2023 (2) TMI 1222 - AT - Income Tax

Addition u/s 41(1) - cessation of liability with respect to outstanding balance of one creditor in the books of the assessee - addition made of outstanding balance of the said party PSM in the preceding yea finding it to be bogus - HELD THAT - In the impugned order before us this sundry credit balance has again not been found to be genuine for the very same reason that the said party has not entered any transaction with the assessee and there was no transaction reflected in the bank account of the said party with the assessee. When this adverse material relating to the PSM was found to be of no relevance to its transaction undertaken with the assessee in Asst.Year 2012-13 which was examined by the AO and found to be genuine we fail to understand how on the basis of this very same adverse material the outstanding balance pertaining to the said transaction can now be stated to be ingenuine. Since the AO in the preceding year had after conducting inquiry found that these adverse materials did not lead to the conclusion that the transactions of the assessee with the said party was ingenuine the same adverse material cannot now form the basis of holding the outstanding balance pertaining to the said party in relation to very same transaction to be ingenuine.. For this reason alone we hold that the ld.CIT(A) has rightly deleted the addition made by the AO amounting to Rs. 8, 21, 50, 309/- by invoking section 41(1) of the Act. No infirmity in the order of the ld.CIT(A) deleting the addition made under section 41(1) - Decided in favour of assessee. Addition u/s 69 - outstanding credit balance of parties relating to preceding years - HELD THAT - Revenue was unable to controvert the factual findings of the ld.CIT(A) that the majority addition deleted pertained to outstanding credit balance of parties relating to preceding years. The proposition of law that no addition could be made u/s 68 of the Act on account of opening credit balances of parties also remained uncontroverted before us. In view of the same we see no reason to interfere in the order of the ld.CIT(A) deleting the addition made of opening credit balance of parties. As for the deletion of the balance outstanding the factual finding of the Ld.CIT(A) that the same pertains to purchases made during the year from the said party Bharat Bhai Rajgor which purchases genuineness has not been doubted by the AO has also remained uncontroverted before us. So also his findings with respect to outstanding balance which was found to pertain to opening balance. We see no infirmity in the order of the Ld.CIT(A) deleting the aforestated two outstanding balances also in the light of the facts as noted by us. CIT(A) has upheld the addition with respect to three parties outstanding balances amounting in all to Rs. 18 lacs. There can be no grievance of the Revenue with respect to the same.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance under section 41(1) of the Income Tax Act for Assessment Year 2013-14.
3. Disallowance under section 41(1) of the Income Tax Act for Assessment Year 2014-15.
4. Addition under section 69 of the Income Tax Act for Assessment Year 2014-15.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The Revenue filed an application for condonation of delay of 31 days in filing the appeals. The delay was attributed to the additional workload and movement of case records between Gandhinagar and Ahmedabad. The Tribunal found the reasons sufficient and condoned the delay, allowing the appeals to be heard on merit.

2. Disallowance under Section 41(1) for Assessment Year 2013-14:
The key issue was the addition of Rs. 8,21,50,309/- under section 41(1) related to an outstanding balance with Paper Star Marketing (PSM). The AO had added this amount, citing that PSM denied any transaction with the assessee and no transactions were reflected in PSM's bank statements. The assessee argued that the outstanding balance was from genuine transactions in the preceding year (AY 2012-13), which had been scrutinized and accepted by the AO. The CIT(A) deleted the addition, noting that the transactions were genuine and the liability had not ceased. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the deletion of the addition.

3. Disallowance under Section 41(1) for Assessment Year 2014-15:
The AO added Rs. 45 lakhs under section 41(1), citing a payment made to PSM, which was not reflected in PSM's bank account. The CIT(A) deleted the addition, noting that the payment was genuine and reflected in the assessee's and PSM's bank statements. The Tribunal upheld the CIT(A)'s decision, stating that section 41(1) applies to cessation of liability, not payments made.

4. Addition under Section 69 for Assessment Year 2014-15:
The AO made an addition of Rs. 4,36,54,001/- under section 69, citing unexplained balances in sundry creditors and unsecured loans. The CIT(A) deleted the addition for most balances, noting they were opening balances from previous years and section 69 was not applicable. The CIT(A) upheld the addition for Rs. 18 lakhs, where the assessee failed to prove the genuineness of the transactions. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.

Conclusion:
Both appeals by the Revenue were dismissed, with the Tribunal upholding the CIT(A)'s decisions on all counts. The Tribunal found that the additions under sections 41(1) and 69 were not justified based on the facts and precedents cited.