TaxTMI 
TaxTMI 
2019 (11) TMI 866
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.... 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 estimated u/s 144 of the IT Act in view of rejection of books u/s 145 (3)....
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....om 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 revenue. Hence, the same is set aside. The AO is directed to frame a fresh assessment order after proper collection and appreciation of facts and due ....
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....sfactorily 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. Ld. AR also submitted that when the books of accounts of the assessee has been rejected by the AO in absence of cash book, the Pr. CIT cannot direct the AO to accept the books of accounts as the same amounts to....
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....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 gross profit of the assessee, meaning thereby the return income of the assessee has not been accepted by the AO. From careful perusal of the assessment order as well the order passed u/s.263 of the Act, prima facie, we are o....
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....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 of account for Rs. 6,24,70,343/- as on 31.03.2010. The AO during the course of assessment proceeding sent the notice at the addresses given by assessee u/s. 133(6) of the Act but all of them returned unserved. On question by the AO the assessee submit....
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.... 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 disallowed the purchases from those creditors nor the trading results were disturbed. In CIT vs. Ritu Anurag Aggarwal -IT Appeal No. 325 of 2008 dated 22/7/2009, dealing with section 68 of the IT Act in a similar case, the Hon'ble Delhi High Court observed ' ....Proceeding on this b....
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....r 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 the AO to treat the said sundry creditors as bogus creditors. It may be submitted that some of the purchases from these sundry creditors were made during the year itself and purchases from all of them have been accepted to be genuine, found recorded in the books of accounts such purchase of raw materials was also foun....
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....he 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 than 3 years old. As per the assessee the balances represented amounts due to various parties and the liability was subsisting. The Tribunal held that in the absence of cessation of liabilities and on the mere fact that the amounts were outstanding for more than 3 years, the provisions of section 41 (1) could not be applie....
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....nd 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 pay the amount ceased or extinguished and not in the year under consideration where assessee has admittedly shown the liability in the balance sheet. It has been held in the case of G P International Ltd. (P & H) reported in 325 ITR page 25 that provisions of section 41 cannot be applied if the assessee is still showing the liability. It has bee....
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....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 year under consideration. Therefore, applicability of section 68 of the Act is also ruled out and addition could not be made under section 68 of the Act. In view of above we find no reason to interfere in the order of ld. CIT(A). Hence this ground of Revenue is dismissed. " 4. The AO in our view was confused. He at para (3) of his order states that the....