Brief: – ITAT Delhi has held in the case of Perfect Paradise Emporium Pvt. Ltd vs. ITO that If creditors are found bogus then the amount can be added back to income u/s 68 as unexplained cash credits or us 41(1) as business income.
Facts of the case:
The assessee filed its ROI declaring total income of Rs 46,924/-.The case was selected for scrutiny and AO made an addition of Rs 19,61,036/- on alleged fictitious creditors . Assessee had not produced the confirmation before AO so he took the creditors on oath who denied the amount which was shown by the assessee in its books of account, So AO made an addition. Aggrieved, the assessee filed an appeal with CIT(A) who also dismissed the appeal after concluding the confirmation letters presented by assessee to be bogus. Then the assessee filed an appeal with ITAT.
Contention of the assessee:
Assessee was of the view that the balances of the creditors were opening balances and it did not obtain any benefit from the remitting the liability and it did not written off the these liabilities in the books of accounts therefore the provision of sec 41(1) was not applicable. More over the order passed by the AO was vague because it was not clear whether the addition was made u/s 68 or u/s 41(1).
Contention of the Revenue:
Revenue said that as the statement given by the creditors it revealed that the amount shown by the assessee in its books of account were vague so the same should be added back to the returned income of assessee.
Held by the respective court :
ITAT held that it was clear from the statement given by the creditors itself that it did not know the assessee or it did not have any dealing with the assessee revealed that the amount shown in the books of account were fictitious in nature. So the same would be added to the income of the asssesse. As there were some case laws which confirms the addition u/s 41(1) and some u/s 68 .So it was open to the department to levy tax on such amount by restoring to the remedies available under the provisions of the act.