2023 (6) TMI 1018 - AT - Income Tax

Addition of Sundry Creditors u/s 41(1) - AO estimated adhoc addition of 10% of the amounts shown under the head - HELD THAT - Nowhere the AO, or Ld. CIT (A) have discussed as to what was the details filed by the assessee before the AO CIT (A). Merely because there are Sundry Creditors appearing in the balance sheet, then it does not entail invoking of provision of section 41(1) automatically. There has to be something on record that there is a cessation of liability and the entire conditions precedent for invoking section 41(1) has to be fulfilled. There is no scope of any kind of adhoc or estimated addition u/s. 41(1). No infirmity in the order of the Ld. CIT (A) in deleting the said addition. Appeal of the Revenue is dismissed.

Summary

Issues involved:
The appeal by Revenue against the order passed by NFAC Delhi for the quantum of assessment u/s 143(3) for AY 2016-17.

Issue 1: Addition made without submission of documentary evidence or confirmation from creditors

The assessee filed a return declaring total income. The AO noted "Sundry Creditors" in the balance sheet and issued a show cause notice. Despite details filed by the assessee, no documentary evidence or confirmation from creditors was submitted. An addition was made u/s 41(1) without fulfilling conditions precedent. The Ld. CIT(A) deleted the addition, stating that adhoc addition without necessary evidence is not valid under the Act. The Tribunal found no infirmity in the CIT(A) order and dismissed the appeal.

Issue 2: Verification of trading liability and invocation of section 41(1)

The AO added an amount due to cessation of trading liability without verifying actual trading liability or fulfilling conditions for invoking section 41(1). The Ld. CIT(A) held that the AO did not prove the genuineness of Sundry Creditors and deleted the addition. The Tribunal emphasized the need for fulfilling conditions precedent for invoking section 41(1) and dismissed the appeal, as no evidence supported the addition.

Key Points:
- The appeal was filed by Revenue against an assessment order for AY 2016-17.
- Addition made without submission of documentary evidence or confirmation from creditors was deleted by the Ld. CIT(A).
- Verification of trading liability and invocation of section 41(1) were not adequately supported by evidence.
- The Tribunal emphasized the need for fulfilling conditions precedent for invoking section 41(1) before making any additions.
- The appeal of the Revenue was dismissed, upholding the order of the Ld. CIT(A).