2013 (9) TMI 1246 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the following Issues:
1. Challenge to the deletion of addition made by the Assessing Officer u/s 41(1) of the Income Tax Act.
2. Failure to furnish confirmations of sundry creditors.
3. Establishment of trading liability in respect of sundry creditors.

Issue 1: Challenge to Deletion of Addition u/s 41(1) of the Income Tax Act:
The Tax Appeal was filed by the revenue against the deletion of an addition of Rs. 45,72,591/- made by the Assessing Officer u/s 41(1) of the Act for the Assessment Year 2007-08. The ITAT allowed the appeal directing to delete the addition, which was confirmed by the CIT(A). The revenue contended that the sundry creditors were treated as ceased to exist during the relevant assessment year, but the ITAT observed that the creditors pertained to earlier years and the revenue failed to establish any forgone debts by the creditors. The tribunal held that the addition under Section 41(1) cannot be made in these circumstances.

Issue 2: Failure to Furnish Confirmations of Sundry Creditors:
The Assessing Officer requested the assessee to furnish confirmations of creditors, debtors list, and inventory of stock. The order of assessment held that the amount due to sundry creditors was a trading liability as the existence of creditors was not established. The CIT(A) upheld this decision. However, the ITAT noted that the assessee had provided confirmation statements for a portion of the amount and explained that the creditors did not cooperate due to delayed payments. The tribunal found no fault in deleting the addition under Section 41(1) based on the facts presented.

Issue 3: Establishment of Trading Liability in Respect of Sundry Creditors:
The revenue argued that the sundry creditors were long-standing and should have taken action to recover the amount, implying that they had ceased to exist. However, the ITAT found that the creditors were from earlier years and the revenue had not proven any debt forgiveness. The tribunal emphasized that the revenue had the authority to inquire about the creditors' bona fides but failed to do so. Ultimately, the tribunal concluded that no error was committed in deleting the addition under Section 41(1) and dismissed the Tax Appeal.

In conclusion, the Gujarat High Court upheld the ITAT's decision to delete the addition made by the Assessing Officer under Section 41(1) of the Income Tax Act for the Assessment Year 2007-08. The court found no substantial question of law and dismissed the Tax Appeal filed by the revenue.