2019 (9) TMI 1149 - HC - Income Tax

Addition u/s 41(1) - proof of seizure of Sundry Creditors - HELD THAT - Assessing Authority had made due inquiry from the Sundry Creditors whose addresses and details were supplied by the assessee during the course of assessment proceedings and the communications thereon from the assessee. Assessee failed to rebut the adverse material with regard to the Creditors viz., Hari Traders and another M/s.Sunil, who had apparently confirmed that they did not make any claim of the amount of the unpaid amount due to them. It was thus for the assessee to rebut that material by either producing the relevant documentary evidence or the Sundry Creditors to show that the liability had not ceased in the eye of law so as to attract Section 41 (1) of the Act. Now, on the fact finding exercise undertaken by Appellate Authority also, except making the averments to the effect that these Sundry Creditors were paid, no documentary proof thereof has been produced by the assessee and, therefore, the learned Tribunal, in our opinion, has rightly held that the said averments of the assessee could not be believed on their face value. However, we feel that the matter requires further investigation and inquiry at the hands of the Assessing Authority and, the learned Tribunal, instead of reversing the order of the learned CIT (A), ought to have remanded the matter back to the Assessing Authority in such facts and circumstances of the case to ascertain whether the trade liability towards the Sundry Creditors shown in the Balance Sheet had ceased in the eye of law or whether such trade liability genuinely continued or not. Dispose of this appeal with the remand of the case to the Assessing Authority without answering the Substantial Question of law, framed above.

Issues Involved:
1. Applicability of Section 41(1) of the Income Tax Act, 1961.
2. Validity of additions made by the Assessing Authority.
3. Rebuttal of adverse material by the assessee.
4. Requirement of further investigation by the Assessing Authority.

Issue-wise Detailed Analysis:

1. Applicability of Section 41(1) of the Income Tax Act, 1961:
The core issue revolves around whether the amount of ?6,88,332/- is taxable under Section 41(1) of the Income Tax Act, 1961. The Tribunal upheld the additions made by the Assessing Authority, referencing the Supreme Court's decision in CIT Vs. T.V.Sundaram Iyengar and Sons Ltd. (222 ITR 344), which states that if an amount received in a trading transaction becomes the assessee's own money due to limitation or statutory right, it should be treated as income. The Tribunal found that even if the purchases were genuine, the amount due to creditors remained unclaimed and was taxable under Section 41(1) since the assessee was unaware of the creditors' addresses.

2. Validity of Additions Made by the Assessing Authority:
The Assessing Authority made additions totaling ?6,88,332/- in the assessment order dated 30th March 2004, citing unverified sundry creditors. Letters sent to certain creditors returned unserved, and the assessee failed to provide correct addresses or transaction details. The First Appellate Authority, CIT(A), initially allowed the assessee's appeal, stating that the assessee had produced relevant documents and the transactions did not pertain to the year under consideration but were carried forward balances from preceding years. The CIT(A) held that the disallowances made by the Assessing Authority could not be sustained on facts and in law.

3. Rebuttal of Adverse Material by the Assessee:
The Tribunal noted that the assessee did not respond to adverse findings regarding certain creditors who confirmed no claim against the assessee. The Tribunal held that the CIT(A) erred in believing the assessee's submissions without documentary proof of payments to the creditors in subsequent years. The Tribunal emphasized that the burden of proof was on the assessee to rebut the adverse material, which was not adequately discharged.

4. Requirement of Further Investigation by the Assessing Authority:
The High Court found that the matter required re-adjudication by the Assessing Authority. The Court observed that the Assessing Authority had conducted due inquiry, but the assessee failed to rebut the adverse material. The Tribunal should have remanded the case back to the Assessing Authority for further investigation to ascertain whether the trade liability genuinely continued or had ceased in the eye of law. The High Court disposed of the appeal by setting aside the orders of all three authorities and remanding the case to the Assessing Authority for fresh assessment, granting the assessee an opportunity to adduce reasonable evidence.

Conclusion:
The High Court did not answer the substantial question of law but remanded the matter to the Assessing Authority for fresh assessment within one year, allowing the assessee to present relevant evidence. The first appearance before the Assessing Authority was scheduled for 23rd October 2019.

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