2023 (5) TMI 703 - AT - Income Tax

Tribunal upholds income addition due to lack of creditor confirmations & disallows certain expenses

Sh. Pradeep Sawhney Versus Income Tax Officer, Ward-20 (3), New Delhi

The Tribunal upheld the Assessing Officer's decision to add Rs.1,08,82,873/- to the assessee's income due to lack of confirmations from sundry creditors, ... Addition of Sundry Creditors - Appellant could not get the confirmation of the parties - Appellant has submitted that he could not obtain the confirmation as they are very old creditors - CIT (A) held it is apparent that liabilities on account of creditors appearing in the books of Appellant have ceased to exist as the parties are not acknowledging their dues from the Appellant and, therefore, in view of Explanation 1 to Section 41(1), there is cessation of liability by the concerned parties - Whether revenue can bring the expenditure incurred in the earlier years to be taxed in the subsequent years? - Whether the revenue unilaterally deem the liabilities ceased as time went by? HELD THAT:- The revenue can bring the expenditure incurred in the earlier years to be taxed in the subsequent years if it is proved that the expenditure incurred was bogus and the revenue can deem the liabilities ceased as time went by taking into consideration, the period of non-payment of dues and the intention to pay the dues. Having examined the expenses payable and the detailed order of the ld. CIT(A) how the expenses are not found to be genuine, we hold that the expenses which have not been paid for the last six years and the expenses which have been incurred for Amit Saree and Rangoli Collection pertaining to F.Y. 2007-08 and all other expenses wherein not even a single creditor had demanded the money back nor the assessee made any attempt to repay the same. CIT(A) has correctly examined the invoices, period and purpose. Hence, we decline to interfere with the order of the ld. CIT(A) - Decided against assessee. Issues Involved:1. Disallowance for non-providing confirmations of outstanding balances of sundry creditors amounting to Rs.1,08,82,873/-.2. Disallowance on account of advances received from customers amounting to Rs.2,63,142/-.3. Disallowance on account of car expenses and depreciation amounting to Rs.29,729/-.Summary:Sundry Creditors:The Assessing Officer (AO) added Rs.1,08,82,873/- to the income of the assessee due to the lack of confirmations from sundry creditors. The AO's decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], who found the liabilities to have ceased as the creditors did not acknowledge their dues. The assessee argued that these were old creditors from earlier years, and the revenue could not prove the creditors as bogus. The Tribunal examined the provisions of Section 41(1) of the Income Tax Act, 1961, and relevant judicial pronouncements. It concluded that the revenue could tax the expenditure incurred in earlier years if it was proven to be bogus and could deem the liabilities ceased over time. The Tribunal upheld the CIT(A)'s order, noting that the expenses were not genuine as no creditors demanded repayment, and the assessee made no attempts to repay.Advances Received from Customers:The Tribunal did not provide specific details on this issue in the judgment, implying that the disallowance on account of advances received from customers amounting to Rs.2,63,142/- was upheld in line with the CIT(A)'s decision.Car Expenses and Depreciation:Similarly, the Tribunal did not elaborate on the disallowance of car expenses and depreciation amounting to Rs.29,729/-, suggesting that this disallowance was also upheld as per the CIT(A)'s findings.Conclusion:The Tribunal dismissed the appeal of the assessee, affirming the CIT(A)'s order on all grounds. The judgment was pronounced in the open court on 12/05/2023.