2017 (5) TMI 414 - AT - Income Tax

Addition u/s 41 - cessation of liability - Held that - The assessee has claimed that these were bona fide purchases of raw material made in earlier years for which payments were not made by the assessee to these parties. The assessee did not gave explanation before the authorities below nor filed any confirmations , but now has claimed before the tribunal that purchases were genuine/bonafide and these liabilities were outstanding to be payable as at 31-03-2012 which were reflected in books of accounts and there were no cessation of liability. The assessee has also claimed before us that the assessee had already offered the said amount for taxation in the assessment year 2015-16. The contentions of the assessee about genuineness/bonafide of purchases as well that these two accounts stood adjusted/written back and the income was offered to tax in assessment year 2015-16 , for which necessary verification needs to be done by the authorities below as to said claims of the assessee. Thus, we are inclined to restore this matter to the file of the A.O. for verification of the afore-said contentions of the assesse and de novo determination of the issues on merits in accordance with law after considering the submissions/explanations of the assessee in the light of evidences filed by the assessee. The assessee is directed to produce all necessary and relevant evidences and explanations before the A.O. to substantiate its claim in its defense which shall be admitted by the AO in the interest of justice - Decided in favour of assessee for statistical purposes

Summary

Issues:
1. Assessment time bar
2. Addition of sundry creditors as cessation of liability u/s 41(1)(a)

Assessment Time Bar:
The appeal was filed against the appellate order dated 23rd May, 2016 passed by the Commissioner of Income Tax (Appeals)- 21, Mumbai. The grounds of appeal raised by the assessee challenged the holding that the assessment was not time-barred. The appellant argued that no disallowance was warranted in the circumstances of the case. The judicial member and the accountant member analyzed the contentions and directed the case to be restored to the Assessing Officer for further verification and determination of the issues on merits in accordance with the law. The appellant was instructed to provide all necessary and relevant evidence and explanations to substantiate their defense. The Tribunal allowed the appeal for statistical purposes.

Addition of Sundry Creditors as Cessation of Liability u/s 41(1)(a):
The dispute revolved around certain sundry creditors outstanding in the assessee's books for the last four years. The Assessing Officer added the amount to the total income of the assessee under section 41(1)(a) of the Income-tax Act, 1961, as cessation of liability. The Commissioner of Income Tax (Appeals) confirmed the additions, noting the absence of transactions with the creditors in the last four years and the lack of confirmations from them. The appellant argued that the liability had not ceased and was an acknowledgment of debt payable, which should not be treated as cessation of liability chargeable to tax. The appellant presented additional evidence before the Tribunal, claiming that the amounts had been adjusted and offered for taxation in a subsequent assessment year. The Tribunal observed that the purchases were genuine and directed the case to be sent back to the Assessing Officer for verification of the appellant's contentions and a fresh determination of the issues on merits. The appellant was granted the opportunity to provide necessary evidence and explanations before the Assessing Officer. The appeal was allowed for statistical purposes.

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