Facts of the Case

The assessee, Dev Features Pvt. Ltd., was engaged in the business of syndication and equipment hiring.

The original assessment was processed under Section 143(1)(a) of the Income Tax Act, 1961. Subsequently, reassessment proceedings were initiated by issuance of a notice under Section 148.

During reassessment proceedings, the Assessing Officer sought evidence regarding a liability of ₹18 lakhs shown as payable to Mr. R.G.N. Swami. The assessee was unable to establish the genuineness of the liability. Despite being provided an opportunity, the assessee failed to furnish any confirmation from Mr. R.G.N. Swami acknowledging that the amount was due and payable.

The Assessing Officer also noted that although the alleged transaction pertained to ₹18 lakhs, no claim for recovery had been made by Mr. R.G.N. Swami for almost a decade, and no supporting documentary evidence was produced to substantiate the liability.

The Assessing Officer consequently treated the liability as unproved and made the addition.

On appeal, the Commissioner of Income Tax (Appeals) relied upon a Memorandum of Settlement dated 1 October 2003 executed between the assessee and Mr. R.G.N. Swami and accepted that the liability existed, thereby deleting the addition.

The Revenue challenged the order before the Income Tax Appellate Tribunal, which reversed the decision of the CIT(A) and restored the addition. Aggrieved by the Tribunal’s decision, the assessee approached the Delhi High Court.

Issues Involved

  1. Whether the assessee had successfully established the genuineness of the liability of ₹18 lakhs claimed as payable to Mr. R.G.N. Swami.
  2. Whether the CIT(A) was justified in deleting the addition solely on the basis of a Memorandum of Settlement.
  3. Whether the Tribunal was correct in restoring the addition due to absence of supporting evidence.
  4. Whether any substantial question of law arose for consideration before the High Court.

Petitioner’s Arguments

The assessee contended that the amount of ₹18 lakhs was genuinely payable to Mr. R.G.N. Swami.

It was argued that the liability stood recognized and settled through a Memorandum of Settlement dated 1 October 2003 entered into between the parties. On the basis of this settlement, the assessee maintained that the liability was genuine and the addition made by the Assessing Officer deserved to be deleted.

The assessee relied upon the findings of the CIT(A), who had accepted the existence of the liability and granted relief.

Respondent’s Arguments

The Revenue argued that the assessee had failed to produce any reliable material demonstrating the existence of the alleged liability.

It was submitted that:

  • No confirmation from Mr. R.G.N. Swami was produced.
  • No agreement, contract, correspondence, invoice, or supporting document was furnished.
  • No evidence existed to establish acquisition of video footage allegedly supplied by Mr. R.G.N. Swami.
  • The alleged creditor had not taken any steps for recovery of the amount for nearly ten years.
  • The Memorandum of Settlement could not by itself establish the genuineness of the original liability.

Accordingly, the Revenue contended that the Tribunal had rightly restored the addition.

Court Findings

The Delhi High Court upheld the order of the Income Tax Appellate Tribunal.

The Court observed that there was absolutely no material available on record establishing that the assessee was under any obligation to pay ₹18 lakhs to Mr. R.G.N. Swami.

The Court noted that:

  • No documentary evidence supported the alleged transaction.
  • No agreement regarding supply of video footage was produced.
  • No material established receipt of video footage by the assessee.
  • The alleged creditor had not made any attempt to recover the amount for a substantial period.
  • The claim rested solely on the unsubstantiated assertion of the assessee.

The Court further observed that the Memorandum of Settlement relied upon by the CIT(A) lacked essential particulars and did not explain the nature of the video footage, the related activities, the circumstances of supply, or the basis of the dispute regarding quality and contents.

Accordingly, the Court found no infirmity in the Tribunal’s conclusion.

Court Order

The appeal filed by the assessee was dismissed.

The Delhi High Court held that no substantial question of law arose for consideration and affirmed the order of the Income Tax Appellate Tribunal restoring the addition.

Important Clarification

This judgment reiterates that:

  • Mere book entries or assertions are insufficient to establish a liability for income-tax purposes.
  • The burden lies upon the assessee to prove the genuineness of a claimed liability through credible documentary evidence.
  • A subsequent settlement or memorandum cannot, by itself, validate an otherwise unsubstantiated liability.
  • Where no supporting agreements, confirmations, or contemporaneous records are produced, tax authorities are justified in treating the liability as non-genuine.
  • Findings of fact by the Tribunal will ordinarily not be interfered with by the High Court unless a substantial question of law arises.

Sections Involved

  • Section 143(1)(a), Income Tax Act, 1961
  • Section 148, Income Tax Act, 1961
  • Reassessment Proceedings
  • Unproved Liability / Genuineness of Creditors

Link to download the order -
https://delhihighcourt.nic.in/app/case_number_pdf/2007:DHC:763-DB/MBL13072007ITA792007.pdf

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