2016 (12) TMI 50 - AT - Income Tax

Addition of unproved credits - outstanding liability on account of aviation fuel - Held that - Inspite of being specifically required to, the assessee has not been able to furnish any basic material evidence to establish that the alleged fuel purchases were ever made by it in the past. The assessee itself accepted that ₹ 8 lakhs thereof could not be reconciled by it. Even bills for purchase thereof, confirmations from so called creditors in respect of outstanding balances were never furnished. That the said amounts were outstanding liabilities of the earlier years is also not established by the assessee. Also note that the averments by the assessee that it had written back and offered these amounts of ₹ 99 lakhs for taxation in the A.Y. 2012-13, was found to factually incorrect by the AO and this fact was admitted to be so by the learned A.R. in proceedings before us, i.e. that these amounts were not written back/offered to tax in the assessee s return of income for A.Y. 2012-13. Thus we agree with the learned CIT(A) that it can be concluded that there is no genuine outstanding liability on account of aviation fuel and therefore no likelihood of any amount being paid on this account in the future and further that this amount of ₹ 99 lakhs claimed by the assessee is a bogus liability. The fact that the assessee has in its submissions before the learned CIT(A) (supra) stated that it has written back and offered to tax the so called outstanding liabilities of ₹ 99 lakhs in A.Y. 2012-13, evidences that the assessee itself admits that the liability in question is not genuine and was put forth only after the detection of these bogus outstanding liabilities of ₹ 99 lakhs by the AO. Thus when the existence of the stated outstanding liability on account of aviation fuel is found to be bogus, we are of the considered view that the addition is to be upheld on account of the said bogus liability of ₹ 99 lakhs remaining unproved.- Decided against assessee

Summary

Issues Involved:
1. Addition of ?99 lakhs as outstanding liabilities under section 41(1) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Addition of ?99 lakhs as Outstanding Liabilities under Section 41(1) of the Income Tax Act, 1961:

Background: The appeal by the assessee challenges the order of the CIT(A)-9, Mumbai, dated 16.10.2014, which upheld the assessment order passed under section 143(3) of the Income Tax Act, 1961, for A.Y. 2010-11. The primary issue is the addition of ?99 lakhs as outstanding liabilities.

Assessee's Argument: During the assessment proceedings, the Assessing Officer (AO) questioned the genuineness of outstanding liabilities amounting to ?99 lakhs, which were carried forward since A.Y. 2002-03. The AO issued a show cause notice to the assessee to explain why these liabilities should not be disallowed under section 41(1) of the Act. The assessee responded, explaining that ?91 lakhs pertained to fuel bills, which were reconciled in the accounting year 2011-12. The remaining ?8 lakhs could not be reconciled. The assessee argued that the provision of section 41(1) was not applicable and that the entire amount of ?99 lakhs was offered for taxation in A.Y. 2012-13.

Assessing Officer's Findings: The AO disallowed the outstanding liability of ?99 lakhs, invoking section 41(1) of the Act, determining that the liability had ceased to exist. The AO noted that the assessee failed to provide details and confirmations from creditors, and the ledger accounts were incomplete. The AO concluded that the liabilities were not genuine.

CIT(A)'s Decision: On appeal, the CIT(A) upheld the AO's decision, stating that the assessee failed to provide basic details such as fuel bills and confirmations from creditors. The CIT(A) concluded that the liabilities were not genuine and that the assessee's claim of offering the amount for taxation in A.Y. 2012-13 was an afterthought following the AO's detection of the bogus liability.

Tribunal's Analysis: The Tribunal reviewed the facts and submissions. It noted that the assessee admitted that the statement of offering the amount for taxation in A.Y. 2012-13 was incorrect. The Tribunal found that the assessee failed to provide evidence of the alleged fuel purchases and that the outstanding liabilities were not genuine. The Tribunal concurred with the CIT(A) that the liabilities were bogus and upheld the addition of ?99 lakhs.

Conclusion: The Tribunal dismissed the assessee's appeal, upholding the addition of ?99 lakhs as outstanding liabilities under section 41(1) of the Act, concluding that the liabilities were not genuine and constituted a bogus liability.

Order Pronouncement: The order was pronounced in the open court on 25th November, 2016.