JCIT (OSD) I/C DCIT-32(1), MUMBAI vs. YASHMAAN PATHAK, MUMBAI

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ITA 265/MUM/2023Status: DisposedITAT Mumbai13 April 2023AY 2016-175 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that merely having sundry creditors in the balance sheet does not automatically trigger Section 41(1). The conditions precedent for invoking Section 41(1) must be fulfilled, and ad-hoc or estimated additions are not permissible.

What were the facts?

The Assessing Officer (AO) added Rs. 3,16,75,740/- to the assessee's income, representing 10% of sundry creditors, on the grounds of cessation of liability under Section 41(1) as the assessee did not provide documentary evidence or confirmations. The CIT(A) deleted this addition.

What were the issues?

Whether the AO was justified in invoking Section 41(1) for sundry creditors without fulfilling all conditions, and if ad-hoc additions are permissible.

Which sections of the Income-tax Act were involved?

Section 41(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “G” BENCH, MUMBAI

Before: SHRI AMIT SHUKLA, JM & SHRI PRASHANT MAHARISHI, AM

Pronounced: 13.04.2023

आदेश / O R D E R

Per Amit Shukla, Judicial Member:

1.

The aforesaid appeal has been filed by the Revenue against order dated 02.12.2022, passed by NFAC Delhi, for the quantum of assessment passed u/s 143(3), for the AY 2016-17.

YASHMAN PATHAK LL 2. In the grounds of appeal Revenue has raised the following grounds:

1. "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in deleting the addition made of Rs. 3,16,75,740/- without appreciating the fact that in response to show cause issued by the Assessing Officer during the course of assessment proceedings assessee did not submit any documentary evidence nor any confirmation with the creditors." 2. "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in deleting the addition made of Rs. 3,16,75,740/- without appreciating the fact that the addition was made on account of cessation of trading liability of the assessee u/s. 41 of the Income tax Act, 1961." 3. "Whether on the facts and circumstances of the case and in law, the Ld CIT(A) was correct in deleting the addition made of Rs. 3,16,75,740/- without exercising the power to verify the actual trading liability of the assessee even after holding that the reply of the assessee was evasive." 3. The facts in briefs are that the assessee has filed his return of income on 15.10.2016 declaring total income of Rs.24,43,780/-. The Ld. AO on the perusal of the records on that „Sundry Creditors‟ of sums aggregating to Rs. 31,67,57,386/- are appearing in the balance sheet. Accordingly, he issued show cause notice to the YASHMAN PATHAK LL assessee to file details and confirmation of the parties. In response, a letter dated 24.12.2018 was filed which was received in the office of AO on 26.12.2018 as mentioned by him in para 2.3 of the assessment order.

4. However, the Ld. AO despite noting the details of creditors having been filed by assessee, but did not submit any documentary evidences nor any confirmation from the said creditors. Accordingly, he held that, 10% of the entire amount shown under the head “Sundry Creditors” should be added u/s 41(1) of the Act. Accordingly, addition of Rs. 3,16,75,740/- was made.

5.

The Ld. CIT(A) observed that despite the reply and details filed by the Assessee, AO did not choose to confront the Assessee by making independent enquiries with the parties and he hurriedly came to the conclusion that genuineness of the Sundry Creditors have not been proved. He observed that such kind of estimated adhoc addition of 10% of the amounts shown under the head, Sundry Creditors cannot be confirmed, because there is no such provision under the Act to make adhoc addition u/s. 41(1), in respect of unconfirmed trade creditors balance at the year-end

YASHMAN PATHAK LL without bringing on record necessary evidence and invoking the correct provision of law. Accordingly, he deleted the said addition.

6.

Before us the Ld. DR submitted that, once the assessee could not furnished any evidence or confirmation from the Sundry Creditors, then it is difficult to verify whether it was genuine and AO was justified in invoking the provision of section 41(1).

7.

After considering the relevant finding given in the assessment order as well as the appellate order, we find that, nowhere the AO, or Ld. CIT (A) have discussed as to what was the details filed by the assessee before the AO & CIT (Appeals). Merely because there are Sundry Creditors appearing in the balance sheet, then it does not entail invoking of provision of section 41(1) automatically. There has to be something on record that there is a cessation of liability and the entire conditions precedent for invoking section 41(1) has to be fulfilled. There is no scope of any kind of adhoc or estimated addition u/s. 41(1). Thus, we do not find any infirmity in the order of the Ld. CIT (A) in deleting the said addition.

8.

Accordingly, the appeal of the Revenue is dismissed.

YASHMAN PATHAK LL Orders pronounced in the open court on 13th April, 2023.

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