2024 (5) TMI 149 - AT - Income Tax

Addition u/s 68 OR 41(1) - unexplained cash credit - assessee has not given satisfactory explanation with regard to identity of parties, genuineness of transaction and capacity of creditors - Contrary to this, CIT(A) sustained the addition by invoking the provisions of section 41(1) of the Act holding that these credits have been outstanding since long time - HELD THAT - As rightly pointed out by the ld. A.R., the authorities have not brought anything on record to prove that the liability is ceased to exist and neither of the parties has written off the same in their books of accounts. Further, balance sheet of this assessment year has been duly signed by the assessee itself thereby acknowledged the debt and in such circumstances, the lower authority is precluded in applying the provisions of section 41(1) - More so, lower authority was not sure whether section 68 of the Act to be applied or section 41(1) - In such dichotomy neither provisions of section 68 nor 41(1) of the Act could be applied by the Revenue Authorities. Accordingly, we delete this addition made in respect of S.K. Enterprises. With regard to Amitabh Enterprises when the inspector has visited the premises, it was reported that the firm was not operative from that address in the year 2015. Transaction took place prior to 01.04.2009 and the non-existence of this firm in 2015 cannot be reason to sustain addition and the report of the inspector cannot be relied in its entirety since there was no basis for such information so recorded by him by following the due procedure as stipulated in Code of Civil Procedure. Hence, unless and until there is an evidence to show that these credits are ceased to exist, there cannot be any addition u/s 41(1) of the Act, accordingly we delete the addition. With regard to Shiv Shakti Card there was no cessation of credits in the assessment year under consideration. Full payment has been made in the assessment year 2013-14 and the purchase has been accepted in assessment year 2012-13. Being so, it cannot be added u/s 143(3) of the Act as discussed in earlier para 7 above and for the reasons mentioned thereon, we delete the addition. With regard to Renuka Enterprises the said outstanding was of prior to 01.04.2009. Complete payment has been made in assessment year 2013-14 and no assessment was made u/s 143(3) on the same in the assessment year 2013-14. Only intimation u/s 143(1) of the Act was made. Hence, as discussed in earlier para 7 above and for the reasons mentioned thereon, we delete the addition. With regard to Sikka Paper Pvt. Ltd. it is not possible to hold that debt ceased to exist. Accordingly, by placing reliance on the Judgment of Hon ble Supreme Court in the case of CIT Vs. Balkrishna Industries Ltd reported in 300 CTR 29, wherein held that if there is no remission or cessation of liability, amount in question cannot be treated as income u/s 41(1) of the Act . In the case of CIT Vs. SI Group India Ltd. 2014 (12) TMI 267 - BOMBAY HIGH COURT held that since record before authorities did not disclose that, there was no remission or cessation of liability, one of the requirements spelt out for applicability of section 41(1) of the Act had not been fulfilled in facts of present case. Addition is deleted . Accordingly, in our opinion, in all these cases mentioned above, it cannot be held that there is cessation of liability. Addition for Cardline Products - Cessation of liability - The complete payment has been made in the assessment year 2013-14 to the tune of Rs. 33,41,957/- and the return has been filed by the assessee and accepted for the assessment year 2013-14 while processing the return u/s 143(1) of the Act and there is no evidence brought on record by ld. AO to show that this credit has ceased to exist in assessment year 2012-13.

Summary

Issues Involved:

1. Sustaining addition of Rs. 1,34,97,009/- u/s 68 of the Act for certain creditors.
2. Sustaining addition of Rs. 35,54,572/- for two sundry creditors.
3. Addition of Rs. 20,00,000/- as unexplained receipt from debtor National Enterprises.

Summary of Judgment:

Issue 1: Sustaining addition of Rs. 1,34,97,009/- u/s 68 of the Act for certain creditors

The Assessee's balance sheet showed outstanding sundry creditors at Rs. 1,70,51,581/-. The AO issued notices u/s 133(6) of the Act to verify the creditors, which returned un-served. The Assessee failed to produce the creditors or their confirmations, leading the AO to treat these credits as unexplained u/s 68 of the Act and added Rs. 1,68,38,416/- to the income. On appeal, the CIT(A) observed the actual amount outstanding was Rs. 1,34,97,009/- and invoked section 41(1) of the Act instead of section 68, sustaining the addition. The Tribunal found merit in the Assessee's arguments, noting that the purchases were accepted by the department and payments were made in subsequent years. The Tribunal deleted the additions for S.K. Enterprises, Amitabh Enterprises, Shiv Shakti Card, Renuka Enterprises, and Sikka Paper Pvt. Ltd., concluding there was no cessation of liability.

Issue 2: Sustaining addition of Rs. 35,54,572/- for two sundry creditors

The Assessee contested the addition of Rs. 33,41,957/- for Cardline Products and Rs. 2,12,615/- for Heera Lal & Sons. At the hearing, the Assessee clarified that the ground was wrongly drafted and pressed only for Cardline Products. The Tribunal noted that the complete payment for Cardline Products was made in the subsequent year and accepted by the department. Hence, the Tribunal deleted the addition of Rs. 33,41,957/-.

Issue 3: Addition of Rs. 20,00,000/- as unexplained receipt from debtor National Enterprises

The Assessee did not press this ground, and thus, it was dismissed.

Conclusion: The appeal filed by the Assessee is partly allowed. The additions u/s 68 and 41(1) for the creditors were deleted, while the ground regarding the unexplained receipt was dismissed.

Order Pronounced in the Open Court on 29th April, 2024.