ASSOCIATED PROJECTS INFRA,HYDERABAD vs. DCIT., CENTRAL CIRCLE -2(4), HYDERABAD

The brief facts of the case are that the assessee is a partnership firm engaged in the business of earth works and blasting works. A survey operation under section 133A of the Income Tax Act, 1961 (“the Act”) was conducted in the business premises of the assessee on 20.02.2020. Subsequently, the assessee filed its return of income for the Assessment Year 2020- 21 on 31.03.2021, declaring a total income of Rs.9,30,86,960/-. The case of the assessee was selected for compulsory scrutiny and, accordingly, notice under section 143(2) of the Act was issued by the Learned Assessing Officer (“Ld. A.O”). During the course of assessment proceedings, the Ld. AO noticed that M/s. Sai Sri Constructions, one of the creditors of the assessee, had written off an amount of Rs.56,23,216/- as bad debt in its return of income for the Assessment Year 2020-21. The Ld. AO further observed that the assessee was showing the said amount as payable to M/s. Sai Sri Constructions in its books of account. According to the Ld. AO, since the creditor had written off the said

Aggrieved by the order of the Ld. AO, the assessee carried the matter in appeal before the Ld. CIT(A). The Ld. CIT(A), after considering the submissions of the assessee, confirmed the addition made by the Ld. AO, holding that the assessee had failed to produce any cogent evidence to establish that there was no cessation of liability. Accordingly, the appeal of the assessee was dismissed.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the only issue involved in the present appeal is with regard to the addition of Rs.56,23,216/- made under section 41(1) of the Act. The Ld. AR submitted that M/s. Sai Sri Constructions is a sub-contractor of the assessee. The assessee had incurred certain expenditures on Page 4 of 8 behalf of M/s. Sai Sri Constructions in earlier years, amounting to Rs.56,23,216/-, which were debited to the account of M/s. Sai Sri Constructions in the books of the assessee. However, M/s. Sai Sri Constructions could not account for these expenditures in its books of account in the relevant years. It was submitted that, in order to reconcile the difference in the balances, M/s. Sai Sri Constructions wrote off the said amount in its books as bad debt, though in substance the amount does not represent any bad debt recoverable from the assessee. According to the Ld. AR, the write- off was merely an accounting entry passed by M/s. Sai Sri Constructions to adjust the expenditures incurred by the assessee on its behalf, and there was no remission or cessation of liability in real terms. The Ld. AR further submitted that there is neither any waiver of liability nor any benefit accrued to the assessee so as to attract the provisions of section 41(1) of the Act. It was contended that the treatment given by the creditor in its books cannot, by itself, lead to the conclusion that the assessee has derived any income. The Ld. AR submitted that the assessee has now obtained an affidavit from M/s. Sai Sri Constructions, clarifying the factual position that the write-off was only an accounting adjustment and that there was no remission of liability giving rise to income in the hands of the assessee. Since the said affidavit could not be obtained earlier and was not available either during the assessment proceedings or before the Ld. CIT(A), the assessee sought admission of the said affidavit as additional evidence under Rule 29 of the Income-tax (Appellate Tribunal)

Per contra, the Learned Departmental Representative (“Ld. DR”) submitted that the additional evidence filed by the assessee in the form of affidavit should not be admitted, as the assessee had failed to produce the same before the lower authorities without any justifiable reason. Alternatively, the Ld. DR submitted that, if the Tribunal is inclined to admit the additional evidence, the same requires proper verification from the books of account and other corresponding records of both the assessee and M/s. Sai Sri Constructions. Therefore, the matter may be restored to the file of the Ld. AO for verification and for deciding the issue afresh in accordance with law.

We have considered the rival submissions and examined the material available on record. The dispute in the present appeal revolves around the applicability of section 41(1) of the Act in respect of an amount of Rs.56,23,216/-, which was written off by M/s. Sai Sri Constructions in its books of account. The assessee has sought to file an affidavit of M/s. Sai Sri Constructions as additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. On perusal of the affidavit, it is evident that the same seeks to clarify the factual

In the result, the appeal of the assessee is allowed for statistical purposes.