2017 (5) TMI 195 - AT - Income Tax

Trading addition - rejection of books of accounts - CIT-A reducing trading addition - Held that - CIT(A) has taken into account the increase in the turn over which is not controverted by the Revenue. Therefore, there is no infirmity into the order of Ld. CIT(A), same is hereby affirmed. Thus, this ground of the Revenue s appeal is dismissed. Addition on account of ceased liability u/s 41(1) - Held that - We find merit in the contention of the appellant as the AO neither had made any inquiries nor brought any material on record that the creditors either had written off the said liabilities in their book of accounts or denied to own these amounts. In considered opinion, no addition u/s 41(1) can be made merely on the ground that the debts remained unpaid in the appellants books for a number of years and no presumption can be made that the said liability had ceased or had been remitted. It is noted from the assessment order that out of the 4 invoiced, the payments for which outstanding as on 31.03.2012, the 2 were pertaining to the AY 2012-13 i.e. the year under consideration and 1 each was pertaining to AY 2010-11 and 2011-12, and thus as on 31.03.2012, these debts were not even barred by limitation. Thus AO was not justified in making addition u/s 41(1) of the Act - Decided against revenue

Summary

Issues:
1. Reduction of trading addition despite upholding rejection of books of accounts under section 145(3) of IT Act, 1961.
2. Deletion of addition made on account of ceased liability under section 41(1) without substantial evidence.

Issue 1 - Reduction of Trading Addition:
The Revenue appealed against the order of Ld. Commissioner of Income Tax (A) reducing the trading addition from ?4,30,448 to ?2,89,486 despite upholding the rejection of the books of accounts under section 145(3) of the IT Act, 1961. The Assessing Officer had invoked section 145(3) due to various defects in the appellant's books of accounts, leading to a trading addition. The Ld. CIT(A) considered the increase in turnover and past history, applying a GP rate of 26% instead of the declared rate of 23.95%. The Ld. CIT(A) found no infirmity in the order and affirmed the reduction in trading addition. The Tribunal dismissed the Revenue's appeal on this ground.

Issue 2 - Deletion of Addition on Account of Ceased Liability:
The second ground of appeal was against the deletion of an addition of ?49,96,315 made on account of ceased liability under section 41(1) without substantial evidence. The Assessing Officer contended that the liability had ceased, but the appellant argued that unpaid liabilities cannot be added to income unless proven otherwise. The Ld. CIT(A) found merit in the appellant's contention, stating that no addition under section 41(1) can be made solely based on debts remaining unpaid in the books. The Ld. CIT(A) noted that the liabilities were not even barred by limitation as of a certain date. The Tribunal affirmed the Ld. CIT(A)'s decision, as the appellant demonstrated that the liability had not ceased. Consequently, the appeal of the Revenue was dismissed.

In conclusion, the ITAT Jaipur upheld the Ld. CIT(A)'s decision to reduce the trading addition and delete the addition made on account of ceased liability, dismissing the Revenue's appeal in its entirety.