TMI Blog2017 (10) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a second hand Car for a sum of amount of ₹ 2,75,000/- which it had reflected in its balance sheet and for which he made entries in the books of accounts. The copy of ledger account of Car is placed at PAPER BOOK-4. The Assessee had claimed an amount of ₹ 20,625/- as depreciation and was allowed deprecation on this amount. Moreover, we find that assessee in its balance sheet in the schedule to fixed assets had declared the purchase of Car under the heading Car for purchase of second hand Car. The sale agreement placed at PAPER BOOK-2 is a sufficient document which along with other evidences in the form of entries in the books of accounts and balance sheet proves that assessee did purchase the car, therefore, Ld. CIT(A) has rightly deleted the addition Addition on account of Work Contract Tax Payment - Held that:- The list of sundry debtors placed at PAPER BOOK-5 clearly shows that assessee was to receive this amount from the company. The assessee had neither debited or credited the WCT received from the M/s U Flex Industries. The finding of the Assessing Officer that the M/s U Flex had paid the amount of WCT to assessee and which he was supposed to deposit in the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the alleged petty contractors. The Assessing Officer during the assessment proceedings did not find any discrepancies in the payments and before making any addition on account of non deduction of tax, the Assessing Officer should have examined some of the so called petty contractors. The assessee had also produced Muster Rolls showing the detail of wages /labour paid by assessee and therefore, the Ld. CIT(A) has taken a correct view and has rightly held that assessee was not liable to deduct the TDS as there was no contract or sub-contract. Addition on account of interest on capital - Held that:- As per partnership deed placed there is no clause for making any interest to be paid to partners. However, before the Ld. CIT(A) the assessee furnished an affidavit that the capital of the partners shall carry interest @ 12% with effect from 1.4.2007. However, we find that it is not a supplementary partnership deed as it has not been signed by all partners and has been signed only by one partner and that too in the form of an affidavit. As per provisions of Sec. 40(b)(v) the partners are entitled to receive interest on their capital which is in accordance with terms of partnership dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as remained static till the date of the assessment order with no further repayment of principle or further charging or repayment of interest thereupon and that the Ld CIT(A) had admitted additional evidence filed by the assessee during the course of appellate proceedings in the shape of letter dated 14.11.2015 without remanding the matter to the AO or making any enquiries on his own. 2. Whether the Ld. CIT(A) was right in law and fact in deleting the addition amounting to ₹ 2,75,000/- on account of addition of assets (Car) without appreciating the finding of the Assessing Officer that the assessee has failed to explain the source and mode of the payment made for purchase of the said car. 3. Whether the Ld. CIT(A) was correct in law and fact in allowing relief amounting to ₹ 20,44,961/- out of total addition of ₹ 38,66,917/- on account of non-payment of Work Contract Tax (WCT) despite the fact that the assessee had not disputed the liability to the extent of ₹ 85,16,917/- on account of WCT which is also supported with the figure as reflected in the Balance sheet duly audited. 4. Whether the Ld. CIT(A) was correct in law fact in deleting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers despite the fact that in the original partnership deed which was registered in court, there is no provision of interest on capital to the partners and the supplementary deed (which has such a provision) was got attested by the Notary after totally ignoring the fact that the original deed which was registered in the Court of law cannot be overruled by a Notary. 8. Whether the Ld. CIT(A) was correct in law fact in deleting the addition of ₹ 3,42,166/- despite the fact that M/s Ruchi Infotech has admitted that nothing outstanding is receivable from the assessee. 3. The assessee has also filed cross objections to the appeal filed by Revenue which are supportive of Ld. CIT(A) order. 4. The brief facts of the case are that assessee filed a return of income declaring net income of ₹ 16,89,468/- from the business activity of civil construction. The case of the assessee was selected for scrutiny and during assessment proceedings, the Assessing Officer made following additions. (i) Addition of account of Unsecured loan of ₹ 1,53,458/-. (ii) Addition on account of fixed assets (Car) ₹ 2,75,000/- (iii) Addition on account of Work Contract P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, correspondence w.r.t. to recovery or payment of outstanding amount. The outstanding demand raised in 2008-09 has been static till date and no further repayment of principle or interest has been made. During the appellate proceedings, the appellant submitted as under:- The appellant submits that it received loan for purchase of JCB 3DX excavator from M/s Srei Equipment Finance Limited, Kolkata. The financier charged additional interest/overdue charges over and above the loan amount. This led to a dispute between the parties and the appellant stopped crediting interest/overdue charges to the account of the financier in its books of account and neither claimed expenses on that account. The loan is still payable by the appellant and financier is still demanding his dues. Copy of a recent letter dated 14.11.2015 received from the financier demanding an amount of 879505.45 is enclosed for your perusal (Page 1). This proves that the debt is not unexplained as alleged by the Ld. AO and is still payable by the appellant. As soon as the parties reach a settlement, the outstanding balance including additional charges if any shall be repaid. The appellant therefore requests you ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with respect to the purchase of car, the evidence given by the assessee cannot be accepted and as such a sum of ₹ 2,75,000/- was added to the total income of the assessee on account of purchase of car. During the appellate proceedings, the appellant has submitted as under:- The appellant submits that it purchased a second hand Tata Indigo car from one Sh. Yakoob Khan for a consideration of ₹ 275000/-. The Ld. AO alleged that the entry for purchase of car was not shown in the books of account maintained by the appellant. It is submitted that the entry for purchase of car was duly reflected in the books of account and the balance sheet of the appellant which was produced before the Ld. AO at the time of assessment. Copy of sale agreement entered with the seller was also furnished to the Ld. AO which he acknowledged in last para of page 5 of the assessment order. Copy of the same is also enclosed for your perusal. (Page 2-3). Now since the entry for purchase of car is duly supported with an affidavit and duly entered in the books of account, it is prayed that the addition of ₹ 275000/- be deleted. I have considered the above addition made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition that same was to be deposited by the assessee to the Govt, account as a Work Contract Tax (WCT). However, the assessee had deposited a sum of ₹ 46,50,000/- only till 30/09/2012 and the remaining amount was shown as outstanding. When the AO confronted the assessee that why did the assessee pay this amount when it was the liability of U Flex, the assessee replied that there was understanding between the assessee and the U Flex that this liability will be discharged by the assessee out of payment received from M/s. U Flex. Since, M/s. U Flex paid only a sum of ₹ 46,50,000/- to the assessee, the same was deposited in the Govt, account on account of WCT. Not convinced with the reply filed by the assessee, the AO, allowed only ₹ 46,50,000/- and added back the remaining amount of ₹ 38,66,917/- on account of unpaid work contract tax( WCT) under section 43B of the Income Tax Act. During the appellate proceedings the appellant has submitted as under:- The appellant submits that it entered into works contract with M/s U Flex. During the year under consideration, the appellant was to receive an amount of ₹ 8516917/- from M/s U Flex on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng between the two. I do not find any infirmity on that aspect. However, it is found from the assessment order that the appellant could pay a sum of ₹ 46,50,000 only out of a total liability of ₹ 85,16,917/- and shown the remaining amount of ₹ 38,66,917/- as a liability in the Balance Sheet on account_of_unpaid work contract Tax. The appellant in his submission, made during the appellate proceedings, has not disputed the amount actually paid but has claimed that the section 43 B of the Act will not apply in his case and cited the Hon'ble Bombay High Court decision in the case of CIT vs. Ovira Logistics P Ltd. 377 ITR 129 and Hon'ble Delhi High Court decision in the case of CIT vsTTJoble Hewitt (I) (P) Ltd. 305 ITR 324 in support of his claim. I have gone through both the decisions cited by the appellant. The Hon'ble Delhi High Court in the case of CIT vs. Noble Hewitt (I) (P) Ltd. 305 ITR 324 has held that when the assessee is following mercantile system of accounting and is not paying to Government part of service tax and has not debited the amount to the P L A/c as an expenditure nor did the assessee claim any deduction in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unpaid (5-6) Rs.18,21,956/- Thus, according to the appellant's counsel the WCT which remained unpaid was not ₹ 38,66,917/- but ₹ 18,21,956/- I have considered the above working given by the appellant's counsel during appellate proceedings and I agree with that. Thus, the addition made on account of unpaid WCT is restricted to ₹ 18,21,956/- The appellant gets a relief of ₹ 20,44,961/- Addition of ₹ 8,42,192/- on account of no bill or wrongly booked bill:- During the course of assessment proceedings, the AO noticed that there was a bill dated 13/01/2012 amounting to ₹ 2,14,000/- for the purchase of construction-material from M/s. Raizada Brick Kiln. Since this expenditure did not pertain to the assessee's business, the AO disallowed the same being wrongly claimed. Further, the AO, found that the assessee has failed to produce bills allegedly issued by M/s. Aggarwal Steel Rolling Mills representing purchase of construction material which were recorded in the books of account on 13/08/2011 and 06/09/2011 amounting to ₹ 3,28,725/- and ₹ 2,99,467/- respectively. When t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,14,508 NOT REPLIED 5 SATYA METALS, LANE 3 BARI BRAHMANA 6,66,809 NOT REPLIED 6 SPERRY PLAST, BARI BRAHMANA 1,00,000 NOT REPLIED 7 STAR INDUSTRIES 6 ,17,684 NOT REPLIED 8 VS INDUSTRIES 3,12,582 NOT REPLIED TOTAL 26,60,270 The AO, on verification of ledger accounts in the preceding two years noticed that the above stated creditors are static creditor since outstanding balance are being shown by the assessee for more than three years. There was no single transaction between the assessee and creditors during last three years neither any interest has been paid. The creditors have also not demanded the outstanding payments. The AO, therefore, concluded that the above creditors might have squared off or written off the impugned demands/balances and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof60, the amount obtained60 by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. [Explanation l.-For the purposes of this sub-section, the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that subsection by way of writing off such liability in is accounts.] Form the above it is clear that to attract section 41(1) following conditions must be satisfied:- a) In the assessment of an assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is found that in the case of CIT Vs. Sugauli Sugar Woks (P) LTD ( 1999) 236 ITR 518 SC it has been held that the question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but it is a matter which has to be decided only if the creditor has stated that the liability has ceased to exist because the creditor may enforce the debt or liability after expiry of sometime then it would not be possible for the assessee to pay back the outstanding balance. The Hon'ble Courts have therefore, held that the liability to make payment ceased to exist only after expiry of the normal portion of limitation as provided under the limitation Act. The other decisions also cited by the appellants support the case of the appellant. I, therefore, hold that in the absence of any examination of the creditors to the effect that they have waived the liability or the limitation period has expired under the limitation Act, the creditors shown in the balance sheet cannot be treated to have been remitted u/s. 41(1) of the Income tax Act. Thus, the addition made by the AO on this ground is deleted and appellant g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the subcontractors by the Ld. AO while applying the provisions of section 40(a)(ia). It is submitted that the appellant never entered into any sub-contract with any person and all the contracts were executed directly through its own employees who were being supervised by mates. The job of disbursing the wages was also done through these mates as they were responsible for maintaining daily muster rolls and all details pertaining to the labour. These mates prepared all the details relating to the works being executed including but not limited to the progress of the contract, material consumed/purchased, preparation of the bills etc. Each mate prepared the details of work allocated to him in the form of a bill as a work diary is maintained in Govt, departments. It was also explained to the Ld. AO that these persons are not subcontractors but mates. If the Ld. AO had any doubt about their status he should have summoned them and recorded their statements, which he chose not to. Muster Rolls showing the details of wages/labour paid by the appellant firm during the year under consideration are produced for your perusal. Form the above it is clear that the appellant did not make a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition made by the AO is deleted and the appellant gets a relief of ₹ 1,51,68,987/-. Addition on account of interest of capital:- During the assessment proceedings, the AO noticed that the assessee had claimed interest on capital to partners to the of ₹ 3,66,317/- When the assessee was asked by the AO as to why this amount should not be added back to the total income of the assessee being not admissible, the assessee submitted that the provisions for payment of interest on capital to partners has been provided in the partnership deed. The assessee had entered into supplementary deed for payment of interest to the partners on 01/04/2008. The copy of partnership deed was also enclosed. The AO considered the reply of the assessee but did not accept the contention of the assessee and added this sum of ₹ 3,66,317/- u/s. 40(b)(iv) of the Income tax Act, 1961 being interest on capital of the two partners on the ground that the original partnership deed did not contain the payment of interest part and was confirmed by the auditor in its report in Form 3CD furnished u/s. 44AB of the Income tax Act. The supplementary partnership deed as submitted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s own Advocate. I do not find any reason to disbelieve the supplementary partnership deed on this very ground that it was notarized by the assessee's own counsel. If the Advocate was competent to notarize the document, it is immaterial whether he is assesse's own counsel. The addition made by the AO is, therefore, deleted and the appellant gets a relief of ₹ 3,66,317/- Addition on account of sundry creditors:- The AO, during the course of assessment proceedings, noticed that the assessee in its balance sheet has shown liability as creditor in the name of M/S. Ruchi Infotech Systems with balance payable at ₹ 3,42,166/-. The AO, issued notice u/s. 133(6) of the Income tax Act to M/s. Ruchi Infotech but it was informed by M/s. Ruchi Infotech Systems that no amount remained payable/receivable in the books of accounts of M/s. Ruchi Infotech Systems. However, it was confirmed by M/s. Ruchi Infotech Systems that the assessee had constructed their factory premises and all the payments has been cleared in the year 2008. The copy of the ledger account in respect of the assessee from the year 2004 was also provided by M/s. Ruchi Infotech Systems. On perusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. This has been held by Hon'ble Delhi High Court in the case of Vijay Kumar Ahuja vs. ACIT ITA No. 5856/Del/2012 (Page GO-67). Hon'ble Rajasthan High Court in the case of CIT vs. Prameshwar Bohra 301 ITR 404 held that amount which was credited in books of account of the assessee in the preceding year cannot be treated as unexplained cash credit u/s 68 in the relevant assessment year (Page 68-70). Similar view was taken by Hon'ble Delhi High Court in the case of CIT vs. Usha Stud Agricultural Farms Ltd. 301 ITR 384 (Page 71-73). The appellant's case is squarely covered by these decisions as there was no transaction in the account of M/s Ruchi Infotek Systems during the year under consideration. The Ld. AO himself observed in last para on page 20 of the assessment order that the appellant has not done any transaction after 22.12.2008 which was confirmed by the creditor also. In view of the above it is prayed that the addition of ₹ 342166/- be deleted. I have considered the facts of the case as elaborated in the assessment order and also the submissions made by the appellant. It was submitted by the appellant that he was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cument and therefore, Assessing Officer had rightly rejected the same. As regards the addition on account work contract tax payment, the Ld. DR submitted that the Ld. CIT(A) reduced the WCT liability from ₹ 38,66,917/- to ₹ 18,21,956/- and submitted that the working of Assessing Officer be upheld, as the assessee had not deposited the entire work contract tax. As regards addition of ₹ 2,99,467/-, the Ld. DR submitted that bill from M/s Aggarwal Steel Rolling Mills was not in the name of assessee and in view of notice u/s 133(6) the said firm had denied the issuance of such bill and therefore, the Assessing Officer had rightly made the addition. As regards the addition on account of static creditors, the Ld. DR submitted that there were old outstanding credit balances and Assessing Officer had observed that for the last three years the same balances were being carried forward and therefore, the Assessing Officer had rightly held that the liabilities had ceased and therefore, had rightly made the addition U/s 41(1) of the Act. As regards the addition on account of non deduction of tax at source, Ld. DR submitted that assessee had made huge payments to va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord that the amount represented the disputed amount payable to assessee and therefore, it was not unexplained unsecured loan and has been rightly deleted by Ld. CIT(A). As regards deletion of addition of ₹ 2,75,000/- on account of unexplained investment in purchase of Car, the Ld. AR submitted that the Car was purchased from Yakub Khan for a consideration of ₹ 2,75,000/- and same was duly reflected in the balance sheet and in this respect our attention was invited to PB-49 where a copy of schedule of fixed assets was placed and in which the fact of purchase of Car for ₹ 2,75,000/- was mentioned. Therefore, it was submitted that the Ld. CIT(A) has rightly allowed the relief. As regards the relief given by Ld. CIT(A) in respect of unpaid work contract that the Ld. AR submitted that assessee had not received the full amount from U Flex Limited and as on 31.03.2012 an amount of ₹ 85,16,917/- was recoverable from U Flex Ltd. The Ld. AR submitted that the liability to pay WCT comes into play only when the funds for services are received. The Ld. AR submitted that at the Ld. CIT(A) has made a complete calculation of the liability of assessee which the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of any outstanding amount from the company. The Ld. AR submitted that Assessing Officer had made this addition without confronting the statement taken at the back of the assessee. Without prejudice, it was submitted that the last transaction entered into with this party was 22.12.2008 and therefore, this credit was not introduced in the year under consideration as it related to the earlier years. It was submitted that in various case laws relied before the Ld. CIT(A), it has been held that amount credited in the earlier years cannot be added back as unexplained cash credit in the year under consideration and Ld. CIT(A) has deleted the addition by relying on these judgments. 8. We have heard the rival parties and have gone through the material placed on record. The issue wise decision on various additions made by Assessing Officer and deleted by Ld. CIT(A) is as sunder: Addition on account of unsecured loan It is a fact that assessee had got financed a JCB in earlier years from M/s Srei Infrastructure and Finance Company Ltd. against which an amount of ₹ 1,53,458/- was outstanding. The fact of secured loan outstanding to the tune of ₹ 1,53,458.22 is ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had not received the full payments and as on 31.3.2012 an amount 85,39,875.91 was recoverable from M/s U Flex Industries. The list of sundry debtors placed at PAPER BOOK-5 clearly shows that assessee was to receive this amount from the company. The assessee had neither debited or credited the WCT received from the M/s U Flex Industries. The finding of the Assessing Officer that the M/s U Flex had paid the amount of WCT to assessee and which he was supposed to deposit in the Govt. Accounts is not correct as the facts recorded in the books of account and balance sheet clearly shows that assessee was to receive an amount of more than ₹ 85 Lacs which is more than the amount of WCT payable. Before the Ld. CIT(A), the assessee submitted the complete calculation of bills raised against U Flex and also made the details of amount received and accordingly on the basis of amount received the liability of WCT was worked out to be ₹ 64,71,956/- out of which there is no dispute about deposit of ₹ 46,50,000/- and in view of these calculation the liability of the assessee was worked out to be ₹ 18,21,956/- and therefore, the Ld. CIT(A) has rightly restricted the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elow;- 41. Profits chargeable to tax -(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of (emission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed, to be profits and gains of business or profession and accordingly chargeable to income tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b The successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of Remission of cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time. 18. The Supreme Court in the case of ' Bombay Dyeing Mfg. Co. Ltd. v. State of Bombay AIR 1958 SC 328 has clearly held that even in cases where the remedy of a creditor is barred by limitation the debt itself is not extinguished but merely becomes unenforceable. The Court observed as under:- The position then is that, under the law, a debt subsists notwithstanding that its recovery is barred by limitation . 19. This view has also been taken by the Supreme Court in the case of Sugauli Sugar Works P. Ltd., (supra). In the said case, it was contended on behalf of the revenue that the liability has come to an end as the creditors in the said case had not taken any action to recover the amounts due to them for twenty years. The Hon'ble Supreme Court affirmed the decision of the Bombay High Court in the cse of J. K. Chemicals Ltd. Vs CIT (1996) 62 ITR 34 wherein the words cessation or remission had been interpreted. The Supreme Court quoted the following passage from the Judgement of the Bombay High Court in the said case of J.K. Chemicals Ltd. (supra). The question to be considered is whether the transfer of these entries brings about a rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . and there is material to indicate that the parties have contracted to existing Liability. Thus, in our view it cannot be concluded that the debt owed by the assessee to M/s Elephenta Oils Vanaspati Ltd. stood extinguished. 21. Although, enforcement of a debt being barred by limitation does not ipso facto lead to the conclusion that there is cessation or remission of liability, in the facts of the present case, it is also not possible to conclude that the debt has become unenforceable. It is well settled that reflecting an amount as outstanding in the balance sheet by a company amounts to the company acknowledging the debt for the purposes of Section 1(3 of the Limitation Act, 1963 and, thus, the claim by M/s Elephanta Oil Vanaspati Ltd. can also not be considered as time barred as the period of limitation would stand extended. Even, otherwise, it cannot be stated that. M/s Elephanta Oil Vanaspati Ltd. would be unable to claim a set on account of the amount reflected as payable to it by the assessee. Admittedly, winding up proceedings against M/s Elephanta Oil Vanaspati Ltd. are pending and there is no certainty that any claim that may be made by the assessee with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee did not enter into any contract with any person and all the workers were directly employed by assessee. However, the Assessing Officer did not agree with the contention of assessee and made the addition. The Ld. CIT(A) has however accepted the explanation given by appellant. He held that in Civil Contract business payments to labourers are made through labour mates who keep the Muster Rolls and disburse the payments on the basis of work executed by them either on daily or weekly basis. He held that Sec.194C is attracted only when there is a contract between contractor and the person responsible of executing the work and he has held that in the case of appellant there was no contract between the assessee and the alleged petty contractors. The Assessing Officer during the assessment proceedings did not find any discrepancies in the payments and before making any addition on account of non deduction of tax, the Assessing Officer should have examined some of the so called petty contractors. The assessee had also produced Muster Rolls showing the detail of wages /labour paid by assessee and therefore, the Ld. CIT(A) has taken a correct view and has rightly held that assessee was no ..... 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