Onus on AO to prove that the liability ceases to exist: Calcutta HC


Onus on AO to prove that the liability ceases to exist: Calcutta HC

PCIT -12, Kolkata vs Soorajmul Nagarmull (ITAT NO. 46 OF 2020)


  1. The assessee submitted only a list of unsecured loan creditors with amount thereof during assessment proceedings. Further no confirmation of account was provided of the loan creditors.
  1. The AO concluded that there is no evidence or confirmation regarding the trading liability and hence as per Section 41(1) (a) of the Income Tax Act, it is a cessation of trading liability and hence is deemed to be profit and gain of business or profession for the AY under consideration.

Calcutta HC held as below:

  1. There is no dispute about the assessee to have been carrying forward the impugned liability in its books for a time span of almost three decades and the department did not raise any issue in all the intervening assessment years in question.
  1. The AO after the matter was remanded to him had issued summons to six directors of the concerned entities on test check basis, and four out of the six directors had appeared in response to the summons. The statements were recorded.
  1. The creditors have given written reply in response to the summons reiterating their liability as also the fact that the assessee had settled some of the creditors even after 31.03.2001. Thus the assessee has fulfilled the duty cast upon them to provide evidence that the liability exist at the end of the year.
  1. The duty on the AO is to prove that the liability has ceased to exist which in our considered view has been miserably failed to be established.
  1. So there is no cessation of liability.