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2021 (2) TMI 1091 - AT - Income TaxAddition towards sundry creditors u/s.41(1) / 68 - addition of credit balances in appellant’s books - HELD THAT:- Liability shown in the books of accounts under the head ‘sundry creditors’ were not a trade liability for which allowances or deduction was claimed in the earlier financial years. Further, the assessee has filed necessary evidences to prove that said credits were received in the financial year 2006- 07 & 2007-08, out of family partition and the same were treated as sundry creditors because full effect was not given to family partition on account of certain differences among family members. AO as well as the CIT(A) were erred in invoking provisions of section 41(1) to bring to tax sundry creditors shown in the names of S/Shri ARKA. KaruthaPandian, K.A. Sekar and K. Sivasundarapappa, sundry payable amountingAO was erred in making additions towards credits shown in the books of accounts u/s.41(1) / 68 - CIT(A) without appreciating facts, has simply confirmed additions made by the AO. Hence, we reverse the findings of the CIT(A) and direct the AO to delete additions made towards sundry creditors u/s.41(1) & 68 of the Act. As regards, other credits in the name of Late ARK Arunachala Nadar, Smt. Swarnalatha and Shri Dhanabalan amounting to ₹ 28,79,600/-, all these credits were carried forward from financial year 2007-08 and such credits were either a loan or advance but not trade credits for which deduction was claimed in the earlier financial year. Therefore, these credits cannot be brought to tax u/s.41(1) of the Act. Similarly, a sum of ₹ 10,00,000/- shown in the name of Shri Kumar was a land advance received in the financial year 2005-06 and the same has been carried forward since 2005-06. Any loan or advance including land advance cannot be brought to tax u/s.41(1) of the Act, because said loan or advance was never claimed as deduction of an expenditure or allowance or trade loss in the earlier financial years. Therefore, we are of the considered view that the AO as well as the CIT(A) were erred in invoking provisions of section 41(1) of the Act, to bring into tax sundry creditors shown in the name of above persons. Coming to invocation of section 68 AO has simultaneously invoked provisions of section 68 in addition to section 41(1), to bring into tax, said credit for the impugned assessment years, but fact remains is that all these credits were brought forward from earlier financial years for which necessary evidences has been placed on record. Credits cannot be brought to tax as unexplained cash credits u/s.68 of the Act, because in order to bring any credits within the ambit of provisions of section 68 of the Act, said credits should be found in the books of accounts of the assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee in the hands of the AO is not satisfactory. In this case, none of the credits were received during the current financial year and further, the assessee has offered explanation about source and nature of credits and further proved the identity / creditworthiness and genuineness of transactions. Therefore, these credits cannot be brought to tax even under section 68. AO was erred in making additions towards credits shown in the books of accounts u/s.41(1) / 68 - Decided in favour of assessee.
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