VIKRAM DATTATRAY GHADGE,PUNE vs. INCOME-TAX OFFICER, WARD 14(2), , PUNE

The only issue raised by the assessee in this appeal is against the confirmation of addition of Rs.14,16,306/- made by the Assessing Officer (AO) u/s.41(1) of the Act.

Briefly stated, the facts of the case are that the assessee is an individual working as a land dealing agent. During the course of assessment proceedings, the AO observed that the assessee had brought forward provision of Rs.14,16,306/- against labour payment. In the immediately preceding year, the assessee was working as a Civil Contractor, who disclosed turnover of Rs.59,41,390/- and income u/s.44AD. The assessee also claimed that certain payments to labour amounting to Rs.14,16,306/- were unpaid. This amount was brought forward as Opening balance to the year under consideration. The assessee claimed to have made payments to the concerned parties in the current year.

The AO held such amount as income u/s.41(1) of the Act on the ground that the assessee could not furnish complete documentary evidence in support of payment, such as, receipt of payment, bank statement etc., but only filed a list for receiver/beneficiaries with insufficient details. The ld.CIT(A) sustained the addition.

I have heard the ld. DR and gone through the relevant material on record. There is no appearance from the side of assessee despite notice. It is seen that the assessee created provision on account of labour charges in the immediately preceding year when he was engaged in the business as Civil Contractor. This provision was cleared in the instant year by showing payment there against. When the brought forward provision is cleared by payment, there can be no scope for invoking section u/s.41(1) of the Act. Even if the AO’s contention is accepted that the assessee did not lead proper evidence in support of the payments, still section 41(1) cannot be applied because it is not a case of remission or cession of trading liability. In view of the foregoing facts, I am satisfied that the addition has been wrongly made and sustained. I, therefore, order to delete it.

In the result, the appeal is allowed. Order pronounced in the Open Court on 01st September, 2022.