TaxTMI 
TaxTMI 
2019 (11) TMI 866
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....list of sundry creditors with address provided to the Pr. CIT as well as the AO at the time of hearing indicates that the sundry creditors relate to the earlier assessment year and after considering these details the Ld. AO has completed the assessment by estimating the profit u/s 145 (3). Thus the action of the Ld. Pr. CIT is unlawful, unjustified and unwarranted. 3. Sundry creditors taken over from erstwhile M/s Biswal Construction, partnership firm in which the assessee was a partner amounts to Rs. 89,31,810/-, this amount relates to earlier assessment years and no liability during the current year has been incurred. More over all the details has been provided to the AO in course of the assessment proceedings and after considering all these facts the AO estimated profit u/s 145 (3). Now again the recommendation of the Ld. Pr. CIT, to verify the same which has already been covered in the assessment by the AO is unreasonable, uncalled for and bad in law. 4. The Ld. Pr. CIT has cited the case of Commissioner of Income Tax v. Devi Prasad Vishwanath [(1969) 72 ITR 194 (SC)], stating that addition u/s 68, 69, 69A, 69B etc is possible even in a case where income is es....
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.... Less; Depreciation allowable Rs. 34,35,249/- D. Income from business Rs. 21,47,463/- E. Income from house property Rs. 87,115/- F. Income from other sources Rs. 7,63,190/- Gross total income Rs. 29,97,768/- Less; Deduction u/s.,8OC Rs. 1,00,000/- Total income Rs. 28,97,768/- Or, u/s. 288A Rs. 28,97,770/- Assessed u/s. 143(3} of the Income Tax Act, 1961 on a total income of Rs. 28,97,770/-. Calculation sheet for tax and interest payable by the assessee is attached herewith, issued demand notice and copy of the order to the assessee." 3. Thereafter the Pr.CIT invoking provisions of Section 263 of the Act directed the AO to make fresh assessment as the assessment order lacks detailed enquiry causing erroneous and prejudicial to the interest of Revenue after observing as under :- "15. In the light of the above discussion, there is no iota of doubt that the impugned assessment order is not based on detailed enquiry expected of a Revenue Officer. In the light of the above discussion, it is held that the assessment order u/s.143(3) dated 22.03.2016 passed by the AO is erroneous and prejudicial to the interest of ....
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....that decision the Supreme Court has held as under :- There is nothing in law which prevents the ITO in an appropriate case in taxing both the cash credit, the source and nature of which is not satisfactorily explained, and the business income estimated by him under section 13 (of 1922 Act) after rejecting the books of account of the assessee as unreliable." 4. Feeling aggrieved from the above order of Pr. CIT, the assessee is in appeal before the Income Tax Appellate Tribunal. 5. Ld. AR, at the outset, did not press ground No.1, accordingly, we dismiss the same as not pressed. And, ground No.5 is general in nature, which does not require any adjudication. 6. The assessee has raised ground Nos.2,3 & 4 against the direction of Pr. CIT to AO to make fresh assessment. In this regard, ld. AR submitted that the detailed list of sundry creditors with address provided to the Pr. CIT as well as the AO at the time of hearing which indicates that the sundry creditors relate to the earlier assessment year and after considering these details the AO has completed the assessment by estimating the profit after rejecting the books of accounts of the assessee u/s 145 (3) of the Act....
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.... we find that during the course of assessment proceedings, as required by the AO, the assessee provided audit report u/s.44AB in Form No.3CB and 3CD along with audited balance sheet and profit and loss account for the relevant previous year. The assessee also produced expenses ledger, bill register and statement of bank accounts in support of the accounts filed with the audit report. However, in absence of cash book, the AO rejected books of accounts u/s.145(3) of the Act and framed the assessment after estimating the gross profit of the assessee invoking provisions of Section 144 of the Act as noted in para 3 of the assessment order. However, the Pr. CIT invoking the provisions of Section 263 of the Act directed the AO to decide on the chargeability of unexplained cash credit of Rs. 2,69,16,055/- in the form of "sundry creditors for raw material and expenses", to income tax as the income in addition to the returned income of the assessee for assessment year concerned u/s.68 or 41(1) of the I.T.Act. From perusal of the assessment order it is clear that the AO has rejected the books of accounts of the assessee as the assessee could not produce the cash book and estimated the gros....
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....t the ld. Pr.CIT has alternatively directed the AO to disallow the corresponding purchases similar to the amount of bogus sundry creditors, which in our opinion, the Pr.CIT, ignoring the alternative remedy, to strengthen his view ought to have directed the AO as to on what basis to proceed further if he finds that the order of AO is erroneous and prejudicial to the interest of revenue. In the present case, once the gross profit has been estimated by the AO after considering all the details produced by the assessee during the course of assessment proceedings, in our opinion, the Pr. CIT was himself confused in directing the AO to make addition u/s.68 or 41(1) of the Act. To support our view, we would like to place reliance on the order of coordinate bench of the Tribunal in the case of M/s Gulf Steel & Minerals, ITA No.57/Ran/2016, A.Y.2010-2011, order dated 04.05.2018, wherein the Tribunal has observed as under :- "3. We find that the issue in hand is covered in favour of assessee by the above said order of the Co-ordinate Bench, ITAT, Kolkata. Relevant portion of said order are reproduced herein below:- " 10. The assessee has shown sundry creditors in its books o....
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....n the sundry creditors cannot be treated as bogus. vii) Regarding applicability of provisions of section 68, I find that the appellant has brought substantial material on record to show that these are sundry creditor for purchases paid in subsequent years and that part of the purchases from the very parties were already accepted by the Assessing Officer. Evidently, the creditors were held to be bogus on the ground that enquiry letters under sec. 133(6) of the Act were received back unserved with the remarks 'not known' leaving the Assessing Officer to conclude ITA No.57/Ran/16 that the appellant has failed to discharge his onus of proving the capacity of the creditors and genuineness of the transactions. Apparently, in my opinion, the Assessing Officer has not appreciated the facts of the case in its entirety. This is a case, where the books are not outrightly rejected, there is no adverse inference drawn regarding quantum of purchases or sales and even the purchase accounts of the sundry creditors have not been disturbed. The act that the assessee maintained regular books of account including stock register is also not negated. The Assessing Officer had not disall....
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....ditors of Rs. 4,29,02,130/- cannot be treated as bogus sundry creditors and cannot be added to the income of the appellant. Accordingly, the impugned addition made by the AO is hereby directed to be deleted and thus, these grounds of the appeal of the appellant are allowed." Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 12. Before us Ld. DR vehemently relied on the order of AO whereas Ld. AR submitted that the AO has made further addition of Rs. 4,29,02,130/- from Sundry Creditors. It is submitted that these creditors stood in the books of the company and the amount was never written off. The purchases of goods from these parties have been accepted to be genuine. There was no evidence to suggest that no liability to sundry creditors was payable. The details of these Sundry creditors were filed. The AO has also accepted that the payments to these parties were made by bearer cheques. However, as per the AO that payment by bearer cheques causes a serious doubt that sundry creditors did not exist. Simply because the AO doubted the said sundry creditors even though accepting that the payments were made by cheque, the doubt will not entitle....
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....chases is based on wrong interpretation of Income Tax Laws. The sundry creditors can be added as income under section 41(1) of the Act once it is written off in the books of accounts. In the instant case the same has not been written off and very much reflecting in the books of the assessee. Therefore in our considered view the sundry creditors reflecting in the books of accounts cannot be disallowed and added to the total income of the assessee. In the instant case, the balances of many of the sundry creditors were outstanding coming from earlier years. Payments were made to some or the creditors during the year. The said payments have been accepted by the AO which means genuinity of the payments to these creditors as well as the genuinity thereof till last year have not disputed by the AO. In the instant case the firstly the AO has not specifically invoked the provisions of section 41 (1). Further in any case no such addition can be made u/s 41. In this connection we are putting our reliance in the judgment in the case of DSA Engineers. In the case of DSA Engineers v. ITO 30 SOT 31 (Mum-Trib), the AO found that there were creditor balances which in many cases were 3 years or more....
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....anding in its balance sheet. Therefore, there was no occasion to treat the said amount as taxable under section 41 (1) and if department intends to assess the same by applying the provisions of section 41 (1), then the onus will be on the revenue to show that the liability which is appearing in the balance sheet has ceased finally and there is no possibility of the revival of the liability. Hence, addition could not be sustained under section 41(1). The said judgment of the Tribunal was confirmed by Delhi High Court on 23-12-2011 In the case of National Insulated Cable Co. v. ITO ITA No. 421/Del/2011 dt. 8-7-2011 (Del 'E'-Trib) it was held that the fact that the creditors were old creditors brought forward from earlier years has not been disputed by the department. These creditors have not been introduced during the year under consideration. There is no evidence or material on record to establish that the assessee liability to pay the amount to the creditors have been ceased during the year under consideration. Further, the amount payable to these creditors can be added to the assessee's total income in the year in which the assessee's liability to....
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....onsideration, under these circumstances, the assessing officer was not justified in making the impugned addition u/s 68 and as such no fault could be found with the order of the Tribunal which had endorsed the decision of Commissioner (Appeals). In Mahabir Prasad Prem Chand Jain v. ITO (1988) 40 Taxman 35 (Del- Trib )(Tax Mag), it was held that amounts found in the books of assessee were in existence much prior to the beginning of the accounting period corresponding to the relevant assessment year and the same could not, therefore, be treated as the income of assessee earned during the relevant previous year. In Nuchem Ltd. v. Dy. CIT (2004) 87 TTJ (Del-Trib) 166, it was held that revenue had failed to prove that the amounts were credited to the books of account of the assessee in the year under consideration. These amounts were brought forward from earlier years and it is settled law that the addition under section 68 could be made only if the amount was credited in the accounts of the assessee in the relevant financial year. In Shri Vardhman Overseas Ltd. v. Asstt. CIT (Del-Trib): 24 SOT 393, it was held that no new amount had been credited by assessee in its account during the y....