2020 (4) TMI 612 - AT - Income Tax

Addition u/s 41(1) - cessation of liability - sundry creditors towards whom the assessee had not repaid - HELD THAT - In the present case it is not in dispute that the impugned amount was the credit balance in the name of the Ex partner Ms. Shivani Singal who did not withdraw the same at the time of her retirement. This amount was shown in the balance sheet of the assessee as payable to Ms. Shivani which Forming Part of the Balance Sheet as at 31/03/2015 wherein this amount has been shown under current liability as loan from Ex partner under the same head amount shown as on 31/03/2014 which shows that there was decrease in the amount during the year under consideration. It cannot be said that there was a cessation of liability u/s 41(1) - CIT(A) was fully justified in deleting the addition made by the A.O. by observing that the liability under consideration was not a trading liability rather it was the balance of the capital contributed by the Ex partner. Addition u/s 14A - HELD THAT - It is the duty of the revenue to establish nexus of the funds that assessee has used the interest bearing funds for the purposes of earning exempt income to make any disallowance u/s 14A with respect to interest expenditure. As the ld AO has not established the nexus about investment of interest bearing funds in exempt income generating apparatus no disallowance u/s 14A rwr 8D can be made on account of interest expenses. - Decided in favour of assessee. Addition on account of various expenses - assessee did not stated the nature of expenditure alongwith the justification and the details of the various expenses relating to building material ion for genuineness of its claim - HELD THAT - Assessee furnished the details of the expenses asked by the A.O. and the details of the various expenses relating to building material - A.O. was not justified in stating that the assessee had not furnished any reply. On the other hand the CIT(A) after examining the details/material on record came to the conclusion that the assessee had placed copy of account of building repair alongwith copy of major bills before the A.O. vide letter dt. 24/10/2017 and considering the quantum of repair this amount was very small. - Decided against revenue. Loss on Retiring Assets - Addition treating the loss as inadmissible loss - CIT(A) deleted the addition subsequent to verification of the A.O. for the reason that the assessee suomotu had made the disallowance in its computation of income - HELD THAT - No merit in this ground of the Departmental appeal particularly when the assessee itself added the loss on retiring asset to its income in the computation of total income. - Decided against revenue.

Issues Involved:
1. Deletion of addition under section 41(1) of the Income Tax Act, 1961 on account of cessation of liability.
2. Deletion of addition made under section 14A of the Income Tax Act, 1961.
3. Deletion of addition made on account of expenses claimed without evidences.
4. Deletion of addition treating the loss as inadmissible loss.

Issue-Wise Detailed Analysis:

1. Deletion of Addition under Section 41(1) on Account of Cessation of Liability:
The Revenue contended that the Ld. CIT(A) erred in deleting the addition of Rs. 3,12,44,216/- made by the A.O. under section 41(1) of the Income Tax Act, 1961 on account of cessation of liability. The A.O. observed that the liability towards an ex-partner, Ms. Shivani Singhal, was no longer required to be repaid, interpreting the mutual consent for withholding the amount as a waiver. The assessee argued that the amount was retained due to liquidity issues and was still acknowledged as a liability in the balance sheet. The Ld. CIT(A) found the A.O.'s inference misplaced, noting that the creditor still showed the amount as receivable and that it was not a trade credit, thus section 41(1) was not applicable. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the liability was not a trading liability but the ex-partner’s capital balance.

2. Deletion of Addition under Section 14A:
The Revenue challenged the deletion of Rs. 8,68,744/- made by the A.O. under section 14A of the Act. The assessee referred to a previous ITAT order in their own case, where it was held that the A.O. must establish a nexus between interest-bearing funds and exempt income. The Tribunal noted that the A.O. failed to provide tangible material to prove the use of interest-bearing funds for earning exempt income, thus following the precedent, the Tribunal decided the issue in favor of the assessee.

3. Deletion of Addition on Account of Expenses Claimed Without Evidences:
The Revenue disputed the deletion of Rs. 2,36,456/- made by the A.O. for repair expenses. The A.O. claimed no reply was received from the assessee regarding the nature of the expenses. The assessee countered that detailed bills and statements were submitted. The Ld. CIT(A) observed that the A.O.'s claim was incorrect as the assessee had provided the necessary details. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the expenses were supported by bills and were reasonable in quantum.

4. Deletion of Addition Treating the Loss as Inadmissible Loss:
The Revenue contested the deletion of Rs. 6,71,504/- made by the A.O. treating the loss on retiring assets as inadmissible. The A.O. argued that the loss could not be claimed as a business loss. The assessee clarified that the loss was already added back in the computation of income. The Ld. CIT(A) deleted the addition, subject to verification by the A.O. The Tribunal confirmed the Ld. CIT(A)'s decision, noting that the assessee had already accounted for the loss in its income computation.

Conclusion:
The Tribunal dismissed the appeal of the Department, upholding the Ld. CIT(A)'s decisions on all grounds, emphasizing the need for proper evidence and rationale in making additions under various sections of the Income Tax Act, 1961.

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