IEEC POWER ELECTRONICS PVT LTD,MUMBAI vs. INCOME TAX OFFICER 12(2)(1), MUMBAI

Per:Anikesh Banerjee (JM):

The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2009-10, date of order 28.11.2025. The impugned order emanated from the order of the Ld. Income Tax Officer 12(2)(1), Mumbai (for brevity the ‘Ld. AO’) order passed under section 143(3) r.w.s. 254 of the Act date of order 28.09.2021.

ITA No. 9311/Mum/2025; A.Y. 2009-10 IEEC Power Electronics Pvt. Ltd. 2. The brief facts of the case are that the assessment was framed under section 143(3) on dated 30.12.2011 by determining the total income Rs.57,57,870/- against the return income of Rs. 12,27,970/-. The assessee filed the appeal before Ld. CIT(A) by challenging the order of Ld. AO. Being unsuccessful, the assessee challenged the assessment order before the ITAT. The Coordinate Bench of ITAT, Mumbai has passed the order on date 12.04.2019 bearing ITA No.316/Mum/2013 and set aside the impugned ground before the Ld. AO with the following observations which is reproduced as below:

“7. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. Admittedly, on a perusal of the records it is discernible that an outstanding commission on sales aggregating to Rs.11,26,986/- was payable by the assessee to its sales agent viz. M/s Waveform Controls Pvt. Ltd on 31.03.2009. Further, as claimed by the assessee the aforesaid party i.e M/s Waveform Controls Pvt. Ltd. pursuant to goods purchased from its 'sister concern' viz. M/s Electric Corporation of India, G-9, Shalimar Industrial Estate, Matunga Labour Camp, Mumbai 400019, PAN AAAFE0529L, owed a sum of Rs.15,22,873/ to it. In sum and substance, while for the assessee as on 31.03.2009 owed an amount of Rs. 11,26,986/- to the aforesaid party i.e M/s Waveform Controls Pvt. Ltd., while for the latter owed an amount of Rs. 15,22,873/- to the 'sister concern' of the assessee i.e M/s Electric Corporation of India. In fact, as stated by the Id. A.R the directors of the assessee company were partners in the aforesaid ‘sister concern’ i.e. M/s Electric Corporation of India. It was the claim of the assessee before the lower authorities that as M/s Waveform Controls Pvt Ltd. was not discharging its liability towards its ‘sister concern' i.e. M/s Electric Corporation of India, therefore, for the said reason the amount due by the assessee towards the said party i.e. M/s Waveform Controls Pvt. Ltd. was also not paid and was kept outstanding. In the backdrop of the aforesaid facts the assessee had subsequently on 14.12.2011 discharged its liability towards M/s Waveform Controls Pvt. Ltd. by passing a journal entry and transferring its liability to its 'sister 2

ITA No. 9311/Mum/2025; A.Y. 2009-10 IEEC Power Electronics Pvt. Ltd. concern' i.e. M/s Electric Corporation of India. As a result of the aforesaid arrangement, the amount outstanding in the books of the assessee company as payable to M/s Waveform Controls Pvt. Ltd. stood reduced to Nil. Further, the amount receivable by the 'sister concern' of the assessee i.e. M/s Electric Corporation of India from M/s. Waveform Controls Pvt. Ltd. pursuant to the said arrangement stood reduced to an amount of Rs.3,95,887/- [Rs.15,22,873/- (-) Rs. 11,26,986 (Page 65) of the assesses 'Paper book’ (for short 'APB’). In our considered view the authenticity of the claim of the assessee of having entered into the aforesaid arrangement with its 'sister concern can safely be gathered from a perusal of the copy of the ‘ledger account’ of M/s Waveform Controls Pvt. Ltd. as appearing in the 'books of accounts’ of the 'sister concern' i.e. M/s Electric Corporation of India. Apparently, now when the assessee pursuant to its aforesaid arrangement had as on 14.12.2011 discharged its liability towards M/s Waveform Controls Pvt. Ltd., therefore, it is difficult to comprehend that the said liability had ceased to exist during the year under consideration i.e. A.Y 2009-10. Admittedly, the authenticity of the arrangement as per which the assessee had transferred its outstanding liability towards M/s Waveform Controls Pvt. Ltd. to its 'sister concern’ i.e. M/s Electric Corporation of India has not been dislodged by the revenue by placing on record any documentary evidence which would irrefutably disprove the same. However, the genuineness of the said arrangement cannot also be accepted at the very face of it, specifically when the same had been carried out in the course of the assessment proceedings. In our considered view the veracity of the arrangement between the assessee and its 'sister concern' can safely be gathered from the fact as to whether the aforesaid party viz. M/s Waveform Controls Pvt. Ltd. had acknowledged such arrangement or not. We thus in all fairness restore the matter to the file of the A.O for making necessary verification as regards the said fact. The A.O shall in the course of the set aside proceedings make necessary verifications from the aforesaid party viz. M/s Waveform Controls Pvt. Ltd. Apart there from, the A.O shall also make necessary verifications from the 'sister concern' of the assessee i.e. M/s. Electric Corporation of India as regards the subsequent discharge of the liability of Rs. 11,26,986/- by the

ITA No. 9311/Mum/2025; A.Y. 2009-10 IEEC Power Electronics Pvt. Ltd. assessee towards it i.e. after 14.12.2011. In case either the aforesaid party i.e. M/s Waveform Controls Pvt. Ltd., acknowledges the aforesaid arrangement or the outstanding liability of the assessee amounting to Rs. 11,26,986/- towards its 'sister соnсеrn’ i.е. M/s Electric Corporation of India had been partly/fully discharged by the assessee subsequent to its generation on 14.12.2011, then it can safely be inferred that there was no cessation of liability in the hands of the assessee during the year under consideration. In sum and substance, if either the aforesaid party i.e. M/s Waveform Controls Pvt. Ltd. acknowledges the discharge of the liability of the assessee pursuant to the aforesaid inter se arrangement entered on 14.12.2011 between the assessee and its 'sister concern' i.e. M/s Electric Corporation of India OR the assessee had subsequent to 14.12.2011 either partly/fully discharged its liability of Rs. 11,26,986/- in favour of its 'sister concern' i.e. M/s Electric Corporation of India, then no addition u/s 41(1) shall be called for in the hands of the assessee.

ITA No. 9311/Mum/2025; A.Y. 2009-10 IEEC Power Electronics Pvt. Ltd. making necessary verifications in context of the issue under consideration, therefore, in case any addition u/s 41(1) is sought to be made by him during the year under consideration, then he shall record a finding as to what benefit in respect of such trading liability was obtained by the assessee during the year i.e. A.Υ 2009-10. We thus in all fairness restore the matter to the file of the A.O in terms of our aforesaid observations. The Ground of appeal No. 3 is allowed for statistical purposes.

ITA No. 9311/Mum/2025; A.Y. 2009-10 IEEC Power Electronics Pvt. Ltd. 5. The Ld. DR argued and contended that the primary reason for making the addition under Section 41(1) of the Act was that the liability claimed by the assessee towards WFCPL was deemed to have ceased to exist within the meaning of Section 41(1) due to lack of substantiation and confirmation. It was further contended that no relevant supporting documents, such as ledger accounts or journal entries, were furnished by the assessee. Further, the related parties as well as the assessee failed to respond to the verification notices issued by the Department. Accordingly, the Ld. DR strongly relied upon and supported the orders passed by the revenue authorities. The Ld. DR also drew our attention to paragraphs 4.1 to 4.5 of the impugned assessment order which are reproduced below:

“4.1 Commission to Wave Form Controls Pvt. Ltd. Rs. 11,26,986/-

While passing order u/s 143(3) of the Act the AO was not convinced with the explanation/details submitted by the assessee on account of liability of commission of Rs.27,48,486/- and on account of commission payable of Rs.11,26,986/- to M/s Waveform Controls Pvt. Ltd. Accordingly, he passed an order adding the same. The Ld. CIT(A) has upheld the decision of the AO on account of commission payable of Rs. 11,26,986/- to M/s Waveform Controls Pvt. Ltd. The Hon'ble ITAT set-aside the matter to consider the facts of the case & decide accordingly. The Hon'ble ITAT vide its order dated 12.04.2019 held as under:

ITA No. 9311/Mum/2025; A.Y. 2009-10 IEEC Power Electronics Pvt. Ltd. the A.O for making necessary verifications in context of the issue under consideration, therefore, in case any addition u/s 41(1) is sought to be made by him during the year under consideration, then he shall record a finding as to what benefit in respect of such trading liability was obtained by the assessed during the year i.e. A.Y. 2009-10. We thus in all fairness restore the matter to the file of the A.O. in terms of our aforesaid observations.

4.2 Facts of the case is that in case of M/s. Waveform Controls Pvt. Ltd, commission of Rs.11,26,986/- was shown as payable. During the proceedings of 143(3) of the Act the A.O asked the details of the same. The assessee vide letter dated 25.08.2011 submitted that for commission, provision was made prior to F.Y 2002-03. However while passing order u/s 143(3) of the Act the A.O was not convinced with the explanation/details submitted by the assessee on account of commission payable of Rs 11,26,986/ to M/s. Waveform Controls Pvt Ltd, Accordingly the AO added the same after discussing the same. The order passed by the AO is reproduced as under-

…….The assessee itself had claimed the outstanding liability and did not give confirmation letter to the assessee. The assessee itself had claimed that entry was passed in the month of December 2011 with sister concerns to adjust the liability after AO specifically asked for show cause. In the circumstances of the case the assessee had not substantiated its claim, of existence of the liability. No confirmation from the third party was submitted. Further, period of starting of the liability was given in different years. In view of the above, it is held that liability claimed by the assessee in the name of M/s Waveform Controls Put Ltd for Rs. 11,26,986/- is ceased to exist within the meaning of sec 41(1) of the IT Act.

4.3 As per the direction of the Hon'ble ITAT, opportunities were provided to the assessee company. However, assessee has not furnished any supporting evidence in support its claim. Hence, for confirming the liability claimed by the assessee, a letter was also issued to Waveform Controls Pvt. Ltd and Electric corporation of India Ltd. (sister concerns of the assessee). In response, both the parties had not responded to the Ietter. Assessee has

ITA No. 9311/Mum/2025; A.Y. 2009-10 IEEC Power Electronics Pvt. Ltd. also not furnished any relevant documents in respect of the transactions with the above said parties, to prove that its claim is genuine.

4.4 The assessee could not substantiate its claim made before the Hon'ble ITAT. Primarily the claim of the assessee is not genuine. Assessee failed to file the relevant details viz. ledger a/c., journal copy etc. and other supporting evidence in respect of the liability of M/s Waveform Controls Pvt Ltd.

4.5. In light of the above stated facts, it is considered that the assessee has been not able to establish his claim. Hence the undersigned has no option but to add the same i.e. liability claimed by the assessee in the name of M/s Waveform Controls Pvt. Ltd for Rs. 11,26,986/- is ceased to exist within the meaning of sec 41(1) of the I.T Act proceedings u/s 271(1)(c) of the IT Act is initiated for filing inaccurate particulars of income.”

ITA No. 9311/Mum/2025; A.Y. 2009-10 IEEC Power Electronics Pvt. Ltd. concern. Thus, while the assessee owed an amount of Rs.11,26,986/- to WFCPL, the latter simultaneously owed an amount of Rs.15,22,873/- to the sister concern of the assessee. It is also an admitted fact that the directors of the assessee company were partners in the sister concern, namely M/s. Electric Corporation of India. The assessee had placed on record the ledger accounts of WFCPL as well as M/s. Electric Corporation of India in the paper book, evidencing the adjustment of the aforesaid amount. The Coordinate Bench of the ITAT had already taken note of these factual aspects and restored the matter to the file of the Ld. AO only for the limited purpose of verification of the arrangement and subsequent discharge of liability. However, the Ld. AO, without properly appreciating the documentary evidences placed on record and without bringing any contrary material to dislodge the claim of the assessee, merely reiterated the earlier addition.

We find that the Ld. AO was not justified in reconfirming the addition despite the specific directions issued by the Coordinate Bench of the ITAT. Further, no material has been brought on record by the revenue to establish that the liability had ceased to exist during the year under consideration or that the assessee had obtained any benefit within the meaning of Section 41(1) of the Act. Accordingly, we set aside the impugned appellate order and direct deletion of the addition of Rs.11,26,986/- made under Section 41(1) of the Act. Consequently, the grounds raised by the assessee stand allowed.

ITA No. 9311/Mum/2025; A.Y. 2009-10 IEEC Power Electronics Pvt. Ltd. 7. In the result, the appeal of the assessee bearing ITA No.9311/Mum/2025 is allowed.

Order pronounced in the open court on 14th day of May 2026. Sd/- Sd/- (MAKARAND VASANT MAHADEOKAR) (ANIKESH BANERJEE) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) Mumbai,िदनांक/Dated: 14/05/2026 Soumili Das, PS

Copy of the Order forwarded to: अपीलाथ�/The Appellant , 1. �ितवादी/ The Respondent. 2. आयकरआयु� CIT 3. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, 4. Mumbai गाड�फाइल/Guard file. 5.

BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI