TMI Blog2015 (4) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... made. In the remand report of the AO, he states after perusal of the aforesaid bank statement evidencing account payee transfer of amount to their respective bank account, that appellant has filed copies of bank statements and same was examined. So the ld CIT(A) has rightly concluded in the light of the aforesaid evidence that sundry credit balance in the name of Nitesh Enterprises and Shri Ram Traders were genuine credit balance for purchase of material by the assessee and the liability in the name of such parties have been duly discharged by the assessee by making payment through RTGS i.e. a/c payee cheques. Moreover, it is an undisputed fact that the assessee has not written off the amount to the credit of the profit and loss accounts and the outstanding liabilities were still in existence which would prove that the assessee acknowledged his liabilities as per the book of account. Thus it has not treated the money as its own money. Accordingly, it has not become richer by the impugned amount as it continues to hold out that it is indebted to the aforesaid creditors, so it cannot be inferred that the said liability had ceased to exist. Section 41(1) is attracted only when ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal are as follows:- 1. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of ₹ 7,48,92,621/ - made by the AO u/s 41(1) of the IT Act,l961. 2. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of ₹ 64,10,847/- made by the AO on a/ c of rejection of books u/s 145 of the IT Act, 1961 and estimated profit @ 8% of the gross receipts. 3. Apropos deletion of addition of ₹ 7,48,92,621/- made by AO u/s 41(1) of the Income Tax Act, 1961 (herein after the Act ). 4. Brief facts of the case as noted by ld CIT(A) is as that the assessee company is a civil contractor engaged in the construction of a project for Patni Computer Ltd. at Noida, during the Financial Year under consideration. The assessee has shown sundry creditors of ₹ 16,11,74,448/- as on 31.03.2009 which inter alia includes M/s Nitesh Enterprises, 2941, Kucha Mal Dass, Sita Ram Bazar, Delhi-l10006 and M/s Shri Ram Traders, 904, Gali Beri Wali, Kucha Pati Ram Sita Ram Bazar, Delhi -110006 showing credit balances of ₹ 4,01,03,113/- and ₹ 3,47,89,508/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion that the assessee failed to produce the creditors. According to the AO, despite having granted sufficient opportunity, neither the assessee could produce the creditors nor furnish any confirmation from the said sundry creditors. So the AO was of the opinion that in the absence of the existence of the establishments, the liability could not be verified; and other reasons were that since no transaction took place between the assessee and creditors throughout the year; and the assessee s inability to furnish the permanent account number (PAN) of the creditors or assessee could furnish copy of the acknowledgement of the income tax return. So in such a scenario, according to the AO it is the case of cessation liability which the assessee has not offered for taxation though he was bound to do so and therefore section 41(1) was attracted and the AO observed that where a debt due from the assessee was foregone by the creditors in the later year, it can be taxed u/s 41(1) and he relied upon the decision in the case of CIT Vs. Manohar Bandhu (1984) 148 ITR 108 (Bombay) and made an addition of ₹ 7,48,92,621/- to the total income of the assessee. 7. Aggrieved by the said additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been mentioned in it, meaning it casts doubts about the genuineness of the said documents and the ld CIT(A) has erred in giving a finding that the assessee has discharged its onus by filing confirmation. (Page 25 of ld CIT(A) order).So, according to her the assessee has misled the ld CIT(A). Therefore according to the ld DR the impugned order need to be reversed or the matter be remanded back to the AO for verification. On the other hand the ld AR Shri Adesh Jain, CA contended that the assessee who is a building contractor had purchased goods from M/s. Nitesh Enterprises through Shri Brij Mohan and from Shri Ram traders through Shri Mukesh Agarwal and had furnished their mobile numbers also. And the ld AR pointed out that the assessee company has made payments to the said parties in the succeeding financial years through account payee cheques and RTGS and pointed to Page 100 to 104 of the bank statement of UCO Bank of the assessee and stated that the said payment was made to the parties six months before from the assessment order was passed and this fact was brought to the knowledge of AO. And, according to the ld AR, since the amount outstanding was credited to the creditor s acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was no movement of funds or any transaction in these sundry creditors accounts. Therefore, to verify the genuineness of transaction assessing officer deputed his inspector to conduct the enquiry on the given addresses. After conducting enquiries the inspector reported that he has visited 2941, Kucha Mal Dass, Sita Ram Bazar Delhi and 904, Gali Beri Wali, Kucha Pati Ram, Sita Ram Bazar Delhi -110006 and it is found that there was no sign board of above firms at the given addresses. It was also reported by the inspector that on local enquiry it was found that no regular business was ever carried out from these premises by the said firms. On receipt of the report assessing officer issued show cause notice dated 05.12.2011 to the appellant and asked the appellant to produce these parties for verification of the liability and genuineness of the transaction. In reply to the show cause notice appellant furnished that it had made purchases of material from M/s Nitesh Enterprises and Shri Ram Traders. It has also given details of the person with whom the enquiry is to be made. The appellant has furnished fresh address of these parties for conducting enquiries on the new address. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress and they have been registered on the basis of said address with department of trade and taxes Govt of NCT Delhi. It is therefore, submitted by the appellant that the observation of the assessing officer were not correct. During the course of appellate proceedings vide its submission dated 12.04.2012, the AR of the appellant submitted details of the payments made to M/s Nitesh Enterprises and M/s Shri Ram Traders in January - February-2010 along with the copy of the bank account of UCO Bank, Connaught Place, New Delhi . The appellant has also filed copy of the accounts of the said parties from its books of accounts which reflects the details of the payments made to the said information along with the paperbook and submission made by the appellant was forwarded to the assessing Officer vide this office letter dated 12.04.2012 for verifying the contention of the appellant and for examination and conducting enquiries with reference to the payments made by the appellant to the said parties. The assessing officer after conducting enquiries and examination of the information submitted by the appellant submitted his remand report vide his letter dated 23.04.2012. In the remand repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year has shown a trading liability to two of its sundry creditors (M/s. Nitesh Enterprises M/s. Shri Ram Traders) to the tune of ₹ 7,48,92,621/-, which according to the assessee has been later credited in the bank account of the respective sundry creditors from 09.01.2010 to 28.04.2010; i.e. well before the impugned addition was made by the AO by his order dated 26.12.2011 taking aid of Section 41(1) of the Act, doubting the very existence of the said two firms. Before we go further let us see whether AO can resort to make the additions with the help of section 41(1) of the Act. The Apex Court in the case of CCIT Vs. Kesaria Tea Co. Ltd (2002) 122 Taxman 91 (SC) has held that in order to apply section 41(1), the following points are to be kept in view: (1) in the course of the assessment for an earlier year, allowance or deduction has been made in respect of trading liability incurred by the assessee; (2) subsequently, a benefit is obtained in respect of such trading liability by way of remission or cessation thereof during the year in which such event occurred; (3) in that situation the value of benefit accruing to the assessee is deemed to be the profit and gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40103113.00 Supplier M/s Shri Ram Traders 904, Gali Beri Wali, Kucha Pati Ram, Bazar Sita Ram, Delhi-110006 ADPPA4501N 34789508.00 Supplier 12. So it can be noticed that, the assessee had infact furnished the PAN no of the said two firms also to the AO. And from a perusal of the letter of assessee dated 15.12.2011 (Page 82) to the AO, the assessee clearly spells out in (Page 83 of PB) which reads The assessee company has completely made the payments of goods purchased from the said parties in due course and not taken any benefit by way of remission; so question of taxing outstanding amount under deeming provision of section 41(1) of the IT Act 1961 does not arise in our case . So during the assessment proceeding that is before the assessment order was passed on 26.11.2011, itself the assessee has clearly brought to the knowledge of the AO that payment for the goods supplied by the said sundry creditors have been remitted in their respective accounts. However, we find it strange that in the assessment order and even in remand report the AO states that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad filed certain documents to substantiate its claim that trading liability with the said sundry credits existed and has not ceased. For that the assessee has filed sample bills of M/s Nitesh Enterprises and Shri Ram Trades (P 85 86), printout downloaded from the website of Govt of Delhi, department of taxes (P.87 88), to prove that address which it had furnished before the AO, on which the inspector of the department said that there was no firm existing in the said address, was the same address and which was the same address given in the bills (Page 85 86), so the assessee has not furnished any wrong address or the inferference drawn by the AO that there is no firm existing is wrong. The other documents along with letter dated 15.11.2011 are the list of Sundry Creditors to whom the assessee owe more than 10 lakhs (page 89) wherein, the assessee has furnished the PAN No of both the Sundry Creditors. The confirmation of accounts from 01.04.2008 to 31st March 2009 dated 01st April 2009, were we find the seal of the sundry creditor, signed/ initiated on behalf by both the Sundry Creditor M/s Nitesh Enterprises and Shri Ram Traders along with their PAN No. is annexed at Page 90 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 18-01-2010 25,00,000 19-01-2010 25,00,000 20-01-2010 50,00,000 21-01-2010 50,00,000 22-01-2010 50,00,000 26-04-2010 50,00,000 28-04-2010 51,03,113 Total 4,01,03,113 M/s. Shri Ram Traders Date of Payment Amount (Rs) 12-01-2010 25,00,000 12-01-2010 25,00,000 14-01-2010 25,00,000 18-01-2010 25,00,000 19-01-2010 25,00,000 23-01-2010 50,00,000 08-02-2010 70,00,000 10-02-2010 18,60,000 15-02-2010 50,00,000 24-04-2010 34,29,508 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to the knowledge of the AO, without making any enquiry at the changed address, the AO on mere presumptions, conjectures and surmises has resorted to make the additions with the aid of Section 41(1) of the Act was misconceived and so the ld CIT(A) after considering the evidence on record and the remand report of AO has rightly held that there was no cessation of trading liability. So the question of fastening the addition with the aid of Section 41(1) does not arise. 16. So in the light of the aforesaid evidences, we are inclined to uphold the finding and conclusion of the ld CIT(A) and so we confirm the same and accordingly the revenue s appeal is dismissed. 17. Ground No. 2 relates to deletion of addition of ₹ 64,10,847/- made by the AO on account of rejection of books u/s 145 of the Act and estimated profit @8.7% of gross receipt. 18. The assessee is a civil contractor engaged in construction of a project at Noida. The assessee has shown income from contracts of ₹ 21,26,34,926/- on which net profit of ₹ 87,01,524/- @4.09% has been shown. The AO in his assessment order has alleged that the assessee has not produced the books of account and vouchers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order that the AR has produced the books of accounts before him, the rejection of books of accounts simply by saying that assessee has not produced the books of account is not legally permissible. Even in the remand report, we could not find a whisper of any specific defect in the books of account maintained by the assessee. It must be noted that assessee s books of account are audited and certified by the auditors and the ld CIT(A) has rightly observed that the assessee is following the prescribed rules and accounting standards like AS-7 etc. We find that the auditors have certified the books of accounts and financial statements are prepared as per the prescribed accounting standard. Before rejecting the books of account, the AO is bound to point out specific defects if any and point out if there is any discrepancy in the expenses claimed. We find that books of account was produced by the assessee before the AO, so it does not lie in the mouth of the AO to simply say, the assessee failed to produce books of account when he himself say in Page 2 of the assessment order that assessee has produced books and he cannot reject the books of account without pointing out any defects ..... X X X X Extracts X X X X X X X X Extracts X X X X
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