2012 (7) TMI 451 - AT - Income Tax

Addition on account of sundry creditors - deemed income u/s 41(1) - AO observed that in 21 cases there was no change in the outstanding balance in AY 2007-08 and 2008-09 - Assessee did not furnish the details called for but submitted copies of purchase bills in the case of 9 parties - In case of 3 parties the letters issued u/s 133(6) were returned undelivered by the postal authorities with the remarks not known . The remaining 5 parties stated that as per their books of accounts, they had no transactions with the Assessee for Financial years 2005-06 to 2007-08 and as such no amount is due to them from the Assessee - Held that - Appellant was not able to explain how the appellant could ever repay these parties because he neither knew their correct addresses or any details of the agents through whom the purchases were made from these parties - Liability has ceased to exist and accordingly taxed it u/s 41(1) of the Income Tax Act - With respect to the action of CIT (A) in deleting the addition with respect to 5 parties CIT(A) has given a categorical finding that the enquiry made by the AO was not proper as the bills issued by the parties related to period prior to 31.3.2001 whereas the AO had asked those parties about the transactions carried out in FY 2005-06 to FY 2007-08. The existence of these 5 parties was therefore not in doubt - CIT (A) deleted the addition - no infirmity in the order of CIT(A) and therefore no interference is called for in his order

Summary

Issues Involved:
1. Application of Section 41(1) of the Income Tax Act.
2. Confirmation and deletion of additions made under Section 41(1).
3. Charging of interest under Sections 234A, 234B, 234C, and 234D.
4. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Application of Section 41(1) of the Income Tax Act:
The primary issue revolves around the application of Section 41(1) of the Income Tax Act, which pertains to the cessation or remission of liabilities. The assessee contended that the liabilities had not ceased and should not be taxed under Section 41(1). The Revenue argued that the liabilities had ceased to exist and should be taxed accordingly.

2. Confirmation and Deletion of Additions Made Under Section 41(1):
The Assessing Officer (AO) added Rs. 36,58,362 to the assessee's income, citing that the liabilities to sundry creditors had ceased. The CIT(A) partially upheld this addition, confirming Rs. 20,94,308 and deleting Rs. 15,64,054. The Tribunal noted:
- The AO found no change in the outstanding balances for 21 creditors over two years and issued letters under Section 133(6) to verify these balances.
- For 12 creditors, no details were provided, and for 3 creditors, letters were returned undelivered. The CIT(A) confirmed the addition of Rs. 20,94,308, noting the liabilities had ceased.
- For 5 creditors, the AO's enquiry was deemed improper as it focused on incorrect periods. The CIT(A) deleted the addition of Rs. 15,64,054, finding the creditors' existence was not in doubt.

The Tribunal upheld the CIT(A)'s decision, agreeing that the liabilities for 15 creditors had ceased, while the liabilities for the remaining 5 creditors were still valid.

3. Charging of Interest Under Sections 234A, 234B, 234C, and 234D:
The CIT(A) held that the levy of interest under Sections 234A, 234B, 234C, and 234D is mandatory, referencing the Supreme Court decision in Anjum Ghaswala (252 ITR 1). The Tribunal found no reason to interfere with this decision, dismissing the assessee's ground against the interest charges.

4. Initiation of Penalty Proceedings Under Section 271(1)(c):
The assessee raised a ground against the initiation of penalty proceedings under Section 271(1)(c). The Tribunal deemed this ground premature and not requiring adjudication at this stage, thereby dismissing it.

Conclusion:
The Tribunal dismissed both the assessee's and the Revenue's appeals, as well as the assessee's cross-objection. The order confirmed the partial addition of Rs. 20,94,308 under Section 41(1) and upheld the deletion of Rs. 15,64,054. The mandatory nature of interest charges under Sections 234A, 234B, 234C, and 234D was affirmed, and the premature ground concerning penalty proceedings was dismissed. The judgment was pronounced in open court on 25-5-2012.