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M/s Perfect Paradise Emporium Pvt. Ltd. Versus Income Tax Officer, Ward 14 (2) , New Delhi

2015 (4) TMI 1018 - ITAT DELHI

Addition u/s 68 - taxability under section 41(1) of the Act in a case where long outstanding sundry creditors were treated as taxable - Held that:- CIT(A) had dealt with the issue threadbare. The appellant has chosen not to file the confirmation letters in respect of all the creditors before the Assessing Officer. It was only during the course of proceedings before the learned CIT(A), the appellant has filed two confirmation letters in respect of M/s R&A Techniques and M/s Millennium Marketing f .....

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remand report from the Assessing Officer, who in turn, examined Mr. Rajesh Raheja Prop. of R&A Techniques and Mr. Anubhav Raheja Prop. of Millennium Marketing on oath. They stated on oath that there were no money payable to M/s Perfect Paradise Emporium Ltd. i.e. the appellant and they further stated that they never signed any confirmation letters. The remand report of the Assessing Officer was furnished to the Authorized Representative of the appellant by the learned CIT(A). This amounts to aff .....

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ot given opportunity to cross examine those parties is not tenable in the eyes of law since no party can take the advantage of its own mistakes. Therefore, the depositions made by those two creditors have become final and the depositions remain uncontroverted. This clinches the issue that sundry creditors can be held to be fictitious and no longer payable by the appellant. Therefore, in our considered opinion, the CIT(A) is justified in holding that the sundry creditors are factious.

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is open to the Department to levy tax on such amount by resorting to the remedies available under the provisions of Act by duly following the procedure known to the law. - Decided in favour of assessee. - ITA No. 159/Del/2011 - Dated:- 22-4-2015 - SH. G.C. GUPTA, VICE PRESIDENT AND SH. INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appellant : Appellant by : Sh. S.M. Mathur, CA For The Respondent : Sh. Vikram Sahay, Sr. DR ORDER PER INTURI RAMA RAO : This is an appeal filed by the assessee company a .....

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Tax (Appeals) before confirming the aforesaid additions has not appreciated that :- a) The addition of so called unsupported/unconfirmed Sundry Creditors are pertaining to previous years i.e. prior to assessment year under appeal and these are the brought forward opening balance pertaining to previous years, which cannot form part the income-of the year under appeal. (b) The statements recorded by the learned Assessing Officer during the course of remand proceedings u/sec. 131 of the Income Tax .....

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ed by the appellant, therefore, the appellant is deprived of an opportunity to cross examine the witnesses. 3. That the appellate order passed by the Hon'ble CIT(A) in the instant appeal are vague because from it, it is not clear as to whether he is upholding the findings of additions made by the learned Assessing Officer u/sec. 68 of the Income Tax Act, 1961 or he is upholding the additions u/sec. 41 (1) of the Act considering the same as the case of remission of /cessation of liability. He .....

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with the learned Assessing Officer and also before him. The objection of the appellant that the statements recorded to the appellant u/sec. 131 of the Act were not taken in a right because it is prospective ignoring the documents already available with him but this objection of the appellant was at first not decided by the Hon'ble CIT (A) before deciding the appeal of the appellant, therefore, the appellate order of the Hon'ble CIT(A) are bad in law. 5. Without prejudice to the above, th .....

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peal, therefore, the provisions of section 41 (1) are also not applicable in the case of the appellant. 6. That on the facts and circumstances of the case, the learned Assessing Officer has erred in law by initiating the penalty proceedings u/sec. 271(1)(c) of the Act. 7. That the appellant assail their right to alter, submit additional Grounds of Appeal, if required, at the time of hearing of the appeal. It is, therefore, kindly prayed that the aforesaid unwarranted addition of ₹ 19,61,03 .....

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crutiny and assessment was completed vide order dated 31.12.2009 under Section 143(3) of the Act at a total income of ₹ 21,94,630/-, inter alia, making the addition of ₹ 19,61,036/- on alleged fictitious creditors. During the assessment proceedings, the assessee was called upon to file the confirmation from all creditors. Since the appellant failed to file the confirmation letters from the creditors, a sum of ₹ 19,61,036/- was added to the returned income. Aggrieved, the assess .....

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reditors. He further argued that in any event it does not call for any addition in the appeal for the reason that even in case the creditors are found to be unproved the addition was to be made only in the year in which subject credit was made in the books of account and the addition cannot be made under Section 143(3) of the Act because there was no cessation of any trading liability. 4. On the other hand, the learned DR heavily relied on the order of learned CIT(A) and brought to our notice pa .....

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s filed two confirmation letters in respect of M/s R&A Techniques and M/s Millennium Marketing for credit balance of ₹ 6,76,000/- and ₹ 7,79,101/- respectively and had not filed any confirmation in respect of M/s Ganesh Enterprises and M/s Goyal Fasterners for credit balance of ₹ 3,70,588/- and ₹ 1,35,347/- respectively. The appellant filed these two confirmation letters before CIT(A) as additional evidence along with the application under Rule 46A of the Income Tax R .....

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s furnished to the Authorized Representative of the appellant by the learned CIT(A). This amounts to affording an opportunity to rebut the remand report. While responding to the remand report, it is noticed that the appellant had not asked for the opportunity to cross examine those two parties except stating that the amounts were written off unilaterally by those two concerns. This, in our considered opinion, is not acceptable, inasmuch as, it is for those concerns to explain that the outstandin .....

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nsidered opinion, the CIT(A) is justified in holding that the sundry creditors are factious. 6. Having held that the sundry creditors are not payable and fictitious, the next question that comes up for our consideration is the year in which the amount is taxable under what provisions of law either under Section 41(1) or 68 of the Act. We are required to examine whether this amount should be brought to tax in the year in which credit was made first time in the books of account or in the year in w .....

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ditionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the ex .....

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ability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) f the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. 7. The Hon ble Jurisdictional High Court in the case of CIT Vs. Shri Vardhman Overseas Ltd., (2012) 343 ITR 408 .....

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