2015 (8) TMI 974 - AT - Income Tax

Unaccounted cash credit - Non existent credit claims made in the books of the assessee - assessee was unable to obtain confirmation from the 21 creditors regarding the balances shown against them inspite of several opportunities - Held that - n almost identical facts, the Hon ble Delhi High Court in the case of Shri Vardhaman Overseas Ltd. (supra), has clearly laid down that neither section 41(1) nor section 68 of the Act can be applied. On the applicability of section 68, we are of the view that those provisions will not apply as the balances shown in the creditors account do not arise out of any transaction during the previous year relevant to AY 2009-10. The provisions of sec. 68 are clear inasmuch as they refer to sum found credited in the books of account of an assessee maintained for any previous year . Since the credit entries in question do not relate to previous year relevant to AY 2009-10, the same cannot be brought to tax u/s. 68 of the Act. The proper course in such cases for the Revenue would be to find out the year in which the credits in question were credited in the books of account and thereafter make an enquiry in that year and make an addition in that year, if other conditions for applicability of section 68 are satisfied. It must be held that there was a cessation of the debts bringing the case within the scope of s. 41(1). A unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only by the creditor and a cessation of the liability can only occur either by reason of operation of law or the debtor unequivocally declaring his intention not to honour his liability when payment is demanded by the creditor, or by a contract between the parties, or by discharge of the debt There is nothing on record to show any cessation or remission of liability by the creditor or even an unilateral act by the Assessee in this regard. In view of the above, we are of the view that the impugned addition cannot be sustained and the same is directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Addition of Rs. 65,66,925 by the Assessing Officer (AO) as non-existent sundry creditors.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee filed an appeal with a delay of 456 days. The delay was attributed to the non-delivery of the CIT(A)'s order by the CA's assistant. The Tribunal accepted the explanation provided by the assessee, supported by affidavits from both the assessee and the CA. The Tribunal noted that the delay was due to a reasonable and sufficient cause and cited judicial pronouncements advocating a liberal approach in condoning delays in income-tax matters. Consequently, the delay in filing the appeal was condoned.

2. Addition of Rs. 65,66,925 by the Assessing Officer (AO):
The AO added Rs. 65,66,925 to the assessee's income, treating the amount as non-existent sundry creditors. The creditors were opening balances from previous financial years, and no transactions occurred during the relevant assessment year (AY 2009-10). The AO's letters to the creditors were returned as "no such person," leading to the conclusion that the credits were non-existent.

The CIT(A) upheld the AO's addition, noting that the assessee failed to obtain confirmations from the creditors despite multiple opportunities.

Tribunal's Analysis:
- Section 68 of the Act: The Tribunal observed that Section 68 applies to sums credited in the books of account for the relevant previous year. Since the credits in question were not related to AY 2009-10, Section 68 was not applicable.
- Section 41(1) of the Act: For Section 41(1) to apply, there must be a cessation or remission of liability. The Tribunal found no evidence of cessation or remission of liability. The amounts due to the creditors were allowed as purchase price in earlier years, and there was no indication that the liability had ceased. The Tribunal referred to the Delhi High Court's decision in CIT v. Sri Vardhaman Overseas Ltd., which held that neither Section 68 nor Section 41(1) would be attracted in similar circumstances.

The Tribunal concluded that the AO and CIT(A) erred in applying Sections 68 and 41(1) without clear evidence of cessation or remission of liability. The addition of Rs. 65,66,925 was, therefore, not sustainable in law and was directed to be deleted.

Conclusion:
The appeal was allowed, and the addition of Rs. 65,66,925 was deleted. The Tribunal emphasized the need for clear evidence to invoke Sections 68 and 41(1) and highlighted judicial precedents supporting the assessee's case.