2021 (2) TMI 664 - AT - Income Tax

Addition u/s 41(1) - additions towards sundry creditors as bogus - CIT-A deleted the addition - HELD THAT - CIT (A) has considered the plea of the assessee that since it had furnished the details of payments made to the sundry creditors appearing in the books as on 31st March, 2013, the AO should have issued notices u/s 133 (6) and called the details of the outstanding balances. Further, the Ld. CIT (A) has pointed out that seven creditors have filed suits for recovery against the assessee. Further, the Ld. CIT (A) has relied on the judgment of the Hon ble Supreme Court in the case of CIT vs. Sugauli Sugar Works Pvt. Ltd. 1999 (2) TMI 5 - SUPREME COURT - Hence, in our considered view, the findings of the Ld. CIT (A) are based on the evidence on record and in accordance with the settled principles of law. We therefore do not find any infirmity in said order to interfere with. - Decided against revenue. Bogus purchases - assessee failed to furnish full details to prove genuineness of the transaction despite several opportunities given by the AO - CIT (A) has deleted the addition holding that the opening and closing balance of the sundry creditors remain intact through of the years - HELD THAT - We notice that the AO made the disallowance in question holding that the assessee had made payments in cash to 24 parties. However, the Ld. CIT (A) noted that the opening balance of most of the parties remained unchanged as on 01.04.2012 and 31.03.2013, which shows that no payments were made by the assessee. Hence, we do not find any infirmity in the order of the Ld. CIT(A). We accordingly uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue.

Summary

Issues:
1. Disallowance of sundry creditors as bogus under section 41(1) of the Income Tax Act, 1961.
2. Challenge to the deletion of addition made by the AO under section 41(1) by the Ld. CIT (A).
3. Disallowance of cash payments above ?20,000 in the financial year 2012-2013 under section 40A(3).

Issue 1: Disallowance of Sundry Creditors as Bogus under Section 41(1)
The appeal was filed by the revenue against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2013-14. The Assessing Officer (AO) had determined the total income of the assessee, a partnership firm, at ?3,81,92,220, making additions treating sundry creditors as bogus and under section 40A(3) of the Act. The CIT (A) partly allowed the appeal filed by the assessee, leading to the revenue's appeal. The revenue contended that the CIT (A) erred in deleting the addition without verifying the additional evidence produced by the assessee. The revenue argued that the creditors had filed cases against the assessee, but the details were submitted for the first time before the CIT (A), necessitating verification under Rule 46A of the Income-Tax Rules.

Issue 2: Challenge to Deletion of Addition under Section 41(1)
The revenue challenged the action of the CIT (A) in deleting the addition made by the AO under section 41(1) of the Act. The Departmental Representative argued that the CIT (A) wrongly deleted the addition without appreciating that the liabilities of sundry creditors were not settled and no evidence was provided by the assessee to show the creditors were following up for payments. However, the counsel for the assessee supported the CIT (A)'s order, stating that the AO did not follow due procedure and the creditors were pursuing recovery through legal means. The CIT (A) held that the liabilities remained, and the creditors were pursuing their dues, hence deleting the addition made by the AO.

Issue 3: Disallowance of Cash Payments under Section 40A(3)
The revenue challenged the deletion of disallowance made by the AO on account of cash payments exceeding ?20,000 under section 40A(3). The revenue contended that the CIT (A) wrongly deleted the addition as the assessee failed to provide full details to prove the genuineness of the transactions. However, the counsel for the assessee supported the CIT (A)'s decision, stating that no cash payments were made to the parties, as evidenced by the unchanged balances of the sundry creditors. The CIT (A) held that since the opening and closing balances of the creditors remained intact, the AO wrongly made the additions under section 40A(3), leading to the deletion of the disallowance.

In conclusion, the Appellate Tribunal upheld the CIT (A)'s decision to delete the additions made by the AO under sections 41(1) and 40A(3) of the Income Tax Act, 1961. The Tribunal found that the CIT (A)'s findings were based on evidence and in accordance with legal principles. Therefore, the appeal filed by the revenue for the assessment year 2013-2014 was dismissed.