2022 (3) TMI 289 - AT - Income Tax

Cessation of liability - Additions u/s 41(1) - Unsecured loans received on account of transfer entry made through banking channel - Sundry creditors for more than 4 years has not been written back in the profit loss account - HELD THAT - We find that the assessee had genuine business transactions with all these parties which are corroborated from the copy of ledger accounts and several confirmations as well as invoices. In fact, out of sum of ₹ 57,85,077/- outstanding amount of ₹ 28,53,423/- pertained to purchases made during the year under consideration, therefore, to this extent, AO could not have drawn any inference of cessation of liability u/s. 41(1) of the Act. Even, for the balance amount, we find that liability has been acknowledged by the assessee and duly shown in the balance sheet and since some of the creditors could not file confirmation before the AO, it cannot be held that there was a cessation of liability. Genuineness and creditworthiness does not come into play for application of section 41(1) of the Act. Assessee has submitted copies of purchase bills of each and every creditors showing their sales tax registration number, excise number, PLA number etc. Hon'ble Delhi High Court in case of CIT vs. Shri Vardhman Overseas Ltd. 2011 (12) TMI 77 - DELHI HIGH COURT has held that if the outstanding balance in the name of sundry creditors for more than 4 years has not been written back in the profit loss account, the same cannot be taxed u/s. 41(1) of the Act. Hon'ble Supreme Court in case of CCIT vs. Kesaria Tea Co. Ltd. 2002 (3) TMI 1 - SUPREME COURT has laid down that resort to section 41(1) could arise only if the liability of the assessee has said to have ceased finally without having possibility of reviving it, which is not the case here. Accordingly, the order of the ld. CIT(A) deleting the said addition is upheld and the ground raised by the Revenue is dismissed. Unexplained cash deposits - HELD THAT - It is undisputed fact that opening cash in hand was available in the books of account. There is no reason to treat the cash deposit in the bank account from unexplained sources; once the cash book and regular books of accounts have been accepted by the AO and no adverse inference can be drawn if there are sufficient availability of cash in the books of account. Hence, cash deposit made in the bank account, the addition cannot be sustained. Accordingly, the order of the ld. CIT(A) on this issue is upheld and the ground raised by the Revenue is dismissed.

Issues Involved:
1. Deletion of addition on account of unsecured loans.
2. Acceptance of additional evidence under Rule 46A.
3. Deletion of addition on account of sundry creditors.
4. Deletion of addition on account of unexplained cash deposits.
5. Confirmation of addition of unsecured loans by the assessee.

Detailed Analysis:

1. Deletion of Addition on Account of Unsecured Loans:
The Revenue contested the deletion of ?80,00,000/- added by the Assessing Officer (AO) due to unsecured loans received by the assessee. The AO found that the assessee failed to provide confirmations and bank statements for certain lenders, leading to the addition of ?1,19,00,000/-. The CIT(A) deleted ?80,00,000/- of this addition, considering the evidence provided by the assessee, including confirmations, bank statements, and other documents, which were admitted as additional evidence. The CIT(A) found that the funds were transferred through banking channels, and the identity and creditworthiness of the lenders were established. However, the CIT(A) confirmed ?39,50,000/- of the addition due to unexplained cash deposits in the lenders' accounts before issuing cheques to the assessee.

2. Acceptance of Additional Evidence under Rule 46A:
The Revenue argued that the CIT(A) erred in accepting additional evidence without satisfying the conditions of Rule 46A of the Income-tax Rules, 1962. The CIT(A) considered the additional evidence, including bank statements and confirmations, as the assessee had provided reasonable explanations for not submitting these documents earlier. The CIT(A) called for a remand report from the AO, who provided a detailed reply, which was considered in the appellate order.

3. Deletion of Addition on Account of Sundry Creditors:
The AO added ?57,85,077/- under section 41(1) of the Income-tax Act, 1961, for cessation of liabilities, as the assessee failed to provide confirmations for certain sundry creditors. The CIT(A) deleted this addition, noting that the liabilities were acknowledged in the balance sheet and were not time-barred. The CIT(A) found that the AO did not provide evidence of any benefit obtained by the assessee concerning these liabilities. The CIT(A) also referred to various judicial precedents, including the Hon'ble Delhi High Court and Supreme Court, to support the deletion.

4. Deletion of Addition on Account of Unexplained Cash Deposits:
The AO added ?84,19,500/- as unexplained cash deposits in the assessee's bank accounts. The assessee explained that the cash deposits were from opening balances and realizations from debtors. The CIT(A) accepted the assessee's explanation, noting that the cash book and regular books of accounts were maintained and accepted by the AO. The CIT(A) found no evidence to suggest that the cash deposits were from unexplained sources and deleted the addition.

5. Confirmation of Addition of Unsecured Loans by the Assessee:
The assessee contested the confirmation of ?39,50,000/- of unsecured loans. The CIT(A) confirmed ?13,50,000/- from Akarti Enterprises and ?7,50,000/- from Arihant Engineering Works due to unexplained cash deposits in the lenders' accounts before issuing cheques. The assessee argued that the source of cash deposits should be enquired from the lenders, not the assessee. The Tribunal found that the assessee had discharged its onus by providing confirmations and bank details, and the onus to explain the cash deposits lay with the lenders. The Tribunal deleted the additions of ?13,50,000/- and ?7,50,000/-, setting aside the CIT(A)'s order on these additions. However, the Tribunal upheld the addition of ?18,50,000/- for loans from three parties, as no documentary evidence was provided.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, upholding the deletion of additions for unsecured loans, sundry creditors, and unexplained cash deposits, while setting aside the confirmation of certain unsecured loans. The Tribunal emphasized the importance of documentary evidence and the onus of proof in such cases.

← Previous Next →