2024 (10) TMI 651 - AT - Income Tax

Addition u/s 41(1) - remission or cessation of liability - liability is shown as outstanding amount payable by the assessee in the balance sheet - HELD THAT - We find that the assessee company had continued to show the liability as on 31.03.2015 as outstanding amounts payable to these 3 disputed creditors and the assessee has also placed on record evidences to prove that the disputed sundry creditors have been discharged in full in the immediately succeeding assessment year. When the amounts are shown as payable in the balance sheet of the assessee, the debt gets acknowledged by the assessee and there cannot be any remission or cessation of liability in terms of Section 41(1) of the Act. Assessee has placed on record the confirmations given by all the 3 sundry creditors before the ld AO, which fact has been acknowledged by the AO himself in his assessment order. If any discrepancy is found with the confirmation and the balance sheet of those sundry creditors, suitable action should be taken in the hands of those sundry creditors and no adverse inference could be drawn on the assessee. The assessee had discharged its primary onus. In any event, as stated supra, the provisions of Section 41(1) cannot be made applicable in the instant case. Case of New World synthetics Ltd. 2018 (9) TMI 230 - DELHI HIGH COURT is very well founded and directly applicable to the facts of the assessee s case. Hence, Ground Nos. 3 to 5 of the assessee are hereby allowed. Unsecured loan as unexplained cash credit u/s 68 - HELD THAT - AR submitted that the loan was repaid in subsequent assessment year and reiterated that all the documents were duly placed on record by him to prove the 3 ingredients of Section 68 of the Act. We find that the assessee had furnished the necessary documents to prove 3 ingredients of Section 68 i.e. identity of the creditors, genuineness of the transaction and creditworthiness of the lenders. The lender is duly assessed to tax and had even furnished the confirmation. The loan was received by the assessee on 27.03.2015 in regular banking channels. The summons issued u/s 131 of the Act on the said lender was duly served on the lender, which fact is also acknowledged by the ld AO in his assessment order. Merely because the summons has not been responded by the said lender, no adverse inference could be drawn on the assessee. Reliance in this regard is placed on the decision of Orissa Corporation Limited 1986 (3) TMI 3 - SUPREME COURT - No case made out by the revenue for making an addition u/s 68. Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Addition of Rs. 3,89,21,998/- under Section 41(1) of the Income-tax Act, 1961.
2. Addition of Rs. 15 lakhs as unexplained cash credit under Section 68 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition under Section 41(1) of the Income-tax Act, 1961:

The primary issue in this appeal was the addition of Rs. 3,89,21,998/- made by the Assessing Officer (AO) under Section 41(1) of the Income-tax Act, 1961. The AO observed sundry creditors amounting to Rs. 4,97,57,755.72 in the assessee's balance sheet, which included amounts payable to Dunar Foods Ltd., Heritage Infracon Pvt. Ltd., Rajan Goyal & Brothers, and Suresh Kumar & Sons. The AO issued notices under Section 133(6) and summons under Section 131, but no responses were received from the creditors. The AO's investigation revealed that the individuals purportedly representing the creditors were, in fact, employees of M/s. Best Foods Ltd., not the creditors themselves. Consequently, the AO concluded that the liabilities were not genuine and treated them as cessation of liability under Section 41(1), leading to the addition of Rs. 3,89,21,998/-.

The assessee contended that the liabilities were genuine, supported by confirmations, PAN details, and income tax returns of the creditors. The assessee also argued that the transactions were accepted in earlier assessment years, and the liabilities were settled in subsequent years. The Tribunal found that the creditors were genuine, as the purchases were accepted in previous assessments and the liabilities were discharged in the next assessment year. The Tribunal relied on the decision of the Hon'ble Jurisdictional High Court in PCIT Vs. New World Synthetics Ltd, which held that liabilities shown in the balance sheet cannot be treated as cessation under Section 41(1). Therefore, the Tribunal allowed the assessee's appeal on this ground.

2. Addition under Section 68 of the Income-tax Act, 1961:

The second issue was the addition of Rs. 15 lakhs as unexplained cash credit under Section 68. The AO noted an unsecured loan from Silver Link Commodities Pvt. Ltd. and demanded proof of identity, genuineness, and creditworthiness. The assessee provided confirmation, PAN, and bank transaction details. However, the lender did not respond to the summons issued under Section 131, leading the AO to treat the loan as unexplained.

The Tribunal observed that the assessee had provided all necessary documents to substantiate the loan, including confirmation and evidence of banking transactions. The Tribunal emphasized that non-response to the summons by the lender does not automatically render the transaction unexplained, citing the Supreme Court's decision in CIT Vs. Orissa Corporation Limited. Consequently, the Tribunal allowed the assessee's appeal on this ground as well.

Conclusion:

The Tribunal allowed the appeal, setting aside the additions made under Sections 41(1) and 68, thereby ruling in favor of the assessee. The order was pronounced in the open court on 10/10/2024.