2013 (6) TMI 358 - AT - Income Tax

Tribunal rules in favor of assessee, dismisses Department's appeal.

ITO. Kurukshetra Versus Mahavir Parshad Prop. M/s Gagan Trading Co

ITO. Kurukshetra Versus Mahavir Parshad Prop. M/s Gagan Trading Co - TMI Issues:1. Departmental appeal against deletion of addition under section 41(1) of the Act.2. Assessee's appeal against addition of gross profit and cessation of liability towards M/s Lachhi Ram Ramesh Chand.Departmental Appeal - Deletion of Addition under Section 41(1) of the Act:The Department appealed against the deletion of an addition of Rs. 83,81,902 made under section 41(1) of the Act by the ld. CIT(A). The Assessing Officer added this amount to the income of the assessee as he observed that a liability in the name of a trading company ceased to exist due to the demise of the proprietor and family members. However, the ld. CIT(A) ruled in favor of the assessee, stating that legal heirs may still claim the receivables, and the liability cannot be considered ceased until further clarity. The appellant also argued that the liability was only Rs. 30,97,931 as per the company's books, and the appellant might have to pay as a guarantor to ICICI Bank. The Tribunal agreed with the ld. CIT(A) and dismissed the Department's appeal.Assessee's Appeal - Addition of Gross Profit and Cessation of Liability:In the assessee's appeal, two main grounds were raised. Firstly, the addition of Rs. 25,74,652 in income due to an increase in gross profit ratio. The Assessing Officer estimated the gross profit at 5% as no books were provided, rejecting the declared profit of 2.95%. The ld. CIT(A) upheld this addition, stating that the appellant failed to provide evidence supporting the claim of loss in basmati rice trading. The Tribunal confirmed this decision, noting the significant difference in declared profits from the preceding year. Secondly, the addition of Rs. 2,60,000 due to the cessation of liability towards M/s Lachhi Ram Ramesh Chand. The Assessing Officer concluded that no balance was outstanding based on the partner's confirmation. The ld. CIT(A) partially allowed this ground, stating that even if the firm wrongly squared up the account, no amount was due from the appellant. The Tribunal upheld this decision, emphasizing that the liability ceased to exist as confirmed by the party. The assessee's appeal was dismissed.Cross-objections:Cross-objections were filed by the assessee, which were found to be identical to the issues raised in the assessee's appeal. As these issues were already adjudicated in the appeal, the Cross-objections were deemed infructuous and dismissed accordingly.In conclusion, all appeals and cross-objections were dismissed by the Tribunal, upholding the decisions made by the ld. CIT(A) in both the Departmental appeal and the Assessee's appeal.