2014 (12) TMI 1008 - AT - Income Tax

Addition made by treating creditors as unverifiable creditors addition u/s 41(1)(a) - Held that - Out of the total addition made u/s 41(1) the major addition is with respect to Bhikubhai Patel - assessee has submitted that translated copy of the reply given by Bhikubhai Patel to the AO in response to the submissions issued to him u/s. 131 assessee has not entered into any transaction with the Assessee s firm in FY 06- 07, -07-08 & 09-10 - there is no finding either by CIT(A) or by the AO that the Assessee had entered into transaction with Bhikubhai Patel in year ending 31st March 2004 and the nature of transaction - this factual aspect needs fresh verification and for which the matter is remitted back to the AO for examination of the contentions of the assessee that the amount was payable since year ending 2004 - with respect to the other parties there is no evidence either in the form of confirmation letter PAN number addresses or any other form was submitted by the Assessee in support of its claim that the liability exists - no material has been placed on record by the Assessee to demonstrate that it has paid the creditors the amount in subsequent years nor there is any finding on the same of AO or CIT(A) - assessee should be granted one more opportunity and also to demonstrate the subsequent payments thus the matter is remitted back to AO Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of unverifiable creditors.
2. Addition of ceased to exist creditors under section 41(1)(a) of the Act.

Analysis:

Issue 1: Addition of Unverifiable Creditors
The appeal was filed by the Revenue against the order of CIT(A)-II, Surat for A.Y. 2007-08. The Assessee, a partnership firm engaged in construction business, declared total income at Rs. Nil. During assessment, the Assessing Officer (A.O) noted that the Assessee failed to produce books of accounts despite multiple opportunities. The Assessee had shown aggregate liabilities of Rs. 55,16,499, out of which only Rs. 6,25,975 was verified. For the remaining unverified amount of Rs. 48,90,524, the Assessee could not provide confirmations or addresses of the creditors. The A.O treated Rs. 1,90,323 as unverifiable creditors and made an addition. Similar treatment was given to other creditors like Bhikubhai Patel, Krishnadevi Batra, Ashok Goyal, and J.A. Zanuddin. The CIT(A) upheld the A.O's decision, stating that the Assessee failed to establish the genuineness of outstanding liabilities, leading to the additions. The Assessee's argument that conditions under section 41(1) were not satisfied was rejected.

Issue 2: Addition of Ceased to Exist Creditors under Section 41(1)(a)
The A.O also made additions under section 41(1)(a) for creditors like Bhikubhai Patel, Krishnadevi Batra, Ashok Goyal, and J.A. Zanuddin, totaling Rs. 47,04,490. The Assessee contended that these amounts were advance contributions received towards construction from customers and no benefit was claimed in earlier years. However, the A.O found that the Assessee failed to provide details or evidence of amounts payable, and there was no business activity in the relevant years. The Assessee's reliance on High Court decisions was not considered as there were no findings based on those decisions. The ITAT remitted the matter back to the A.O for fresh verification regarding the liabilities, granting the Assessee an opportunity to demonstrate subsequent payments and comply with the decisions of the High Court.

In conclusion, the ITAT allowed the Assessee's appeal for statistical purposes, directing a re-examination of the issues related to unverifiable and ceased to exist creditors, emphasizing the need for factual findings and compliance with legal provisions.