| The Tax Publishers2020 TaxPub(DT) 4595 (Pune-Trib) INCOME TAX ACT, 1961
Section 68
Where AO treated credit balances of non-existent creditors as unexplained and made addition under section 68, however, out of the total credit balance appearing in the name of said creditors, certain amount represented their opening balances that were carried forward from earlier year; therefore, the CIT (A) was justified in holding that such opening balances could not be added as unexplained cash credits in the year under consideration.
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Income from undisclosed sources - Addition under section 68 - Non-existent/bogus creditors - Assessee failed to establish genuineness of creditors
During course of assessment proceedings, AO verified genuineness of creditors shown by assessee. He noted that two creditors were found to be not in existence at addresses given by the assessee. He, therefore, required the assessee to produce the said creditors along with relevant evidences to establish their identity. However, the assessee failed to comply with the said requirement. Accordingly, the AO treated the credit balances of said creditors as unexplained and made addition of Rs. 3,80,16,774 under section 68. Further, CIT(A) confirmed that the assessee failed to establish genuineness of concerned two creditors. However, he noted that out of the total credit balance of Rs. 3,80,16,774 appearing in the name of said two creditors, the amount to the extent of Rs. 3,47,65,734 represented their opening balances that were carried forward from earlier year and accordingly, he held that the same could not be added as unexplained cash credits in the year under consideration. Hence, he restricted the addition to Rs. 32,51,040. Revenue contended that the addition made by the AO could be confirmed alternatively by recourse to section 41(1). Held: It is settled that provisions of section 41(1) can be invoked only when trading liability incurred by assessee is subsequently found to have ceased to exist in the relevant year and the onus in this regard is on the AO to establish on evidence that there was indeed remission or cessation of such liability. In instant case, such onus was not discharged by the AO and addition on account of balances appearing in the name of concerned two creditors was made by him under section 68 because of the failure of assessee to establish the genuineness of said creditors. Therefore, recourse at such stage could not be made to section 41(1) to confirm the addition made by the AO under section 68. Accordingly, the order of CIT(A) restricting the addition under section 68 to Rs. 32,51,040 was upheld.
REFERRED :
FAVOUR : Partly in favour of assessee
A.Y. : 2009-10
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