2022 (10) TMI 685 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on unsecured loans and sundry creditors.

ACIT Circle 15 (1) New Delhi. Versus Lakshmiji Sugar Mills Co. Ltd.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The deletion of the addition of unsecured loans under ... Addition u/s 68 - disallowance of unsecured loans from directors and promoters - CIT-A deleted the addition - HELD THAT:- On perusal of the Ld. CIT(Appeals) order, we observe that the unsecured loans from directors and promoters are all balances in the books of account as on 01.04.2012 and it was subsequently repaid on 12.04.2013 and there were no changes in unsecured loans in respect of directors and promoters during the year under reference i.e. FY 2012-13 relevant to the AY 2013-14. Therefore, we hold that there is no infirmity in the order passed by the Ld.CIT(A) in deleting the addition made u/s 68 of the Act. Grounds raised by the Revenue on this issue are rejected. Addition made u/s 41(1) in respect of outstanding sundry creditors - CIT-A deleted the addition - HELD THAT:- CIT(A) following the decision of the jurisdictional High Court in the case of Vardhaman Overseas Ltd. [2011 (12) TMI 77 - DELHI HIGH COURT] deleted the addition observing that consistent legal position is that an addition u/s 41(1) of the Act can be made only when the amount has been written off by the Appellant Company in its books of account. We do not see any infirmity in the order passed by the Ld.CIT(A) in deleting the addition made u/s 41(1) of the Act. Thus, we sustain the order of the Ld.CIT(A) and reject the grounds of Revenue on this issue. Issues Involved:1. Deletion of disallowance of unsecured loans from directors and promoters amounting to Rs.1,39,51,852/- made under Section 68 of the Income Tax Act.2. Deletion of addition made under Section 41(1) in respect of outstanding sundry creditors amounting to Rs.15,81,908/-.Detailed Analysis:1. Deletion of disallowance of unsecured loans under Section 68:The Revenue appealed against the deletion of the addition of Rs.1,39,51,852/- made under Section 68 of the Income Tax Act concerning unsecured loans from directors and promoters. During the assessment proceedings, the assessee was required to furnish details of these loans. The Assessing Officer (AO) found that the assessee did not provide confirmations or documentary evidence for the loans from directors and promoters, leading the AO to treat these as cash credits and make the addition to the income of the assessee.Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] examined the evidence and found that the loans were opening balances as of 01.04.2012 and were repaid on 12.04.2013. The CIT(A) noted that no new credits were made during the financial year under assessment (FY 2012-13), thus the provisions of Section 68 were not applicable. The CIT(A) stated, 'No amount has been credited in the year under reference and therefore no addition can be made u/s 68 in respect of these accounts.' Consequently, the addition was deleted.The Tribunal upheld the CIT(A)'s decision, noting that the unsecured loans were indeed opening balances and there were no changes during the FY 2012-13. The Tribunal found no infirmity in the CIT(A)'s order and rejected the grounds raised by the Revenue on this issue.2. Deletion of addition made under Section 41(1) for outstanding sundry creditors:The AO observed that sundry creditors amounting to Rs.15,81,908/- were outstanding for more than three years and concluded that these liabilities were no longer payable. Thus, the AO invoked Section 41(1) of the Act, treating these amounts as income of the assessee.The CIT(A) deleted the addition, relying on the decision of the Hon'ble Delhi High Court in the case of Vardhaman Overseas Ltd. (343 ITR 401). The CIT(A) noted that an addition under Section 41(1) can only be made when the amount has been written off by the assessee in its books of accounts. The CIT(A) quoted the High Court's judgment, emphasizing that a unilateral action by the debtor cannot bring about a cessation or remission of liability unless the creditor agrees, there is a legal discharge, or the debtor unequivocally declares non-payment.The Tribunal agreed with the CIT(A)'s application of the Vardhaman Overseas Ltd. case, confirming that the legal position requires the liability to be written off in the books for Section 41(1) to apply. The Tribunal found no infirmity in the CIT(A)'s order and sustained the deletion of the addition made under Section 41(1).Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The deletion of the addition of unsecured loans under Section 68 and the deletion of the addition for outstanding sundry creditors under Section 41(1) were both sustained, as the conditions for invoking these sections were not met in the assessee's case.