2022 (8) TMI 899 - AT - Income Tax

Addition u/s 41(1) - cessation of liability - assessee has not been able to produce confirmation for sundry creditors outstanding - HELD THAT - Deficiencies marked by the AO are not sustainable (i) As assessee had filed confirmations of sundry creditors for purchases (ii) Discrepancies in the opening balance as per balance-sheet and submissions made by the assessee has been duly reconciled and filed before the CIT(A) and we have also considered the same and found to be correct (iii) As per AO balance-sheet of the assessee does not reflect a true and fair view of its affairs is not sustainable as she did not rejected the books of accounts, hence, this finding of her is contradictory and not sustainable and (iv) Notices issued under section 133(6) of the Act were responded by the parties before the CIT(A) and on this aspect, Ld. CIT(A) asked for a remand report from AO, hence, this allegation is also not sustainable. Submissions of the assessee and additional evidences filed before Ld. CIT (A) and accepted by him considering the remand report of A.O., we are of the considered view that order of A.O. was not sustainable and findings of Ld. CIT (A). Addition as cash receipts and cash payment - HELD THAT - We have gone through the form no 3CD (Tax Audit Report) and submissions before the authorities below made by the assessee. We found the tax auditor reported these two items of cash receipt and cash payment shown under the column of loan and deposits accepted during the year and not under the column for disallowances to be made u/s 40A(3). These two transactions are in the nature of amounts taken / paid in cash from sister /associate concerns. As assessee has not claimed amount of Rs. 19,50,000/- and Rs. 56,00,000/- as expense in its Profit Loss A/c, therefore, it cannot be disallowed. Looking at the nature of transactions it is no-where proved that the same can be treated as income u/s 28 or can be disallowed u/s 40A(3) or any other section of the act. At the max both the transactions can be considered for the purposes of section 269SS and section 269T, subject to the clarification of the assessee and various judicial pronouncement in this regard. Hence, we hereby direct to delete addition/disallowance of Rs 75,50,000/- made by A.O. and sustained by Ld. CIT (A). Applicability of sections 269SS, 269T r.w.s. 271D and 271E are concerned as no action so far has been taken against the assessee by the A.O. in the result there is no cause of grievance made out by the assessee on which this tribunal can adjudicate hence, challenging the initiation itself is not allowed hence, found to be infructuous.

Summary

Issues:
1. Whether Ld. CIT(A) correctly exercised powers co-terminus with the Assessing Officer?
2. Whether Ld. CIT(A) correctly applied section 41(1) for cessation of liability?
3. Whether the A.O.'s additions on sundry creditors and cash receipts/payments were justified?
4. Whether the A.O.'s findings on sundry creditors were sustainable?
5. Whether the A.O.'s findings on cash receipts/payments were sustainable?
6. Whether the applicability of sections 269SS, 269T, 271D, and 271E was correctly addressed?

Analysis:

1. Issue 1 - Ld. CIT(A)'s Powers:
The Revenue challenged Ld. CIT(A)'s failure to exercise powers co-terminus with the Assessing Officer. The Tribunal found that the A.O.'s additions were not sustainable as the appellant provided reconciliations for discrepancies, which the A.O. did not comment on. Ld. CIT(A)'s findings were deemed correct, and the Revenue's appeal was dismissed.

2. Issue 2 - Section 41(1) Application:
The Revenue contested Ld. CIT(A)'s decision not to apply section 41(1) for cessation of liability due to unverifiable sundry creditors. The Tribunal upheld Ld. CIT(A)'s decision to delete the additions made by the A.O., as the creditors' transactions were verifiable and had been accepted in subsequent years.

3. Issue 3 - A.O.'s Additions:
The A.O. made adhoc additions on sundry creditors and cash receipts/payments. The Tribunal found that the A.O.'s justifications were not sustainable, as the appellant provided confirmations for sundry creditors and explanations for cash transactions, leading to the deletion of the additions.

4. Issue 4 - Sustainability of A.O.'s Findings on Sundry Creditors:
The A.O.'s findings on sundry creditors were challenged by the appellant. The Tribunal concluded that the deficiencies marked by the A.O. were not sustainable, as confirmations were filed, discrepancies were reconciled, and the balance sheet was not rejected, leading to the dismissal of the Revenue's appeal.

5. Issue 5 - Sustainability of A.O.'s Findings on Cash Receipts/Payments:
The A.O.'s additions on cash receipts/payments were disputed by the appellant. The Tribunal found that the transactions were not expenses claimed in the Profit & Loss A/c, and hence, could not be disallowed under relevant sections. The additions were deleted, and the appeal was partly allowed.

6. Issue 6 - Applicability of Sections 269SS, 269T, 271D, and 271E:
The Tribunal addressed the applicability of these sections, noting that as no action had been taken against the assessee by the A.O., the challenge against the initiation was deemed infructuous. Therefore, the appeal on this issue was not allowed.

In conclusion, the Tribunal upheld Ld. CIT(A)'s decisions on various issues, dismissing the Revenue's appeal and partly allowing the appellant's appeal. The Tribunal found the A.O.'s additions unjustified, as the appellant provided necessary documentation and explanations to support their transactions, leading to the deletion of the additions.