2025 (2) TMI 572 - AT - Income Tax

Addition u/s 41(1) - assessee contended that the liability was duly disclosed in its books of account and there was no cessation of liabilities - HELD THAT - The assessee in its explanation vide letter dated 11.12.2017 is clearly submitted that outstanding balance of M/s Baba Panchanan Construction Suppliers was lying since FY 2011-12. It has also been stated by the assessee that amount has not been paid due to supply of bad materials. We have gone through the cited decision of Dattatray Poultry Breeding Pvt. Ltd. 2019 (4) TMI 1171 - GUJARAT HIGH COURT wherein it has been held that while the assessee has continued to declare the trading liability in its books of accounts no benefit can be said to have been obtained in respect of such trading liability by way of remission or cessation thereof and thus the requirement of Section 41(1) is not satisfied. We further find that for AY 2012-13 in the assessee s own case ITAT Kolkata Bench has decided the specific issue of old liabilities and creditors were examined and AO did not raise any doubt or suspicion about the list of creditors except for certain payables. Hence once such assessment is complete the revenue authorities cannot in a subsequent year take a diametrically opposite view and consider the same to be ingenuine. Addition u/s 41(1) is hereby to be bad and illegal. Accordingly amount as made u/s 41(1) is directed to be deleted. Addition u/s 69 - Assessee had purchased a demand draft for registration of land at Hatia - It is pertinent to mention that demand draft for registration has been spent by the assessee for FY 2014-15 it was accounted for under fixed asset held for that year. Hence we are in this view that section 69 does not apply because all investment has duly recorded in the books of account. Accordingly addition under this head made and directed to be deleted. Appeal of the assessee is allowed.

Summary

The appeal before the Appellate Tribunal involved issues related to additions made by the Assessing Officer (AO) under sections 41(1), 69, and 56(2)(vii) of the Income Tax Act for the assessment year 2015-16. The Tribunal considered the arguments presented by the assessee challenging these additions and the decision of the Commissioner of Income Tax (Appeals) (CIT(A)) partially allowing the appeal. The key issues and the Tribunal's analysis are as follows:Issues Presented and Considered:1. Whether the addition under section 41(1) of the Income Tax Act was justified.2. Whether the addition under section 69 for undisclosed investment was valid.Issue-wise Detailed Analysis:Issue 1: Addition under Section 41(1)- Relevant legal framework and precedents: The Tribunal referred to the provisions of section 41(1) of the Income Tax Act and cited the decision of the Hon'ble Gujarat High Court in the case of Dattatray Poultry Breeding Pvt. Ltd. The Tribunal also mentioned the judgment of the Hon'ble Calcutta High Court in the case of Goodricke Group Ltd. vs. CIT.- Court's interpretation and reasoning: The Tribunal noted that the liability in question was duly disclosed in the books of account of the assessee. Referring to the cited judgments, the Tribunal held that the addition under section 41(1) was not justified as there was no cessation of liabilities and the trading liability was still declared in the books of accounts.- Key evidence and findings: The Tribunal considered the explanation provided by the assessee regarding the outstanding balance and the history of the liability.- Application of law to facts: The Tribunal applied the legal principles from the cited judgments to the facts of the case and concluded that the addition under section 41(1) was baseless.- Conclusions: The Tribunal directed the deletion of the addition made under section 41(1) of the Act.Issue 2: Addition under Section 69- Relevant legal framework and precedents: The Tribunal examined the provisions of section 69 of the Income Tax Act.- Court's interpretation and reasoning: The Tribunal found that the demand draft for registration of land was duly recorded as a fixed asset in the books of account for the relevant year. Therefore, the Tribunal concluded that the addition under section 69 was not applicable.- Key evidence and findings: The Tribunal reviewed the details of the demand drafts and the purpose for which they were utilized.- Application of law to facts: The Tribunal applied the provisions of section 69 to the facts presented by the assessee.- Conclusions: The Tribunal directed the deletion of the addition made under section 69 of the Act.Significant Holdings:- The Tribunal held that the addition under section 41(1) of the Income Tax Act was not justified as the liability was duly disclosed and there was no cessation of liabilities.- The Tribunal also determined that the addition under section 69 for undisclosed investment was not applicable as the investment was properly recorded in the books of account.The Tribunal allowed the appeal of the assessee and pronounced the order on 17th January 2025.