TaxTMI 
TaxTMI 
2026 (2) TMI 358
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....ious expenses claimed. Thereafter, the PCIT, Moradabad passed the order u/s 263 on 28.03.2019, directing the AO to make fresh assessment after making inquiries with respect to the sundry creditors declared by the assessee. In compliance to the direction given by ld. PCIT u/s 263 of the Act, AO made the inquiries from the Sundry creditors, where out of total 680 parties, notices were sent to only 168 parties as tabulated at page 2 to 10 of the assessment order and finally, made the additions of INR 5,00,7049/- by doubting 29.24% of the total creditors of INR 17,12,38,198/-. 3. Against the said order, assessee preferred appeal before Ld. CIT(A) who confirmed the order of AO and dismissed the appeal of the assessee in summarily manner by placing reliance on the judgment of Co-ordinate Bench of Ahmedabad Tribunal in the case of ACIT vs Dattatray Poultry Breeding Farm Pvt.Ltd. [2018] reported in 171 ITD 615 [Ahmedabad Trib.] wherein it was held that in absence of PAN and confirmation, addition can be made on account of Cessation of Liability. 4. Aggrieved by the said order, the assessee preferred the appeal before the Tribunal by taking following grounds of appeal:- 1. "O....
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....33(6) of the Act to 168 parties as tabulated at page 2 to 10 of the assessment order. In the said table in Column No.4, AO observed that in most of the cases, replies were submitted and in few cases, notices were returned unserved or reply was not filed. Thereafter, AO deputed the Inspector to verify 39 creditors and it is reported by the Inspector all the 39 parties were not traceable therefore the AO was of the opinion that out of 680 creditors, inquiries were carried out in case 207 (168 + 39) creditors and out of which 63 creditors were found as not available at the given addresses or notices sent were returned unserved which comprises of the amount of INR 1,46,72,415/- out of the total creditors of INR 5,01,86,101/- in cases of which inquiries were made and AO has made the disallowance by taking the percentage of 29.24% i.e. value of 63 creditors out of total value of 207 creditors. Ld. AR submits that AO has made sample inquiries and based on sample inquiries, doubted the existence of the creditors and disallowed 29.24% of the total amount outstanding of Sundry creditors without any cogent basis. Ld.AR submits that in the case of assessee, assessments for AY 2012-13 & 2013-14....
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.... C Response not received according to Assessing Officer 63 1,46,72,415/- D % of C to A 29.24% Addition made by Assessing Officer: 29.24% is Rs. 17,12,38,198/- is Rs. 5,00,70,049/-. 4. It is humbly submitted that the addition made by the Assessing Officer and confirmed by CIT(A) is totally erroneous because of the following: I. There is no cessation of liabilities as the liabilities of the sundry creditors is duly recorded and acknowledged in the books of accounts and audited financial statement. II. All the purchases/expenses and trading results have been accepted and, therefore, there is no justification for addition of corresponding sundry creditors. III. There is no legal basis/justification for adhoc/estimated addition of the sundry creditors. Each of the above contention is elaborated as under: - I. There is no cessation of liabilities as the liabilities of the sundry creditors is duly recorded and acknowledged in the books of accounts and audited financial statement. 1.1. It is submitted that the assessing officer has erred in making the addition of Rs. 5,00,70,049/- on accoun....
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....ase of CIT v Shri Vardhman Overseas Ltd 2011(12) TMI 77 - Delhi High Court addition u/s 41(1) was made in respect of Sundry Creditors outstanding for more than 4 years by treating them as non-genuine creditors as the assessee failed to file confirmation of the creditors. The Hon'ble High Court held that since the amounts were acknowledged as liability by the assessee in its audited statement of accounts, there was no remission/cessation of liability. 1.5. Reliance is also placed on the following case laws :- * PR. COMMISSIONER OF INCOME TAX AHMEDABAD VERSUS MATRUPRASAD C PANDEY (2015) 377 ITR 363 (Gul) * CIT V. SMT, SITA DEVI JUNEJA: (2010) 325 ITR 593 (P & H) * CIT VERSUS NARENDRA MOHAN MATHUR 2013 (11) TMI 1707-RAJASTHAN HIGH COURT * JK. CHEMICALS LTD. VERSUS COMMISSIONER OF INCOME TAX 119661 62 ITR 34-BOMBAY HIGH COURT * M/S. FLO DYNE CONTROLS (INDIA) PVT. LTD VS ITΟ 2018 (6) ΤΜΙ 897 - ITAT MUMBAI * DCIT vs M/S, TRANS FREIGHT CONTAINERS LTD. 2018(5) TMI 419 - ITAT MUMBAI * ANIL KUMAR DANGAYACH HUF VERSUS THE INCOME TAX OFFICER, WARD 3(2), JAIPUR 2018 (3) TMI 1515-ITAT JAIPUR ....
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....bilities in its books of account, the question of invoking section 41(1) of the Act would not arise. III. There is no legal basis/justification for adhoc/estimated addition of the sundry creditors. There is no provision under Income-tax law for making ad-hoc disallowance of sundry creditors as has been made by the AO and confirmed by CIT(A). Reliance in this regard is placed upon the on the recent judgement in the case of Bangalore Electricity Supply Company Ltd. Versus The Assistant Commissioner of Income Tax, Circle 1 (1) (2), Bangalore 2025 (1) TMI 1476 - ITAT Bangalore wherein it has been held as under: - 19. We have carefully considered the rival contention and perused the orders of the learned lower authorities. The issue involved in this ground of appeal is that when the assessee has failed to furnish the complete details of the sundry creditors to the assessing officer stating it to be voluminous in nature, the learned assessing officer on his examination that assessee has failed maintain proper books of accounts, can result in to any addition u/s 41(1) of the Act. It was further stated that as the assessee has huge liability outstanding,....
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....of the assessee. Therefore, we do not find any infirmity in the order of the learned CIT-A in dealing with the additional evidences filed by the assessee, which were sent for remand report to the assessing officer but for substantial time no such remand report was submitted, and therefore on examination by the learned CIT-A, he has reached at a conclusion that the liability is stated by the assessee as on 31/3/2017 is in existence and has not ceased and therefore not chargeable to tax under section 41 (1) of the act. Accordingly, we dismiss ground number 2 of the appeal of the learned AO. Reliance is also placed upon the case of JCIT v. Yashmaan Pathak ITA No.265/Mum/2023 ITAT Mumbai wherein it was held as under: - 7. After considering the relevant finding given in the assessment order as well as the appellate order, we find that, nowhere the AO, or Ld. CIT (A) have discussed as to what was the details filed by the assessee before the AO & CIT (Appeals). Merely because there are Sundry Creditors appearing in the balance sheet, then it does not entail invoking of provision of section 41(1) automatically. There has to be something on record that there is a cessation....
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....n this percentage as the basis for alleging that out of total outstanding balances of INR 17,12,38,198/- in the name of Sundry creditors, and made the addition of INR 5,00,70,049/- u/s 41(1) as cessation of liability solely on presumption basis without their being any concrete inquiry in this regard. For making addition u/s 41(1) of the Act, the burden to hold such liability as non-existent is on the AO. It is a fact on record that assessments for preceding AYs were completed u/s 143(3) of the Act where purchases made were accepted and also the Sundry creditors declared were not doubted and also in the impugned year, purchases declared by the assessee stood accepted and even the sales and trading results declared were also accepted. 11. It is the fact that amount of outstanding credits stood increased from INR 11.38 crores to INR 17.16 crores in the year under appeal. This is mainly due to increase in the volume of business which is reflected from the turnover as well as amount of purchases where the sales has increased from INR 15.52 crores in 31.03.2013 to INR 25.89 crores in the year under appeal. The assessee has never claimed the creditors as non-existent and were acknowled....
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....e not in dispute, in the present case, during the course of scrutiny assessment the Assessing Officer noted that in the balance sheet, the assessee had shown huge sundry creditors of Rs. 74,40,360/- as on 31.10.2010, The Assessing Officer carried out an inquiry into the genuineness creditors and came to the conclusion that the assessee company was doing job work only and hence, there would be no purchases and hence, there was no possibility of such huge amount outstanding in respect of such sundry creditors. He, however, issued notices to the creditors and found that in case of several creditors, the notices were returned unserved and that in case of some of the creditors, they categorically denied having had made any transactions with the assesses. The Assessing Officer, therefore, recorded a finding that there was no genuine creditors appearing in the balance sheet of Rs. 74,40,360/- as on 31.10.2010. The Assessing Officer held that the onus was cast upon the assessee to prove the genuineness of the creditors appearing in the balance sheet. The assessee had neither produced the creditors nor furnished even confirmations and proper addresses of the creditors and some of the credit....
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....ibunal held that the onus is on the assessee to show that the year of cessation is different and that in the facts and circumstances of the case, the assessee did not admit cessation in the first place, and therefore, the Assessing Officer was within his right to hold the financial year in question as the right year for taxability when the facts regarding the non-existence were unraveled. The Tribunal, accordingly, set aside the order passed by the Commissioner (Appeals) and restored the order passed by the Assessing Officer. 11. It may be noted that in the facts of the present case, the addition is sought to be made on the ground that there was cessation of trading liabilities under section 41(1) of the Act. Section 41(1), to the extent the same is relevant for the present purpose, reads as under:- 41. Profits chargeable to tax.-(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any o....
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....eel Industries, (1993) 199 ITR 67 (Guj.). The following passages in the judgment bring out the reasoning of the Full Bench succinctly: "11. In our opinion, for considering the taxability of amount coming within the mischief of Section 41(1) of the Act, the system of accounting followed by the assessee is of no relevance or consequence. We have to go by the language used in Section 41(1) to find out whether or not the amount was obtained by the assessee or whether or not some benefit in respect of trading liability by way of remission or cessation thereof was obtained by the assessee and it is in the previous year in which the amount or benefit, as the case may be, has been obtained that the amount or the value of the benefit would become chargeable to income tax as income of that previous year. 12. We fully agree with the view taken by the Division Bench in CIT v. Rashmi Trading, [1976] 103 ITR 312 (Guj), that the only meaning that can be attached to the words 'obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure' incurred in any previous year clearly refer to the actual receiving of the cash of tha....
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....as unexplained cash credit in the hands of the assessee under section 68 of the Act in the relevant assessment year, but the same cannot be taxed under section 41(1) of the Act, inasmuch as if the liability itself is not genuine, the question of remission or cessation thereof would not arise. 16. Section 41(1) of the Act can be applied, provided the following conditions are fulfilled: - In the assessment of any assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him; - any amount is obtained in respect of such loss or expenditure; or any benefit is obtained in respect of such trading liability by way of remission or cessation thereof, - such amount or benefit is obtained by the assessee; - such amount or benefit is obtained in a subsequent year, Thus, where a debt due from the assessee is foregone by the creditor in a later year, it can be taxed under section 41(1) of the Act in such later year when it was foregone. Section 41(1) of the Act, therefore, contemplates existence of a debt/liability and the remission or cessation thereof in the year under consideratio....
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....sideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount....