2013 (11) TMI 1707 - HC - Income Tax

Genuineness of the trade credit entries - Fictitious liabilities outstanding for 10 years - Agreement between assessee and creditors that the amount would be retained on payment of interest - Addition under section 41(1) of the Income Tax Act of the Income Tax Act. - Liabilities ceased and written off in PY 31-3-2006 , relevant for the AY 2006-07 , entire tax deposited in the return for the AY 2006-07 - HELD THAT - Under the taxation laws, double tax cannot be levied and since the amount has already been taxed in the AY 2006-07, therefore no substantial question of law arises for consideration. The High Court, in 2009 (12) TMI 34 - PUNJAB AND HARYANA HIGH COURT held that merely because such liabilities are outstanding for the last six years, it cannot be presumed that the said liabilities have ceased to exist. It is also a conceded position that there is no bilateral act of the assessee and the creditors, which indicates that the said liabilities have ceased to exist. Decision in favor of assessee. Reopening of the assessment under section 147 r/w s. 148 - To verify the credit entries appearing in the balance sheet - HELD THAT - Insofar as the issue of reopening of the assessment under section 147 r/w section 148 of the Income Tax Act is concerned, the same question is only academic in nature and remains academic as ultimately amount as found by the assessing officer has been taxed though in a subsequent year and therefore, is not required to be considered.

Summary

Issues Involved:
1. Reopening of assessment u/s 147 r/w s. 148 of the Income Tax Act.
2. Addition of liabilities u/s 41(1) of the Income Tax Act.

Summary:

Reopening of Assessment u/s 147 r/w s. 148:

The respondent-assessee was directed to verify credit entries in the balance sheet for the assessment year 2002-03. The assessing officer issued a notice u/s 147 r/w s. 148 to reopen the assessment, doubting the genuineness of trade creditors. The Commissioner (Appeals) agreed with the reopening, but the Tribunal allowed the respondent-assessee's cross-objection, deeming the reopening of assessment as bad. The Court found the issue academic since the amount was taxed in a subsequent year.

Addition of Liabilities u/s 41(1):

The assessing officer added Rs. 48,15,538 u/s 41(1) due to the respondent-assessee's inability to prove the genuineness of trade creditors. The Commissioner (Appeals) deleted the addition, noting the liabilities were written off and taxed in the assessment year 2006-07. The Tribunal upheld this deletion, preventing double taxation. The Court agreed, stating that the liabilities did not cease to exist in the assessment year 2002-03 and were rightly taxed in 2006-07. The Court referenced several judgments supporting this view, emphasizing that the liabilities were genuine and payable, and no substantial question of law arose.

Conclusion:

The Court dismissed both appeals, finding no illegality or ambiguity in the orders of the lower authorities, and confirmed that the income was correctly taxed in the assessment year 2006-07.