2021 (2) TMI 61 - AT - Income Tax

Cessation of liabilities u/s 41(1) - the trade liabilities payable by the assessee exist from the earlier years and are disclosed in the financial statements - CIT-A enhancing and confirming the addition - HELD THAT - Trade liabilities are carried forwarded in the books of accounts from the earlier years and the assessee is liable for payment to the Creditors and substantiated with the details. We find the assessee has not written off the liabilities as no longer required in the books of account - on perusal of assessment order, we find that the A.O. has neither recorded satisfaction for making disallowance or made enquires on trade creditors nor supported with any evidence that the trade liabilities are no longer payable by the Assessee. Accordingly, we set aside the order of the CIT(A) on this disputed issue and direct the Assessing officer to delete the addition. Disallowance of Franking, processing and registration charges - whether they are wholly incurred for the purpose of business - AR has substantiated his arguments with the details along with registration charges and sanction letters of the banks substantiating that the said amount are revenue expenditure - HELD THAT - We considering the facts and the material find that these details are to be verified and examined. Accordingly, we remit this disputed issue to the file of the Assessing officer for limited purpose for verification. The assessee should be provided with adequate opportunity of hearing and shall cooperate in submitting the information and allow the grounds of appeal for statistical purpose

Summary

Issues involved:
1. Addition of franking charges and processing charges
2. Addition of trade payables under section 41(1)
3. Addition of unexplained credit as trade payables
4. Addition without issuing a show cause notice

Analysis:

Issue 1: Addition of franking charges and processing charges
The assessee appealed against the Commissioner of Income Tax (Appeals) order confirming the addition of certain amounts towards franking charges and processing charges. The Assessing Officer had disallowed these amounts as capital expenditure. The Appellate Tribunal found that the trade liabilities were carried forward from earlier years and were still payable by the assessee. The Tribunal noted that the Assessing Officer did not provide any evidence or satisfaction for disallowing these expenses. As a result, the Tribunal directed the Assessing Officer to delete these additions, as the trade liabilities were still valid and payable by the assessee.

Issue 2: Addition of trade payables under section 41(1)
The CIT(A) confirmed the addition under section 41(1) for cessation of liability. The Appellate Tribunal considered the submissions of the assessee and found that the trade liabilities were disclosed in the financial statements and were still payable by the assessee. The Tribunal set aside the CIT(A) order and directed the Assessing Officer to delete the addition, as there was no evidence to support that these trade liabilities were no longer payable.

Issue 3: Addition of unexplained credit as trade payables
The CIT(A) had added an amount as unexplained credit under trade payables. The Tribunal, after considering the arguments and evidence presented by the assessee, found that the trade liabilities were valid and payable by the assessee. The Tribunal directed the Assessing Officer to delete this addition, as there was no justification provided for treating these trade payables as unexplained credits.

Issue 4: Addition without issuing a show cause notice
The assessee raised a ground regarding an addition made without issuing a show cause notice. However, the judgment did not provide specific details or resolution for this issue.

In conclusion, the Appellate Tribunal partially allowed the appeal filed by the assessee, directing the Assessing Officer to delete the additions related to franking charges, processing charges, and trade payables under section 41(1). The Tribunal emphasized the importance of verifying details and providing opportunities for the assessee to substantiate their case during assessments.