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2019 (3) TMI 1952 - AT - Income TaxCessation of liability towards creditors u/s 41(1) - HELD THAT - Evidence in the form of confirmations of the concerned two creditors were filed by the assessee before the AO to establish the existence of the said creditors, but the Assessing Officer still treated the said creditors as bogus or non-existent and made addition u/s 41(1) on the ground that assessee s liability towards the said creditors had ceased to exist. As rightly contended by the learned counsel for the assessee, onus was on the AO to establish that the liability towards the said creditors had ceased to exist in the year under consideration and since the said onus was not discharged by the AO, we are of the view that the Ld. CIT(A) was fully justified in deleting the addition made by the AO u/s 41(1) - Decided against revenue. Disallowance u/s 14A - CIT-A deleted the addition HELD THAT - As decided in the case of CIT vs Hero Cycles (P) Ltd. 2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT as well as REI Agro Ltd. 2013 (9) TMI 156 - ITAT KOLKATA wherein it was held that no disallowance u/s 14A could be made if there was no exempt income actually earned by the assessee during the relevant year. In the present case, no exempt income was earned by the company during the year under consideration and this being the undisputed position, we find no infirmity in the impugned order of the Ld. CIT(A) deleting the disallowance made by the A.O. u/s 14A - Ground No. 2 of Revenue s appeal is accordingly dismissed. Claim of the assessee for set off of loss recorded under the head profits and gains of business or profession against the addition made by the A.O. u/s 68 - HELD THAT - the issue involved in the present case is relating to the claim of the assessee for set off of business loss of the current year against the income assessee u/s 68 in the same year. It is observed that this issue as involved in the assessee s case is squarely covered in favour of the assessee by the various judicial pronouncements cited by the learned counsel for the assessee. In one of such decisions rendered in the case of ITO vs M/s. Prism Share Trading Pvt. Ltd 2018 (12) TMI 212 - ITAT MUMBAI allowing the claim of the assessee for set off of loss under the head Profits and Gains of business or profession against the income assessed u/s 68. Ground No. 3 of the Revenue s appeal is accordingly dismissed.
Issues:
1. Challenge to deletion of addition under section 41(1). 2. Disallowance under section 14A. 3. Set off of loss against addition under section 68. Issue 1: Challenge to deletion of addition under section 41(1): The Revenue challenged the deletion of an addition made under section 41(1) by the AO. The assessee, a manufacturing company, had credit balances from two creditors in its balance sheet. The AO treated these creditors as bogus due to lack of payment details. However, the CIT(A) deleted the addition based on confirmations provided by the assessee, stating that the liability had not ceased to exist. The Tribunal upheld the CIT(A)'s decision, emphasizing the AO's failure to prove the cessation of liability. Issue 2: Disallowance under section 14A: The AO disallowed a sum under section 14A, but the CIT(A) deleted this disallowance citing precedents where no exempt income was earned. The Tribunal dismissed the Revenue's appeal, aligning with the CIT(A)'s decision based on legal precedents supporting the non-disallowance when no exempt income was earned. Issue 3: Set off of loss against addition under section 68: The AO treated commodity profit as unexplained cash credit under section 68, resulting in a business loss. The AO refused to allow set off of this loss against the assessed income. The CIT(A) allowed the set off, referring to legislative amendments. The Tribunal upheld the CIT(A)'s decision, noting the distinction between the current year's set off and previous years' losses, as supported by judicial pronouncements. In conclusion, the Tribunal dismissed the Revenue's appeal and the assessee's cross-objection. The judgments were based on detailed analysis of each issue, emphasizing the legal principles and precedents applicable to the specific circumstances of the case.
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