2021 (1) TMI 666 - AT - Income Tax

Addition u/s. 41(1) - certain creditors which remained outstanding from the preceding year - HELD THAT - It is a matter of record that the assessee paid the amounts to some of the parties in the F.Y. 2014-15, whose copies have also been reproduced in the impugned order. CIT(A) has doubted the genuineness of the transactions on the ground that cash payments could not have been made because all such parties were coming from Kerala. Once the assessee furnished ledger accounts of the parties evidencing the making of payments in a succeeding year that established the existence of liability at the end of the year under consideration non-justifying the applicability of section 41(1) - Here is a case in which some of the parties sent confirmations with their ledger accounts to the AO through the assessee. AO simply doubted the genuineness of e-mails without brining anything concrete on record as to their non-genuineness.Thus the case is not covered u/s.41(1) calling for any addition - Decided in favour of assessee.

Summary

Issues:
Confirmation of addition u/s. 41(1) of the Income-tax Act, 1961.

Analysis:
The appeal was filed against the order confirming an amount under section 41(1) of the Income-tax Act, 1961. The assessee, engaged in manufacturing wooden boxes, had outstanding creditors from the preceding year. The Assessing Officer (AO) observed cash payments made in the following year and initiated inquiries under section 133(6) for verification. While some creditors confirmed the outstanding balances due to disputes, others did not respond to the notices. The AO treated the unpaid amounts as ceased liabilities, invoking section 41(1) and made an addition of ?15,66,027. The Commissioner of Income-tax (Appeals) upheld the assessment order initially, but the Tribunal remanded the matter for fresh determination. In the subsequent proceedings, the Commissioner again confirmed the addition.

During the virtual court hearing, it was acknowledged that the disputed creditors arose from prior business transactions. The AO's doubts regarding the genuineness of e-mails and ledger accounts provided by the assessee were noted. The assessee presented evidence of payments made in the following year to some creditors, supporting the existence of liabilities at the end of the relevant year and contesting the application of section 41(1). The Commissioner questioned the feasibility of cash payments to parties from Kerala. However, the Tribunal found the evidence provided by the assessee, including confirmations and ledger accounts, to be sufficient to establish the liabilities, thereby ruling against the addition under section 41(1).

In conclusion, the Tribunal allowed the appeal, ordering the deletion of the addition under section 41(1) of the Income-tax Act, 1961. The judgment was pronounced on 29th October, 2020.