Section 41(1) addition can not be invoked without any material evidence. High Court upheld quashing of addition made on account of remission/cessation of trade liability.
ABCAUS Case Law Citation:
ABCAUS 2903 (2019) (05) HC
The appeal was filed by the Revenue against the order passed by the Income Tax Appellate Tribunal (Tribunal) on the issue of remission / cessation of liability.
The returns of the assessee was selected for scrutiny and notice under Section 143(2) of the Income Tax Act, 1961 (the Act) was issued. The assessee was asked to explain sundry creditors which were continued in the books of accounts without any change and show cause why the unclaimed credit balances should not be brought to tax invoking Section 41(1) of the Act.
The assessee was specifically asked to explain why the unclaimed credit balances should not be brought to taxation. The Assessing Officer not being satisfied with the explanation furnished by the assessee brought them tax u/s 41(1) of the Act.
Aggrieved by the assessment order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) who allowed the appeal in part holding that the Assessing Officer could not have invoked provisions of Section 41(1) of the Act in the absence of any material evidence on record and held that the addition was to be deleted.
The revenue, aggrieved by the said order filed appeal before the ITAT which was dismissed against which the appeal was filed by the Revenue in the Hon’ble High Court.
The Revenue contended that the Tribunal failed to appreciate that the assessee had
failed to furnish PAN numbers and address of the creditors for verification. It was further submitted that the ITAT committed an error in accepting additional evidence.
The Hon’ble High Court opined that no substantial question of law had arisen for consideration in the appeal.
The Hon’ble High Court observed that the AO had made the addition on the ground that the assessee had not furnished PAN numbers or address of the creditors. However, CIT(A) allowed the appeal holding that the Assessing Officer had failed to make any cross-verification as to remission or cessation of liability before invoking the provision of Section 41(1) of the Act.
The Hon’ble High Court opined that to attract the above provision, the Assessing Officer, based on available material ought to have verified as to whether there was any remission or cessation of liability. In the absence of any such verification, the Assessing Officer could not have added such amount of credit for taxation.
The Hon’ble High Court held that the Tribunal had rightly held that in the absence of any material evidence, the assessing authority could not invoked Section 41(1) of the Act.