April 2010
Deemed profit : S. 41(1) of Income-tax Act, 1961 : Remission or cessation of trading liability : A.Y. 2004-05 : Trading liability shown as outstanding in books and not written back : No remission or cessation of liability merely on account of passage of t
By K. B. Bhujle | Advocate
New Page 1
4. Deemed profit
: S. 41(1) of Income-tax Act, 1961 : Remission or cessation of trading liability
: A.Y. 2004-05 : Trading liability shown as outstanding in books and not written
back : No remission or cessation of liability merely on account of passage of
time : S. 41(1) not attracted : Addition not just.
[CIT v. Smt. Sita Devi Juneja,
187 Taxman 96 (P & H)]
For the A.Y. 2004-05, the
Assessing Officer made an addition of Rs.1.47 crores on account of outstanding
sundry credit balances as on 31-3-2004, relying on the provisions of S. 41(1) of
the Income-tax Act, 1961. CIT(A) held that there was no cessation or remission
of liability and deleted the addition. The Revenue’s appeal was dismissed by the
Tribunal.
On appeal by the Revenue, the
Punjab and Haryana High Court upheld the decision of the Tribunal and held as
under :
“(i) It was the conceded
position that in the
assessee’s balance sheet, the liability of Rs.1.47 crores had been shown,
which was payable to the sundry creditors. Such liability shown in the
balance sheet indicated the acknowledgement of the debt payable by the
assessee. Merely because such liability was outstanding for the last six
years, it could not be presumed that the said liability had ceased to exist.
(ii) It was also conceded
position that there was no bilateral act of the assessee and the creditors,
which indicated that the said liability had ceased to exist. In absence of
any bilateral act, the said liability could not have been treated to have
ceased. In view of these facts, the Commissioner (Appeals) as well as the
Tribunal had rightly come to the conclusion that the Assessing Officer had
wrongly invoked the Explanation I to S. 41(1) and made the aforesaid
addition on the basis of presumptions, conjectures and surmises.
(iii) It had been further
found that the Assessing Officer had failed to show that in any earlier year
allowance of deduction had been in respect of any trading liability incurred
by the assessee.
(iv) It was also not proved
that any benefit was obtained by the assessee concerning such a trading
liability by way of remission or cessation thereof during the concerned
year. Thus, there did not accrue any benefit to the
assessee, which could be deemed to be the profit or gain of the assessee’s
business, which would otherwise not be the assessee’s income. It had been
further found as a fact that the assessee had filed the copies of accounts
of sundry creditors signed by the concerned creditors. In view of this fact,
it was to be opined that the ITAT had rightly come to the conclusion that
confirmations from the creditors were produced.”
