2022 (1) TMI 278 - AT - Income Tax

Addition u/s. 41(1) - sundry creditors balance of parties from whom no reply was received are bogus and non-existent - Admission of additional evidences as assessee furnished confirmation letters obtained from the above said creditors as additional evidences - HELD THAT - Since those letters were not available with the assessee during the course of assessment proceedings. Further, they have to be collected from the creditors, over whom the assessee may not be having effective control. It is the case of the assessee that the confirmation letters were obtained subsequent to the completion of the assessment and hence they were produced before Ld. CIT(A) as additional evidences. Thus, we are of the view that there was reasonable cause for the assessee in not producing those letters before the A.O. Accordingly, in the interest of natural justice, we admit the additional evidences. Since these evidences require examination at the end of the A.O., we set aside the order passed by ld. CIT(A) on this issue and restore the same to the file of the A.O. for examining it afresh. Disallowance u/s. 40A(3) - HELD THAT - We notice that the assessee has agreed for this disallowance before the AO - Accordingly, the Ld. CIT(A) also confirmed the disallowance. Before us, the assessee could not furnish any material to controvert the addition made by the A.O. It was also not shown to us that the addition was agreed under wrong impression. Accordingly, we also confirm the disallowance made u/s. 40A(3) of the Act. Addition being the difference in sales reported in the books of accounts and VAT returns - HELD THAT - Before the A.O., the assessee could not reconcile the difference and hence agreed for the addition. Before Ld. CIT(A) also the assessee could not reconcile the difference and hence the Ld. CIT(A) also confirmed the same. Before us also, the assessee could not reconcile the difference. Hence, we have no other option but to confirm the addition made by the A.O. on this issue.

Summary

Issues:
1. Addition made u/s. 41(1) of the Income-tax Act, 1961
2. Addition made u/s. 40A(3) of the Act
3. Addition on account of different between books and VAT statement

Analysis:

1. Addition made u/s. 41(1) of the Income-tax Act, 1961:
The assessee, a dealer in marbles and granites, challenged the addition made under section 41(1) of the Act concerning sundry creditors' balances. The Assessing Officer (A.O.) considered certain creditors as non-existent due to lack of responses, adding the aggregate amount to the total income. The assessee submitted confirmation letters from creditors as additional evidence before the Ld. CIT(A), who refused to admit them citing non-compliance with Rule 46A of the I.T. Rules. The Appellate Tribunal found that the assessee could not produce the letters during assessment due to unavailability and lack of control over the creditors. Considering reasonable cause, the Tribunal admitted the additional evidence, setting aside the CIT(A)'s order and remanding the issue to the A.O. for fresh examination.

2. Addition made u/s. 40A(3) of the Act:
The second issue involved a disallowance under section 40A(3) of the Act, which the assessee had agreed to before the A.O. and was confirmed by the Ld. CIT(A). The Tribunal noted the absence of material to contest the disallowance or prove any misconception, leading to the confirmation of the disallowance under section 40A(3) of the Act.

3. Addition on account of difference between books and VAT statement:
The final issue concerned an addition of ?94,000 due to discrepancies in sales reported in the books of accounts and VAT returns. The assessee failed to reconcile the difference before the A.O. and Ld. CIT(A), resulting in the confirmation of the addition. With the assessee's inability to reconcile the discrepancy, the Tribunal upheld the addition made by the A.O. on this issue.

In conclusion, the appeal by the assessee was partly allowed for statistical purposes, with the Tribunal addressing each issue in detail and providing a comprehensive analysis based on the facts and legal provisions presented during the proceedings.