2019 (1) TMI 1139 - HC - Income Tax

Assessment of sundry creditors /trade creditors balances as deemed income - Scope of Section 41(1) on the mis-construction of Explanation (1) below the said Section - Held that - It is important to note that during the pendency of the proceedings before the Tribunal, the assessment for the year 2010-11 was taken up by the AO and the very same issue was taken up for consideration. The assessee produced the names of those creditors and an enquiry was conducted. The officers of the Department were directed to investigate into the matter after bringing on record the list of all the sundry creditors, the statements given and the no due certificates produced. Yet, the Assessing Officer made a protective assessment vide order dated 27.3.2013. This order is now the subject matter of appeal before the CIT(A). The mistake committed by the assessee is not placing the order dated 27.3.2013 before the Tribunal when the appeal was heard for the assessment year 2009-10. Had it been done, the Tribunal might have remanded the matter for a fresh consideration to the CIT(A), since, by then, the appeal as against the assessment order dated 27.3.2013 for the assessment year 2010-11 was pending. While passing the order dated 09.11.2012 the CIT(A) did not decide the legal issue as to whether the statement given during the survey was admissible and as to whether was the Assessing Officer justified in making the addition based on the statement, but proceeded to rely upon the statement to dismiss the appeal. Tribunal also proceeded in a different direction than what was argued before it. Thus, in our considered view, the matter requires re-consideration, for which purpose, we propose to remand the matter to the CIT(A) to be heard along with the appeal filed challenging the assessment order dated 27.3.2013 for the assessment year 2010-11. - Decided in favour of assessee.

Summary

Issues:
Assessment of sundry creditors/trade creditors' balances as deemed income under Section 41(1) of the Income Tax Act, 1961 for the assessment year 2009-10.

Analysis:
The appeal challenged the order passed by the Income Tax Appellate Tribunal, Chennai 'B' Bench regarding the assessment year 2009-10. The appellant raised substantial questions of law related to the treatment of sundry creditors/trade creditors' balances as deemed income under Section 41(1) of the Act. The appellant contended that the assessment was based on a misinterpretation of Explanation (1) below the said section and overlooked the settlement of accounts in the subsequent assessment year, 2010-11. The appellant argued that the credits shown in the books were old, paid long back, and were offered as income under pressure during a survey. The Assessing Officer framed the assessment based on the admission made by the appellant during the survey conducted under Section 133A of the Act.

The appellant appealed to the Commissioner of Income Tax (Appeals) challenging the addition made by the Assessing Officer. The appellant argued that the statement recorded during the survey did not have evidentiary value and could not be the sole basis for the addition. The CIT(A) upheld the Assessing Officer's decision, stating that the appellant identified the creditors but failed to prove them. The appellant then appealed to the Tribunal, citing legal precedents and emphasizing that the amounts were carry-forward balances from previous years, thus not subject to addition under Section 68 of the Act.

The Tribunal, noting the absence of documents proving the settlement of creditors, upheld the assessment. However, during the proceedings, it was revealed that an enquiry in the subsequent assessment year 2010-11 confirmed the settlement of accounts with the creditors. The Tribunal did not consider this new information. The High Court observed that the CIT(A) and the Tribunal did not address the legal issue of the admissibility of the survey statement and the justification for the addition based on it. The High Court decided to remand the matter to the CIT(A) for reconsideration along with the appeal for the assessment year 2010-11, emphasizing the need for a fresh decision based on all relevant information.

In conclusion, the High Court allowed the appeal, set aside the Tribunal's order, and remanded the matter to the CIT(A) for a fresh decision. The High Court highlighted the importance of considering all relevant evidence and legal aspects in such assessments. The substantial questions of law were left open, and no costs were awarded in this matter.