2015 (10) TMI 1479 - AT - Income Tax

Addition made u/s.41(1) - cessation of liability - Held that - Revenue has not brought any material on record to show that the assessee was allowed deduction in respect of liability in question, and if it was allowed then in which year. Further, it is observed that the Revenue has admitted that the amount in question was shown as liability by the assessee in its balance sheet of the year under consideration. We find that no material has been brought on record to show that the liability in question ceased to exist during the year under consideration or any benefit was derived by the assessee in respect of the liability in question during the year under consideration. The Hon ble Gujarat High Court in the case of CIT Vs. Ravjibhai Becharbhai Dhameliya, (2013 (7) TMI 292 - GUJARAT HIGH COURT) has held that in the absence of material to show that there was a remission or cessation of liability as contemplated under section 41(1) of the Act as well as in the absence of material to indicate deriving of any benefit in cash or otherwise by the assessee section 41 is not applicable. In the above facts of the case, in our considered view, the addition made by invoking the provision of section 41(1) of the Act is not sustainable. We, therefore, delete the addition - Decided in favour of assessee. Addition made u/s.68 - Held that - We find that the identities of the share applicants are not in doubt. The Revenue has brought no material, after proper verification, to show that the share applicants in question were not genuine. Before us, the AR of the assessee filed additional evidence in the form of affidavits of ten persons. Before these additional evidences are accepted, in our considered view, it is in the interest of justice that the AO examine the same. The AR of the assessee submitted that the issue, therefore, be restored to the file of AO for examination of additional evidences now filed by the assessee. In the circumstances, it shall be in the interest of justice to restore the issue back to the file of the AO for adjudication afresh after proper verification. The assessee is also directed to cooperate with the AO and file all the materials, which it wishes to rely upon before the AO, as and when called upon by the AO.- Decided in favour of assessee for statistical purpose.

Summary

Issues:
1. Addition made under section 41(1) of the Act for outstanding payable to Ahmedabad Stock Exchange.
2. Addition made under section 68 of the Act for share application money received in cash.

Issue 1: Addition under section 41(1) of the Act
The appeal was filed against the CIT(A)'s order confirming the addition made under section 41(1) of the Act for an outstanding payable amount of Rs. 40,000 to Ahmedabad Stock Exchange. The AO held that there was a cessation of liability, but the assessee argued that there was no intention to cease the liability. The CIT(A) observed that the liability had been outstanding for several years, indicating the assessee's lack of intention to pay. However, the ITAT found that there was no evidence to show a remission or cessation of liability, as required by section 41(1) of the Act. Citing a precedent, the ITAT concluded that the addition under section 41(1) was not sustainable and deleted the Rs. 40,000 addition.

Issue 2: Addition under section 68 of the Act
The AO made an addition under section 68 of the Act for Rs. 10,20,000 of share application money received in cash, as the PAN details of some share applicants were not submitted. The CIT(A) upheld the addition, stating that although the identity and financial capacity of the applicants were not in doubt, the genuineness of the transaction was not established. The ITAT noted that all ten persons who provided the share application money were identified, and their details were submitted. The ITAT found that the lower authorities did not provide sufficient evidence to prove the transaction was not genuine. The ITAT allowed the additional evidence in the form of affidavits submitted by the assessee and directed the issue to be reexamined by the AO for proper verification. The ITAT allowed this ground of appeal for statistical purposes.

In conclusion, the ITAT partially allowed the appeal, deleting the addition under section 41(1) and directing a reexamination of the addition under section 68 by the AO.