2022 (6) TMI 28 - HC - Income Tax

Addition u/s 41(1) - non-confirmation of credit by the creditors - HELD THAT - It goes uncontroverted that the appellant has not been able to lead any evidence to prove the existence of liability. The creditors could not verify the liability of the appellant as projected by him. The existence of liability is purely a matter of fact. Proposition of law is well settled that where a party is expected to be in possession of evidence but fails to produce the same, an adverse inference has to be drawn. See R. Venkata Swamy Naidu. 1956 (2) TMI 3 - SUPREME COURT - No substantial question of law - Decided against assessee.

Summary

Issues:
1. Addition of Rs.4,60,581/- under Section 41(1) of the Income Tax Act, 1961.
2. Non-confirmation of credit by creditors leading to the addition.
3. Justification of the addition under Section 41(1) based on facts, legal provisions, judicial pronouncements, and evidence.

Analysis:
Issue 1: The appellant challenged the order of the Commissioner of Income Tax (Appeals) upholding the addition of Rs.4,60,581/- made by the Assessing Officer under Section 41(1) of the Income Tax Act, 1961. The appellant argued for a lower net profit rate to be applied based on turnover, but the addition was made due to discrepancies in the accounts related to opening and closing stock details and the lack of confirmation from creditors.

Issue 2: The addition of Rs.4,60,581/- was based on the non-confirmation of credit by the creditors as required under Section 41(1) of the Income Tax Act, 1961. The appellant's inability to provide evidence to prove the existence of the liability led to adverse inferences being drawn. The court referred to legal precedents emphasizing the responsibility of the assessee to provide necessary evidence and the adverse consequences of failing to do so.

Issue 3: The appellant raised substantial questions of law regarding the justification for the addition under Section 41(1) in light of facts, legal provisions, judicial pronouncements, and evidence on record. However, the court found that the appellant failed to provide evidence to establish the liability, and the questions raised were deemed to be pure questions of fact rather than substantial questions of law. Consequently, the appeal was dismissed as no substantial question of law was found to arise.

In conclusion, the judgment upheld the addition of Rs.4,60,581/- under Section 41(1) of the Income Tax Act, 1961, due to the lack of confirmation from creditors and the appellant's failure to provide sufficient evidence to prove the liability. The court emphasized the importance of providing necessary evidence in tax proceedings and dismissed the appeal, stating that no substantial question of law was identified in the case.