ITO Vs Simu Sonthalia (ITAT Gauhati)
ITAT Gauhati held that provisions of section 41(1) of the Income Tax Act cannot apply since the liability is still ‘payable’ to sundry creditor and had not been written off in the books of account and there is no evidence to indicate that said liabilities had ceased to exist.
Facts-
During the course of assessment proceedings AO called for details of purchases and the confirmation of sundry creditors. The assessee neither filed any detail of purchases nor any confirmation was filed. AO, thereafter, issued notice u/s. 133(6) of the Act to Shree Balaji Udyog, sundry creditor. Notice u/s 131(1) of the Act in the case of sundry creditor, Dip Sarma (Prop. Anurag Packaging & Maa Kamakhya Packaging was duly served. But neither the sundry creditor(s) appeared nor filed any details.
Therefore, AO made the addition u/s. 41(1) of the Act at Rs. 1,04,24,883/- & Rs.93,43,452/- for cessation of liability in the name of M/s. Anurag Packaging & Maa Kamakhya Packaging. Similar addition was also made u/s. 41(1) of the Act at Rs. 93,89,186/- for outstanding liability in the name of Shree Balaji Udyog.
Aggrieved, the assessee preferred an appeal before the ld. CIT(A) challenging the additions made u/s. 41(1) of the Act at Rs.2,91,57,521/- and succeeded.
Aggrieved, the revenue is now in appeal before this Tribunal.
Conclusion-
Held that the appellant/assessee continued to reflect or record liabilities standing in books of account ‘payable’ to the creditors and had not written them off in the books of account and there is no evidence to indicate that said liabilities had ceased to exist.
Invoking of Section 41(1) arises on various counts including remission and cessation of liability. If in a case there is cessation of liability, it means that though there is a liability standing in the books, but if it is fictious in nature and in real terms the assessee has not to pay such liability and liability cease to exist, then in such case section 41(1) of the Act needs to be invoked and creditors/credit liabilities should be treated as income chargeable to tax.
FULL TEXT OF THE ORDER OF ITAT GAUHATI
The present appeal has been preferred by the revenue against the order dated 29-08-2018 of the Ld. Commissioner of Income-tax (Appeals), [hereinafter referred to as ‘CIT(A)’], Guwahati-1, Guwahati for the assessment year 2015-16.
2. The revenue has raised the following grounds:-
(i) For that on the facts and circumstances of the case the Ld. CIT(A) is not justified in facts as well as in law in deleting the addition of Rs.29,1 5,73,211 without appreciating the fact that the assessee had failed to produce details of purchases made during the F.Y. 201415 relevant to A.Y. 201516.
(ii) For that on the facts and circumstances of the case the Ld. CIT(A) is not justified in facts as well as in law in ignoring the enquiry conducted by the AO in respect of sundry creditors namely Mr. Dip Sharma [ Prop. Anurag Packaging & Maa Kamakhya Packaging]. and Mr. Alok Sonthalia, [Prop. Shree Balajee Packaging ]. The Ld. CIT(A’) has failed to appreciate that these creditors failed to comply with the provisions u/s 131 of the LT. Act, 1961.
(iii) On the facts and circumstances of the case the Ld. CIT(A) is not justified in facts as well as in law that, the sundry creditor namely Mr. Dip Sharma [ Pro Anurag Packaging & Maa Kamkhya Pakaging ] did not file his ITR except for A.Y. 201 12. Even in the A.Y. in which he had filed his return of income i.e A.Y. 201112 he has not shown any details of his sundry debtors.
(iv) The appellant craves leave to add, alter or amend any or all of the appeal before or during the course of appeal.
3. Brief facts of the case as culled out from records are that the assessee is engaged in carrying on business in manufacturing of BOPP Self Adhesive Tapes, Paper Core etc. Income at Rs. 19,320/- in return filed on 30.09. 2015 declared after claiming deduction under chapter VI of Rs. 10,73,120/-. Case selected for limited scrutiny followed by serving of notices u/s. 143(2) & 142(1) of the Act. During the course of assessment proceedings the ld.AO called for details of purchases and the confirmation of sundry creditors. The assessee neither filed any detail of purchases nor any confirmation was filed. The ld. AO, thereafter, issued notice u/s. 133(6) of the Act to Shree Balaji Udyog, sundry creditor. Notice u/s 131(1) of the Act in the case of sundry creditor, Dip Sarma (Prop. Anurag Packaging & Maa Kamakhya Packaging was duly served. But neither the sundry creditor(s) appeared nor filed any details. Therefore, the ld. AO made the addition u/s. 41(1) of the Act at Rs. 1,04,24,883/- & Rs.93,43,452/- for cessation of liability in the name of M/s. Anurag Packaging & Maa Kamakhya Packaging respectively. Similar addition was also made u/s. 41(1) of the Act at Rs. 93,89,186/- for outstanding liability in the name of Shree Balaji Udyog (Prop. Alok Santhalia [ husband of the assessee].
4. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) challenging the additions made u/s. 41(1) of the Act at Rs.2,91,57,521/- and succeeded as the ld. CIT(A) was of the view that the ld. AO had gone beyond the powers u/s. 41(1) of the Act, more so, when the appellant/assessee continued to reflect or record liabilities still ‘payable’ to the creditors and had not written them off in the books of account and moreover, there was no evidence to indicate that said liabilities had ceased to exist.
5. Aggrieved, the revenue is now in appeal before this Tribunal raising the aforementioned grounds of appeal.
6. The Ld. Departmental Representative vehemently argued referring to the detailed finding of the ld. AO and further submitted that spot enquiry was conducted by the inspector regarding the creditworthiness of sundry creditor, Dip Sarma and found that Shri Dip Sarma is an auto van driver, who has no business premises or any office and he has not maintained any books of account. Further, it was submitted that the assessee was given sufficient opportunity to produce the required documents, but the assessee deliberately did not comply with the same issued u/s. 131(1) of the Act and awaited for submissions of document, The ld. DR asserted that finding of the ld. AO may please be restored.
7. Per contra, Ld. Counsel for the assessee vehemently argued supporting the finding of the ld. CIT(A) also referring to various judgments stating that provisions of section u/s. 41(1) of the Act are not applicable in the present case as the assessee has shown the creditors as liabilities in the books and the transactions are being carried out. Reference also made to the paper book containing 79 pages, which includes copies of ledger confirmations, tax audit report and the decisions relied on by the assessee.
8. We have heard the rival contentions and perused the material placed before us. The main grievance of the revenue is that the ld. CIT(A) erred in deleting the addition of Rs.2,91,57,521/- made by the ld. AO u/s. 41(1) of the Act under the fact that after conducting necessary enquiry the alleged sundry creditors failed to comply of the notice u/s. 131(1) of the Act and the sundry creditors, M/s. Anurag Packaging & M/s. Maa Kamakhya had not filed I.T Returns.
9. We notice that alleged additions of Rs. 2,91,57,321/- made in respect of following sundry creditors:-
