Cessation of Trading liability u/s 41(1) (a) is not valid in the presence of details of Outstanding Creditors: Calcutta HC [Read Order]

The Calcutta High Court (HC) has held that the cessation of trading liability u/s 41(1) (a) is not valid in the presence of details of outstanding creditors.

The revenue challenged the order passed by the Income Tax Appellate Tribunal “B” Bench Kolkata (Tribunal), dated 20.07.2018 in ITA No. 1907/Kol/2016 for the assessment year 2001-2002.

Mr Vipul Kundalia, Senior Standing Counsel and Mr Amit Sharma standing counsel appeared for the appellant department and MrPratyushJhunjhunwlaassisted by Mr Dipankar Choudhury and Mr S. Bhattacharya appeared for the respondent-assessee.

The assessee, M/s SoorajmulNagarmull filed its return of income for the assessment year under consideration A.Y. 2001-02 reporting a loss of Rs. 18,740/-. The case was reopened by the issuance of the notice under Section 148 of the Act wherein among other things, it was observed by the Assessing Officer that the assessee while preparing their return of income could not include profit andthe loss of Shri Hanuman Jute Mills and Siliguri Godown as the figures thereon have not been received and of the input division and Vardhal Lubricant as the figures thereof have not been received.

In response to the notice under Section 148, the assessee filed a revised return reporting loss of Rs. 83,923/-. The assessing officer while completing the assessment by order dated 31.12.2007 pointed out that the assessee has failed to submit any of the details of the branches as well as the head office and has submitted only a list of unsecured loan creditors with the amount thereof.

The assessing officer concluded that there is no evidence or confirmation regarding the trading liability and as per Section 41(1) (a) of the Act, it is a cessation of trading liability which is deemed to be profit and gain of business or profession for the assessment year under consideration. The CIT(A) by order dated 31.03.2008 deleted the addition.

The learned tribunal noted that the creditors have given a written reply in response to the summons reiterating their liability as also the fact that the assessee had settled some of the creditors even after 31.03.2001 and the assessee has fulfilled the duty cast upon them to provide evidence that the liability exists at the end of the year.

Based on the above-said observations, the HC bench comprising Justice T S Sivagnanam and Justice Hiranmay Bhattacharyya upheld the order of the Tribunal.The appeal for the revenue was dismissed.

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