TaxTMI 
TaxTMI 
2019 (2) TMI 783
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....is background, we summarize and concise the grounds raised by the Assessee as follows: Ground No.1 Addition on account of bogus creditors. For assessment year 2000-01 Rs. 10,03,082/- For assessment year 2001-02 Rs. 8,25,545/- For assessment year 2002-03 Rs. 7,26,621/- For assessment year 2003-04 Rs.13,13,668/- For assessment year 2004-05 Rs.10,04,556/- Ground No.2. I.T.A. No. 2043/Kol/2017 for A.Y. 2000-01- Addition Rs. 2,66,000/- on account of not disclosing unsecured loan. Ground No.3. I.T.A. No. 2046/Kol/2017 for A.Y. 2003-04: Disallowance of Rs. 5,95,107/- under section 40A(3) of the Act. Ground No.4. I.T.A. No. 2046/Kol/2017 for A.Y. 2003-04: Addition of Rs. 44,120/-, on account of undisclosed profit. 3. Since, the issues involved in all the appeals are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order.For the sake of convenience, the grounds as well as the facts narrated in the assessee's appeal in ITA No.2043/Kol/2017 for A.Y. 2000- 01, is taken as the leadcase for adjudication of above summarized ground nos. 1 and 2, and the assessee's appeal in ITA No.204....
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....47 of the Act, the Assessing Officer noted that the assessee had disclosed Rs. 19,40,677/- as sundry creditors and Rs. 77,90,185/- as sundry debtors in his books of accounts. The assessee was asked to file the details of the sundry debtors and creditors and their postal addresses. Accordingly, the assessee submitted the postal addresses of the sundry debtors and creditors. After getting postal address from the assessee, the Assessing Officer issued letters to various creditors u/s 133(6) of the Act, on test check basis. Many letters u/s 133(6) of the Act, returned unserved with postal remark "Not Known". The Assessing officer based on the report of the commission U/s 131(d) of the Act, noted that assessee had overstated the credit payable and claimed bogus credits in many cases, which are given below: Name of the party A.Y. Credit as per assessee Credit as per party Difference Agarwal Cane Crusher 2000-01 60922/- Nil 60922/- Agarwal Industries 2000-01 158982/- 1038/- 157944/- Baldev Singh Bhim Singh 2000-01 124181/- 73328/- 50853/- Hari Shankar Khandsari Udyog 2000-01 149471/- 266000 (Unsecured loan) 1494....
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....reditors, stating that said difference was due to goods in transit or payment in transit. The assessing officer rejected the explanation of the assessee without providing any valid reasons. Besides, the assessing officer failed to adduce any evidence on record to prove that the difference in creditors is a bogus and out of unaccounted money. Just to work out the difference in sundry creditors is not sufficient, the AO ought to adduce any tangible material on record to prove that the said difference belongs to unaccounted money of the assessee. We note that assessee's purchases had not been doubted by the Assessing Officer. The Assessing officer also did not doubt the sales made by the assessee therefore,so far the accounting principles are concerned, if the total sales and total purchases are not doubted then balance of creditors are going to be genuine, if it is not otherwise proved by the assessing officer. 12. We note that thedifference between creditors recorded in his books vis-à-vis balance in the books of creditors, should not be treated as cessation of liability. At this juncture it is appropriate to go through the relevant provisions of section 41(1) of the Act, ....
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....ssation of liability. We note that in the assessee's case under consideration, the assessee had shown the closing balance of sundry creditors as on 31-03-2000 in its balance sheet and the said closing balance has been continued and carried forward as opening balance in the subsequent year i.e. as on 01-04-2000. Hence, it is clear that the assessee had not written back the same to its Profit &Loss account during the relevant year. As such, it cannot be said that the assessee had availed any benefit, as specified in (b) above, during the relevant year. Hence, the condition prescribed in section 41(1) of the Act has not been fulfilled in instant case. Besides,the Explanation 1 to section 41(1) of the Act is also not applicable in instant case since the assessee has not credited the same to its Profit &Loss account for the relevant year. In such a situation, it cannot be contended that the liability of different assessment years, as mentioned in the grounds of appeal had ceased to exist. Furthermore, the above liabilities has been continued from earlier years. Hence, the addition on account of bogus creditors is wholly unjustified. 13. In this regard it is also pertinent to no....
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.... agreeing with the Tribunal, rightly held that the resort to section 41(1) could arise only if the liability of the assessee can be said to have ceased finally without the possibility of reviving it. On the facts found by the Tribunal, the Tribunal as well as the High Court were well-justified in coming to the conclusion that the purchase tax liability of the assessee had not ceased finally during the year in question" In the assessee's case under consideration, the assessee has not received any benefit by way of remission or cessation of liabilities during the relevant year towards balance of sundry creditors and as such, it can be stated that it has not fulfilled the conditions as specified by the Hon'ble Apex Court in the above referred decision. Thus, applying the ratio of the Hon'ble Apex Court, it can be stated that the aforesaid liabilities cannot be added back under section 41(1) of the Act for the relevant respective assessment year. Our views are also fortified by the judgment of Co-ordinate Bench in the case of Puspal Kumar Das in I.T.A. No. 1442/Kol/2012 for assessment year 2007-08 wherein it was held as follows: "10. We have given a very careful ....
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....also a trader in Jaggery. This is clearly reflected in the trading account of the audited accounts of the assessee and the assessee made purchases of Gur of Rs. 29,75,538/-.The assessee submitted before the Assessing Officer that Gur trading was done with those customers who did not have bank account in village and as such the assessee will get the benefit under Rule 6DD(J) of the IT Rules. However, the Assessing officer noted that gur/ jaggery is a by-product of sugar cane and as such it is not an agricultural product but rather it is a product of the sugar cane and hence the benefit under Rule 6DD cannot be extended to the assessee in the instant case. The Assessing Officer noted that almost all the payments in both the businesses were in cash, exceeding Rs. 20,000/- therefore the Assessing Officer made a disallowance of 20% of the entire purchases amounting to Rs. 5,95,107/-( that is, 20% of Rs. 29,75,538), u/s 40A(3) of the Act. 17. Aggrieved by the addition made by the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the addition made by the Assessing officer. Aggrieved by the order of the Ld. CIT(A) the assessee is in app....