TaxTMI 
TaxTMI 
2023 (3) TMI 192
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....ortunity to the Assessing Officer. 3. That the appellant craves to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal. ITA NO. 119/JODH/2020 : 1. Whether on the facts and circumstances of the case, and in law the ld. CIT (A) erred in deleting the addition of Rs. 15,95,38,544/- (1,63,00,741+9,94,269+47,56,615+68,12,269+13,06,74,650) made on account of difference in contract receipt shown in Form 26AS vis-à-vis receipts accounted by the assessee. 2. On the facts and circumstances of the case and in law the ld. CIT (A) erred in sustaining disallowance of Rs. 15,00,000/- against disallowance of Rs. 42,34,358/- out of various expenses made by the AO in absence of verification. 3. On the facts and circumstances of the case and in law the ld. CIT (A) erred in holding the activity of ready mix concrete to be manufacturing and hence allowing additional depreciation of Rs. 51,77,474/-. 4. On the facts and circumstances of the case and in the law the ld. CIT (A) had erred by admitting additional evidence without granted requisite opportunity to the Assessing Officer. First, we deal with the appeal in ITA No. 30/Jo....
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....assessee by deleting the addition. Now the Revenue is in appeal before us. 3. Before us, the ld. D/R supported the order of the Assessing Officer. The ld. D/R submitted that the assessee has failed to furnish the details in respect of the credit entries and advances received from the customers to the satisfaction of the assessing officer. He, therefore, submitted that the addition made by the AO be sustained. 4. On the other hand, the ld. Counsel for the assessee submitted that the assessee was having outstanding closing balance comprising of sundry creditors and advance from customers of Rs. 25,91,01,791/- and Rs. 8,85,08,618/- respectively totaling to Rs. 34,76,10,409/- which are duly reflected in the return of income filed by the assessee. The ld. A/R submitted that credit entries are genuine and reflected in the regular books of accounts maintained by the assessee. The books of accounts of the assessee are duly audited as per the provisions of section 44AB of the IT Act and the necessary audit report in Form No. 3CA and 3CD were furnished to the Assessing Officer. The ld. A/R further submitted that the assessee has complied with the requirements mentioned in the show cause no....
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....nder which he intended to make the addition. The ld. A/R further relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of G.P. International Ltd. 325 ITR 25 (P&H) wherein it is held that " provisions of section 41 cannot be applied if the assessee is still showing the liability ". The assessee further relied on a number of decisions relating to the issue under consideration, few of the decisions are as under :- ITO vs. Bhavesh Prints (P) Ltd. 142 TTJ 128. Tamilnadu Ware Housing Corporation 292 ITR 310 . Willson and Co. Ltd. 121 TTJ 258 (Chennai Trib.) Dy CIT vs. Amod Petrochem (P) Ltd. (2008) 217 CTR (Guj.) 401. CIT vs. Usha Stud Agricultural Farms Ltd. (2008) 301 ITR 384 (Delhi) Relying upon the above cited decisions, the ld. A/R has submitted that so long the assessee is showing the liability in the books even if it is time barred, it is neither remission nor cessation of trading liability. Only when the assessee treated the liability as a remission or cessation, the same will be treated as income under section 41(1) of the Act. Non-response from the creditor is not enough for making the addition under section 41(1) of the Act but the AO has to....
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.... income of the assessee under section 41(1) is that the liability ceased to exist as at the end of the financial year relevant to the year under consideration. The AO has not written any facts or any evidence on record to show that the said liability has ceased to exist except doubting the genuineness of the creditors. The ld. CIT (A) dealt with the issue elaborately while deciding the issue of sundry creditors and advances from the customers by observing in paras 7 to 11 of his order as under :- " 7. It is seen that the AO has not specified any section under which this addition was made, however, considering the nature of this addition, it could be either u/s. 41(1) of the Act or u/s. 68 of the Act. From the facts and details as furnished by the appellant, it is seen that total sundry creditors consisted of following items:- Particular Amount Advances from customers 8,85,08,618/- Old Creditors 25,91,01,791/- Total 34,76,10,410/- Advances from Customers Rs. 8,85,08,618/- Out of total addition of Rs. 34,76,10,410/-, 8,85,08,618/- pertained to Security/Advances from two Customers only. The amount of Rs.8.74 Crore consisted of two advances of Rs. 3.49Crore and Rs. 5.....
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....Udaipur and details were also submitted at the time of hearing for WIPL for AY 2014-15. 6. Thus these two amounts of Advances from Wagad Infraprojects Pvt. Ltd. i.e. 3,49,17,898 + 5,25,16,291= 8,74,34,189 were squared up after 31.03.2014 against supply of Assets & Equipments as per Ledger a/c enclosed again for ready reference. Total 8,85,08,618 Considering the facts of the case and above details, I find force in the appellant's claim. It may be noted that all these details were submitted by the appellant before the AO vide its replies dated 17.06.2016 and 21.12.2016 during the course of assessment proceedings, however, the AO failed to consider the facts and details mentioned above in respect of total credit of Rs. 8,85,08,618/-. The appellant has duly established that this amount of Rs. 8,85,08,618/- outstanding was paid off/cleared against supply of plant & machinery, Equipment etc. in subsequent years as under:- Outstanding as on 31.03.2014 Paid/Debited 2014-15 2015-16 2016-17 2017-18 8,85,08,618 5,37,37,705 0 3,47,70,913 NIL Thus, in respect of two parties in whose name advances were shown as outstanding, the appellant duly proved the ide....
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....; WIPL *87,434189.00 5,25,16,291.00 - - Other 1,074,429.00 11,823,624.00 - - Total (A) 88508618.00 6,43,39,915.82 SUNDRY CREDITORS(B) 259,101,790.79 303,940,262.61 319,863,553.74 198,793,676.98 Total (A+B) 347,610,408.79 36,82,80,178.43 319,863,553.74 198,793,676.98 From the above table and details furnished by the appellant before me, it is further observed that the closing balance of the creditors in the immediate preceding previous year as on 31.03.2013 was Rs.30.39 Crores which was reduced to Rs.25.91 Crores during the previous FY 2013-14 relevant to the assessment year under consideration. Thus, it is observed that in the current year, the appellant had paid off the liability of creditors to the extent of net Rs.4.48 Crores (5.68-1.19 Crores). The AO treated these old credit entries/ liabilities as unexplained despite the fact that no new credit entry appeared in the current year and the said balance was carried forward balance from the previous years which was accepted in the previous assessment years. At this juncture, I....
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....ssioner (Appeals) that the credit balance appearing in the accounts of assessee, did not pertain to the year under consideration, 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)." Similarly in case of 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." Since 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 66 of the Act. Moreover, from the langague of section 68, it is also clear that while treating any credit entry as unexplained, the AO is required to consider the overall facts of the case. In the case of Sumati Dayal v. CIT,....
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....nts under Sec. 68 did not arise inasmuch as the provisions of Sec. 68 would not be attracted on the purchases made on credit." In fact, the AO has not made any adverse inference regarding the trading results declared by the appellant firm including the transaction with these parties. The appellant duly deducted the TDS on the payments made to these parties. The entire payments were made by the appellant company to these parties through banking channel. All the relevant details establishing that these parties were genuine and trade outstanding appearing in their names were also genuine, were filed before the AO which were not considered by the AO and it was repeatedly stated that the assessee did not obtain confirmations from these sundry creditors. There are enough evidences brought on record by the appellant firm to establish the genuineness of these parties and the fact that amounts received as advances in earlier years in the books of accounts of the assessee were in the due course of business. In the instant once, the AO accepted the trading results, he cannot doubt the advances simply because these parties were not produced before him. The Hon'ble Lucknow Bench '....
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....nce produced by the assessee, the additions made u/s 68 on account difference in balances or non-receipt of reply to summons etc. cannot be made in the hands of the assessee. All these additions in the years before us are deleted. Corresponding assessee's grounds in A.Y. 2003-04 and 2005-06 are allowed and that of revenue dismissed." Further, as per the provisions of Section 68 of the Act, it is not mandatory that in case the assessee fails to satisfy the assessing officer about the outstanding credits, the same are mandatorily required to be added as income of the assessee. Section 68 gives a discretion to the assessing officer, as can be seen from its provisions. This view has also been upheld by the Hon'ble Supreme Court in the case of 'CIT vs. Smt. P.K. Noorjahan' (1000) 237 ITR 570 (SC). The assessing officer has to take into account the overall facts. Accordingly, in the case of the assessee the overall facts need to be considered. The amount/advance being credit on account of goods to be supplied to these parties, it is not mandatory therefore that in the absence of verification of the creditors, the same need to be added statutorily. Considering the fa....
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....he assessee's accounts. The question has to be considered de hors Explanation 1 to Section 41(1). In order to invoke clause (a) of Sec.41(1) of the Act, it must be first established that the assessee had obtained some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as expenditure in computing the business income of the assessee. The second question is whether by not paying them for a period of more than one year the assessee had obtained some benefit in respect of the trading liability allowed in the earlier years. The words "remission" and "cessation" are legal terms and have to be interpreted accordingly. In the present case, there is nothing on record to show that there was either remission or cessation of liability of the appellant. Section 41(1) of the Act can be applied, provided the following conditions are fulfilled : - In the assessment of any assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him: - any amount is obtained in r....
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....passages in the judgment bring out the reasoning of the Full Bench succinctly: "11. In our opinion, for considering the taxability of amount coming within the mischief of Section 41(1) of the Act, the system of accounting followed by the assessee is of no relevance or consequence. We have to go by the language used in Section 41(1) to find out whether or not the amount was obtained by the assessee or whether or not some benefit in respect of trading liability by way of remission or cessation thereof was obtained by the assessee and it is in the previous year in which the amount of benefit, as the case may be, has been obtained that the amount or the value of the benefit would become chargeable to income tax as income of that previous year. 12. We fully agree with the view taken by the Division Bench in CIT v. Rashmi Trading [1976] 103 ITR 312 (Gul), that the only meaning that can be attached to the words 'obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure' incurred in any previous year clearly refer to the actual receiving of the cash of that amount. The amount may be actually received or it may be adjusted b....
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....d that therefore, the amount in question cannot be added back as a deemed income under section 41(1) f the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed." In the light of the above decision, the impugned addition is contrary to the well settled position of law; no addition could have made under section 41(1) without proving that liability ceased to exist and that too in the year under consideration. Nothing has been brought on record by the AO to show that some benefit has actually accrued to the assessee during the year under consideration. I find that the case of the present appellant is more stronger on the fact that amount was being shown as payable in balance sheet of assessee which would establish that there was no cessation of liability. The appellant's case is also squarely covered by the decision of the Hon'ble ITAT Delhi Bench 'G' in the case of Satpal & Sons....
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....indings contained in para Nos. 7 & 11 (Supra), the total addition of Rs. 34,76,10,409/ is directed to be deleted, ground Nos. 2 to 6 raised by the appellant regarding this issue are allowed." 5.1 Similarly, the Hon'ble Gujarat High Court in the case of Principal CIT vs. Matruprasad C. Pandey (2015) 377 ITR 363 (Guj.) while dealing with the similar matter has held in para 6 & 7 as under :- " 6. Heard Shri Varun Patel, learned advocate appearing on behalf of the revenue at length. We have perused and considered the assessment order, the order passed by the learned CIT(A) as well as the impugned judgment and order passed the learned Tribunal. 6.1 At the outset, it is required to be noted that the Assessing Officer made the addition of Rs. 56,96,645/- invoking Section 41(1) of the Income Tax Act by doubting certain sundry creditors amounting to Rs. 56,96,645/- appearing in the balance sheet of the assessee since past several years. However, it is required to be noted that as such those sundry creditors mentioned in the balance sheet of the assessee were shown as sundry creditors since past several years from the relevant assessment year and at no point of time earlier the Assess....
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....f the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, ev....
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....RMC) and allied activities. The assessee e-filed its return of income for the AY 2014-15 on 23.11.2014 declaring total income at Rs. 3,52,86,190/-. The case was selected for scrutiny under CASS and notice under section 143(2) of the I.T. Act, 1961 was issued on 31.08.2015. After hearing the assessee, the AO completed the assessment under section 143(3) of the Act on 27.12.2016 determining the total income of the assessee at Rs. 20,53,00,090/- making the additions/disallowances. Aggrieved by the order of the AO, the assessee preferred appeal before the ld. CIT (A). The ld. CIT (A) by giving relief, partly allowed the appeal of the assessee. Being aggrieved by the order of the ld. CIT (A), now the Revenue is in appeal before us. Ground No. 1 of the revenue relates to deletion of addition of Rs. 15,95,38,544/- made on account of difference in contract receipt shown in Form 26AS vis-à-vis receipts accounted by the assessee. 8. Before us, the ld. D/R relied on the order of the Assessing Officer. 9. On the other hand, the ld. Counsel for the assessee reiterated the submissions as made before the ld. CIT (A) and submitted that the assessee had filed all the details explaining t....
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....nd ledger account of parties are sufficient evidence to explain the difference. The Learned CIT (Appeals) in para 4.2 has reproduced the party-wise reconciliation and explained the difference of Rs.16,05,44,170/-. We find that the ld. CIT (A) has given specific and categorical finding and reasons for deleting each addition viz. in para 4.2.1 regarding RMC sales of Rs. 1,63,00,742/-, in para 4.2.2 regarding Hire Charges of Rs. 9,94,269/- where the parties has deducted TDS on RMC sales and higher charges which are not part of contract receipts. In para 4.2.3 to para 4.2.7 the finding regarding difference in 26AS and contract receipts are mentioned party-wise in detail. Considering the detailed submissions and explanations made by the assessee at the appellate proceedings, we find no infirmity in the order of the ld. CIT (A) and the same is upheld. The ground of the revenue is dismissed. Ground No. 2 of the revenue relates to sustaining disallowance of Rs. 15,00,000/- against disallowance of Rs. 42,34,358/- out of various expenses made by the AO in absence of verification. 11. Before us, the ld. D/R supported the order of the Assessing Officer. 12. On the other hand, the ld. Couns....
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.... P&L accounts are laid out or expended wholly and exclusively for the purpose of business. The appellant has failed to establish fully the genuineness of the appellant's claim of expenses. Hence, the claim regarding expenses cannot be accepted as it is. However, the disallowance @ 1% made by the AO appears to be on higher side considering the fact that during the year under consideration, there was increase in turnover and GP/NP rates were also better. It is relevant to mention here that the appellant company declared better results in terms of GP rate. The quantum of expenditure depends on so many factors such as business prudence of the businessman and his perception of business exigencies. The Assessing Officer can disallow such expenses only if he finds that these expenses are not relatable to business and/ or are not genuine. I find that the Assessing Officer has not given any finding to the effect that these expenses were not incurred wholly & exclusively for the business purpose. Though it may be the case that vouchers were not kept properly, still there has to be clear finding that these expenses were not incidental to the business of the assessee or were bogus. This fi....
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....eady Mixed Concrete under section 32(1)(iia) of the Act is allowable as it is engaged in the manufacturing of ready mixed concrete which involved mixture of three ingredients, namely, cement, sand and aggregate. The product manufactured is mixed with other chemicals. The final product after mixing and processing has to be used within four hours of its mixing. The product manufactured by assessee is altogether a different product from the material out of which it was produced. The product produced is known by a different product name and is bought and sold as distinct product from the raw material. The raw material once mixed cannot be reconverted into its original shape. Thus, assessee was carrying out manufacturing activity and entitled to the benefit available under section 32(1)(iia) of the Act on the additions in new plant and machinery installed during the year relating to Manufacturing of Ready Mix Concrete. 26.3 The above facts has been accepted by in a similar case additional depreciation has been allowed by Delhi Tribunal on RMC plant in case of YFC Projects (P) Ltd. vs Dy. CIT (2010) 46 DTR 496 (Delhi Trib (copy enclosed); relying on decisions rendered by Hon'ble S....
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....IT (A) has deleted the disallowance of expenses by observing in para 7.2 of his order as under :- " 7.2. I have considered the facts of the case, assessment order and appellant's written submissions. The AO disallowed the assessee's claim of additional depreciation amounting to Rs. 51,77,474/- on account of purchase of new machinery by stating that the assessee failed to prove that these machineries were used in manufacturing unit. The appellant explained the manufacturing process of its business and claimed that new plant & machineries relating to manufacture of Ready Mix Concrete (RMC) were used in manufacturing process and hence it is eligible for additional depreciation on these plant and machinery u/s. 32(1)(iia) of the Act. To support its claim, the appellant relied on the judgment of the Hon'ble Delhi Tribunal in the case of YFC Projects (P) Ltd. vs. Dy. CIT (2010) 46 DTR 496 (Delhi)(Trib.) I have gone through the judgment of the Hon'ble Delhi Tribunal in the case of YFC Projects P. Ltd. (supra) and find that the issue in hand is squarely covered by this judgment. The findings as given by the Hon'ble Delhi Tribunal on this issue are reproduced as under ....