007-08 - During financial years 2001-02 and 2002- 03, assessee had purchased goods from one 'T' - There was dispute between assessee and 'T' and assessee failed to make payment of ₹ 34 lakhs to 'T' - In balance-sheet of assessee for year ending on 31-3- 2007 aforesaid amount of ₹ 34 lakhs stood in name of 'T' - Assessing Officer added said amount to income of assessee for assessment year 2007-08 in view of provisions of section 41(1) - Tribunal held that liability of ₹ 34 lakhs in respect of 'T' at end of year as on 31-3-2007 if not proved could be added to income of assessee under section 41(1) - While remitting matter to Assessing Officer, it was left open for Assessing Officer to verify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g liability - Assessment year 2006-07 - Unpaid dues of employees had been outstanding for 6-7 years and recovery of such dues was time barred - Whether assessee could not claim benefit of showing said amount as a liability - Held, yes - Whether there was cessation of such liability and, hence, said amount had to be added to income of assessee - Held, yes [Paras 9 10] [In favour of revenue] Words Phrases : Word 'Include' occurring in Explanation to section 41(1) of the Income-tax Act, 1961 Interpretation of statute : Rule of pragmatic construction. g) ITAT Mumbai Bench in the case of Bharat Dana Bera vs. ITO, 56 Taxmann.com 388 I. Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Cessation of liability) - Assessment year 2007-08 - Assessee was engaged in business of manufacturing and trading in readymade garments - In return of income, assessee declared certain amount payable to creditors on account of purchases made from them - Assessing Officer issued notices to various creditors which were returned unserved with remarks not known - He thus taking a view that creditors in question were not genuine, made addition to assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Dattatray Poultry Breeding Farm (P) Ltd, we find that the sundry creditors were outstanding for 6 to 20 years and during the enquiry made by the AO u/s 133(6) of the Act, some of the creditors categorically denied that they had made any transaction with the assessee while in some cases, the notices were returned unserved. It was in these circumstances that the AO had held that there was a cessation of liability and the addition was made u/s 41(1) of the Act. 12. In the case of Palky Investments Trading Co. (P) Ltd, the Hon'ble Bombay High Court was dealing with the case of levy of penalty u/s 271(1)(c) of the Act for alleged concealment of income with respect to addition made u/s 41(1) of the Act on account of cessation of liabilities. The Hon'ble High Court has considered that in the case in the penalty proceedings, all the three authorities had concurrently arrived at a fact that claim made by assessee with regard to its outstanding liabilities for subject A.Y was false. Therefore, the facts of this case are different and distinguishable from the facts before us and therefore, cannot be applied to the case on hand. 13. In the case of CIT vs. TV Sundaram Iyengar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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