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TMI Blog2015 (12) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be traced out by the Assessing Officer and even the assessee." 3. Ground no.1 of the appeal by the Revenue is against addition of Rs. 10,14,942/- as bogus purchases. Brief facts relating to this ground are that the addition has been discussed in para (4) of the Assessment Order and from the discussion made by the A.O., i t is observed that during the course of assessment proceedings, the A.O. had issued notices under section 133(6) to various parties in order to verify their transactions of sales by them to the assessee which will be corresponding Purchases by the Assessee. The AO noticed certain discrepancies which could not be satisfactorily explained by the Assessee. The discrepancies noticed by the AO was as under: TABLE-8: SI. No. Name of the Party Purchases shown or Purchase discrepancy (in Rs.) Reference 1 M/s.R.K. Dutta & Company 72,001 TABLE-l,SI.No.l 2 M/s.Jayshree Trading Co. 32,904 TABLE-l, SI.No.2 3 M/s.Binod Kumar Agarwala & Co. 71,989 TABLE-l, SI.No.3 4 M/s. Kamal Statiner Stores 30,194 TABLE-l, SI.NoA 5 M/s. Chowdhury Hardware Stores 93,300 TABLE-l, SI.No.5 6 M/s. R. K. Podder.& Bros. 1,16,744 TABLE-l, SI.No.6 7 M/s. Sreema Har ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A), it was submitted that the above addition had been made as bogus purchases by the A.O. without considering the fact that the goods were either sold to CESC Ltd. which is the only party to whom the assessee had supplied goods and that these goods were appearing in the closing stock as per Stock Register and without these purchases it would not have been possible for the assessee to sell these goods. It was further submitted that that addition was made without giving adequate opportunity to the assessee. 5. The ld. CIT(A) called for a remand report from the AO. The CIT(A), after considering the submissions of the assessee, remand report of the AO and assessee's rejoinder and other evidences on record, gave his findings. 5.1 The CIT(A) was of the view that the AO considered purchases as bogus on the ground that purchases were made from the aforesaid parties in two year i.e. 2006-07 and 2007-08 totalling to Rs. 12,62,135/- against which only a cash payment of Rs. 16,500/- was made in 2007- 08. The remaining payments were made entirely in cash in the subsequent year i.e. A.Y. 2008-09, after which there was no transaction with these parties. The main contention of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2007. While the A.O. has observed that verification could not be done from the above mentioned parties, however the addition in respect of disallowing the purchases from these parties does not stand test as the disallowance brings into question the sales being shown by the assessee, as his activities are, in trading nature and the entire supplies are being made to one concern i.e. M/s. CESC Ltd. 5.4. The CIT(A) posed the question as to how if the purchases are being disallowed to the extent of Rs. 10,14,942/- what will happen to the corresponding sales being shown. The CIT(A) therefore held that the A.O. was not justified in considering the entire purchases as bogus from these nine parties. The CIT(A) also observed that it was the other parties who were suppressing their sales. However, since the assessee is disclosing more purchases, there is no justification for the above addition. The CIT(A) held that the AO at best could have rejected the books and estimated income of the assessee but he has not done so. Adding the entire sales as income could give absurd results. The CIT(A) accordingly deleted the addition of Rs. 10,14,156/-. 6. Aggrieved by the order of the CIT(A) the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in adding above amount of Rs. 16,67,540/- u/s.41(1) as cessation of liability and on the facts of the case he has not considered that the said sundry creditors were all paid in the next two Financial Years and therefore the addition is not justified. The assessee also submitted copies of accounts of these creditors in its Books of Accounts to substantiate his claim that no addition should have been made by the A.O. u/s. 41(1). A remand report was called for from the AO for verification of the details of the payments claimed to have been made in respect of these creditors from the Books of Accounts of the assessee. In response to the above directions the final report of the A.O. dated 14.02.2012 was received by the CIT(A) in respect of the matter remanded to him for verification. 8.2 The assessee gave his rejoinder to the above Remand Report and the same was filed on 10.05.2012 in which the A.O. has himself acknowledged that payments were found to have been made to these parties from the Books of Accounts of the assessee and all in cash and the accounts were allegedly in Financial Year ending on 31.03.2008. The assessee also claimed that from the Assessment Order for A.Y. 2008-09 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is clear that he has not understood the purposes or working of section 41(1) which is in respect of cessation of a liability at a particular point and time which can be considered for adding back in the relevant Financial Year. In this case, while firstly he is raising the doubt that these are all bogus liabilities since the creditors were found to be non-existing at the given addresses, on the other hand, he is holding that these liabilities ceased to exist on 31.03.2007 i.e. at the end of the Financial Year. If liabilities are bogus there is no question of their ceasing to exist. Cessation of the same presupposes that these liabilities actually existed. Secondly it is not for the assessing authority to decide that a particular liability had ceased to exist at a particular point in time but the conclusion must be based on evidence that the cessation had taken place in that relevant financial year. In the assessee's case, neither of the two conditions exist. Furthermore, as submitted by the assessee, the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd., supra has held that- "In the absence of the creditor, it is not possible for the authority to come to a conclusion ..... 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