Case Law Details
JCIT (OSD) Vs Yashmaan Pathak (ITAT Mumabi)
No scope of adhoc or estimated addition u/s. 41(1) & the entire conditions precedent for invoking section 41(1) has to be fulfilled.
Assessee has filed his return of income and the AO during scrutiny issued show cause notice to the assessee to file details and confirmation of the Sundry Creditors as appearing in the balance sheet. AO despite noting the details of creditors having been filed by assessee held that, 10% of the entire amount shown under the head “Sundry Creditors” should be added u/s 41(1) of the Act holding that assessee did not submit any documentary evidences nor any confirmation from the said creditors.
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. CIT(A) further 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 without bringing on record necessary evidence and invoking the correct provision of law. Accordingly addition was deleted by CIT(A)
On further appeal Revenue contended that once the assessee could not furnish 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).
The Tribunal noted that that nowhere the AO or CIT (A) have discussed as to what was the details filed by the assessee before the AO & CIT (A). Tribunal held that 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 the Revenue’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
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.
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. 3 1,67,57,386/- are appearing in the balance sheet. Accordingly, he issued show cause notice to the 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 4 1(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. 4 1(1), in respect of unconfirmed trade creditors balance at the year-end 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 There is no scope of any kind of adhoc or estimated addition u/s. 4 1(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.
Orders pronounced in the open court on 13th April, 2023.
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