2016 (1) TMI 354 - AT - Income Tax

Addition made u/s 41(1) - genuineness of sundry creditors - Held that - Right from the stage of the assessment proceedings, the assessee was required to furnish addresses of the creditors and to file the confirmations which up till the stage of the Tribunal also, no such details or any evidence have been filed. Further, assessee was unable to corroborate or substantiate its explanation that assessee had returned the damaged goods to the creditors and for this reason alone the assessee has not made any payment to such parties. If there was some sort of dispute regarding return of goods and non-payment, then same could have been brought on record, either by way of some kind of correspondence or communications between the parties or by way of ledger accounts of the parties. Once, the assessee is unable to discharge the primary onus cast upon him, then it is very difficult to reverse the finding of facts recorded by the AO as well as CIT(A). Under these facts, we uphold the order of the CIT(A) inasmuch as assessee has been unable to substantiate from the record that the liability in real sense is actually subsisting in this year and there is no cessation of liability. Thus, addition has rightly been made by and confirmed by the revenue authorities - Decided against assessee Addition u/s 69A on account of cash deposit made in the bank account - Held that - The transactions of deposits and withdrawals pertained to assessee s business activities. In support, the assessee had also filed certain details of suppliers before the CIT(A). When there are credits and debit entries, then there should have been telescoping of debit entries, which are lesser than credit entries. If overall position of entire credit and debit side is seen, then there is net credit of ₹ 3,34,107/- only. The action of the Department to confirm the entire deposits appears to be very unreasonable and unfair. Therefore, either the Department should apply a gross profit on such credit entries as prima facie it appears that these are relating to some business transaction or work-out some peak credit. Thus, in the interest of justice, we feel this matter should be restored back to the file of the AO to examine the impugned issue in the light of our observation. The assessee will give the entire requisite facts to the AO to make the proper assessment on this issue. - Decided in favour of assessee for statistical purpose.

Summary

Issues:
1. Addition made under section 41(1) of the Income Tax Act, 1961 for outstanding sundry creditors.
2. Addition made under section 69A of the Income Tax Act, 1961 for unexplained cash deposits in the bank account.

Analysis:

Issue 1: Addition under section 41(1) for outstanding sundry creditors
The appellant challenged the addition of Rs. 15,36,170 under section 41(1) due to outstanding sundry creditors. The appellant argued that the liability was mainly due to damaged goods returned to the creditors, and no payments were made. However, the appellant failed to provide evidence or details to substantiate this claim. The CIT(A) confirmed the addition, stating that the appellant did not prove the existence of outstanding liabilities. The Tribunal upheld the CIT(A)'s decision, noting the appellant's failure to discharge the burden of proof. The Tribunal concluded that the liability was not proven to be subsisting, and the addition was justified under section 41(1).

Issue 2: Addition under section 69A for unexplained cash deposits
The appellant contested the addition of Rs. 18,41,027 under section 69A for unexplained cash deposits in the bank account. The AO added the total unexplained credits to the bank account, including cash and cheque deposits. The appellant argued that the transactions were related to business activities, providing details and bills to support this claim. The CIT(A) upheld the addition as the appellant failed to provide names and addresses of overseas clients. The Tribunal observed that the deposits and withdrawals were linked to business transactions, suggesting a net credit of Rs. 3,34,107. The Tribunal deemed the Department's action unreasonable and ordered a re-examination by the AO. The issue was allowed for statistical purposes, directing a proper assessment based on the appellant's submissions.

In conclusion, the appeal was partly allowed for statistical purposes, with the Tribunal upholding the addition under section 41(1) and ordering a re-examination of the addition under section 69A.