ITO-41(3)(3) Vs Nawalkishor Basudev Sharma (ITAT Mumbai)
Mere non-furnishing of confirmations and supporting documents during assessment does not establish cessation of a trading liability under Section 41(1), and unsecured loans supported by documentary evidence cannot be added under Section 68 merely on suspicion.
Summary: The ITAT Mumbai dismissed the Revenue’s appeal against the order of the National Faceless Appeal Centre for A.Y. 2022-23, upholding deletion of additions of Rs.6,00,70,268/- towards sundry creditors under section 41(1) and Rs.44,28,000/- towards unsecured loans under section 68 of the Income-tax Act, 1961. The assessee, engaged in export of granites, marbles, construction material and textile products, had originally declared total income of Rs.22,73,190/-, while the Assessing Officer determined total income at Rs.6,76,69,848/- after making additions towards sundry creditors, brokerage expenses and unsecured loans. The Tribunal noted that the assessee subsequently furnished creditor-wise details, confirmations, purchase particulars and bank statements showing discharge of substantial creditor balances in the succeeding financial year. Relying upon CIT v. Sugauli Sugar Works (P.) Ltd., it held that section 41(1) requires remission or cessation of liability and that subsequent payment of creditor balances negated the inference of cessation during the relevant year. Regarding unsecured loans, confirmations, PAN particulars, returns of income and bank statements supported the identity, creditworthiness and genuineness of the creditors, and CIT v. Orissa Corporation (P.) Ltd. supported the assessee’s case. The Tribunal also rejected the Revenue’s Rule 46A objection, holding that the CIT(A) possesses co-terminus powers, that the additional evidence had a direct bearing on the additions, and that the Revenue had not demonstrated any specific prejudice, defect or falsity in the evidence. The Tribunal further held that CASS selection parameters merely provide a basis for scrutiny and cannot independently justify an addition without satisfaction of the relevant statutory conditions. Accordingly, Ground Nos.1-5 were dismissed and the Revenue’s appeal was dismissed.
