By TIOL News Service

MUMBAI, JAN 16, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether exhaustion of limitation period for repayment of debt, will by itself can be construed as cessation of liability. NO IS THE VERDICT.

Facts of the case:

The assessee is an individual and engaged in the business of imports. During the course of his assessment, the AO noticed that there were several sundry creditors towards whom the assessee had not repaid a sum of Rs.1.79 crores for over three years. The AO therefore, after putting the assessee to notice, invoked Section 41(1).

On appeal, the Tribunal noted that the assessee was unable to repay the creditors because of weak financial position and further that the assessee had never completely stopped making repayments. The Tribunal also noted that in next couple of years the assessee had in fact repaid a sum of Rs. 1.54 crores out of Rs.1.79 crores. It was therefore concluded that the assessee never treated the liability to have ceased.

High Court held:

++ it is well settled through series of judgments that merely because a debt has not been repaid for over three years, would not automatically imply cessation of liability. Exhaustion of period of limitation may prevent filing of recovery proceedings in a Court of law, nevertheless it cannot be stated by itself that the liability to repay the amount had ceased. Going by this logic itself, the AO committed an error invoking Section 41(1). Further the assessee had produced additional evidence on record before the Appellate Authority after following the procedure and pointed out that substantial portion of the debt was cleared in later assessment years.

(See 2019-TIOL-130-HC-MUM-IT)