The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) upheld the Commissioner of Income Tax(Appeals)[CIT(A)]’s decision in deleting the additions made by the Assessing Officer (AO) under section 41(1) of Income Tax Act,1961 on the cessation of liabilities.
The revenue-appellant challenged the order passed by the CIT(A) dated 29.11.2023 for the assessment year 2014-15. In this case,Shreekrishan Goswami,respondent-assessee,had been asked during assessment proceedings to furnish details of “Sundry Creditors” amounting to ₹80,07,153.55 as reflected in the balance sheet. The respondent submitted the required details.
Upon examination, the AO noticed that some creditors listed had no transactions during the year, and their balances had remained outstanding for an extended period. Notices under section 133(6) of the Act were issued to these creditors. However, no replies were received from three parties: M/s. Alloy Steel Pvt. Ltd. (₹10,42,000), M/s. Rashmi Metallinks Ltd. (₹85,20,337), and M/s. Rashmi Cement Ltd. (₹29,72,154).
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The AO concluded that the respondent had failed to establish the existence of these liabilities, opining that they had ceased to exist. Accordingly, the AO added the amounts to the assessee’s income under section 41(1) of the Act.
The assessee appealed to the CIT(A) against the AO’s decision, explaining that in previous years, notices under section 133(6) were served, and creditors confirmed their liabilities. This year, the AO treated the liabilities as ended because no replies were received from three creditors. For M/s. Oliya Steel Pvt. Ltd., the assessee, being a director, stated that the notice should have been replied to if delivered, and full payment was made in FY 2015-16, supported by bank statements. For M/s. Rashmi Metallinks Ltd., the assessee paid ₹50,00,000 in FY 2014-15, providing confirmation and bank details. For M/s. Rashmi Cement Ltd., full payment was made in FY 2016-17, with supporting documents.
The assessee argued that the AO wrongly assumed the liabilities ended and added ₹3,92,83,878 to the income. After reviewing the documents, the CIT(A) found no cessation of liabilities and ruled in favor of the assessee.
The two member bench comprising Sanjay Garg(Judicial Member) and Rajesh Kumar(Accountant Member)after hearing both parties, agreed with the CIT(A)’s decision that there was no cessation of liability for the three parties during the assessment year. The tribunal found no merit in the revenue’s appeal and dismissed it.
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