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2014 (5) TMI 656 - AT - Income TaxAddition made u/s 41(1) of the Act - Liability not proved Profits chargeable to tax - Held that - The liability has been outstanding since six to seven years - the assessee has not filed any confirmation from the concerned party to the effect that the liability remains outstanding and due from the assessee - CIT(A) has observed that the copy of account of Sujas Members Association Ltd. in the books of Shri Sudhir Chaddha filed by the assessee shows that on various dates in 2009 amounts have been paid in cash - there is no evidence regarding the name/signature of the recipient to support the fact that such payment is in fact made to Sujash Member Association Ltd. - from the entry known as To DD Rs.6,12,500/- , it is not ascertainable as to in which name the DD has been issued and encashed by whom - if the assessee is able to make payment in cash, or deliver a DD, it is certain that it would definitely know the address of the party, however the same is not furnished - the assessee has not proved that the liability has remained during the year under consideration - there was no reason to interfere with the decision of the CIT(A) confirming the action of AO in taxing the amount u/s 41(1) Decided against Assessee.
Issues:
1. Taxability of outstanding liability under section 41(1) of the Income Tax Act for Assessment Year 2008-09. Analysis: The appeal was filed by the Assessee against the order of the Ld.CIT(A)-23, Mumbai confirming the action of the Assessing Officer (AO) in taxing Rs.15,18,077/- under section 41(1) of the Income Tax Act. The Assessee, a firm engaged in running restaurants and earning franchise fees, had an outstanding amount against another party. The AO added this amount under section 41(1) as the Assessee did not confirm the liability's existence, which had been outstanding for more than three years. The Assessee's contention was that the liability remained unpaid but was still payable. The Assessee cited various legal precedents to support this argument. However, the Ld.CIT(A) upheld the AO's decision as the Assessee failed to provide confirmation from the concerned party regarding the outstanding liability. The Ld.CIT(A) also noted that the notice sent to the party was returned unserved, and no suits or claims were made by the party against the Assessee. The Assessee further claimed that the entire liability was paid in the subsequent assessment year by assigning it to one of the partners. The Ld.CIT(A) requested details to verify this claim, but the Assessee could only provide limited information. The Ld.CIT(A) observed discrepancies in the documentation provided by the Assessee regarding the payment made to the party. The Ld.CIT(A) emphasized the lack of evidence to support the Assessee's claims, especially regarding the payment made to the party. The Ld.CIT(A) concluded that the Assessee failed to prove the liability's existence during the relevant assessment year. The Ld.CIT(A) held that the case laws cited by the Assessee did not justify excluding the outstanding amount from taxation under section 41(1). Therefore, the Ld.CIT(A) confirmed the AO's decision to tax the amount of Rs.15,18,077/- under section 41(1). In the final judgment, the Appellate Tribunal upheld the decision of the Ld.CIT(A) and dismissed the appeal filed by the Assessee. The Tribunal emphasized that the Assessee did not provide sufficient evidence to establish the existence of the outstanding liability during the relevant assessment year. The Tribunal noted the discrepancies in the documentation provided by the Assessee and agreed with the Ld.CIT(A)'s findings. Consequently, the Tribunal upheld the taxability of the amount under section 41(1) of the Income Tax Act for the Assessment Year 2008-09.
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