TMI Blog2010 (9) TMI 1233X X X X Extracts X X X X X X X X Extracts X X X X ..... of total agricultural income of ₹ 9,08,000/- returned by the appellant for the rate purpose on estimate basis. Both the lower authorities have grossly erred in not believing the explanation of the appellant who is cultivating the farm and have assumed the role of an expert by estimating the agricultural output and income simply on the basis of generic data published by Agricultural University, Navsari. This action of CIT(A) being arbitrary, harsh and without any basis ought to be quashed . 4. The assessee had declared agricultural income of ₹ 9,08,000/-. The assessee did not maintain proper evidences in support of agricultural income and expenditure. Therefore, the AO had no option but to resort to estimate the agricultural income from the data published by Agricultural University, Navsari. The AO in the company of Ward Inspector visited the farm of the assessee and found that there were mango and chiku trees in the farm of the assessee. The AO estimated the agricultural income as per income and cost data published by Agricultural University, Navsari and worked out the income and expenditure as discussed in Para 4.2, 4.3 and 4.4 of the assessment order. As per the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee submitted that agricultural land of the assessee is same from which agricultural income was earned and in assessment year 2002-03 the assessee has declared agricultural income at ₹ 11,79,326/- (copy of computation of income filed). In the assessment year 2004-05, the assessee declared agricultural income in a sum of ₹ 9,34,110/- on which the AO made estimated addition of ₹ 25,000/- and the learned CIT(A) deleted the same addition. Copy of the computation of income, assessment order and the order of the learned CIT(A) for assessment year 2004-05 are filed on record. The learned Counsel for the assessee also referred to the written submission filed in the paper book. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that the AO has rightly adopted the scientific method for estimating the agricultural income because no proper evidence in support of agricultural income has been filed. The learned DR submitted that the AO estimated the agricultural income as the data published by the Agricultural University and Agriculture Directorate of Gujarat. The learned DR, therefore, submitted that the addition is rightly made o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural income by the AO in the assessment year under appeal is still on lower side. The assessee in the preceding assessment year 2002-03 declared agricultural income of ₹ 11,79,326/- which has not been disputed by the AO. In the assessment year 2004-05, the assessee has declared agricultural income of ₹ 9,34,110/- on which the AO in the assessment order u/s 143(3) of the IT Act made the addition of ₹ 25,000/- which has been deleted by the learned CIT(A) vide order dated 15-10-2009. The learned CIT(A) accepted the contention of the assessee on the basis of the details shown in the assessment year 2002-03. It would, therefore, show that in the earlier years as well as in subsequent assessment years the assessee has declared more agricultural income for rate purpose. Therefore, considering the history of the assessee and that wife of the assessee is also having agricultural income, we are of the view that addition of ₹ 3,81,403/- is on excessive side. Therefore, keeping in mind that there is a fall in gross profit in the business income of the assessee, it would be proper to sustain reasonable addition in the matter. We, therefore, partly confirm the findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same was added to be taxed. The learned CIT(A) noted that the assessee has not disputed with the outstanding balance in the name of the concern creditors is more than 3 years old and same requires write back as per provisions of section 41(1) of the IT Act. Addition of ₹ 88,623/- was confirmed. As regards ground No.3, the assessee has shown liability in respect of two creditors as on 31-03-2003 in the name of Trans Ammonia Pvt. Ltd. ₹ 1,29,746/- and Quality Chemicals ₹ 13,26,285/-. The AO while examining the liability in respect of these two creditors has observed that the assessee has written back the liability of ₹ 13,26,285/- in respect of Quality Chemicals in the financial year 2004-05 but the liability in respect of Trans Ammonia Pvt. Ltd. ₹ 1,29,747/- has not been written back in the accounts. The AO asked the assessee to produce the creditors and to file confirmation of the liabilities, failing which addition of ₹ 1,29,746/- u/s 41 (1) of the IT Act was made. It was submitted before the learned CIT(A) that liability of the aforesaid company is still persisting and the assessee has to repay the amount, therefore, it cannot be characteriz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Shri Nitin S. Garg in ITA Nos. 169, 170, 171 and 172/Ahd/2009 dated 04-06-2010 and the claim of the assessee has been accepted. The findings of Tribunal in Para 8 to 12 are reproduced as under: 8. We have considered the rival submissions and material available on record. Section 41 (1) (a) of the IT Act reads as under: 41. (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 remission 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 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties are in existence. We are in full agreement with the argument of the Ld. Counsel for the assessee, as is seen from the documents and papers filed before us that the parties do exist and these amounts are outstanding in the books of the assessee as payable. In view of these facts and circumstances, we feel that these amounts cannot be added either u/s. 68 or 41(1) of the Act. We delete the addition and this issue of the assessee s appeal is allowed . 8.4 ITAT Lucknow Bench in the case of DCIT Vs Allied Leather Finishers (P) Ltd. (supra) held as under: 21.7 A liability could not be treated as a cessation if it was being merely carried forward for years. A non-genuine non-trading liability standing in the balance sheet can be taxed but under section 68 if it came in the books in the current year. If such nongenuine non-trading liability came in the books in an earlier year than same cannot be taxed in the current year even under section 68. A non-genuine trading liability can be considered in the current year if it is related to current year s trading/manufacturing or Profit loss account but not under section 41(1) or under section 68. It can be considered only under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the creditor cannot lawfully enforce his claim, it does not mean that there is a cessation or remission of liability. There may be several situations when the money is not claimed or paid by one party to another within three years and thereafter the claim is made and honoured by the other. So, simply because a particular amount is outstanding for a period of more than three years, that does not constitute income under section 41(1) . 9. Considering the facts of the case in the light of the above provisions and the decision referred to above, it is clear that the expenditure claimed as deduction in the earlier year have not been disallowed in the earlier year in which they were claimed. Even the AO in the earlier year has not doubted the existence of the parties. The learned Counsel for the assessee filed copies of balance sheet of the all years under appeal, as well as proceedings earlier assessment years which prove that the outstanding liabilities from earlier years were carried forwarded to the assessment years under appeal starting from assessment year 2001-02. The liabilities in assessment year 2000-01 were in a sum of ₹ 1,29,83,564/-. The particulars of those p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are outstanding for last many years, it cannot be inferred that the said liabilities have ceased to exist. It is also a fact that the assessee has not written off the outstanding liabilities in the books of account and the outstanding liabilities are still in existence would prove that the assessee acknowledged his liabilities as per the books of account. Section 41(1) of the IT Act is attracted when there is cessation or remission of a trading liability. The AO shall have to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof. Merely because the assessee obtained benefit of deduction in the earlier years and balances are carried forward in the subsequent year, would not prove that the trading liabilities of the assessee have become non-existent. It may also be noted here that the assessee has not claimed any deduction of the expenditure in all the assessment years under appeal. The decisions cited by the learned Counsel for the assessee squarely apply to the facts of the case. Therefore, we are of the view that provisions of section 41 (1) (a) of the IT Act have been wrongly applied in the matter. We m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in law and on facts in confirming 20% ad hoc disallowance of ₹ 45,969/- and ₹ 44,257/- out of vehicle expenses and depreciation respectively made by AO out of total expenditure claimed. Ld. CIT (A) ought to have deleted such disallowance . 15. The learned CIT(A) on the above grounds of appeal noted that the repairs and maintenance expenditure have not been supported by material proof. The learned CIT(A) also noted that telephone expenses were incurred for personal purposes and similarly personal user of motor vehicle was found to be correct and accordingly all these grounds were dismissed. 16. The learned Counsel for the assessee reiterated the submissions made before the authorities below. On the other hand, the learned DR relied upon the orders of the authorities below. 17. We have considered the rival submissions. The assessee is an individual. The AO with regard to repair and maintenance expenses noted that the expenditure amounting to ₹ 64,621/- are not supported by any bills/vouchers and the said are paid in cash. 20% of the said expenses were accordingly disallowed. As regards telephone expenses, vehicle expenses and depreciation, the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, no penalty would be leviable on such deletion of addition. The assessee further made claim of deduction of expenditure, but part additions have been made by the authorities below because the assessee could not prove to the satisfaction of the authorities below that whole of the expenditure have been incurred for business purpose. It is, therefore, a case of estimate of agricultural income and disallowance of the expenditures. On estimate of agricultural income and disallowance of the expenditure per-se would not prove that the assessee has concealed particulars of income or filed inaccurate particulars of income. The assessee has made a claim of agricultural income and deduction of the expenditure and explanation of the assessee has not been found to be false. Therefore, we do not find it to be a fit case for confirming the orders of the penalty u/s 271 (1) ( c ) of the IT Act. Hon ble Supreme Court in the case of CIT Vs Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC) held that A glance at the provisions of section 271(1) (c ) of the Income-tax Act, 1961, suggest that in order to be covered by it, there has to be concealment of particulars of the income of the assessee. Seco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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