KUMAR ISHWARLAL DOSHI,MUMBAI vs. ITO, 18(2)(2), MUMBAI

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ITA 554/MUM/2019Status: DisposedITAT Mumbai07 October 2020AY 2014-152 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that an outstanding sundry creditor for over 3 years does not automatically amount to a cessation of liability under Section 41(1). Proper investigation, including issuing summons, is required before making such an addition.

What were the facts?

The assessee, a cloth trader, had sundry creditors outstanding for over 3 years. The Assessing Officer treated this as a cessation of liability under Section 41(1) and added it to the income, as the creditor's address was unserved. The CIT(A) upheld this addition.

What were the issues?

Whether an outstanding sundry creditor for more than 3 years constitutes a cessation of liability under Section 41(1) without further investigation.

Which sections of the Income-tax Act were involved?

Section 41(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

For Appellant: Shri Somnath Wajale
Hearing: 07.10.2020

O R D E R Per Shamim Yahya, A. M.:

This appeal by the assessee is directed against the order of the learned CIT(A)-53, Mumbai dated 07.12.2018 and pertains to the Assessment Year (A.Y. for short) 2014-15.

2.

The grounds of appeal

read as under:

1. The Ld. Commissioner of Income Tax (Appeal) erred in upholding the addition of Rs.1,96,853/- made by the Assessing Officer under section 41(1) of the Income Tax Act, 1961.

3. Brief facts of the case is that the assessee is a trader in cloth. During the course of assessment, the A.O. noted that a sum of Rs.1,96,853/- is lying as sundry creditors and that 3 years have elapsed. The A.O. issued notice u/s.133(6) to the said creditor. The same remained unserved. The A.O. proceeded to hold that there is a cessation of liability in terms of section 41(1) of the Act. Accordingly, he proceeded to add the aforesaid sundry creditors as income of the assessee.

4. Upon the assessee’s appeal, the ld. CIT(A) upheld the order of the A.O.

Kumar Ishwarlal Doshi vs. ITO 5. Against this order, the assessee is in appeal before the ITAT.

6.

None appeared for and on behalf of the assessee despite notice sent. Hence, I proceeded to adjudicate the issue by hearing the ld. Departmental Representative and perusing the records. I note that the assessee is trader in cloth. The assessee’s sales and purchases have not been doubted. Just because a sundry creditors is outstanding for more than 3 years, there is no presumption in income tax law that the same amounts to cessation of liability u/s.41(1) automatically. It is noted that the A.O. has not even issued summons u/s.131(1) to the said sundry creditors. Hence, in my considered opinion, in the absence of proper investigation the amount involved is not liable to the added u/s.41(1) simply because the same is over 3 years old. Accordingly, I set aside the orders of the authorities below and delete the addition.

7.

In the result, this appeal filed by the assessee stands allowed.

Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board on 07.10.2020

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