TaxTMI 
TaxTMI 
2018 (11) TMI 1541
X X X X Extracts X X X X
X X X X Extracts X X X X
....facts and in law too. 3. Because the CIT(A), Aligarh while estimating income ought to have allowed the statutory claim of depreciation of Rs. 33,89,415/- which was allowed by the AO. Enhancement of income is without considering the law and facts of the case. 4. Because the CIT(A), Aligarh has grossly erred in law in sustaining the addition of Rs. 1,98,983/- on account of Income Tax refund received by the assessee without properly appreciating the facts and circumstances of the case. 5. Because the CIT(A), Aligarh has grossly erred in law in sustaining the addition of Rs. 13,88,945/- on account of Trade Tax refund received by the assessee without properly appreciating the facts and circumstances of the case. 6. Because in any view of the matter the impugned order to the extent making and sustaining the addition is bad on facts and in law. 7. That the appellant craves leave to add, alter, amend or withdraw any ground of appeal. In ITA No.251/Agra/2017/A.Y.2012-13 the assessee has raised the following grounds: 1 That the Ld. CIT(A)-Aligarh had grossly erred in law in imposing penalty of Rs. 27,91,325 without properly appreciatin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led for,however, the action of the AO in invoking section 145(3) of the Act is justifiedand accordingly, confirmed the AO's action in applying N.P rate of 8% and made enhancementof Rs. 90,33,314/- against trade creditors treating cessation of liability assessable under section 41(1) of the Act. The Ld. CIT(A) also withdrew claim of Depreciation amounting to Rs. 33,89,415/- as was separately allowed by the AO. 6. The Ld. Counsel for the assessee submitted that the authorities below, while estimating the income by applying the profit rate at 8% by rejecting the books of account and estimating the income have completely ignored the procedure laid down u/s 145(3) read with sec 144 of the Act , contending that when provisions of sec. 145(3) of the Act are invoked, the assessment has to be completed as per the procedure laid down in the sec. 144 of the Act, which mandates that the AO shall complete the assessment of the assessee on the basis of material gathered by him. He further submitted that the power to make best judgment assessment is not an arbitrary power, it is an assessment based on best judgment of the AO i.e, wisdom. It must be based on some relevant material and should....
X X X X Extracts X X X X
X X X X Extracts X X X X
....computed after application of Profit @ 8%, since no reply was furnished by the assessee it was under the aforementioned circumstances that the AO computed the business income after application of Profit at the rate of 8%. 10. We have heard the parties, perused the records in the light of precedents. It is an undisputed fact that books of account were rejected by invoking provisions of Section 145(3) of the Act, such rejection was upheld in first appeal by the Ld CIT(A). The assessee has not objected to the rejection of the books of account. However, the fact remains that neither the authorities below has specified circumstances under which it could have been presumed that the reported rate of profit is low nor has cited any comparable case, in support, for application of "high profit rate" on gross total receipt. The past history of the assessee as furnished vide PBP-111 which is backed by Audit Reports of all such years (PBP-112-150) which position when tabulated emerges as under: Assessment Year Turnover inclusive FDR Interest Net Profit Net Profit in (%) 2010-11 15,79,72,464/- 84,13,469/- 5.32 2011-12 8,09,56,392/- 43,83,160/- 5.41 2012-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is observed that out of total 33 creditors only 6 creditors have confirmed their balances. Verified creditors are as under:- S. No. Name of the Sundry Creditors Father Name Amount Address 1. Shri Ajeet Gupta Late K.L. Gupta 4,14,024/- 2/74, Ganesh Prasad, Farrukhabad. 2. Shri Brijesh Shukla Shri Ram Kumar Shukla 4,23,810/- Bhaisan Nagla P.O. Munder, Hardoi 3. Shri Divya Prakash Shukla Late Raja Ram Shukla 92,072/- 4/12, Palariya, Farrukhabad. 4. Shri Ramendra Shukla Late Divya Prakash Shukla 3,31,267/- Palariya, Farrukhabad. 5. Shri Vinay Shukla Late Raja Ram Shukla 2,74,485/- Palariya, Farrukhabad. 6. Shri Vipin Shukla Shri Ram Prakash Shukla 3,46,549/- Keshav Nagar, Chaurasi, Farrukhabad. Thus, it is seen that out of total sundry creditors of Rs. 1,09,15,621/- only sundry creditors to the extent of Rs. 18,82,207/- have been confirmed and hence, it is reasonable to hold that liability in respect of other creditors amounting to Rs. 90,33,414/- has ceased to exist. The appellant has denied the cessation of liability on the ground that these creditors have been paid in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that in the case under consideration books of accounts were rejected and which rejection was even upheld by the Ld CIT(A) and business income was worked out after application of N.P rate implying that no specific deduction has been allowed in respect of such trade creditors and therefore, under this factual premise alsothe Ld CIT(A) cannot be held justified in falling back to the same books of accounts for making disallowance on the alleged ground that liability shown in the Books of Accounts allegedly ceased to exist. 18. Per contra, the Ld Sr. D.R submitted that the Ld CIT(A) was quite justified in enhancing the income to the extent of Rs. 90,33,414/-and such an action is founded on the fact that upon postal enquiry undertaken by the AO out of 33 creditors six of them confirmed, 21 creditors have not responded to AO's Letter and 6 Letters remained unserved, returned with postal remark of incomplete address or old address.He also placed reliance to the Judgment by the Hon'ble Allahabad High Court in the case of 'CIT Vs M/s G.S Tiwari & Company', ITA No. 5 of 2008. 19. Since, theaddition has been made under section 41(1) of the Act;accordingly, it will bepertinent to discuss ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e appellant; (d) Non availability of present address and contact number were made available to the revenue authorities. 21. On the above facts and after due consideration of the precedents available on the issue, it was held as under: "7. We have heard both the sides, perused the orders and the relevant material on record.It is seen that the AO has made the addition in respect of cessation of trading liabilities without considering the fact that the assessee has not been benefited by remission or cessation of such trading liability because he has not written off any amount in his books unilaterally. In fact, there is no reference in the order of the AO to the expression remission or cessation of liability. The contention of the counsel was that the trading liability under the head Sundry Creditors in the name of the creditor parties was proved and verifiable with reference to the Balance Sheet of the assessee and therefore, the same cannot be treated as cessation of liability under section 41(1) of the Act. 8. We find that the Id. CIT(A) has deleted similar disallowance in the assessee's own case for the assessment year 2008-09 in Appeal No. 185/C1T(A)- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and therefore, it was not verifiable. [Para 8] Even if one accepts the contention of the revenue that the party could not be traced and therefore debt could not be verified then also, by no stretch of imagination can it be held that it would satisfy the requirement of cessation of liability. In legal parlance, merely because the creditor could not be traced on the date when the verification was made, same is not a ground to conclude that there was cessation of the liability because cessation of the liability has to be cessation in law, of the debt to be paid by the assessee to the creditor. The debt is recoverable even if the creditor has expired, by the legal heirs of the deceased creditor. Under the circumstances, in the present case, it can hardly be said that the liability had ceased. If the liability had not ceased or the benefit was not taken by the assessee in respect of such trade liability, the conditions precedent were not satisfied for invoking section 41(1) of the Act. [Para 9] 10. The judgment relied upon by the CIT(A) and the Id. DR are distinguishable on facts. The Id. counsel in his written synopsis has explainedthat in the cases relied b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t was the claim of the assessee that these liabilities are payable to the persons from whom the construction material were purchased on credit and the parties therefore, are trade creditors. On perusal of the facts, it has not been proved by the Ld. CIT(A) as to how the liabilities ceased or crystallized during the previous year relevant to the assessment year under appeal. Merely because there was no response by the creditors it does not prove that the liabilities ceased during the assessment year 2012-13. If the parties choose not to appear or did not respond or even did not come forward in compliance to Letter by the AO does not prove that the trade creditors have either given up there claim in favour of the assessee or such creditors were not in existence so as to invoke provisions of section 41(1) of the Act. It is also a settled position that there is no bilateral act of the assessee and the creditors, which indicates that the said liabilities have ceased to exist. In the absence of any bilateral act, the said liabilities could not have been treated to have ceased. 23. Perusal of the order passed by the Ld CIT(A) reveals that the conditions mentioned under section 41(1) of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as is evident from the pleading made by the Counsel representing the respondent-assessee. The Hon'ble High Court found that the plea of the assessee to be unacceptable for the assessee did not file any 'Schedule-C' of Sundry Creditors as was mentioned the Balance Sheet though it was claimed, even their full name and addresses were made available during the course of proceedings, based on this the Hon'ble High Court concluded that there are no creditors as even the balances of creditors were not known to the assessee, the Hon'ble High Court also found that even no single detail from the books of accounts was furnished by the assessee in fifteen month. On the aforementioned facts the Hon'ble High Court held that though the assessee consistently stated that the creditors are genuine but at no point of time assessee took a stand that sundry creditors are referable to business income which is determined on estimate basis. Hence, the Hon'ble High Court held that assessee failed to establish that the unexplained sundry creditors were referable to the business income. In the referred case no question of addition under section 41(1) was present for consideration and therefore, the case is n....