2015 (6) TMI 454 - AT - Income Tax

Bogus purchases - CIT(A) deleted the addition made on account of unexplained expenditure u/s. 69C in relation to the purchases - Held that - All the payments have been made through cheque, which have been duly certified by the IDBI bank. Also find that the AO has not brought anything on record to disbelieve the explanation of the assessee. The only evidence/reference made by the AO is that the assessee has not provided PAN No. of the parties. This cannot be the sole reason for disbelieving the explanation of the assessee, when the payments have been made by cheque duly reflected in the bank statement of the assessee, the claim of expenditure cannot be brushed aside lightly. We, therefore, decline to interfere with the findings of the Ld. CIT(A). - Decided against revenue. Cessation of liability u/s. 41(1) - Held that - Perusal of the ledger account of the parties show that out of the balance shown in the name of Hetal Sales Corporation amounting to ₹ 6,24,721/-, ₹ 3,00,000/- have been made on 18.2.2010, ₹ 3,24,721/- was paid on 12.10.2010. Similarly in the case of Sandesh Sales Corporation, the payment has been made on 31.12.2009, Shakti Trading Company the payment has been made on 2.5.2009, 29.5.2009, 18.12.2009 and 3.2.2010. Similarly, all the transporters mentioned hereinabove have been paid in subsequent years. The payment made is evident from the copies of the ledger account. As the creditors have been paid in the subsequent years, it cannot be said that during the year under consideration, there was a cessation of liability, provisions of Sec. 41(1) do not apply on the facts of the case. We, accordingly set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition of ₹ 36,29,281/-. Decided in favour of assessee.

Summary

Issues:
Cross appeals by assessee and Revenue against order of Ld. CIT(A)-35, Mumbai for assessment year 2009-10.

Analysis:
1. The original assessment case reached the Tribunal, which directed the Ld. CIT(A) to pass a fresh order and conduct necessary enquiry regarding the verification of purchase and its genuineness.
2. The AO found purchases suspicious, involving parties with cancelled VAT numbers and non-existent entities, leading to unexplained expenditure u/s. 69C and treating sundry creditors as income u/s. 41(1) of the Act.
3. Assessee submitted confirmations and vouchers for purchases, but AO doubted genuineness. Ward Inspector reported non-existence of some parties, further raising suspicions.
4. Ld. CIT(A) deleted the addition of unexplained expenditure, noting genuine purchases and payments made through bank accounts, supported by confirmations and lack of evidence to disbelieve the explanations.
5. Regarding the addition on account of remission of liability, Ld. CIT(A) partially confirmed it due to lack of confirmation for outstanding balances, allowing relief for part payments made.
6. The Revenue's appeal was dismissed as the explanations provided by the assessee were satisfactory, supported by documentary evidence, and the AO failed to disprove them.
7. Assessee's appeal against the addition of creditors as cessation of liability u/s. 41(1) was allowed as payments were made in subsequent years, indicating no cessation of liability during the relevant assessment year.
8. The Tribunal upheld Ld. CIT(A)'s decision to delete the addition of &8377; 90,07,915/- and directed the AO to delete the addition of &8377; 36,29,281/- for the creditors, resulting in the Revenue's appeal being dismissed and the assessee's cross-appeal being allowed.