2018 (5) TMI 1311 - AT - Income Tax

Addition u/s 41 - addition as bogus sundry creditors - Held that - The assessee before us had not written back the sundry creditors in the sum of ₹ 1,08,65,202/- to its profit and loss account and had continued to show the same in its balance sheet. Thus we have no hesitation in directing the AO to delete the addition made u/s 41(1) - Decided in favour of assessee Disallowance u/s 40(a)(ia) - short deduction of tax at source on labour and fabrication charges paid to Adhir Kumar Mondal - CIT-A held that since the return was filed belatedly u/s 139(4) of the Act by the payee the conditions prescribed in proviso to section 201(1) were not satisfied and accordingly the assessee is to be treated as assessee in default - Held that - We find that the ld CITA had taken cognizance of this CA certificate but had not given weightage of the same due to his interpretation that section 139 referred to in the proviso to section 201(1) need to be construed only as section 139(1) and not otherwise. In these facts and circumstances, we hold that the assessee had furnished requisite evidences to prove that the payee had duly considered the subject mentioned receipt in his return of income and hence no disallowance u/s 40(a)(ia) of the Act could be inflicted on the same in the hands of the assessee payer Whether the provisions of section 40(a)(ia) of the Act could be invoked for short deduction of tax at source - Held that - We find that this issue has been held in favour of the assessee by the co-ordinate bench decision of this tribunal in the case of DCIT vs S K Tekriwal (2012 (12) TMI 873 - CALCUTTA HIGH COURT) wherein it was held that in the case of short deduction of tax at source, no disallowance u/s 40(a)(ia) of the Act could be made in the hands of the assessee and the assessee could be proceeded against only under section 201 of the Act in such cases - Decided in favour of assessee

Summary

Issues Involved:
1. Addition under Section 41(1) of the Income Tax Act for cessation of liability.
2. Addition of bogus sundry creditors.
3. Disallowance under Section 40(a)(ia) for short deduction of tax at source.

Detailed Analysis:

1. Addition under Section 41(1) of the Income Tax Act for cessation of liability:

The primary issue was whether the addition of ?1,08,65,202/- under Section 41(1) of the Income Tax Act for cessation of liability was justified. The assessee argued that the liabilities continued to be shown in the books and were not written back to the profit and loss account. The tribunal emphasized that for Section 41(1) to apply, there must be a clear finding of cessation of liability during the relevant assessment year. The tribunal noted that the liabilities were shown in the books even in the subsequent year, indicating no cessation of liability. The tribunal relied on the Karnataka High Court's decision in CIT vs Alvares & Thomas, which held that mere non-payment over a period does not constitute cessation of liability. Consequently, the tribunal directed the AO to delete the addition of ?1,08,65,202/- under Section 41(1).

2. Addition of bogus sundry creditors:

The second issue involved the addition of ?29,49,535/- as bogus sundry creditors. The AO had issued notices under Section 133(6) to four parties, out of which only one party, M/s M.J. Contractor, responded but did not confirm the opening and closing balances. The tribunal observed that the assessee had made payments to these creditors during the year, which were accepted by the AO. It also noted that one of the creditors, M/s M.J. Contractor, had responded to the notice, confirming the transactions. The tribunal concluded that the balances were brought forward from previous years and the transactions were genuine. Therefore, the addition of ?29,49,535/- as bogus sundry creditors was deleted.

3. Disallowance under Section 40(a)(ia) for short deduction of tax at source:

The final issue was the disallowance of ?1,15,716/- under Section 40(a)(ia) for short deduction of tax at source on payments made to Adhir Kumar Mondal. The tribunal noted that the payee had filed his return of income under Section 139 and had considered the payments in his return. The tribunal clarified that the proviso to Section 201(1) does not specify that the return must be filed under Section 139(1); filing under Section 139 is sufficient. The tribunal also referenced the coordinate bench decision in DCIT vs S K Tekriwal, which held that no disallowance under Section 40(a)(ia) could be made for short deduction of tax. Consequently, the tribunal directed the deletion of the disallowance of ?1,15,716/-.

Conclusion:

The tribunal allowed the appeal of the assessee, directing the deletion of the additions under Section 41(1) for cessation of liability, the addition of bogus sundry creditors, and the disallowance under Section 40(a)(ia) for short deduction of tax at source. The judgment emphasized the importance of proving actual cessation of liability and the proper interpretation of statutory provisions.