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2015 (3) TMI 610 - ITAT MUMBAI

2015 (3) TMI 610 - ITAT MUMBAI - [2015] 39 ITR (Trib) 632 (ITAT [Mum]) - Ingenuine sundry creditors - CIT(A) sustained part addition - Held that:- The assessee was not able to furnish the bank statement copy, however, the AO procured the bank statement from the bank and found certain discrepancies in the statement regarding payment to sundry creditors. Finally he made an addition of ₹ 35,13,739/- in respect of outstanding creditors treating as cessation liability. However, CIT(A) called fo .....

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oks of the assessee maintained during the previous year, only then it would be possible to make addition under section68 of the Income tax Act. In the case of carried forward credit, which is from earlier year, provisions of section 68 cannot be applied. In the present case, the liabilities outstanding in the books of account of the assessee for the assessment year under consideration and only the provisions of the section 41(1) of the Act could be applied. In the present case the assessee faile .....

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books of account would not establish the genuineness of liabilities. - Decided against assessee.

Estimation of net profit - rejection of books of accounts - out of total addition made ₹ 6,95,770/- addition to the extent of ₹ 4,87,038/- was confirmed and balance addition of ₹ 2,08,732/- was direct to be deleted by CIT(A) - Held that:- In the present case during the course of remand proceedings before AO the assessee produced the books of account. The AO also confirmed .....

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in rejecting the books of account of the assessee. In such circumstances in our opinion, in this case rejection of books of account of the assessee is not justified. However, there is certain discrepancy noticed by the authorities in the course of first appellate proceedings. Accordingly, in our opinion instead of adhoc estimation, we are inclined to sustain the disallowance in respect of expenses incurred in cash and no bills or vouchers were produced by the assessee for verification namely con .....

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r the assessment year 2007- 08. The first ground in this appeal is with regard to sustained addition of ₹ 23,34,721/- by CIT(A) out of addition made by AO at ₹ 35,13,739/-. 2. Facts of the issue are that the assessee is a proprietor of M/s. Naughty Girls which is in the business of manufacturing and trading in ready-made garments. The AO found from the return of income and details thereof that there are outstanding sundry creditors. In order to verify the genuineness of the creditors .....

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urther noted that the non furnishing of the requisite details gives an indication that the assessee has either not paid creditors or the creditors are non existing. After having made thorough enquiry in respect of sundry creditors the AO reached to the conclusion that out of total outstanding sundry creditors of ₹ 35,49,294/- an amount of ₹ 35,555/- is only genuine sundry creditors. The remaining amount of ₹ 35,13,739/- are non-genuine creditors and are no more payable. Therefo .....

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. The ld. AR for the assessee submitted that the amount of ₹ 23,34,721/- has ceased to exist and also there is no remission of liability in respect of this amount. It is further submitted that since assessee has shown these amounts as payable and not credited them as cessation of liabilities and there is nothing on record to suggest the remission granted by the respective parties, addition made by the AO is to be deleted. It is further submitted that these creditors irrespective of anythin .....

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egard was placed on decision of ITAT in matter of ACIT vs. M/s Expo Gas Containers Limited in ITA No.6271/Mum/2011, order dated 10.7.2013 in which it had been held that remission of liability arises when creditor voluntarily gives up the claim. The cessation of liability arises only when it ceases to exist in the eyes of law for all intents and purposes. Further the ld. AR relied on decision of Hon. Bombay High Court in matter of CIT vs Surindra Engineering Co. Pvt. Ltd. ITA No 2812 of 2010 orde .....

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2 in which it had been held that closing balances cannot be considered as remission or cessation by the party, even after three years of balance. Reliance was placed on decision of ITAT in the matter of Mrs. Shailikarani Goel v. ITO in ITA No.911/Mum/2009 order dated 13/08/2010 in which it is found that liability in respect of all three parties is appearing in the books of assessee and there were no purchases during the year. All the balances were out of opening balances only. Therefore, section .....

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cision of Hon ble Supreme Court in matter of Sugauli Sugar Works 236 ITR 518. Reliance was placed on decision of ITAT in matter of International Clothing Inds Ltd v. DCIT ITA No. 5923/Mum/2009 order dated 28/01/2011 in which it has been found that liability has been shown as outstanding and not written off by assessee. It had been held that department could assess the under section 41(1) only when assessee writes it off actually. Reliance was also placed on decision of Hon ble Delhi High Court i .....

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ed for inflow of credit in earlier year while section 68 is invoked for inflow of credit in the current year. In the light of above facts, circumstances and judicial proposition, it is contended by the ld. AR for the assessee to allow the ground and delete the addition. 4.1 The ld. AR further submitted that Ground No. 2 is against the rejection of books of accounts of the assessee under section 145(3) and estimation of the net profits. During the assessment proceedings, due to failure of assesse .....

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et profit ratio at 7% as against the 10% estimated by AO. The assessee submitted that merely because cash expenses are found book results of the assessee should not be rejected, especially when they are audited. Apart from that no defect has been found by AO. It is submitted by the ld. AR that book results of the assessee are to be accepted and addition confirmed by CIT (A) is to be deleted especially when no defect is subsisting for books of account. It is further submitted that no adhoc additi .....

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and net profit is estimated addition of cessation of liabilities under section 41(1) is not justified and liable to be deleted. Reliance in this regard was placed on decision of ITAT in matter of M/s Exim Kargo Kare v. ITO in ITA No. 5134/Mum/2011 order dated 7.08.2013 in which it is found that Ld. AO made additions under section 41(1) despite the estimation of net profit, it had been held that no further addition could be made when AO estimated the net profits after relying on the decision of .....

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s cessation of liability under section 41(1) of the Act. 6. We have heard both the parties and perused the material available on record. In this case the AO requested the assessee to furnish the details of purchases and outstanding sundry creditors, the payment details of creditors and year from which the creditors were shown as outstanding. The assessee has furnished the party-wise details of purchases and outstanding sundry creditors. However, it is seen from the details furnished by the asses .....

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rved by the postal authorities. The reason for non-service of notice has been stated as Not known . Name of the party of Dt. of issue of notice Reason given by the postal authorities for non-service Amount of credit oustanding(Rs.) M/S. MARBEL TAX 14/09/2009 14/09/2009 NOT KNOWN 312431/ M/S. FASHION INDIA 14/09/2009 NOT KNOWN 106562/- M/S. SAI BABA TEXTILES 23/09/2009 NOT KNOWN 93010/- M/S/ BABA TEXTILE 23/09/2009 NOT KNOWN 583368/- M/S. BHAVANI TEXTILE 23/09/2009 NOT KNOWN 472642/- M/S. AMBAVI .....

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es were returned unserved in 8 cases on the ground that party is not known. 6.4 Since the notices issued by AO to the parties were returned unserved, assessee vide order sheet noting dated 01.10.2009 was asked to furnish the details of subsequent payment of outstanding sundry creditors by giving cheque number through which creditors are paid and date of cheques issued. The aforesaid details were furnished on 29th October 2009 in respect of few parties. 6.5 The details were submitted by the asses .....

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not paid the creditors or creditors are non-existent. 6.6 It is seen from the details of subsequent payment of sundry creditors furnished in respect of certain parties that some of these creditors are outstanding from 2001 and some of them are being paid partly in the year 2009. The details furnished by the assessee in respect of only 5 parties are as under : Name of the creditors Cheque No. Date of issue Amount(Rs.) Final closing Balance Baba Textiles 276729 19.4.2007 26650/- Baba Textiles 277 .....

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- Hari Enterprise 755982 14.11.2006 13272/- Hari Enterprise 277059 11.10.2006 25000/- 2,75,115/- Jyoti Traders 55300/- 93,010/- 6.7 The creditors which are outstanding from 2001 if paid in the year 2009 clearly indicates doubts and hence in order to examine the correctness of the statement furnished by the assessee, notice u/s 133(6); was issued to the banker of the assessee by AO, requiring it to furnish the copy of bank statement and payment detail in respect of outstanding creditors as stated .....

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for details of sundry creditors and payment to them. The assessee failed to furnish the details in respect of sundry creditors amounting to ₹ 23,34,721/-. Admittedly, these credits continued to be carried forward year after year. In the normal course everybody would ordinarily claim the dues and usually they take steps to recover the dues if it is a genuine liability. In this case, the liability remains to be recovered year after year. For invoking provisions of section 68 of the Act, if a .....

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. In the present case the assessee failed to establish the actual existence of the impugned disputed amount in the books of account of the assessee. The assessee has drawn its balance sheet based on its books of account, in which the above amount, were being claimed as liabilities due, to various parties, as at the end of the accounting year under dispute. However, the assessee failed to establish the genuineness of these liabilities by producing supporting evidence. Simply the liabilities being .....

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discharge its onus cast on it, to substantiate its claim. Being so, CIT(A) is justified in holding that such liabilities did not exist at the end of the accounting year and rightly sustained the said liabilities which has ceased to exist. 9. The ld. AR had also taken a plea before us, that this issue was covered in favour of the assessee by the judgment of Hon'ble Jurisdictional High Court in the case of CIT vs. Surindra Engineering Co. Pvt. Ltd. in IT Appeal No.2812 of 2010 dated 12/09/2012 .....

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he assessee . i) ITO vs. Shailesh B. … dated 11/12/2013 in ITA No.7012/2010; ii) Yusuf Kanwar vs. ITO . dated 28/2/2013 in ITA No.8408/M/2010; iii) ITO vs. Sajjan Kumar Didwani 65 SOT 179; 9.1 Being so, in our opinion the above judgments are squarely applicable to the facts of the case. Accordingly, this ground of the assessee is dismissed. 10. The next ground i.e. ground No.3 in this appeal is with regard to the estimation of net profit of ₹ 6.95,7701- by the AO. The facts in this .....

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sked the assessee to produce the books of accounts and bills and vouchers for verification. The AO observed that these were not furnished before him. Since the books of accounts etc. were not produced before him the AO proceeded to complete the assessment u/s.144 of the l.T. Act being best and estimated the income of the assessee at 10% of the turnover. 10.1 On appeal, CIT(A) observed that the AO had estimated the net profit of the assessee primarily on the ground that the books of accounts and .....

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total addition made ₹ 6,95,770/- addition to the extent of ₹ 4,87,038/- was confirmed and balance addition of ₹ 2,08,732/- was direct to be deleted. Against this the assessee is in appeal before us. 11. We have heard both the parties and perused the material available on record. The pattern of assessment is given by Section 29 of the Income tax Act, which states that the income from profit and gains of business shall be computed in accordance with the provisions contained in s .....

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