2012 (9) TMI 254 - AT - Income Tax

Addition u/s 41(1) on account of presumed remission of liability - AY 08-09 - assessee had shown a liability of Rs.47,81,733 against M/s B whereas the balance as on 31.3.2007 was shown at Rs.16,61,281 - AO was of the view that the party has issued receipt in token of receiving of the amount at Rs.31,20,450 whereby the balance due to that party was reduced to Rs.16,61,281 as on the end of the year i.e., 31.3.2007 - Held that - CIT(A) rightly held that unless there is a cessation of liability, income cannot be added as per the provisions of Section 41(1) Dis-allowance u/s 40(a)(ia) - sub-contract - assessee deducting TDS u/s 194C - Revenue contended applicability of Section 194I on ground that machineries have been used on hire basis - Held that - CIT(A) rightly deleted the addition on ground that expression of Section 194C defines that for carrying on any work includes the use of labour, transportation and other miscellaneous activities jointly taken up for completion of the works. That being so deduction u/s.194C is very much right. Before the Tribunal the Department is merely contending that it was additional evidence but without establishing as to how the same is additional evidence, hence, the same is hereby dismissed - Decided against Revenue

Summary

Issues:
Appeal against order of CIT(A) for Assessment Year 2008-09: Deletion of addition u/s.41(1) and disallowance u/s.40(a)(ia), Admissibility of additional evidence under Rule 46A of IT Rules.

Analysis:
1. Deletion of addition u/s.41(1):
The Department challenged the deletion of Rs.31,20,452 under Section 41(1) by the CIT(A). The Assessing Officer added this amount as recession liability, but the CIT(A) ruled in favor of the assessee. The CIT(A) considered the Supreme Court's decision in CIT v. Sugauli Sugar Works and the Gujarat High Court's decision in CIT v. Silver Cotton Mills Co. Ltd. The Tribunal found the CIT(A)'s decision aligned with these precedents, as without cessation of liability, income cannot be added under Section 41(1). Consequently, the Tribunal upheld the CIT(A)'s order, deeming the Department's argument devoid of merit.

2. Disallowance u/s.40(a)(ia):
The Assessing Officer disallowed Rs.2,56,85,775 under Section 40(a)(ia) due to incorrect TDS deduction by the assessee. The CIT(A) disagreed, stating the 1% TDS deduction under Section 194C was appropriate, not the 10% deduction under Section 194I as claimed by the Assessing Officer. The Tribunal noted that the Department failed to prove the sub-contract agreement model was new evidence before the CIT(A). As the Department could not establish its claim of additional evidence, the Tribunal dismissed their argument. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the disallowance made by the Assessing Officer.

3. Admissibility of additional evidence:
The Department contended that the CIT(A) admitted additional evidence without giving the Assessing Officer a chance to respond, violating Rule 46A of the IT Rules. However, the Tribunal observed that the Department did not prove the new evidence was indeed additional before the CIT(A). As the Department failed to establish this fact, the Tribunal dismissed their argument. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, finding it valid and in line with the law.

4. Conclusion:
The Tribunal dismissed the Revenue's appeal and disposed of the assessee's Cross objection in favor of the impugned order passed by the CIT(A). The judgments cited by both parties were considered, and the Tribunal found the CIT(A)'s decisions consistent with legal precedents and factual analysis.