Case Law Details
ITO Vs. Thadaram Khaldas Tolani (ITAT Mumbai)
It is evident, merely on the reasoning that liability in respect of some of the sundry creditors have remained outstanding for about three years the assessing officer has concluded that they have to be treated as income of the assessee in the impugned assessment year as they have ceased to exist as per section 41(1) of the Act.
However, as could be seen from the facts on record, in course of assessment proceedings, the assessee not only furnished the names and addresses of the sundry creditors but also furnished the details of outstanding liability against each of those creditors. The assessee has also submitted that he was having business transactions with the concerned creditors, therefore, the sundry creditors represent trading liability of the assessee.
The assessee also brought to the notice of the assessing officer payments made to the concerned creditors subsequent to the financial year relevant to the assessment year under dispute. However, the assessing officer has not found merit in the aforesaid submissions of the assessee.
At this stage, it is necessary to have a look at the provisions of section 41(1) of the Act. A plain reading of the aforesaid provisions would make it clear that before coming to the conclusion that a liability has ceased to exist or there is remission/cessation of a particular liability, three conditions are to be fulfilled. Firstly, it must be a trading liability; secondly, the person showing such liability must have obtained some benefit either in cash or in any other manner in respect of such liability and thirdly, such benefit by way of remission/cessation has accrued to the assessee in the relevant financial year.
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