2021 (9) TMI 887 - AT - Income Tax

Tribunal Upholds CIT(A) Decision on Income Tax Act Sections 41(1) and 68

I.T.O., Ward 4 (1), Jaipur. Versus Shri Amit Agarwal

The Tribunal upheld the CIT(A)'s decision to delete additions under Sections 41(1) and 68 of the Income Tax Act, 1961. In the first issue concerning ... Non-genuine creditors u/s 41(1) - proof of liability ceased to exist - case of the assessee was selected for limited scrutiny under CASS - CIT-A deleted the addition - HELD THAT:- As the assessee had not written off outstanding liabilities in his books of accounts and made the payments to these creditors in subsequent years through banking channels - no addition could have made under section 41(1) without proving that liability ceased to exist and that too in the year under consideration. Nothing has been brought on record to show that some benefit has actually accrued to the assessee during the year under consideration - CIT(A) has passed a speaking and reasoned order discussing all the facts and circumstances as well as legal propositions of law therefore, considering the totality of facts and circumstances and case laws exactly similar to the facts and circumstances of the present case, we find no reason to interfere in the order of the ld. CIT(A) qua this issue, hence, we uphold the same. - Decided in favour of assessee. Unexplained credits u/s 68 - advances or cash received against which goods is supplied - assessee could not produce the confirmation from party HELD THAT:- The assessee furnished confirmation account, bank details, purchase and sale bills. Upon perusal of these details and evidences furnished by the assessee, we agree with the assessee’s claim. The assessee has produced copy of confirmation before the lower authorities duly reflecting the creditor's name along with its address, PAN, advance amount etc. - advances or cash received against which goods is supplied subsequently is not a cash credit as contemplated by section 68 of the Act. Simply because, the assessee could not produce the confirmation from this party, the genuineness of transaction cannot be doubted. All the relevant details proving the transaction as genuine were available on record despite that, the A.O’s mere emphasis was on the production of the confirmation from this party. In fact, the name and addresses were mentioned in the copies of bills of sale and purchase. Besides, the assessee by way of various documents duly proved that he had already supplied the goods against the advance amount subsequently on 28- 03-2017. In this regard, the assessee duly furnished bills - Decided in favour of assessee. Issues Involved:1. Deletion of addition of Rs. 2,59,97,837/- on account of non-genuine creditors under Section 41(1) of the Income Tax Act, 1961.2. Deletion of addition of Rs. 50,00,000/- on account of unexplained credits under Section 68 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 2,59,97,837/- on Account of Non-Genuine Creditors under Section 41(1):The Revenue challenged the deletion of the addition made by the Assessing Officer (AO) on account of non-genuine creditors under Section 41(1). The AO had treated sundry creditors amounting to Rs. 2,59,97,837/- as non-genuine after summons issued to these parties were returned unserved, and none appeared before the AO. The AO concluded that these sundry credits were no longer payable and liable to be added under Section 41(1).The assessee argued that these outstanding trade creditors were not more than two years old and were for the supply of goods/services during FY 2011-12, with payments made in subsequent years. The assessee contended that there was no cessation of liability as no benefit was obtained in respect of such trading liability by way of remission or cessation. The assessee relied on various judicial decisions, including CIT Vs. Sigauli Sugar Works (P) Ltd (1999) and CIT Vs. Shri Vardhman Overseas Ltd. (2012), arguing that mere outstanding liabilities do not justify invoking Section 41(1).The CIT(A) admitted additional evidence under Rule 46A, noting that the assessment was completed ex-parte under Section 144. The CIT(A) found that the requirements of Section 41(1) were not satisfied as there was no remission or cessation of liability during the relevant assessment year. The CIT(A) observed that the AO doubted the genuineness of such liabilities, but the question of taxing any income on the ground of remission or cessation of non-existent liabilities would not arise. The CIT(A) also noted that the assessee had made payments to these creditors in subsequent years and furnished confirmed copies of accounts of these parties.The Tribunal upheld the CIT(A)'s order, agreeing that no addition could be made under Section 41(1) without proving that the liability ceased to exist in the year under consideration. The Tribunal noted that the case laws relied on by the Revenue were not applicable to the facts of the present case and found no reason to interfere with the CIT(A)'s order.2. Deletion of Addition of Rs. 50,00,000/- on Account of Unexplained Credits under Section 68:The Revenue challenged the deletion of the addition made by the AO on account of unexplained credits under Section 68. The AO had treated an amount of Rs. 50,00,000/- received by the assessee as an advance for the sale of goods as unexplained credit, as the assessee failed to provide details to prove the genuineness of the transaction.The assessee argued that the amount was received through RTGS as an advance for the purchase of goods from M/s. Avi Enterprises and was shown as trade creditors in the balance sheets until the goods were sold in March 2017. The assessee furnished confirmation accounts, bank details, and purchase and sale bills to support the transaction's genuineness. The assessee relied on the case of Pr. CIT Vs. Dutta Automobiles (P) Ltd. (2016), where it was held that advances received from customers for the sale of goods, which were eventually adjusted against the sale price, do not attract Section 68.The CIT(A) agreed with the assessee, noting that the assessee had provided confirmation letters, affidavits, full addresses, PAN, and other details of the creditor. The CIT(A) observed that the assessee had discharged the initial burden of proving the identity, capacity, and genuineness of the transaction. The CIT(A) relied on various judicial decisions, including CIT vs. S Kamaljeet Singh and Mod Creations Pvt. Ltd. vs. ITO, which held that no addition under Section 68 is called for where the assessee satisfactorily proves the identity, capacity, and genuineness of the transactions.The Tribunal upheld the CIT(A)'s order, agreeing that the advances or cash received against which goods were supplied subsequently is not a cash credit under Section 68. The Tribunal found that the AO's emphasis on the production of confirmation from the party was misplaced, as the assessee had provided sufficient details to prove the transaction's genuineness. The Tribunal found no reason to interfere with the CIT(A)'s order.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order in deleting the additions made under Sections 41(1) and 68 of the Income Tax Act, 1961. The Tribunal found that the CIT(A) had passed a speaking and reasoned order, discussing all relevant facts, circumstances, and legal propositions.