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2022 (5) TMI 665 - AT - Income TaxAddition u/s 41(1) - creditors treated as ceased/waived liability - recalling of appeal - AO during assessment proceeding observed certain trade liabilities (trade creditors) outstanding for more than five years but on verification, those parties denied any outstanding due from the assessee - MA to limited extent of examining the application of decision in Elde Electricals Agencies Private Limited and Lotus India Ltd to the present case.HELD THAT - Tribunal in case of Lotus Investment Ltd. 2019 (3) TMI 467 - ITAT MUMBAI has deleted the addition under section 41(1) of the Act mainly on the ground that genuineness of the transaction was to be examined in the year of incurring expenditure and not in the year of cessation of liability. The Assessing Officer also not examined whether assessee had obtained a benefit either in cash or in any in any form in respect of such liability in relevant previous year. The facts in the instant case before us are different. In the instant case, the Assessing Officer issued summons to the alleged trade creditors and recorded their statements, wherein they have denied of any payment due to the assessee. Facts of the case being distinguishable, the ratio of decision relied upon by the assessee, cannot be imported to the facts of the case. We find that in above case of Elde Electricals 2015 (7) TMI 16 - BOMBAY HIGH COURT also there is no finding of denying of existence of liability in the year under consideration by the alleged trade creditors. Therefore, the decision relied upon by the assessee is distinguishable on facts. We have considered finding of the Tribunal in the light of both the decisions cited by the assessee, however in our opinion the ratio(s) of the decisions are not applicable in the facts of the instant case. - The appeal recalled to the extent of examining the two decisions, is accordingly dismissed. - Additions confirmed
Issues Involved:
1. Addition under Section 69C for unexplained expenditure. 2. Addition under Section 41(1) for cessation of liability. Issue-wise Detailed Analysis: 1. Addition under Section 69C for Unexplained Expenditure: The first issue pertains to the addition of Rs. 32,51,157/- under Section 69C of the Income Tax Act, 1961 as unexplained expenditure. The Assessing Officer (AO) observed that the amount payable to M/s. Gravity India Ltd. was claimed as outstanding by the assessee. However, M/s. Gravity India Ltd. confirmed that they had received the entire payment in September 2009, leaving no balance receivable from the assessee. The AO treated this as unexplained expenditure since the assessee could not provide details of the payments. The Ld. Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition, noting that the payments made by the assessee through other parties were not ruled out and the liability had ceased. 2. Addition under Section 41(1) for Cessation of Liability: The second issue involves the addition of Rs. 41,90,675/- under Section 41(1) for cessation of liability to M/s. R.D. Textiles. The AO relied on the statement of Mr. Harish Chandra Singh, proprietor of M/s. R.D. Textiles, who confirmed that no amount was receivable from the assessee. The Ld. CIT(A) upheld the addition, noting that the liability was fictitious as the creditor had not pursued recovery for over 13 years. Detailed Analysis: 1. Addition under Section 69C for Unexplained Expenditure: The Tribunal noted that the AO had issued summons under Section 131 to M/s. Gravity India Ltd., who confirmed receiving the entire amount during the financial year 2009-10. The AO also issued notices under Section 133(6) to the bank, which confirmed the payments. The Tribunal upheld the AO's addition under Section 69C, agreeing that the liability had ceased as the creditor confirmed no outstanding balance. 2. Addition under Section 41(1) for Cessation of Liability: The Tribunal examined the case of M/s. R.D. Textiles, where the creditor confirmed no amount was receivable from the assessee. The Tribunal agreed with the AO and Ld. CIT(A) that the liability had ceased and was fictitious, as the creditor had not pursued recovery for over 13 years. Other Trade Creditors: For other trade creditors, the Tribunal noted that the assessee had not made any payments for several years, and the letters submitted by the assessee were considered fabricated due to discrepancies in phone numbers and other details. The Tribunal upheld the additions under Section 41(1), agreeing with the AO and Ld. CIT(A) that the liabilities had ceased as the creditors had not pursued recovery. Tribunal's Conclusion: The Tribunal concluded that the facts of the present case were distinguishable from the cases cited by the assessee (Lotus Investment Ltd. and Elde Electricals Agencies Private Limited). The Tribunal upheld the AO's and Ld. CIT(A)'s findings, noting that the liabilities had ceased, and the additions under Sections 69C and 41(1) were justified. The appeal was dismissed, and the Tribunal's order dated 23/05/2019 was upheld. Order Pronouncement: The order was pronounced in the open Court on 30/03/2022.
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