2020 (10) TMI 1186 - AT - Income Tax

Addition u/s 68 - addition made by the AO on account of credit balance appearing in the accounts of concerned two creditors having been found to be bogus - alternative recourse to sub-section (1) of section 41 suggested - HELD THAT - Provisions of section 41(1) can be invoked only when trading liability incurred by the assessee is subsequently found to have seized to exist in the relevant year and the onus in this regard is on the AO to establish on evidence that there was indeed remission or cessation of such liability. In the present case this onus was not discharged by the AO and addition on account of balance appearing in the name of concerned two creditors was made by him u/s. 68 of the Act by treating the same as unexplained cash credit because of the failure of assessee to establish mainly the genuineness of said creditors. This position clearly apparent from record we are of the view that recourse at this stage cannot be made to sub-section (1) of section 41 to confirm the addition made by the AO u/s. 68 as sought by the ld. DR. Uphold the impugned order of CIT(A) restricting the addition made by the AO u/s. 68 thereby giving a which represented the opening balance and pertained to transactions of earlier year. - Appeal of Revenue dismissed.

Summary

Issues:
1. Whether the CIT(A) was correct in restricting the addition made by the AO under section 68 of the Income Tax Act.
2. Determining the treatment of credit balances of certain creditors in the assessment year 2009-10.

Analysis:
1. The appeal was filed by the Revenue against the order of the CIT(A) regarding the addition of certain credit balances under section 68 of the Income Tax Act. The AO had added a significant amount to the total income of the assessee, based on unexplained/unproved credit balances from two creditors. The CIT(A) confirmed the AO's findings regarding the failure to establish the genuineness of the creditors but made adjustments to the addition. The Tribunal upheld the CIT(A)'s decision, restricting the addition made by the AO to a lesser amount, considering the opening balances carried forward from earlier years.

2. The assessee, engaged in trading, had declared a total income for the assessment year 2009-10. The AO, during assessment proceedings, found discrepancies in the genuineness of certain creditors, specifically M/s. Steel Traders and M/s. C.S. Corporation. Despite efforts to verify the transactions and identities of these creditors, the assessee failed to provide satisfactory evidence. The AO treated the credit balances from these creditors as unexplained and made additions to the total income. The CIT(A) reviewed the case and determined that certain credit balances, particularly the opening balances carried forward from previous years, could not be treated as unexplained cash credits under section 68 of the Act. The Tribunal concurred with this interpretation and dismissed the Revenue's appeal, upholding the CIT(A)'s decision to restrict the addition made by the AO.

In conclusion, the judgment addressed the issues raised by the Revenue regarding the addition of credit balances under section 68 of the Income Tax Act for the assessment year 2009-10. The Tribunal affirmed the CIT(A)'s decision to limit the addition made by the AO, considering the nature of the credit balances and their relation to earlier transactions. The case highlighted the importance of establishing the genuineness of transactions and the treatment of opening balances in determining taxable income.