2021 (10) TMI 218 - AT - Income Tax

Tribunal orders reassessment of Income Tax Act Section 68 additions, stresses importance of considering all evidence

The Tribunal directed the Assessing Officer (AO) to reevaluate the additions made under Section 68 of the Income Tax Act concerning sundry creditors, an ... Addition u/s 68 - addition towards sundry creditors as unexplained credit - non-furnishing of confirmation letter from the parties - HELD THAT:- Merely for non-furnishing of confirmation letter from the parties, genuine liability arised in normal trading activity cannot be considered as unexplained credit. But, fact remains that the assessee has put up new facts which are not available to the AO at the time of assessment proceedings, which is evident from the finding given by the ld. AO that he went on to make additions only for non-submission of confirmation letters.To ascertain the facts with regard to nature of liability and genuineness of such transactions, the matter needs to be re-examined by the AO. Addition towards liability in the name of M/s. Sridhar & Co., it was the explanation of the assessee that there was a credit and debit balance in the same party account, if both balances are netted off, then there is no difference as claimed by the AO. The assessee has filed ledger accounts of debit and credit balances. The fact needs to be verified. Hence, we set aside the issue of addition towards sundry creditors as unexplained credit and direct the AO to verify evidences filed by the assessee and decide the issue in accordance with law. Addition towards inoperative account, although the AO has made addition assessee has recovered part of liability in the subsequent financial year relevant to assessment year 2016-17 and balance amount has been written off as irrecoverable and offered to tax. The assessee has filed necessary evidences to prove that part of liability has been recovered and remaining amount was written off and credited to profit & loss account. But, fact remains that these facts were not examined by the AO and hence, this issue needs to be verified by the AO in light of evidences filed by the assessee - we set aside the issue to the file of the AO and direct him to reconsider the issue in light of various evidences filed by the assessee and decide the issue in accordance with law - Appeal filed by the assessee is treated as allowed for statistical purpose. Issues:1. Addition under Section 68 of sundry creditors2. Addition of inoperative account not written off3. Addition of unexplained credit due to M/s. Chandilya TradersIssue 1: Addition under Section 68 of sundry creditorsThe assessee challenged the addition under Section 68 of the Income Tax Act pertaining to sundry creditors. The AO added amounts due from M/s. Sridhar & Co and M/s. C & E Ltd. as undisclosed credits. The assessee argued that the debit balance due from M/s. Sridhar & Co offset the credit balance, making it a non-issue. The Tribunal directed the AO to re-examine the matter, emphasizing that non-furnishing of confirmation letters does not automatically render the liability unexplained. The Tribunal found that the AO's decision was solely based on the absence of confirmation letters, prompting a reevaluation of the liability's nature and authenticity.Issue 2: Addition of inoperative account not written offRegarding the addition of an inoperative account amount not written off, the AO treated it as a cessation of liability, adding it to the total income. The assessee contended that the amount was later recovered and written off in the subsequent year. The Tribunal noted that the AO did not consider these facts and directed a reevaluation based on the evidence provided by the assessee. The matter was set aside for the AO to reconsider in light of the presented evidence and make a decision in accordance with the law.Issue 3: Addition of unexplained credit due to M/s. Chandilya TradersThe AO added a sum as unexplained credit due to M/s. Chandilya Traders, which the assessee argued was a result of transactions involving different entities and liabilities being transferred. The Tribunal emphasized the need to verify the facts presented by the assessee, especially regarding the movement of transactions and the assignment of liabilities for business reasons. The Tribunal directed the AO to reexamine the issue based on the evidence provided by the assessee to make a decision in accordance with the law.The Tribunal's judgment focused on the need for a thorough examination of the facts and evidence presented by the assessee, emphasizing that mere non-furnishing of confirmation letters does not automatically render liabilities as unexplained credits. The Tribunal set aside the issues for the AO to reevaluate based on the evidence provided, ensuring a fair and just decision in accordance with the law.