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2015 (4) TMI 864 - ITAT DELHI

2015 (4) TMI 864 - ITAT DELHI - TMI - Addition u/s 41(1) - unverifiable creditors - AO has made the addition invoking section 41(1) of the Act, when he found out through his inspector that the addresses of the sundry creditors were wrong; and neither the assessee could furnish the correct address nor produced the creditors before him - CIT(A) deleted the addition - Held that:- The copy of the bank statement from January 2010 to April 2010 reveals that entries given against date and amount tallie .....

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0 i.e. six months before the impugned addition made by the AO, though it was brought to his knowledge as stated above, that payments have been 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 .....

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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 there is cessation or remission of a trading liability. The AO in this case has failed to prove that the assessee has obtained the benefits in respect of .....

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o cessation of trading liability. So the question of fastening the addition with the aid of Section 41(1) does not arise. - Decided against revenue.

Addition on account of rejection of books u/s 145 - estimated profit @8.7% of gross receipt - CIT(A) deleted the addition - Held 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 a .....

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ted out any wrong claim or bogus expense in the books nor has given any comparative cases wherein the net profit is shown @8% of the gross receipts. So we find no justification for the AO to estimate @ 8 % of gross receipts. Hence the ld CIT(A) has rightly deleted the addition made by the AO of ₹ 64,10,847/- Decided against revenue. - ITA No. 3574/Del/2012 - Dated:- 27-3-2015 - Shri S. V. Mehrotra And Shri A. T. Varkey JJ For the Appellant : Smt. Parwinder Kaur, Sr. DR For the Respondent : .....

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e 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. .....

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furnish confirmation from certain sundry creditors namely M/s. Nitesh Enterprises and M/s Shri Ram Traders. The AO has taken note that the assessee company was not having any transaction with these creditors during the financial year under consideration, however the amount due to them ₹ 7,48,92,621/- is reflected as outstanding. AO in order to verify the existence of the said liability and genuineness of the credit deputed an inspector to verify from these companies as to whether the amou .....

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Delhi -6. There was no sign board of the above firm at the above address. Upon local inquiry it was found that the no such firm is functioning from the above address. The market inquiry revealed that no regular business was ever carried out from this premises by any company/firm. 2.M/s Shri Ram Traders, 904, Gall Bariwali, Kucha Pattiram, Sita Ram Bazar, Delhi -6. There is no sign board of the above firm at the above address. This address is purely residential house. The market inquiry revealed .....

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the assessee furnished a written reply wherein he stated that he has purchased the goods from M/s Nitesh Enterprises through Shri Brij Mohan and from M/s Shri Ram Traders through Shri Mukesh Aggarwal whose mobile no and the new address of the firms were also furnished. However the AO was of the opinion 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 confirmatio .....

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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 additions m .....

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said firms and has given the report that there was no such firms exists. The AO confronted the assessee with the said report of the inspector and gave them enough opportunity to prove the existence of the creditors and to prove genuineness of the transactions between parties. However, despite giving the aforesaid opportunities, the assessee failed to neither produce the creditors, nor confirmation from them, and assessee could not furnish even the PAN and other details of the creditors. So, acc .....

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AO and to buttress this fact, she took our attention to the assessee s PB page 75 i.e. a letter dated 05.12.2011 wherein, the assessee undertakes to produce the confirmations later, however surprisingly vide letter dated 15.12.2011 (Page.82) of PB, the assessee claims that confirmation of accounts received from the said parties available with the assessee company has already been submitted (Page 83 of PB). So the ld DR is of the opinion that on one hand the assessee undertakes on 05.12.2011 to .....

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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 f .....

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And, according to the ld AR, since the amount outstanding was credited to the creditor s account and this was known to the AO and so in his remand report, the AO has not made any adverse observation about the veracity of such a claim made by the assessee. According to him since the amount due to the sundry creditor M/s Nitesh and Sri Ram were credited in the account of the said sundry creditors by transaction though bank, the question of fastening the addition invoking section 41(1) is legally n .....

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d not take note of the said evidences and arbitrarily brushed it aside. Therefore, in the light of the said overwhelming evidences on record before the authorities below, the ld AR does not want us to interfere with the reasoned order of the ld CIT(A). 9. We have heard both the parties and have perused the records of the case, we find that the AO has made the addition invoking section 41(1) of the Act, when he found out through his inspector that the addresses of the sundry creditors were wrong; .....

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fficer and various judicial pronouncements relied upon by the appellant in this regard. It is seen that during the course of assessment proceedings assessing officer conducted enquiries about the sundry creditors reflected in the books of accounts of the appellant. Based on the information sought from the appellant it was observed by the assessing officer that sundry credit balance shown in the name of M/s Nitesh Enterprises and Shri Ram Traders were static during the year and there was no movem .....

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e 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 h .....

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g the course of appellate proceeding the appellant had filed written submissions along with paper book wherein he has furnished name and address and PAN of the parties in the cases where sundry creditor balance were more than 10,00,000/- outstanding. The appellant has also filed copy of confirmation of M/s Nitesh Enterprises and M/s Shri Ram Traders showing credit balance of ₹ 4,01,03,113/- and ₹ 3,47,89,508/- respectively along with PAN of the parties. The appellant has also filed c .....

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the assessing officer was provided fresh address of the parties and mobile numbers of the contact persons for verification of sundry creditors. The appellant also claimed that details of proprietors and their PAN were supplied to the ASSESSING OFFICER. It is contended by the appellant that observation of the assessing officer that conformation and PAN was not filed by the appellant with reference to M/s Nitesh Enterprises and M/s Shri Ram Traders is factually incorrect. The appellant contends th .....

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y incorrect. The appellant submits that these parties were working on the said address 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 Trade .....

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ing 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 report the assessing officer has reiterated the observations made in the assessment order. As regards the payments made through bank accounts to the sundry creditors M/s Nitesh Enterprises and M/s Shri Ram Traders, the assess .....

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has also submitted name of the contact person for verification of the said parties during the course of the assessment proceedings. However, assessing officer insisted on producing the said parties before him for verification and did not conduct further enquiries on the fresh addresses submitted by the appellant. Further, the appellant has filed copies of the bank statements running with UCO Bank wherefrom the payments have been made to Mls Nitesh Enterprises and Shri Ram Traders and such payme .....

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Shri Ram Traders were genuine credit balance for purchase of material by the appellant and liability in the name of such parties have been duly discharged by the appellant by making payment through RTGS i.e. a/c payee cheques. Hence, the liability in the name of said parties did not ceased to exists. The assessing officer was not justified in adding the genuine liability standing in the name of Nitesh Enterprises and Shri Ram Traders u/s 41(1) of the IT Act. Therefore, the addition made by the A .....

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pugned 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 earli .....

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of the previous year wherein such benefit was obtained. So AO can resort to section 41(1) only if the liability of the assessee can be said to have ceased finally without the possibility of reviving it. On the facts and circumstance of this case, we have to examine whether the ld CIT(A) was justified in coming to the conclusion that the trading liability of the assessee had not ceased finally during the year in question. 11. We find that vide a letter dated 15.12.2011, the assessee has produced .....

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ot that of Shri Ram Traders (the sundry creditor we are dealing with). However on a closer scrutiny, we find that the address mentioned on the Bill of Shri Ram Trades i.e. 904, Gali Beri Wal, Kucha Pati Ram, Bazar Sita Ram Delhi-110006 matches with the address given by the assessee in Page 78 of the PB in its letter vide 05.12.2011 (Page 75 of PB) and later corroborated with the print outs downloaded from the website on the Govt of Delhi, Department of Taxes placed in PB Page 87 where the addres .....

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No. Amount Nature of Transaction M/s Nitesh Enterprises 2941, Kucha Mal Dass, Sita Ram Bazar, Delhi 110006 AIAPG0041R 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 .....

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plied 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 assessee has not furnished the correct address, PAN details etc whereas to the contrary we find that assessee has in fact furnished the correct address though mistake was inadvertently made which cannot be termed as a deliberate mistake, because we find that in the bills of the firms and address given in the .....

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e before him and after perusing the remand report has found the AO to wrongly stated that assessee did not furnish the correct address, PAN etc of the sundry creditor. 13. In respect to the contention of the ld Sr DR, that the confirmation of accounts from the sundry creditors were not produced before the AO and the doubt expressed about the genuineness of the said confirmation which was produced for the first time before the ld CIT(A) because the name of the person who signed on behalf of the s .....

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itors which were furnished earlier to the AO, were infact that was printed on the invoices supplied by the suppliers and since the AO has brought to its knowledge the Inspector Report, no entity by the name of the sundry creditor exists at that address, the assessee made enquiries and has found that their address has changed and the new address was furnished. (Page 82 of PB). However, we find that AO has not made any enquiry on the said address of the sundry creditors to find out whether there w .....

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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 bo .....

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dated 25.08.2011, 02.11.2011, 15.11.2011, 05.12.2011 and 15.12.2011 filed along with annexures before the AO during the assessment proceeding numbered as Page 43 to 94. As per the certificate appended below the Index of the said Paper Book the AR of the assessee Shri Akshat Jain, ACA, has certified that serial No.2 to 9 were on record of the AO. Since the document i.e. confirmation of accounts from 01.04.2008 to 31St March 2009 figure in serial No.6, prima facie it can be inferred that the said .....

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ss of the same. So the said confirmation of accounts by the sundry creditors cannot be disbelieved just because the name of the person who signed/ initials has not been recorded. When the fact remains that TIN No., address, PAN No. and details of the bank transaction (page 98 to 104) has come on record which has been seen by the AO at least during the remand proceedings, the prayer of the ld DR that the case may be remitted back to the AO for further verification is unjustified and bereft of mer .....

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01-2010 25,00,000 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 3,47,89,508 15. The copy of the bank statement from .....

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creditors for the instant Assessment Year, stands credited to their respective bank accounts by bank transfer before 28.04.2010 i.e. six months before the impugned addition made by the AO, though it was brought to his knowledge as stated above, that payments have been 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 .....

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t 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 attr .....

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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 .....

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chers and estimated the profit of ₹ 1,69,94,954 @ 8% of gross receipt of ₹ 21,24,36,926/- and rejected the books of account by invoking section 145 of the Act. 19. Aggrieved by the said order of the AO, the assessee preferred an appeal before the ld CIT(A), who was pleased to delete the same. 20. Aggrieved by the said order of the ld CIT(A), the Revenue is before us. We find that the AO has invoked section 145 of the Act by stating that the assessee failed to produce books of account .....

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ooks of accounts were not produced by the assessee before him, we find that for the reasons given below the said factual finding is incorrect and wrong. The ld CIT(A) has rightly observed in the impugned order in Page 49 Para 6.3 that AO has clearly observed in the assessment order at Page 2 that Shri Ankush Jain, FCA of the assessee company attended and books of accounts and other relevant documents details as required by him has been filed, perused and placed on record. Further when we peruse .....

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ducting TDS @ 10.5575 % and copy of ledger account was also enclosed (Page 92, 93 of PB) invoice of Soprano Ltd (94 of PB). Along with the aforesaid evidences, the assessee has filed copy of the balance sheet, details of loans and advances and also mentions that tax audit report has already been filed before the AO (Page 84 of PB). In the face of these evidences and his own admission in the assessment order that the AR has produced the books of accounts before him, the rejection of books of acco .....

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