Question: Does the liability of the Assessee ceased to exist, when the Sundry Creditors did not demand payments from more than 10 years, and hence this liability has to be added under section 41(1) and the tax has to be paid on it ?
Answer Yes ,
During assessment proceedings, Assessing Officer asked assessee to furnish details and confirmation of all sundry creditors shown in balance sheet
Assessee could not submit confirmation of two creditors
It was found that in last so many years those parties had never been seen by anybody, nor any known address of them was available; that there was never any demand for payment by any of said parties from assessee for last more than 10 years;and that no Income-tax returns had been filed by them Therefore liability of assessee had ceased to exist and was liable to be added under section 41(1)
IN THE ITAT MUMBAI BENCH’A’
Asht Laxmi Diamond & Jewellery
Income-tax Officer, 21 (1) (1), Mumbai*
[ASSESSMENT YEAR 2007-08]
FEBRUARY 20, 2015
■ The assessee was engaged in trading of cut and polished diamonds. It had shown sundry creditors.
■ The Assessing Officer asked the assessee to furnish the details and confirmations of all the sundry creditors.
■ The assessee could not submit the confirmation of two of the sundry creditors. In the absence of material evidence, the Assessing Officer assumed that the liability of the assessee to the extent of 20 per cent of such amount had ceased to exist and, accordingly, he added the said amount in the income of the assessee by invoking section 41(1).
■ On appeal, the Commissioner (Appeals) concluded that there was no evidence to show that the liability of the assessee was still existent and, therefore, total amount of liabilities shown in the name of two parties was required to be added under section 41(1).
■ On second appeal:
■ It was not a case where the Commissioner (Appeals), in the absence or because of the failure of the assessee to provide addresses, confirmations, etc. from the alleged creditors, had assumed that the liability has ceased to exist, but he himself made further enquiries to find out the alleged creditors through the official machinery. When he had satisfied himself that neither in the last so many years those parties had ever been seen by anybody, nor any known address of them was available, there was never any demand of payment by any of the said parties from the assessee for the last more than 10 years and no income-tax returns had been filed by them, only then he concluded that the liability of the assessee, in fact, had ceased to exist. Merely because the assessee now has offered the said amount as income, that itself, does not support the case of the assessee that the liability had not ceased to exist in the year under consideration, rather, this fact supports the case of the revenue that even after passing of further 5 years from the date of assessment, the assessee could not trace his creditors. Therefore, there is no infirmity in the well-reasoned order of the Commissioner (Appeals). There being no merit in the appeal of the assessee, the same is accordingly dismissed. [Para 8]