CIT v. Nitin S. Garg - Taxpublishers.in

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The Tax Publishers2012 TaxPub(DT) 2362 (Guj-HC) : (2012) 047 (I) ITCL 0100 : (2012) 208 TAXMAN 0016 : (2012) 071 DTR 0073 INCOME TAX ACT, 1961 --Business income--Profits chargeable to tax under section 41(1)Liability outstanding for so many years--A search operation was conducted under section 132 at the residential premises of assessee on 31-5-2006. During the course of assessment proceedings under section 143(3) read with section 153A, assessing officer noticed from the balance sheet that various creditors (other than family concerns) are very old and no interest had been paid on these loans. Despite the fact, assessing officer gave various opportunities to assessee to furnish details of such creditors viz., confirmation as well as creditworthiness; assessee failed to produce the necessary information and details in this regard. Assessee also failed to furnish the postal addresses, PAN, confirmations of outstanding balance, etc. Accordingly, assessing officer held that the liability incurred in regard to the purchase from the parties as claimed (i.e. Rs. 38,17,601, Rs. 1,65,090, Rs. 40,032 and Rs. 1,32,118 for the assessment years 2001-02, 2002-03, 2003-04 and 2006-07 respectively) have seized to exists. On being aggrieved, assessee preferred appeal before the Commissioner (Appeals)-II, Ahmedabad. Vide his order in Appeal Commissioner (Appeals) confirmed the addition made by assessing officer under section 41(1). Assessee preferred appeal before the Tribunal, against the common order of the Commissioner (Appeals). The Tribunal came to the conclusion that as assessee had continued to show the admitted amounts as liability in its balance sheet, such liabilities reflected in the balance sheet cannot be treated as cessation of liabilities. The Tribunal took the view that merely because the liabilities are outstanding it cannot be inferred that such liabilities have seized to exist. Accordingly, the Tribunal allowed the appeals of assessee. Held: Only on the ground that liability was outstanding for so many years it cannot have seized to exist therefore provision of section 41(1), were not applicable. It has not been established that the assessee has written off the outstanding liabilities in the books of account. The Tribunal is justified in taking the view that as assessee had continued to show the admitted amounts as liabilities in its balance sheet the same cannot be treated as assessment of liabilities. Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have seized to exist. The Tribunal has rightly observed that the assessing officer shall have to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof which is not the case . Merely because the assessee obtained benefit of reduction in the earlier years and balance is carried forward in the subsequent year, it would not prove that the trading liabilities of the assessee have become non-existent. [Para 15] Income Tax Act, 1961 Section 41(1) SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 2362 (Guj-HC) : (2012) 047 (I) ITCL 0100 : (2012) 208 TAXMAN 0016 : (2012) 071 DTR 0073

INCOME TAX ACT, 1961

--Business income--Profits chargeable to tax under section 41(1)Liability outstanding for so many years--A search operation was conducted under section 132 at the residential premises of assessee on 31-5-2006. During the course of assessment proceedings under section 143(3) read with section 153A, assessing officer noticed from the balance sheet that various creditors (other than family concerns) are very old and no interest had been paid on these loans. Despite the fact, assessing officer gave various opportunities to assessee to furnish details of such creditors viz., confirmation as well as creditworthiness; assessee failed to produce the necessary information and details in this regard. Assessee also failed to furnish the postal addresses, PAN, confirmations of outstanding balance, etc. Accordingly, assessing officer held that the liability incurred in regard to the purchase from the parties as claimed (i.e. Rs. 38,17,601, Rs. 1,65,090, Rs. 40,032 and Rs. 1,32,118 for the assessment years 2001-02, 2002-03, 2003-04 and 2006-07 respectively) have seized to exists. On being aggrieved, assessee preferred appeal before the Commissioner (Appeals)-II, Ahmedabad. Vide his order in Appeal Commissioner (Appeals) confirmed the addition made by assessing officer under section 41(1). Assessee preferred appeal before the Tribunal, against the common order of the Commissioner (Appeals). The Tribunal came to the conclusion that as assessee had continued to show the admitted amounts as liability in its balance sheet, such liabilities reflected in the balance sheet cannot be treated as cessation of liabilities. The Tribunal took the view that merely because the liabilities are outstanding it cannot be inferred that such liabilities have seized to exist. Accordingly, the Tribunal allowed the appeals of assessee. Held: Only on the ground that liability was outstanding for so many years it cannot have seized to exist therefore provision of section 41(1), were not applicable.

It has not been established that the assessee has written off the outstanding liabilities in the books of account. The Tribunal is justified in taking the view that as assessee had continued to show the admitted amounts as liabilities in its balance sheet the same cannot be treated as assessment of liabilities. Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have seized to exist. The Tribunal has rightly observed that the assessing officer shall have to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof which is not the case . Merely because the assessee obtained benefit of reduction in the earlier years and balance is carried forward in the subsequent year, it would not prove that the trading liabilities of the assessee have become non-existent. [Para 15]

Income Tax Act, 1961 Section 41(1)