2022 (9) TMI 1145 - AT - Income Tax

Tribunal upholds addition of outstanding amount as fictitious liability under Section 41(1). Creditor acknowledgment crucial. (1)

The Tribunal upheld the addition of Rs. 19,70,374/- as outstanding amount treated as fictitious liability under Section 41(1). The decision was based on ... Addition u/s 41(1) - cessation of liability as the payment was done in the earlier year - HELD THAT:- The material was supplied to the assessee-company, even if it is considered that the said payment was made by director, why the assessee has not shown such liability against director in its books. The case law relied by assessee Matruprasad C. Pandey [2015 (4) TMI 830 - GUJARAT HIGH COURT] is not applicable on the facts of present case as held that amount of old sundry creditors appearing in balance sheet cannot be added under section 41(1) unless and until it is found that there was remission/cessation of liability and that too during relevant assessment year. (underlined by us) As recorded above, during the remand report, the creditor clearly replied that he has already received payment against the supply of sand - FY 2011-12, thus, the liability to make payment was cessed long back, thus, we affirm the order of ld CIT(A). Grounds of appeal raised by the assessee are dismissed. Issues:1. Addition of outstanding amount as fictitious liability under Section 41(1).2. Confirmation of liability cessation and applicability of Section 41(1).3. Admissibility of additional evidence and remand report consideration.Issue 1: Addition of outstanding amount as fictitious liability under Section 41(1):The appeal was against the order confirming the addition of Rs. 19,70,374/- as outstanding amount of a party, treated as fictitious liability under Section 41(1). The Assessing Officer added the amount due to the credit in the books for more than three years against a party. The assessee's explanation was not accepted, citing lack of signed confirmation and absence of evidence that the liability still existed. The Assessing Officer concluded that Section 41(1) applied, leading to the addition.Issue 2: Confirmation of liability cessation and applicability of Section 41(1):The ld. CIT(A) upheld the addition, considering the creditor's email stating no outstanding amount and denial of signing the confirmation. The ld. CIT(A) found the claim false, applying Section 41(1)(a) due to the cessation of liability. The Tribunal affirmed this decision, emphasizing the creditor's acknowledgment of payment received for goods supplied in FY 2011-12, rendering the liability ceased.Issue 3: Admissibility of additional evidence and remand report consideration:The assessee submitted additional evidence during the appeal, including confirmations for FY 2011-12, 2012-13, and 2013-14. The Assessing Officer's remand report highlighted discrepancies in the confirmation, indicating the creditor's denial of signing and receipt of payment in FY 2011-12. The Tribunal dismissed the appeal, rejecting the plea that the payment was made by the director and not the company, deeming it baseless and inconsistent with the facts presented.In summary, the Tribunal upheld the addition of the outstanding amount as fictitious liability under Section 41(1) due to the cessation of liability confirmed by the creditor's email and denial of signing the confirmation. The Tribunal considered the additional evidence and remand report, concluding that the liability had ceased, affirming the ld. CIT(A)'s decision and dismissing the appeal.