Case Law Details
Jonna Iron Mart Vs ACIT (ITAT Hyderabad)
Background: The case involves Jonna Iron Mart, a partnership firm engaged in trading iron and steel, which filed its return for the Assessment Year (A.Y.) 2017-18 declaring a total income of ₹31,98,300. During scrutiny, the Assessing Officer (AO) noted discrepancies in the sundry creditors’ balances. The firm’s balance sheet as of 31.3.2017 showed sundry creditors at ₹24,58,14,826. Upon verifying the account copies provided by the assessee, the AO observed differences between the creditors’ closing balances and those in the assessee’s books. Consequently, an addition of ₹6,29,194 was made under Section 41(1) of the Income Tax Act, treating it as a cessation of liabilities.
Assessee’s Appeal to CIT (A): The assessee appealed against the AO’s addition, challenging the application of Section 41(1). The Commissioner of Income Tax (Appeals) [CIT (A)] scheduled multiple hearings, during which the assessee either did not respond or sought adjournments. On the final hearing date, 29.1.2024, the assessee requested another adjournment citing the accountant’s medical treatment, which the CIT (A) denied. Subsequently, the CIT (A) upheld the AO’s addition without considering the adjournment request or the substantive details provided by the assessee.
Appeal to ITAT: Dissatisfied with the CIT (A)’s decision, the assessee appealed to the Income Tax Appellate Tribunal (ITAT). The counsel for the assessee, Shri K.A. Sai Prasad, argued that the CIT (A) erred by sustaining the addition without adequately appreciating the reconciliation provided for the sundry creditors’ differences. He asserted that the discrepancies were due to year-end adjustments such as trade discounts and sales returns, and that Section 41(1) applies only when there is a cessation of liabilities recognized by both parties.
Conversely, the Departmental Representative (DR), Shri V.M. Mahidhar, supported the CIT (A)’s order, emphasizing that the assessee failed to substantiate the discrepancies with conclusive evidence.
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