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2020 (12) TMI 598 - AT - Income TaxBogus sundry creditors liability - addition inviting sec. 41(1) - HELD THAT - No dispute about the assessee having recorded the sundry creditors liability in question as pertaining to material purchases in the regular course of business. There is no denial from the department side qua the clinching aspect the corresponding material purchases have already been accepted under the head regular revenue in the course of assessment itself - assessee had also successfully filed all necessary detailed evidence of the sundry creditors in remand report proceedings. It emerges from a perusal of the Assessing Officer s remand record dated 30.03.2018 filed before the CIT(A) that he had verified the ledger account of the creditor parties with the bank statements and perused the balance(s) confirmation as well. Once the AO has allowed the assessee s corresponding material purchases claim in the revenue account as a regular head of expenditure, the same very amount could not have been added as a bogus sundry creditor liability u/s 41(1) - when there is no indication about the said sum involving any cessation or remission of liability as per this tribunal s co-ordinate bench decision in Income Tax Officer Ward 12(1) Kolkata vs. M/s Standard Leather Pvt. Ltd . 2016 (9) TMI 1437 - ITAT KOLKATA no reason to accept Revenue s arguments seeking to revive the impugned sec. 41(1) addition - Decided in favour of assessee.
Issues Involved:
1. Legitimacy of Sundry Creditors' Liability Addition under Section 41(1) of the Income Tax Act, 1961. Detailed Analysis: 1. Legitimacy of Sundry Creditors' Liability Addition under Section 41(1) of the Income Tax Act, 1961 Background: The Revenue's primary contention was to reverse the Assessing Officer's (AO) action that treated the assessee's sundry creditors' liability of ?3,64,11,095/- as bogus, invoking Section 41(1) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition only to the extent of ?2,12,931/-. CIT(A)'s Findings: - The AO had not provided sufficient time for the assessee to furnish details of sundry creditors. - The AO's addition was based on assumptions and not on concrete evidence, except for discrepancies in the case of M/s Auto Cars and M/s Balaji Storage Batteries Ltd. - The AO had accepted the purchases from the same creditors as genuine, thus contradicting the addition of sundry creditors as bogus. - The AO did not reject the books of accounts or the purchases, which were supported by bank statements and purchase invoices. - The AO's action was deemed erroneous as it was based on doubts and suspicions without third-party verification. Legal Precedents: - Gulf & Minerals Vs ITO (2018): Without rejecting the purchases, sundry creditors could not be treated as income. - CIT v. Vardhman Overseas Ltd. (2012): The High Court ruled that if the assessee has not written back the sundry creditors in its profit and loss account, Section 41(1) is not applicable. - Supreme Court in Smt. Tarulata Shyam and Others vs. CIT (1977): Emphasized strict interpretation of taxing statutes without importing words not present in the statute. CIT(A)'s Conclusion: - The burden of proof lies on the AO to establish that the liability has ceased or been remitted. - The AO failed to provide documentary evidence to prove cessation or remission of liability, except for M/s Auto Cars and a part of M/s Balaji Storage Batteries Ltd. - The AO's remand report verified the ledger accounts and bank statements of the creditors, confirming their genuineness. - The addition of ?2,12,931/- (?2,00,000/- for M/s Auto Cars and ?12,931/- for M/s Balaji Storage Batteries Ltd.) was upheld, while the remaining addition was deleted. Tribunal's Observations: - The Tribunal noted that the assessee had recorded the sundry creditors' liability as part of material purchases in the regular course of business. - The AO had accepted the corresponding material purchases under the regular revenue head. - The Tribunal cited the Madras High Court's decision in Smt. B. Jayalakshmi vs. JCIT (2018) that no grievance is caused to the Revenue if the AO's remand report accepts the taxpayer's explanation. - The Tribunal referred to the decision in Income Tax Officer Ward 12(1) Kolkata vs. M/s Standard Leather Pvt. Ltd. (2016), which held that sundry creditors cannot be added as income under Section 41(1) unless written off in the books of accounts. Tribunal's Conclusion: - The Tribunal upheld the CIT(A)'s order, confirming the addition of ?2,12,931/- and deleting the remaining addition of ?3,61,98,164/-. - The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection as infructuous. Final Order: - The Revenue's appeal ITA No.222/Ran/2019 was dismissed. - The assessee's cross-objection No.12/Ran/2019 was dismissed as infructuous. Pronouncement: The order was pronounced in the open court on 14/12/2020.
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