TMI Blog2016 (4) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... ly a wrong entry does not stand disputed by the Taxing Authorities, since they had not disputed the fact that this entry was rectified in the next year. As such, existing over the years, this entry has not been earlier decided against the assessee. Accordingly, this addition is also deleted. - Decided in favour of assessee. Trading addition - unaccounted sales - Held that:- It is trite that no addition can be made in the trading results without any material on record and without pointing out any defect, either in the method of accounting of the assessee, or in the books of account maintained by the assessee. See‘J.A. Trivedi Brothers vs. CIT’(1984 (11) TMI 39 - MADHYA PRADESH High Court) - Decided in favour of assessee. - ITA No.341(Asr)/2015 - - - Dated:- 12-4-2016 - SH. A.D. JAIN, Judicial Member For the Appellant: Sh. Surinder Mahajan, CA For the Respondent : Sh. S.S. Kanwal, DR ORDER This is the assessee s appeal for the assessment year 2010-11, against the order, dated 19.05.2015, passed by the ld. CIT(A)-1, Jalandhar. The assessee has raised the following grounds of appeal: 1. a) That on the facts circumstances of the case, ld. CIT(A) has gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les of ₹ 15,00,000/- during the course of survey operation itself. During the course of assessment proceedings, the Assessing Officer, in order to know the correctness of the balances shown in the case of various sundry creditors, called for information from the following creditors u/s 133(6) of the Act:- Sr. No. Name of Party Outstanding Credit Amount 1. Sh. Anup Kumar, Modern Hospital Hosiarpur. Rs.37440/- 2. M/s. Ganesh Pharmaceutical surgical Dharmasala ₹ 1000/- 3. Civil Surgeon, Hoshiarpur Rs.45887/- Total Rs.93327/- In response to enquiries made u/s 133(6) of the Act, the party mentioned at serial No.1 above informed the Assessing Officer that he had nothing to receive from the assessee as on 31.03.2010 and there was Nil balance outstanding against the assessee in his books of account. It had further been submitted by this party that no transaction occurred with the assessee d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable. The total amount of ₹ 93,327/- was added the returned income u/s 41(1) of the Act. 7. Before the ld. CIT(A), the assessee submitted that section 41(1) is attracted when an allowance or deduction has been made in any year in respect of a loss, expenditure or trading liability and in subsequent years, the assessee has obtained any amount in respect of such loss by way of remission or cessation thereof; that this means that sec. 41(1) is attracted when the assessee has been benefited by way of remission or cessation in respect of the liability which has been claimed as allowance or deduction in the previous year; that the provisions of section 41(1) are not attracted when there is no remission or cessation of liability; that the liability cannot be said to have ceased to exist so long as same is not written back in books of account; and that it is an established law that an amount outstanding for years cannot be treated as cessation of liability. 8. The Ld. CIT(A) confirmed the addition by observing that the assessee could not establish that the liability shown in its books of account in the case of the three creditors still existed; that on cross verification, one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he had had no transaction with the assessee during the F.Y. 2009-10, due to which, copy of account for the year under consideration could not be supplied. 12. The ld. CIT(A) observed that since the creditor himself stated that he was not to receive anything from the assessee, it would automatically tantamount to remission or cessation of liability under the provisions of section 41(1) of the Act; that when the creditor had himself discharged the assessee from the liability, the liability would not be payable by the assessee to the creditor in future; and that the assessee would continue to show the liability in its books, though it did not actually exist, in order to avoid application of the provisions of section 41(1) of the Act. 13. In this regard, in CIT vs. Jain Exports Pvt. Ltd. , 89 DTR (Del) 265, it has been observed that where outstanding balance is payable to creditor and such opening balances are being carried forward for several years, the issue as to the genuineness of a credit entry could only be examined in the year in which the liability was recorded as arisen and such issue does not arise in any other year; and that the AO having accepted balances outstandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale, gross profit and gross profit ratio, as under: AS STT. YEAR SALE GROSS PROFIT RATIO 2008-09 39,04,780/- 5,22,478/- 13.38% 2009-10 42,24,445/- 6,48,446/- 15.35% 2010-2011 4341552/- 7,30,194/- 16.82% The AO observed that a perusal of the G.P. chart revealed that the sale figure: of ₹ 43,41,552/- of 2010-11 did not include unrecorded sales of ₹ 15 lacs, which was surrendered during the survey conducted and GP shown as @16.82%; that it was noticed that the assessee had shown sale amounting to ₹ 43, 41,552/-; that the same amount had been reflected in part B of the Audit Report and G.P shown at 16.82%; that it was understood that the assessee-firm had not taken into the sale account, the unaccounted (sale) ₹ 15 Lacs which was surrendered at the time of the survey proceedings; and that hence, the G.P. @ 16.82% of 15 lacs, which came to ₹ 2,52,300/- was to be added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported by bills. e. That the assessee was dealing in different items with different varieties, on which, G.P rate was not the same G.P depends in product mix sold during the year. G.P ratio of two years cannot remain the same because of different product mix sold in different years, which was clear from the fact that G.P % in A.Y 2008-09 was 13.38% whereas in A.Y-2009-10, it rose to 15.35% and in A.Y. 2011-12, it came to 12.50%. f. That during the year under consideration, sales, both recorded and unrecorded, came to ₹ 58,41,552/-, as against sale of ₹ 42,24,445/- in the immediately preceding years. Increase in sales is always a result of pressure on profit. 19.3 With reference to Part B of the Audit Report, where the G.P ratio was shown as 16.82%, it was submitted that inadvertently, unrecorded sales were not included while calculating the G.P ratio. 20. The AO made the addition by observing that the reply of the assessee-firm, though considered, was not found acceptable; that it was abundantly clear from the tabulation given in the reply, that the assessee-firm had manipulated the GP figure by not including unrecorded sale of Rs.l5 lacs; that it was clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the unrecorded sales surrendered during the course of survey have been considered while working out GP or not. When it has been clearly established by the Assessing Officer by referring to the audit report and even to the reply of assessee that sales detected during survey have not been taken into account, the assessee came with the face saving plea that the auditors failed to add back the unrecorded sales whereas GP shown in the audit report is correct and has been worked out on total sales including unrecorded sales. This plea of th assessee appears to be incorrect rather funny. I am, therefore, of the opinion that rejection of book result is not required to make GP addition on unrecorded sales which have been surrendered during survey operation. The Assessing Officer has brought to tax the income which has been surrendered by the assessee during the course of survey and nothing else and this action does not require rejection of books of account. The judicial pronouncements relied upon by the assessee have altogether different facts from the facts of the case of the assessee and have no application in the case of the assessee. 6.3. In view of the above stated facts and in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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