2023 (5) TMI 1173 - AT - Income Tax

Addition u/s 41(1) - Cessation of liability for sundry creditors - assessee failed to prove the credit balance of these two parties - AO found discrepancies from the information received from creditors which were received against the notices issued u/s 133(6) vis- -vis assessee s books of accounts - HELD THAT - Admittedly, this is not a case of doubtful expenditure. It is a case where on calling of information by ld. AO from the two creditors, there appears to be a difference in the balance confirmed by the creditors vis- -vis reported by the assessee in its audited financial statements. Assessee has duly acknowledged its debt and has not done anything to write off its liability as cessation thereof - Assessment of the assessee has been completed u/s 143(3) by the same incumbent AO for AY 2012-13 wherein these balances of the two creditors continuing from AY 2010-11 had been accepted and no additions made thereon. Also, assessee has placed on record the invoices which were raised in respect of these two liabilities and respective ledge accounts from its audited books of accounts. We are in agreement with these submissions so made by assessee and therefore, delete the additions so made. Accordingly, the ground taken by the assessee is allowed.

Summary

Issues:
The issues involved in the judgment are the cessation of liability of Rs. 16,55,085 and the appeal against the assessment order under section 143(3) of the Income-tax Act, 1961.

Cessation of Liability Issue:
The assessee, a builder and promoter of real estate, filed its return of income reporting total income at Rs. 11,76,740. During assessment proceedings, the Assessing Officer found discrepancies in the information received from creditors against the assessee's books of accounts. A summon was issued to the assessee under section 131 of the Act for explanation. The assessment was completed by making an addition of Rs. 16,55,085 as cessation of liability for sundry creditors due to the assessee's failure to prove the credit balance of two parties. The assessee contended that the transactions with the creditors were never doubted and were not a case of doubtful expenditure. The assessee relied on a decision of the ITAT in a similar case where relief was granted to the assessee. The CIT(A) dismissed the appeal, leading the assessee to appeal before the Tribunal.

Tribunal's Decision on Cessation of Liability Issue:
The Tribunal considered that the discrepancies were not indicative of doubtful expenditure but rather a difference in balances confirmed by creditors compared to the assessee's audited financial statements. The assessee had acknowledged the debt and there was no evidence of a cessation of liability. Notably, in the assessment for the previous year, the same Assessing Officer had accepted the balances of the two creditors without making any additions. The Tribunal, after reviewing the facts and material before it, agreed with the assessee's submissions and deleted the additions made by the Assessing Officer. Consequently, the ground taken by the assessee was allowed, and the appeal was allowed in favor of the assessee.

Final Decision:
The Tribunal allowed the appeal filed by the assessee, concluding that there was no cessation of liability and deleting the additions made by the Assessing Officer. The order was pronounced in Kolkata on 27th April, 2023.