2022 (8) TMI 559 - AT - Income Tax

Condonation of delay by the CIT(A) - non-service of the assessment order, the assessee was prevented by a reasonable cause in filing the appeal before the Ld. CIT(A) - HELD THAT - When the Bench inquired from the Sr. DR if the Department was willing to challenge findings of CIT(A) vis- -vis the non-service of assessment order by filing an Affidavit on behalf of the Department in this regard, DR replied in the negative. In such a situation, we are of the considered view that the Department is merely trying to grab at straws to somehow make a case that the condonation of delay being bad in law would nullify the First Appellate Order on the merits of the case. Therefore, we out- rightly reject this contention of the Department that the CIT(A) had wrongly condoned the delay as the same is not established by any documentary evidence. We are of the considered view that the condonation of delay lies within the discretionary powers of the First Appellate Authority and he has exercised the same in favour of the assessee after duly considering the facts and record. Accordingly, ground No.2 of the Department s appeal stands dismissed. Unsecured loans - Addition u/s 41(1) - AO acknowledges that the impugned amount were never debited to the profit and loss account as an expenditure in the year they were received - HELD THAT - In the present case, the assessee had not debited the aforesaid liability to its Profit and Loss account in any of the earlier years (admitted by the AO at Pg-7 and by Ld. CIT(A)) and thus, the question of receiving any benefit, allowance or deduction by the assessee in earlier years, as specified in (i) above, has not been fulfilled in the instant case and, therefore, there lies no application of section 41 (1) in the instant case. Further, the assessee had also not received any benefit either in cash or otherwise during the relevant year. In fact the said sum will decrease the cash inflows of the assessee in the subsequent years. The assessee has not written back the liability during the relevant year and the said liability continued to appear as the closing liability and has been carried forward to next year. Thus, condition (ii) above has also not been fulfilled. Therefore, it can be said that both the conditions needed for the application of section 41(1) of the Act have not been fulfilled in the instant case and, therefore, the addition made u/s 41(1) of the Act would have no legs to stand and has been rightly deleted by the Ld. CIT(A). Hon'ble Punjab Haryana High Court in the case of CIT Vs. G.P International Ltd 2009 (12) TMI 33 - PUNJAB AND HARYANA HIGH COURT has held that since the assessee was showing the aforesaid liabilities in his books and has not written off the same, the provisions of section 41(1) are not applicable. Appeal of department dismissed.

Summary

Issues Involved:
1. Condonation of delay by the Commissioner of Income Tax (Appeals) [CIT(A)].
2. Deletion of addition of unsecured loans as income under Section 41(1) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Condonation of Delay by the CIT(A):
The Department challenged the CIT(A)'s decision to condone the delay in filing the appeal by the assessee. The CIT(A) had recorded a finding that the assessment order was not served or deemed to have been served at the address as per the PAN database or the address appearing in the return of income. The Department argued that this observation was factually incorrect and that the assessment order had been duly served. However, the Tribunal noted that the Department could not provide any documentary evidence to counter the CIT(A)'s findings. The Tribunal emphasized that the condonation of delay lies within the discretionary powers of the CIT(A) and upheld the CIT(A)'s decision to condone the delay, dismissing the Department's contention on this ground.

2. Deletion of Addition of Unsecured Loans as Income under Section 41(1):
The Department also challenged the CIT(A)'s decision to delete the addition of Rs. 2,11,37,381/- made by the Assessing Officer (AO) under Section 41(1) of the Income Tax Act, 1961. The AO had added this amount to the income of the assessee, arguing that the unsecured loans were fictitious liabilities introduced to account for unaccounted money. The CIT(A) found that these amounts were never debited to the profit and loss account and were received through banking channels in previous years (2003-04 and 2005-06), shown as sundry creditors up to the assessment year 2012-13, and later as unsecured loans. The Tribunal upheld the CIT(A)'s decision, noting that mere change of nomenclature does not amount to credit in the books of account. The Tribunal further explained that for Section 41(1) to apply, two conditions must be fulfilled: (i) the assessee must have availed an allowance or deduction in an earlier year, and (ii) the assessee must have obtained benefits in cash or otherwise in respect of such liability by way of remission or cessation. Since the assessee did not debit the liability to the profit and loss account in any earlier year and did not receive any benefit during the relevant year, neither condition was met. The Tribunal cited judicial precedents, including the Supreme Court's decision in Mahindra and Mahindra Ltd., to support its conclusion that Section 41(1) was not applicable. Consequently, the Tribunal dismissed the Department's appeal on this ground as well.

Conclusion:
The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decisions on both the condonation of delay and the deletion of the addition under Section 41(1) of the Income Tax Act, 1961. The Tribunal found no fault in the CIT(A)'s exercise of discretionary powers and agreed that the conditions for applying Section 41(1) were not fulfilled in this case.