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Issues involved: Appeal against order of Commissioner of Income Tax (Appeals) regarding addition of amount in respect of creditors and chargeability of interest under section 234B of the Income Tax Act, 1961.
Issue 1: Addition of amount in respect of creditors The assessee, a firm engaged in manufacturing, filed its return of income for the assessment year 2007-2008. During assessment, the Assessing Officer added an amount to the income of the assessee under section 41(1) of the Act, considering it as cessation of liability due to inability to furnish confirmation statements for certain sundry creditors. The Commissioner of Income Tax (Appeals) upheld the addition, stating that creditors would not remain silent for long without receiving payment. The appellant argued that most creditors were genuine, accumulated over years, and not paid in time, leading to non-cooperation. The appellant cited case laws supporting that outstanding balances cannot be taxed under section 41(1) without evidence of benefit received by the assessee. The Tribunal found that the revenue failed to show any benefit received by the assessee or that the amount was accounted for in earlier years. Consequently, the addition was deleted as the creditors' non-cooperation was justified due to delayed payments and lack of investigation by the revenue authorities. Issue 2: Chargeability of interest under section 234B The Tribunal dismissed the ground raised by the assessee regarding the chargeability of interest under section 234B of the Act, deeming it consequential and mandatory. In conclusion, the Tribunal partly allowed the appeal filed by the Assessee, deleting the addition made under section 41(1) of the Act.
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