2023 (4) TMI 457 - AT - Income Tax

Cessation of remission of liability - directions of the CIT(A) in restoring the matter to the file of the Assessing Officer for further investigation in respect of three parties - main argument of the ld. counsel for the assessee has been that since the CIT(A) had deleted the addition made by the AO, therefore, further action of the CIT(A) in directing AO to make further enquiries was not sustainable - HELD THAT - We are unable to accept the aforesaid contentions of the ld. AR as in respect of one party i.e M/s Goodwill Corporation, earlier the said party had stated that it had done no transaction with the assessee, but later on, though, accepted that there were business transactions but denied any outstanding credit towards the assessee. Under the circumstances, when the creditor himself has stated that the assessee did not owe any liability to him, there seems no liability remaining of the assessee towards said party. CIT(A), to give fair chance to the assessee, has directed the Assessing Officer to make enquiries in respect of said liability shown by the assessee as noted above. Similarly, in respect of other two parties, the notices sent to them were received back unserved. The ld. CIT(A), under the circumstances, though at the first instance, deleted the additions made by the Assessing Officer but thereafter directed the Assessing Officer to make further enquiries in this respect as reproduced in earlier part of this order. No infirmity in the order of the CIT(A) in directing the Assessing Officer to make further enquiries. There is no merit in the appeal of the assessee and the same is accordingly hereby dismissed.

Summary

Issues Involved:

1. Condonation of delay in filing the appeal.
2. Validity of CIT(A)'s restoration of the matter to the Assessing Officer (A.O).
3. Examination of sundry creditors' liabilities and their cessation.
4. Assessment of the applicability of Section 41(1) of the Income Tax Act, 1961.
5. Directions for further investigation by the A.O.

Detailed Analysis:

1. Condonation of Delay:

The appeal was time-barred by 58 days. The appellant filed an application for condonation of delay, citing that he was a senior citizen affected by Covid-19. The Tribunal condoned the delay and admitted the appeal for hearing.

2. Validity of CIT(A)'s Restoration of the Matter to the A.O:

The assessee contested that the CIT(A) exceeded the powers under Section 251(1)(a) of the Income Tax Act, 1961, by restoring the case to the A.O. The Tribunal noted that the CIT(A) had deleted the additions made by the A.O but directed further inquiries to ensure the correctness of the liabilities shown by the assessee. The Tribunal upheld the CIT(A)'s directions for further inquiries, finding them justified.

3. Examination of Sundry Creditors' Liabilities:

The A.O noted sundry creditors totaling Rs.2,15,14,729/- payable to seven parties. Upon examination, the A.O found discrepancies and non-genuineness in the liabilities towards five parties. The details were as follows:

- M/s Goodwill Corporation (India): The party's ledger showed no opening or closing balance, contradicting the assessee's claims. The A.O added Rs.28,87,040/- to the assessee's income, initiating penalty under Section 271(1)(c) for furnishing inaccurate particulars.

- M/s Sharma Electricals Iron Works: The ledger showed no opening or closing balance. The A.O added Rs.8,70,785/- to the income, initiating penalty under Section 271(1)(c).

- M/s Quality Udyog: The notice sent was returned as "unknown." The A.O added Rs.15,80,550/- to the income, initiating penalty under Section 271(1)(c).

- M/s Swastik Trading & Mfg. Co.: The notice sent was returned as "unknown." The A.O added Rs.21,64,314/- to the income, initiating penalty under Section 271(1)(c).

- M/s Samanta & Brothers: The A.O added Rs.16,000/- to the income for undisclosed discount received.

4. Assessment of the Applicability of Section 41(1):

The CIT(A) held that since the liabilities were still existent in the assessee's books and not written off, Section 41(1) was not applicable. However, the CIT(A) directed the A.O to make further inquiries to verify the genuineness and existence of these liabilities.

5. Directions for Further Investigation by the A.O:

The CIT(A) directed the A.O to:

- Verify the year in which the liabilities originated.
- Ascertain if the liabilities were paid after the financial year.
- Examine the books of account and returns of income for the relevant years.
- Conduct necessary inquiries with the concerned parties to determine if the liabilities had ceased to exist.

Conclusion:

The Tribunal found no infirmity in the CIT(A)'s order directing further inquiries by the A.O. The appeal of the assessee was dismissed, upholding the need for further verification of the liabilities shown in the books. The judgment emphasized the importance of accurate reflection of liabilities and the necessity for thorough investigation to ensure compliance with tax laws.