2019 (7) TMI 753 - HC - Income Tax

Assessment u/s 153A - Addition u/s 41(1) - Cessation of liability - as alleged assessee had not been able to produce sufficient supporting evidence to prove genuineness of the creditors - HELD THAT - The findings of fact recorded by the tribunal that no material was recovered during the search as per the provisions of section 153(C), which could have been treated as incriminating material and which have been made as a base for supporting the action of the department. Under the circumstances, the addition on account of Cessation of liability u/s 41(1) is illegal, in valid and not sustainable in the eye of law. If such course is permitted it would amount to reopening assessment order without any new material. Similar view has been taken by the Apex Court in the case of CIT Versus Sinhgad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT held as in absence of any incriminating material which was seized as per the provisions of section 153(C), notice u/s 153(C) cannot sustain. - Decided against revenue

Summary

Issues:
Challenge to legality and validity of the order passed by the Income Tax Appellate Tribunal under section 260(A) of the Income Tax Act, 1961 for A.Y. 2007-08.
Question of law regarding the deletion of addition made under section 41(1) of the Act.
Assessment order under section 144 r.w.s. 153A of the Act determining total income and addition made on account of Cessation of liability.
Appeal before the Commissioner of Income Tax, Surat and deletion of addition by CIT(A).
Appeal by the revenue before the tribunal and dismissal of the appeal.
Appeal by the Revenue under section 260(A) challenging the tribunal's order.
Analysis:
The Revenue filed a Tax Appeal challenging the order of the Income Tax Appellate Tribunal, Surat, regarding the addition made under section 41(1) of the Income Tax Act for A.Y. 2007-08. The assessee had filed the return of income, and after a search was conducted, an assessment order was passed making an addition on account of Cessation of liability. The CIT(A) allowed the appeal of the assessee, deleting the addition. The tribunal also dismissed the revenue's appeal, stating that there was no evidence to prove the liability had ceased to exist, and it was only an assumption by the Assessing Officer.

The High Court noted that the tribunal's findings indicated that no incriminating material was found during the search to support the addition made under section 41(1) of the Act. The court cited a similar decision by the Apex Court, emphasizing the need for incriminating material to sustain such additions. The court concluded that the tribunal's order was legal and in accordance with the law, finding no error or illegality in dismissing the revenue's appeal and confirming the deletion of the addition made under section 41(1) of the Act. It was held that no substantial question of law arose for determination, leading to the dismissal of the revenue's appeal.