2016 (6) TMI 928 - AT - Income Tax

Additions u/s 41(1) - cessation of Trading liability - Held that - We find that the provisions of section 41(1) of the Act could be invoked towards cessation of liability only in the event of revenue proving the fact of assessee deriving some benefit out of this transaction. In the instant case , the assessee claims that the liability has been settled in the subsequent financial year which fact has not been verified by the Learned AO. Hence in the facts and circumstances, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the Learned AO , with a direction to verify the subsequent settlement made by the assessee to the concerned sundry creditor and if proved, no addition need to be made by the Learned AO. - Decided in favour of revenue for statistical purposes. Disallowance of brokerage payment - Held that - We find from the confirmation letters of 5 suppliers that they had categorically stated that the assessee was introduced to them through a broker. The broker in the instant case needs to be understood only as M/s Timespac India Ltd. The revenue was not able to produce any contrary evidence in this regard. However, we agree with the contention of the Learned DR that these confirmations were dated in the fag end of December 2011 from different locations in India, it would not have reached the Learned AO before the completion of assessment proceedings. Hence, in these facts and circumstances, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the Learned AO, with a direction to the Learned AO to verify the confirmations filed by the 5 suppliers and decide the issue in accordance with law. - Decided in favour of revenue for statistical purposes.

Summary

Issues:
1. Addition of trading liability to M/s Peekay Associates
2. Deletion of brokerage payment to M/s Timespac India Ltd

Issue 1: Addition of Trading Liability to M/s Peekay Associates

The first issue in this appeal revolves around the trading liability standing in the name of M/s Peekay Associates, amounting to ?77,258, and whether it could be added based on the circumstances. The Assessing Officer (AO) treated the amount as unexplained and added it to the total income of the assessee, as no satisfactory reply was received regarding its genuineness. However, the assessee claimed that the liability was carried forward from the previous financial year and was fully settled in the subsequent year. The Commissioner of Income Tax Appeals (CIT(A)) deleted the addition, stating that the assessee did not derive any benefit from the liability, hence Section 41(1) of the Income-tax Act could not be applied. The Income Tax Appellate Tribunal (ITAT) set aside the issue to the AO for verification of the subsequent settlement, emphasizing the need for the AO to confirm the settlement with the concerned creditor. The Tribunal allowed the revenue's appeal for statistical purposes.

Issue 2: Deletion of Brokerage Payment to M/s Timespac India Ltd

The second issue concerns the deletion of brokerage payment amounting to ?43,20,020 to M/s Timespac India Ltd. The AO treated the payment as bogus and fabricated, alleging an intention to conceal actual income. The assessee contended that the brokerage was paid for services rendered in introducing the assessee to suppliers, and all payments were duly accounted for. The CIT(A) deleted the addition, emphasizing that the commission was paid for services rendered by the broker, which facilitated genuine purchases. The ITAT, however, set aside the issue to the AO for verification of confirmation letters from suppliers, directing a thorough examination of the evidence and providing the assessee with a reasonable opportunity to be heard. The Tribunal allowed the revenue's appeal for statistical purposes.

In conclusion, the ITAT Kolkata addressed two key issues in this judgment: the addition of trading liability to M/s Peekay Associates and the deletion of brokerage payment to M/s Timespac India Ltd. The Tribunal emphasized the importance of verifying the settlement of liabilities and examining the evidence related to brokerage payments, ensuring a fair and just decision-making process.