2013 (1) TMI 928 - AT - Income Tax

Addition in respect of unverifiable Sundry Creditors - addition u/s 41 - Held that - We find that ld. CIT(A) has given relief to the assessee by holding that no condition required to make addition towards remission or cessation of liability as per provisions of section 41(1) of the Act is fulfilled in this case, therefore the A.O. was not justified in making the addition by invoking the provisions of this section - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition in respect of unverifiable Sundry Creditors under Section 41(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of addition in respect of unverifiable Sundry Creditors under Section 41(1) of the Income Tax Act:

The Revenue appealed against the order of the CIT(A) which deleted the addition of Rs. 1,36,76,461/- made by the Assessing Officer (A.O.) concerning unverifiable sundry creditors. The A.O. had observed that out of the total sundry creditors of Rs. 1,93,56,797/-, only Rs. 56,80,336/- were verified based on the confirmations/details furnished by the assessee. The remaining amount of Rs. 1,36,76,461/- was unverified due to a lack of valid confirmations and details. Consequently, the A.O. added this amount to the total income of the assessee under Section 41(1) of the Income Tax Act, initiating penal action under Section 271(1)(C) for concealment of income and furnishing inaccurate particulars.

The assessee contended before the CIT(A) that the addition was unwarranted as the liabilities were genuine and had been paid in the subsequent year. The assessee maintained detailed stock accounts and submitted month-wise purchase and sales records, which were audited under Section 44AB of the Income Tax Act. The assessee argued that there was no remission or cessation of liabilities as required under Section 41(1) since the liabilities were not written off in the books of accounts and were settled in the subsequent year. The assessee also cited various judicial precedents supporting their case.

The CIT(A) accepted the assessee's submissions and deleted the addition, holding that the conditions required to invoke Section 41(1) were not fulfilled. The CIT(A) noted that the A.O. had not established that any benefit was obtained by the assessee against the alleged liabilities during the year under consideration. The CIT(A) emphasized that the A.O. had not provided specific details of the liabilities that had ceased to exist and had merely taken a balancing figure from the balance sheet. Furthermore, some of the liabilities disallowed by the A.O. were statutory liabilities, such as PF payable, unpaid wages, and VAT, which are not trading liabilities and thus do not attract the provisions of Section 41(1).

The Tribunal upheld the CIT(A)'s decision, noting that the Revenue failed to controvert the findings of the CIT(A). The Tribunal concurred that the A.O. had not discharged the onus of proving that any benefit accrued to the assessee against the alleged liabilities. The Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that deleted the addition of Rs. 1,36,76,461/- made by the A.O. under Section 41(1) of the Income Tax Act, on the grounds that the necessary conditions for invoking Section 41(1) were not met.