2018 (11) TMI 326 - AT - Income Tax

Addition of cessation of liabilities u/s 41(1) - admission of additional evidence - Held that - Additional grounds need to be admitted and sent back to the file of the AO for verification. It is true that by agreeing to the addition during the course of assessment proceedings, the assessee has prevented the AO from further inquiries on the issue. However, since the assessee has challenged the admission in the written submissions filed before the CIT (A), the CIT (A) ought to have considered the admissibility or otherwise of such grounds and if the grounds are admitted, then the allowability of such grounds. On the basis of material on record, we deem it fit and proper to remand the same to the file of the AO for reconsideration in accordance with law.

Summary

Issues:
1. Addition of lease rights amount to income.
2. Treatment of sundry creditors and confirmation of balances.
3. Addition of amounts under section 68 of the Income Tax Act.
4. Cessation of liability under section 41(1) of the Income Tax Act.
5. Admissibility of additional grounds of appeal.

Issue 1: Addition of Lease Rights Amount to Income
The appellant, engaged in the entertainment industry, claimed lease rights expenses for a film. However, the AO found discrepancies in the submission of relevant agreements. Despite multiple opportunities, the appellant failed to provide the necessary documentation. Consequently, the AO added the claimed amount to the appellant's income. The CIT (A) partially allowed the appeal, deleting the addition under section 68 but confirming the addition under section 41(1) due to lack of proof of genuineness. The appellant challenged the additions, leading to a remand for reconsideration by the AO.

Issue 2: Treatment of Sundry Creditors and Confirmation of Balances
The AO observed discrepancies in the appellant's sundry creditors' list and requested confirmations and PAN details. The appellant failed to provide confirmations for specific creditors, claiming they were untraceable. Additionally, the appellant could not obtain confirmation letters for other creditors. The AO applied section 68, adding the unverified amounts to the appellant's income. The CIT (A) partially upheld the additions, leading to a remand for further verification by the AO.

Issue 3: Addition of Amounts under Section 68
Under section 68, the AO added amounts to the appellant's income due to unexplained credits. The CIT (A) directed the AO to re-examine the records where confirmations were submitted. The appellant challenged the additions, leading to a remand for reconsideration by the AO.

Issue 4: Cessation of Liability under Section 41(1)
The AO added a pending liability as a cessation under section 41(1) due to non-settlement beyond three years. The CIT (A) deleted a specific amount from this addition, citing lack of evidence of waiver or write-off. The appellant raised objections, resulting in a remand for further review by the AO.

Issue 5: Admissibility of Additional Grounds of Appeal
The appellant raised additional grounds challenging the additions, citing lack of authority for agreements and inconsistencies in application of tax provisions. The Tribunal admitted these grounds for reconsideration by the AO, emphasizing the need for proper verification and a fair hearing for the appellant.

In conclusion, the Tribunal set aside all issues for de novo consideration by the AO, emphasizing the importance of proper verification, evidence submission, and adherence to tax provisions. The appeal was treated as allowed for statistical purposes.