Case Law Details

Case Name : Income Tax Officer Vs M/s Surekha International (ITAT Mumbai)
Appeal Number : I.T.A. No. 6353/Mum/2010
Date of Judgement/Order : 29/02/2012
Related Assessment Year : 2007-08
Courts : All ITAT (5308) ITAT Mumbai (1657)

Ld. Counsel of the assessee pointed out that detailed reply was given to the AO vide letter dated 19-12-2009 in which it was clearly explained that outstanding balance of Mala Export Corporation has gone down over the period of years and confirmation of M/s Surekha Overseas was also filed. Through this letter it was pointed out that AO was informed that Mr. Suresh Patel had been requested to give the

confirmation which will also be filed. This clearly shows that assessee has filed the evidence regarding liabilities being outstanding before the AO. After considering the rival submissions, we find that it is clear from letter dated 19-12-2009 that assessee has explained the position regarding liabilities in respect of three parties and even confirmation of M/s Surekha Overseas was filed. This reply clearly shows that the liabilities were still outstanding. Therefore, in our opinion, ld. CIT(A) has rightly held that since the liabilities are still outstanding, the provisions of sec.41[1] are not attracted.

INCOME TAX APPELLATE TRIBUNAL , MUMBAI

I.T.A.NO.6353/Mum/2010 – A.Y 2007-08

Income Tax Officer Vs. M/s Surekha International

Date of Pronouncement: 29-02-2012.

O R D E R

Per T.R.SOOD, AM:

In this appeal, the Revenue has raised the following grounds:

“1. (i) On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.42,25,7301- made u/s.41(1) of the l.T.Act, 1961 without appreciating the fact that though ample opportunities were given to the assessee, the assessee did not furnish the relevant details such as confirmations from the creditors and the details of payments made later on.

(ii) On the facts and circumstances of the case and in law, the Ld. CIT(A)’s act of admission of additional evidence in deleting the addition of Rs.42,25,730/- made u/s 4 1(1) of the Act is in violation of Rule-46A of the IT Rules, 1962.”

2. After hearing both the parties, we find that during the assessment proceedings AO noticed that there were sundry creditors outstanding at Rs.42,67,314/-. It was further noticed that outstanding liabilities of Rs.27,72,644/-, Rs.8,53,086/- and Rs.6,00,000/- payable to Mala Export Corporation, M/s Surekha Overseas and Mr. Suresh Patel,  respectively, were outstanding for more than three years. The assessee was asked to submit the reasons for non payment of these liabilities and according to the AO assessee vide letter dated 18-12- 2009 simply stated that these liabilities are live and valid. Since assessee did not produce any concrete evidence to substantiate the claim, AO held that such liabilities have ceased to exist and accordingly brought them to taxation u/s.41[1].

3. Before the ld. CIT(A) it was mainly submitted that the liabilities still continued and assessee admits the same in its books of accounts. Therefore, the liabilities were subsisting and in this regard reliance was placed on the decision of the Hon8ble Gujarat High Court in the case of Ambika Mills vs. CIT [64 ITR 164]. The confirmations were again filed before the ld. CIT(A). The ld. CIT(A) after examining the submissions, deleted the addition vide para 2.2 which is as under:

“2.2 I have considered the submissions of the Ld. Counsel and in view of the facts brought on record by the appellant especially the subsequent payments made by the appellant to both M/s Surekha Overseas and M/s Mala Corporation the fact that the liability is alive and not ceased stands proved and therefore the addition made by the AO deserves to be deleted. As regards Shri Suresh Patel who is NRI and has confirmed the transaction therefore even in his case the provisions of section 4 1(1) are not attracted and even this addition deserves to be deleted. Accordingly, addition of Rs. 42,25,730/- made by the AO U/s 41(1) as cessation of liability is hereby deleted. This ground of appeal is allowed.”

4. Before us, Ld. DR strongly supported the order of the AO and submitted that initial burden was on the assessee to prove that liabilities were subsisting and since assessee has not filed any evidence for the same, the addition was justified.

5. On the other hand, Ld. Counsel of the assessee reiterated the submissions made before the ld. CIT(A). He also pointed out that detailed reply was given to the AO vide letter dated 19-12-2009 in which it was clearly explained that outstanding balance of Mala Export Corporation has gone down over the period of years and confirmation of M/s Surekha Overseas was also filed. Through this letter it was pointed out that AO was informed that Mr. Suresh Patel had been requested to give the confirmation which will also be filed. This clearly shows that assessee has filed the evidence regarding liabilities being outstanding before the AO.

6. After considering the rival submissions, we find that it is clear from letter dated 19-12-2009 that assessee has explained the position regarding liabilities in respect of three parties and even confirmation of M/s Surekha Overseas was filed. This reply clearly shows that the liabilities were still outstanding. Therefore, in our opinion, ld. CIT(A) has rightly held that since the liabilities are still outstanding, the provisions of sec.41[1] are not attracted. Accordingly, we confirm the order of the ld. CIT(A).

7. In the result, Revenue’s appeal is dismissed.

Order pronounced in the open Court on this day of 29/2/2012.

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