2012 (12) TMI 1085 - HC - Income Tax

High Court: Trade liability added to income under Income Tax Act. Creditor non-existent. Appeal dismissed.

Rama Steel Rolling Mills & General Engg. Works Versus Income-tax Officer, Ward-3 (1)

The High Court held that the trade liability could be added to the appellant's total income under Section 41(1) of the Income Tax Act, 1961, as M/s ... Remission or cessation of the trade liability standing - addition u/s 41 - Held that:- It is based on factual matrix of the matter and the liability in the end of the year if not proved can certainly be added u/s 41(1) of the Act but it is still left open for the assessing authority to examine and opportunity is available before the assessing authority to produce the creditor and if unable to give the exact address, it will be open for the assessing authority to add back the same as per law. We do not find any substantial question of law arises in the facts & circumstances of the case which may require any consideration. Issues:Assessment of trade liability under Section 41(1) of the Income Tax Act, 1961 resulting in remission or cessation of the trade liability standing in the books of accounts.Analysis:The appellant, a partnership firm, had a dispute with M/s Tirupati Steels regarding goods purchased during the financial years 2001-2002 & 2002-2003, leading to a trade liability of Rs. 34,91,181. During scrutiny, the appellant failed to provide confirmation of the trade liability, prompting the issuance of a notice under Section 133(6) of the Act to verify the genuineness of the creditor. However, it was found that M/s Tirupati Steels did not exist at the given address. Consequently, the trade liability was added to the appellant's total income under Section 41(1) of the Act. The Income Tax Appellate Tribunal noted that the liability remained unpaid for several years, and if not proved, it could be added under Section 41(1). The Tribunal left it to the assessing authority to verify the discharge of liability till the date of fresh assessment.The appellant contended that a substantial question of law arose regarding the effect of Section 41(1) resulting in remission or cessation of the trade liability. However, the High Court held that based on the factual matrix, the liability could be added under Section 41(1) if not proved, but the assessing authority had the opportunity to examine and require the production of the creditor. If the exact address was not provided, the assessing authority could add back the liability as per law. The High Court found no substantial question of law requiring consideration in the case and dismissed the appeal, deeming it devoid of merits.