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2015 (4) TMI 830 - GUJARAT HIGH COURT

2015 (4) TMI 830 - GUJARAT HIGH COURT - [2015] 377 ITR 363 (Guj) - Addition under Section 41(1) - ITAT deleted the addition - Held that:- In the present case there was no remission and / or cessation of the liability during the previous year relevant to the assessment year under consideration. As such, there is no remission and / or cessation of the liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Under the circumstances, as such, .....

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th respect to the additions made under Section 68 of the Act of unexplained labour charges of ₹ 25,65,634/- is concerned, it is required to be noted that as such the entire issue is remanded by the learned Tribunal to the file of the learned CIT(A) and the matter is remanded to the learned CIT(A). Under the circumstances, with respect to the above, no interference of this Court is called for, as the entire issue with respect to the same would be at large before the learned CIT(A).- Decided .....

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(hereinafter referred to as the Tribunal ) dated 17/10/2014 in ITA No.190/Ahd/2011 for the Assessment Year 2007-08, the revenue has preferred Tax Appeal No.192/2015 with the following substantial questions of law; (A) Whether in the facts and circumstances of the case, the learned ITAT has erred in law in deleting the addition of ₹ 56,96,645/- made by the Assessing Officer as confirmed by CIT(A) under Section 41(1) of the Income Tax Act? (B) Whether in the facts and circumstances of the ca .....

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afresh on the issues of- (i) The addition of ₹ 25,65,634/- being 15% of the labour charges legitimately incurred and debited to the profit and loss account and confirmed by the CIT(A); (ii) The CIT(A) giving the benefit of telescoping of the additions of ₹ 56,96,645/- and ₹ 11,01,381/- against the addition of ₹ 25,65,634/-? [3.0] Feeling aggrieved and dissatisfied with the impugned judgment and order dated 17/10/2014 passed by the learned Tribunal in ITA No.362/Ahd/2011 .....

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the case, the learned ITAT has erred in law in not allowing the appeal of the department against the order of CIT(A) directing to give telescoping effect to additions made under Sections 41(1) and 68 of the Act against the addition of unexplained labour charges of ₹ 25,65,634/-? [4.0] The assessee filed the return of income for the Assessment Year 2007-08 showing the total income of ₹ 3,95,580/-. The return was duly processed under Section 143(1) of the Income Tax Act (hereinafter re .....

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ry creditors were appearing in the balance sheet alongwith complete name, address, PAN and conformation thereof. The assessee failed to produce the breakup of the amounts appearing in the balance sheet. The assessee did not furnish the details asked for and, therefore, show cause notice came to be issued on 20/11/2009 as under; Vide point No.3 of this office show cause notice dated 03/11/2009, you were required to furnish confirmation, name, address and PAN of the persons against whom sundry cre .....

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essing Officer that in the case of 10 sundry creditors the outstanding liability of the sundry creditors was very old. The particulars of the same are under; LIST OF SUNDRY CREDITORS 2006-2007 No. Name Year since pending /payable Amount 1 H.R. Enterprise 02-03 644282 2 Jay Construction 02-03 45213 3 Rane Builders 02-03 63808 4 Rent received in advance Not furnished 217350 5 Sharddha Construction 04-05 1297477 6 Sigma Electricals 05-06 836805 7 S J Communication 02-03 255509 8 S J Communication 0 .....

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aforesaid amount of ₹ 56,51,645/- was no longer payable and the payment has reached at cessation stage and, therefore, longstanding sundry creditors amounting to ₹ 56,51,645/- was treated as no longer payable / cessation of liability under Section 41(1) of the Act and the same was added to the total income. During the course of the assessment it was noticed by the Assessing Officer that the assessee had debited the amount of ₹ 1,71,04,226/-, being the labour charges. The assess .....

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- to the total income of the assessee. [4.2] Feeling aggrieved and dissatisfied with the order passed by the Assessing Officer in making the addition of ₹ 56,96,645/- under Section41(1) of the Income Tax Act and the addition of ₹ 25,65,634/-, being 15% of the labour charges as unexplained expenditure, the assessee preferred appeal before the learned CIT(A) and the learned CIT(A) partly allowed the appeal, however confirming the action of the Assessing Officer in making the addition o .....

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which comes to ₹ 1,71,04,226/-, however, the learned CIT(A) deleted the addition of ₹ 25,65,634/- made by the Assessing Officer under Section 41(1) and 68 of the Act. [4.3] Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A), both the revenue as well as the assessee preferred appeals before the learned Tribunal. By the impugned judgment and order, the learned Tribunal has partly allowed the appeal of the assessee by deleting the addition of ₹ 56,96,6 .....

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portunity of hearing to the assessee. Consequently, the learned Tribunal also disposed of the appeal preferred by the revenue / allowed the appeal preferred by the revenue for statistical purpose. [4.4] Feeling aggrieved and dissatisfied with the impugned common judgment and order passed by the learned Tribunal in ITA No.190/Ahd/2011 and ITA No.362/Ahd/2011 for the Assessment Year 2007-08, the revenue has preferred the present Tax Appeals with the aforesaid proposed substantial questions of law. .....

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ance sheet of the assessee, which were very old. It is submitted that though the assessee was given an opportunity to furnish complete identity, creditworthiness of the creditors etc. by the Assessing Officer and the CIT(A), the assessee had failed to do so. It is submitted that even the assessee also failed to produce the address, PAN number and conformation of the said sundry creditors. It is submitted that under the circumstances when the Assessing Officer made the addition of ₹ 56,96,6 .....

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id cases. It is submitted that as such there is no absolute proposition of law in the aforesaid decision. The addition under Section 41(1) of the Act cannot be made if the assessee had written off the credit balance of the party brought forward from the earlier years. It is submitted that therefore the impugned judgment and order passed by the learned Tribunal is erroneous and untenable in law. [5.3] It is further submitted by Shri Patel, learned advocate appearing on behalf of the revenue that .....

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CIT(A) with a direction to decide the same afresh in accordance with law. Making the above submissions, it is requested to admit / allow the present Tax Appeals. [6.0] 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 t .....

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editworthiness and / or identity. In any case the addition on the aforesaid ground under Section 41(1) of the Act cannot be made unless and until it is found that there was remission and / or cessation of the liability that too during the previous year, relevant to the assessment year in question, there cannot be any addition invoking the provision of Section 41(1) of the Act. Identical question came to be considered by the Division Bench of this Court in the case of Nitin S. Garg (Supra) and in .....

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us, it is not been established that the assessee has written off the outstanding liabilities in the books of account. The Appellate Tribunal is justified in taking the view that as assessee had continued to show the admitted amounts as liabilities in its balance sheet the same cannot be treated as assessment of liabilities. Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have seized to exist. The Appellate Tribunal has rightly o .....

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itin S. Garg (Supra) has been considered and followed by the Division Bench of this Court in the case of Bhogilal Ramjibhai Atara (Supra) and the addition made under Section 41(1) of the Act in the similar facts and circumstances of the case is ordered to be deleted. In paragraph 8 the Division Bench has observed and held as under; We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remis .....

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sideration. 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 .....

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