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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI G.D. AGRAWALG.D. AGRAWAL & AND BEFORE SHRI G.D. AGRAWALG.D. AGRAWAL & AND SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVASHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA
PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP :- PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP This appeal by the assessee for the assessment year 2009-10 is directed against the order of learned CIT(A)-XXVI, New Delhi dated 12th November, 2013.
In this appeal, the assessee has raised various grounds. However, they are all against the addition of `7,41,267/- which is made by the Assessing Officer on account of unproved liabilities.
We have heard the arguments of both the sides and perused the material placed before us. The Assessing Officer made the addition of `7,41,267/- with the following finding:-
“3. The assessee was asked to file confirmation/proof of liability of Rs.7,41,267/- excluding Rs.11,236 + 2500/- of 2 ITA-454/Del/2014 audit fee and accountancy charges. But the assessee is failed to produce the confirmation regarding these expenses. So an amount of Rs.7,41,262/- is disallowed and added back to the returned income of the assessee.”
After considering the facts of the case and submissions of both the sides, we are unable to agree with the above finding of the Assessing Officer. Even if the assessee is not able to produce the confirmation of liabilities, the same cannot be disallowed because in this year, admittedly, no expenditure was claimed by the assessee. It is an admitted fact that it is a liability carried forward from the earlier years. Therefore, when no expenditure is claimed in this year, merely because the assessee could not file the confirmation, there cannot be any disallowance.
Learned CIT(A) sustained the addition with the following finding :-
“Regarding these liabilities, the appellant could not place anything on record before me, which could prove that these liabilities were in existence as on 31.03.2009. Further, the genuine liability cannot lie unclaimed for such a long period of time. Thus, it is most unlikely that these liabilities remained unpaid. Thus, in view of the above facts, it is held that the liabilities of Rs.7,41,267/- are not existing in the relevant year and consequentially the asset to that extent remained unexplained; therefore, the liability requires to be assessed as income. Thus, the addition of Rs.7,41,267/- is sustained on the fact that the appellant failed to prove the existence of these liabilities during the relevant year.”
After considering the submissions of both the sides, we are unable to agree with the above finding of the learned CIT(A). Merely because the liability remained unpaid for a longer period, it cannot be treated as income. In our opinion, the unpaid liability can be treated as income only when there is remission and cessation of liability and provision of Section 41(1) applies. However, learned CIT(A) in paragraph 5 has already given the finding that Section 41(1) is not 3 ITA-454/Del/2014 applicable. The relevant finding of learned CIT(A) in paragraph 5 is reproduced below :-
“It is not a case where the provisions of section 41(1) were invoked as it is not a case of remission or cessation of the liabilities.”
Once it is an admitted position that there is no remission or cessation of liability during the year under consideration, in our opinion, the addition for unexplained old liabilities cannot be made. We, therefore, delete the addition of `7,41,267/- made by the Assessing Officer and sustained by the learned CIT(A).
In the result, the appeal of the assessee is allowed. Decision pronounced in the open Court on 13.12.2016.