Oriental Enterprise Pvt Ltd Vs ACIT (ITAT Ahmedabad)
ITAT Ahmedabad held that disallowance u/s. 36(1)(iii) of the Income Tax Act unjustified as interest-free funds exceeds loan to the subsidiary and loan was advanced for commercial expediency.
Facts- The assessee-company was engaged in the business of manufacturing and trading of engineering equipment for chemicals, petrochemicals, fertilizers, textiles and other industries. The assessee also acts as agents of indigenous manufacturers from various industries viz. chemicals, textiles, plastics, machine toolsets, as well as sole concessionaries of number of foreign manufacturers from various countries.
The assessee filed its return of income for the A.Y. 2016-17 on 14-10-2016 declaring total income of Rs.10,25,170/-. The case was selected for complete scrutiny under CASS and notices were issued under sections 143(2) and 142(1) of the Act, and the assessment order was passed by the AO u/s .43(3) of the Act, assessing total income to Rs.3,42,96,135/-.
The assessee preferred an appeal before Ld.CIT(A), who partly allowed the appeal of the assessee.
Conclusion- Held that the onus is on the AO to prove the cessation or remission of liability with concrete evidence, liabilities shown in the balance sheet are considered existing until there is evidence to the contrary, simply non-payment over a period or debts becoming time-barred do not automatically constitute cessation of liability and there must be clear and specific evidence of cessation or remission for liabilities to be considered as ceased under Section 41(1) of the Act. Thus, the addition of Rs.1,35,94,166/- as cessation of liability under Section 41(1) of the Act, was unjustified as AO did not provide sufficient evidence to establish that the liabilities had ceased during the year under consideration.
