2017 (4) TMI 603 - AT - Income Tax

Disallowance of the liability shown by the assessee - addition u/s 41 - Held that - Either liability is genuine or non-genuine. It cannot be disallowed at the rate of 20%. Apart from the above, section 41(1) of the Income Tax Act has been incorporated to cover a particular fact situation. The section applies where a trading liability was allowed as a deduction in an earlier year in computing the business income of the assessee and the assessee has obtained a benefit in respect of such trading liability in a later year by way of remission or cessation of the liability. In such a case the section says that whatever benefit has arisen to the assessee in the later year by way of remission or cessation of the liability will be brought to tax in that year. The principle behind the section is that the provision is intended to ensure that the assessee does not get away with a double benefit - once by way of deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with reference to the liability earlier allowed as a deduction. The assessee has shown outstanding liability in his accounts. The ld.Revenue authorities nowhere demonstrated as to how this liability has ceased. The AO simply believed that 20% of the liability must have been ceased. We fail to appreciate this approach. When the assessee has shown the liability in the account, unless it is established that this liability has ceased, it cannot be added in the income of the assessee - Decided in favour of assessee Addition u/s 194C r.w.s 40(a)(ia) - non deduction of tds on transportation charges to the transporters - Held that - Revenue authorities have assumed existence of a contractor-ship between transporters and the assessee. They assumed that the assessee has taken contract from factory owners for supply of lignite and coal, and it has carried out this activity with the help of truck owners. Therefore, there is subcontractor- ship between him and the truck owners, he was required to deduct TDS on the payment made to truck owners. In our opinion, there is no evidence with the AO for harping on such a belief. The AO has not collected evidence of transportation. He has not examined ultimate suppliers of lignite and coal. Nor he has examined truck operators. When the assessee has been alleging that he was only extending facility to his client for delivery of lignite and coal, he has not acted as an agent between client and truck owners. Therefore, in our opinion, merely on assumption basis, the assessee should not be burdened with tax liability. Adhoc disallowance on this magnitude cannot be sustained. We allow this ground of appeal and delete disallowance.- Decided in favour of assessee

Summary

Issues:
1. Addition of outstanding liability in the balance sheet.
2. Adhoc disallowance of car expenses.
3. Addition of transportation expenses and TDS disallowance.

Analysis:

Issue 1:
The appeal was against the addition of outstanding liability of ?4,99,986 in the balance sheet. The AO disallowed 20% of the liability as the assessee did not respond to queries. The CIT(A) confirmed the difference between the liability shown by the assessee and the confirmation by the creditor. The ITAT held that the liability could not be disallowed without proving it ceased, as per Section 41(1) of the Income Tax Act. The confirmation by the creditor was not sufficient to disallow the liability, and the AO's approach was deemed unjustified. The ITAT allowed the appeal and deleted the disallowance.

Issue 2:
The next ground of appeal involved adhoc disallowance of ?25,639 for car expenses. The counsel did not press this ground, and it was rejected.

Issue 3:
The appeal challenged the addition of ?30,65,412 for transportation expenses. The AO disallowed 20% of the total transportation expenses as TDS was not deducted. The CIT(A) upheld the addition due to lack of primary evidence and failure to produce books of accounts. The ITAT noted the absence of evidence supporting the assumption of a contractor-ship between the assessee and transporters. The AO did not investigate the transportation details or suppliers. The ITAT found the adhoc disallowance unjustified and deleted the addition. Two general grounds were dismissed, and the appeal was partly allowed.

In conclusion, the ITAT ruled in favor of the assessee regarding the outstanding liability and transportation expenses issues, emphasizing the need for concrete evidence and proper application of tax provisions.