2015 (7) TMI 275 - AT - Income Tax

Addition made u/s. 41(1) - cessation or remission of liability - assessee has not filed confirmation and ID proofs or PAN of the creditors - Held that - As relying on case of CIT Vs. Bhogilal Ramjibhai Atara 2014 (2) TMI 794 - GUJARAT HIGH COURT wherein held that even where the debt itself was found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act, there is no cure for it and where there was no remission or cessation of liability during the year under consideration, no addition could be made to the income of the assessee. Thus addition delted - Decided in favour of assesse. Disallowance of of unpaid expenses - Held that - The assessee has not produced the evidences for which the assessee has shown the amount of expenses of ₹ 13,51,347/- as outstanding payable as at the end of the year. It is also not the case of the assessee that the outstanding amount in the case includes or represents opening balance brought forward from the earlier years. Thus, it is observed that the liability claimed relates to the year under consideration. Further, it is also observed that the addition was made by the lower authorities on account of expenses of which genuineness could not be established by the assessee. In the above circumstances, the decision relied upon by the Authorized Representative of the assessee which relates to section 41(1) of the Act is found to be not of any help to the assessee. Further, as no material to establish the genuineness of the above expenditure and genuineness of its liability during the year could be brought before us by the assessee, we find no good reason to interfere with the order of the Commissioner of Income Tax (Appeals) - Decided against assessee. Addition u/s. 68 - treating the loan as unexplained cash credit - Held that - As find from the assessment order that the assessee also contended before the Assessing Officer vide his letter that opening balance of the loan creditors should not be added as income of the year under consideration. However, the plea of the assessee was not dealt with by the Assessing Officer before making entire addition of the loan of ₹ 4,64,592/-. The Commissioner of Income Tax (Appeals) also had not adjudicated upon this plea of the assessee by passing a speaking order. In our considered opinion, no addition could be made on account of unexplained cash credit u/s. 68 of the Act for opening balance brought forward during the year under consideration because the same was not a fresh credit entry of the year under consideration. The Departmental Representative has also not controverted the submission of the assessee that out of the unsecured loans as at 31st March, 2007 of ₹ 4,64,592/-, ₹ 3,82,228/- was the opening brought forward balance. In respect of balance ₹ 95,000/-, no specific submission was made before us which represents the fresh credit by the assessee in the books of account of the year under consideration. Therefore, we delete the addition to the extent of ₹ 3,82,228/- being balance brought forward from earlier years and confirm addition of ₹ 95,000/- being unsubstantiated credit of the year under consideration - Decided partly in favour of assessee.

Summary

Issues involved:
1. Addition made under section 41(1) of the Act regarding sundry creditors.
2. Addition made on account of unpaid expenses.
3. Addition under section 68 treating a loan as unexplained cash credit.

Issue 1: The first issue pertains to the addition made under section 41(1) of the Act concerning sundry creditors. The Assessing Officer observed that the assessee had shown sundry creditors in the balance sheet but failed to provide confirmation and ID proof of the creditors. Despite issuing letters under section 133(6) of the I.T. Act, most letters were returned unserved. Consequently, the Assessing Officer presumed that the liability was paid from undisclosed income or ceased, adding the amount to the assessee's income. The Commissioner of Income Tax (Appeals) upheld this addition. However, the Authorized Representative of the assessee cited a decision of the Hon'ble Gujarat High Court, arguing that if there was no remission or cessation of liability during the relevant year, no addition could be made. The ITAT, following the High Court decision, set aside the lower authorities' orders and deleted the addition, as the creditors were old and no evidence suggested remission or cessation during the relevant year.

Issue 2: The second issue concerns the addition made on account of unpaid expenses. The Assessing Officer noted unpaid expenses claimed by the assessee but found no supporting evidence, treating them as bogus expenses and adding the amount to the income. The Commissioner of Income Tax (Appeals) upheld this addition, and the Authorized Representative relied on the same High Court decision. The ITAT found that the assessee failed to provide evidence for the outstanding expenses, and as the genuineness could not be established, the addition was deemed valid, dismissing the appeal.

Issue 3: The final issue involves the addition made under section 68, treating a loan as unexplained cash credit. The Assessing Officer observed loans received in cash but later shown as received by cheque. As the assessee could not provide confirmations and bank statements with PAN of the loan creditors, the amount was added as unexplained cash credit. The Commissioner of Income Tax (Appeals) affirmed this decision. The ITAT, however, noted that a portion of the amount was opening balance, not fresh credit of the year, and directed the deletion of this portion while confirming the addition of the remaining amount representing unsubstantiated credit of the year. Thus, the appeal was partly allowed, with the addition reduced accordingly.