2014 (12) TMI 100 - AT - Income Tax

Addition u/s 41(1) - Admission of additional evidence under Rule 29 Held that - In the absence of the assessee furnishing any details in its respect or leading any evidence to the contrary the entire unpaid amount is to be therefore considered as the loss arising to the assessee - thus i.e. on account of defective work and accordingly sought to be compensated to it by paying the creditor less by that amount so that it was not paid - there is no question of admission of additional evidence under rule 29 of the Rules - the claim of payment which cannot be regarded as genuine merely because the transaction is per cheque contradicts the assessee s own claim of the amount being disputed on account of defective/improper work - there is no explanation as to the basis or the circumstances under which the payment stands made and for the entire disputed sum - The claim is completely inconsistent with the admitted and exhibited facts and circumstances of the case - the assessee s application for admission of additional evidence u/r. 29 is denied. It would also need to be explained as to how and why the balance amount of 1.07 lacs paid by BS to DAC as and by way of interest had not been accounted for or otherwise adjusted between the assessee and BS - The assessee s accounts for FY 2009-10 as well as for the subsequent years would only have crystallized and in fact also been furnished to the Revenue since - again what adjustment entries if any has BS an assessee with the Revenue correspondingly passed in his books of accounts - The onus to establish its case though would be on the assessee - the assessee shall neither be allowed to raise any new plea nor one inconsistent with its accounts - The journal entries purportedly passed on 31/3/2010 are ostensibly corrective entries passed after due deliberation - The purport of the exercise is to establish the existence or otherwise of the assessee s liability to DAC as on 31/3/2006 or as explained to BS in lieu thereof; the assessee s accounts being admittedly deficient with even the corrected accounts being in contradiction to the stated position - The AO shall adjudicate the matter by issuing definite findings of the fact after allowing the assessee an opportunity to present its case decided partly in favour of assessee.

Summary

Issues Involved:
1. Addition under Section 41(1) concerning M/s. Chandralok Fabrics.
2. Addition under Section 41(1) concerning Dombivali Acid and Chemicals (DAC).

Issue 1: Addition under Section 41(1) concerning M/s. Chandralok Fabrics

The first issue revolves around the outstanding credit balance of Rs. 1,08,553/- from M/s. Chandralok Fabrics, which dates back to before 31.03.2000. The assessee claimed the balance was due to defective work by the creditor, leading to non-payment. During assessment, a notice sent to the creditor's address was returned unserved, and the assessee could not provide updated contact details. Despite multiple opportunities, the assessee failed to secure a confirmation from the creditor. The prolonged non-claim by the creditor led to the inference of the liability ceasing to exist, thus justifying the addition under Section 41(1).

The tribunal dismissed the assessee's request to admit additional evidence under Rule 29, which included a payment made to the creditor in 2014. The tribunal found the payment inconsistent with the assessee's earlier claims of disputed work and noted the absence of any dispute resolution attempts. The tribunal upheld the addition, emphasizing that the burden of proof lay on the assessee to demonstrate the liability's existence, which it failed to do.

Issue 2: Addition under Section 41(1) concerning Dombivali Acid and Chemicals (DAC)

The second issue pertains to a credit balance of Rs. 8,58,833/- with DAC, constant since 31.03.2001. DAC's accounts showed different balances for various years, and the assessee explained that payments were made to DAC by the assessee's brother, Bhavesh D. Sheth (BS), on its behalf. Supporting documents included a letter from DAC and confirmations from BS. However, the Revenue questioned the linkage between BS's payments and the assessee's liability to DAC, noting discrepancies in the accounting entries.

The tribunal observed that DAC's accounts credited the payments from BS to the assessee's account, validating the nexus. However, the tribunal noted inconsistencies in the journal entries passed by the assessee, particularly the transfer of the liability to the capital account, which contradicted the claim of liability to BS. The tribunal admitted the additional evidence and remanded the matter to the Assessing Officer (A.O.) for further examination. The A.O. is to issue definite findings after allowing the assessee an opportunity to explain the entries and reconcile the amounts.

Conclusion:

The assessee's appeal was partly allowed for statistical purposes, with the tribunal upholding the addition concerning M/s. Chandralok Fabrics and remanding the issue concerning DAC for further examination. The tribunal emphasized the importance of consistent and accurate accounting entries and the onus on the assessee to prove the existence of liabilities.