2023 (3) TMI 617 - AT - Income Tax

Addition u/s 41(1) - outstanding balances of sundry creditors and other liabilities - HELD THAT - We note that despite several notices none appeared on behalf of the assessee and the notices of hearing have returned unserved. Hence, we are proceeding to adjudicate the issue by hearing the DR and perusing the records. We note that the issue has been dealt with by the Ld. CIT(A) elaborately as above. Unconfirmed bill, advance from customers and sundry creditors which are static creditors were there for which the assessee could not provide any confirmation or explanation. In these circumstances, in our considered opinion, the authorities below have passed a reasonable order, we do not need any interference on our part. Accordingly, we uphold the same. Appeal of the assessee stands dismissed.

Summary

Issues:
The issues involved in the judgment are:
1. Confirmation of Assessing Officer's order by Commissioner of Income Tax (Appeals) u/s 143(3).
2. Disallowance of expenses incurred by the assessee and addition of income u/s 41(1).
3. Determination of whether the assessee was carrying on any business during the year.
4. Addition of income u/s 41(1) on account of outstanding balances of sundry creditors and other liabilities.

Confirmation of Assessing Officer's Order by CIT (Appeals) u/s 143(3):
The assessee filed a return declaring a loss of Rs.2,98,367 for Assessment Year 2014-15. The Assessing Officer assessed the income at Rs.84,10,139 by disallowing expenses and adding outstanding balances of creditors and liabilities u/s 41(1). The CIT (Appeals) confirmed the additions made by the AO. The appellant failed to provide confirmations of trade payables and advances from customers, leading to the conclusion that liabilities had ceased to exist under section 41 of the Income Tax Act. The appellant's failure to furnish confirmations and lack of evidence resulted in the sustained addition of Rs.84,10,139. The appellate tribunal upheld the decision, noting the absence of any interference necessary.

Disallowance of Expenses and Addition of Income u/s 41(1):
The CIT (Appeals) confirmed the Assessing Officer's decision to disallow expenses incurred by the assessee and add Rs.84,10,139 as income u/s 41(1). The appellant's argument that the loss was due to expenses incurred for business purposes was rejected. The addition under section 41(1) was upheld as the liabilities were deemed to have ceased to exist, supported by the lack of confirmations and evidence provided by the appellant.

Determination of Business Activity:
The Assessing Officer held that the assessee was not carrying on any business during the year, disregarding the relevance of business receipts. The CIT (Appeals) confirmed this decision, leading to the sustained addition of income u/s 41(1). The tribunal found no reason to interfere with this finding, as the appellant failed to provide necessary confirmations and evidence to support the existence of business activities.

Addition of Income u/s 41(1) on Outstanding Balances:
The CIT (Appeals) confirmed the addition of Rs.84,10,139 u/s 41(1) on account of outstanding balances of sundry creditors and other liabilities. The appellant's failure to provide confirmations and explanations for static creditors led to the conclusion that the liabilities had ceased to exist, justifying the addition under section 41(1). The tribunal upheld this decision, noting the reasonableness of the authorities' orders and dismissing the appeal of the assessee.