2017 (1) TMI 48 - AT - Income Tax

Additions made u/s.41(1) - cessation of the liability - Held that - The assertions of the assessee that due to financial crisis faced by the assessee due to mining recession and closure of mining in Goa , these payments of ₹ 51,191/- could not be made and also that ₹ 26,746/- was written back in the financial year ended on 31-03-2014 requires verification and enquiries by the AO. The AO is directed to verify as to whether the assessee has written back an amount of ₹ 26,746/- in the year ending 31/03/2014 and if it be so, then additions to the extent of ₹ 26,746/- shall stand deleted as no prejudice is caused to the Revenue as the amount stood written back and offered for tax albeit in the assessment year 2014-15. While with respect to ₹ 25,445/-, assessee has to prove before the AO that the said amount was still payable by the assessee as on 31-03-2012 for which necessary confirmations and verifications are required and the matter is set aside and restored to the file of the AO for necessary verifications and enquiries and de-novo adjudication of the issue on merits. Write off of bad debts - Held that - The assessee had claimed that it is due to recession in mining and due to closure of mines , the amount has become bad and irrecoverable , this contentions of the assessee has also remained unsubstantiated as no financials of Surface Tech were brought on record. We have perused the financial statement of the assessee for the year ended 31-03-2012 filed in the paper book before the tribunal (pages 1-10) which shows a healthy financial position of the assessee as the share capital is of 70 lakhs while Reserves and Surplus are to the tune of ₹ 4.06 crores. In our considered view , the order of learned CIT(A) is not sustainable in law and needs to be set aside and matter is to be remanded and restored to the file of the AO for de-novo adjudication of the issue on merits after making necessary enquiries and verifications as he may deem fit in order to decide this issue on merit. Addition u/s 40A - payment in cash during the relevant previous year towards Repairs and Maintenance and also towards Salaries and wages - Held that - . The contentions that since the assessees cheques were bouncing and hence parties were not accepting cheques and insisting on cash is also not proved before us as no evidence to that effect is on record. Rather perused of the financial statement of the assessee for the year ended 31-03-2012 filed in the paper book before the tribunal (pages 1-10) shows a healthy financial position of the assessee as the share capital is of 70 lakhs while Reserves and Surplus are to the tune of ₹ 4.06 crores. All these contentions and assertions raised by the assessee need verification by the Assessing Officer and appellate order of the Ld. CIT(A) cannot be sustained as the learned CIT(A) has not undertaken the required verification and accepted the contentions of the assessee without any enquiry / verification. In our considered view, this issue needs to be set aside and restored to the file of the AO for de- novo adjudication of the issue on merits by the AO after conducting necessary verification and enquiry as he may deem fit in order to decide the issue on merits.

Summary

Issues Involved:
1. Deletion of additions on account of unconfirmed sundry creditors.
2. Deletion of addition on account of bad debts written off.
3. Deletion of addition on account of cash payment of expenses.

Issue-wise Detailed Analysis:

1. Deletion of Additions on Account of Unconfirmed Sundry Creditors:

The Revenue's appeal challenged the deletion of an addition of ?51,191/- made by the Assessing Officer (AO) under Section 41(1) of the Income-tax Act, 1961, on account of cessation of liability. The AO observed that certain creditors were carried forward without any transactions and the assessee failed to provide confirmation letters or addresses for verification. The AO thus added the amount as cessation of liability. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, accepting the assessee's contention that the liability still existed and was delayed due to financial crises. The Tribunal noted that the CIT(A) accepted the assessee’s contentions without verification and directed the AO to verify the assertions regarding the write-back of ?26,746/- and the existence of the liability of ?25,445/- as on 31-03-2012, and to conduct necessary verifications and enquiries for de-novo adjudication.

2. Deletion of Addition on Account of Bad Debts Written Off:

The AO disallowed the write-off of bad debts amounting to ?10,69,509/-, as the assessee failed to provide necessary details for verification. The CIT(A) allowed the assessee's claim, relying on the fact that the debt was written off in the books of accounts, as per Section 36(1)(vii) of the Act. The Tribunal observed that the CIT(A) accepted the assessee's contentions without any verification or enquiry and noted the need for substantiation of the claim of bad debts due to financial crises. The Tribunal remanded the matter back to the AO for de-novo adjudication after necessary verifications and enquiries.

3. Deletion of Addition on Account of Cash Payment of Expenses:

The AO observed that the assessee made cash payments totaling ?28,67,936/- for repairs, maintenance, and salaries, in contravention of Section 40A(3) of the Act. The AO noted that these payments were not covered under exceptions to Rule 6DD of the Income-tax Rules, 1962. The CIT(A) accepted the assessee's contention that payments were made beyond banking hours or in areas without banking facilities, and restricted the disallowance to 10% of the amount. The Tribunal noted that the CIT(A) accepted the contentions without any verification and emphasized the need for substantiation of claims regarding exigencies and contingencies. The Tribunal remanded the issue back to the AO for de-novo adjudication after conducting necessary verifications and enquiries.

Conclusion:

The Tribunal found that the CIT(A) had accepted the assessee's contentions without proper verification and directed the AO to conduct necessary verifications and enquiries for de-novo adjudication on each issue. The appeal of the Revenue was partly allowed for statistical purposes.