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2018 (8) TMI 711

eld that:- the C.A. who has prepared the Trading A/c for the assessee for assessment year under appeal, has not prepared the accounts property and as such, the Income Tax Authorities are required to be vigilant to see that such type of practice should not have followed in future. The action of the concerned C.A. is wholly in appropriate and we do not approve his conduct in preparing such a Trading Account. - The assessee maintained books of account which are audited and the A.O. has not pointed out any specific defect in maintenance of the books of account by the assessee. The book results of the assessee have not been rejected under section 145(3) of the I.T. Act. - There was no justification to disbelieve the purchases made by assessee in earlier year. Therefore, there is no reason to make such addition against the assessee on account of loss considering the same as undisclosed income of the assessee. Ultimately, assessee has declared income on account of written off creditors. Therefore, the claim of assessee should not have been rejected by the A.O. - No additions - Decided against the revenue. - ITA.No.6156/Del./2015 - 10-8-2018 - SHRI BHAVNESH SAINI, JUDICIAL MEMB .....

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be not made on this amount accordingly. 2.2. The assessee submitted before A.O. that in the year under consideration, assessee had written off creditors amounting to ₹ 1,57,79,080/- in his books of account because of his inability to pay for the same. As per assessee due to inferior quality of raw material supplied by the assessee to the manufacturer, the assessee was not able to sell his manufactured products at pre-determined price of ₹ 49,500/- per tonne and thus forced to sell them as scrap at the rate of ₹ 15,000/- per tonne only. Due to this, assessee was not able to pay his suppliers and had written off the same in his books of account and added back to his income as per Section 41(1) of the I.T. Act. It was contended that from A.Y. 1997-1998 even unilateral act of writing off a trading liability, attracted Section 41(1) of the I.T. Act. In case assessee would not have added the amount to his income, then the department would have brought the same to tax. In this case, assessee himself added the same amount to his income under section 41(1) of the I.T. Act. It was gathered by the A.O. that assessee had shown sales and other receipts by adding the amount of .....

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ults. The assessee produced sufficient evidence to explain inferior quality of the material was supplied to the assessee by the suppliers. The sale was rejected due to inferior supplies. The assessee also filed additional evidence for admission which have not been objected to by the A.O, therefore, the same were admitted. The Ld. CIT(A) considering the material on record, deleted the entire addition. His findings are reproduced as under : The facts of the case as well as submissions made by the appellant have been fully considered. It is observed that the appellant was carrying on the business of fabrication. During the assessment proceedings it was gathered by the AO that the amount of ₹ 1,57,79,080/- was written off on account of old outstanding creditors and the same was clubbed with the sales whereas, the same should have been shown separately in profit & loss account. After excluding the amount of ₹ 1,57,79,080/- from the gross profit there was a loss of ₹ 1,38,32,012/- . Hence it was held by the AO that the written off amount was knowingly added to the sales to reflect better picture of the trading results. During enquiry it was also gathered that in the .....

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ns. At page No. 40 copy of opening/closing stock has been filed wherein scrap etc. is over 80 lakhs which is practically sold. Copy of order of Trade tax has been filed which specifically dealt with the stock of tower component which is sold at loss i.e. ₹ 15,000/- per piece against ₹ 49,500/- per piece. Trade tax authorities have accepted the loss as well as trading results/ accounts. Let see examine the issue from the other angle. The AO has mentioned that the appellant had filed requisite details/documents with book of accounts, bills etc. though at one place he has mentioned that trading results were not open to verification but the same is held as only a cursory remark and against the facts of the case on the record. Even before such remark, the AO has again mentioned about production of book/sale-purchase bills etc. Factually, the book of accounts have been accepted by the AO and no specific detail or transaction or entry has been rejected. Neither defects in the system of accounting employed the appellant has been pointed out by the. AO. nor provisions of section 145 of the Act are invoked. Such passing remark without any adverse material on record are a futile e .....

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s in earlier years, therefore, no such addition should be made against the assessee. He has also filed re-casted Trading & P & L A/c. He has submitted that if the trading liability written off is excluded from the Trading Account and added to the P & L A/c, it would declare the same net profit as was declared in the P & L A/c filed with the return of income and in case, the amount written off of the creditor is not taken into consideration either in the Trading or P & L A/c and taken to the computation of income, there would be loss of ₹ 1.53 crores. He has submitted that ultimately assessee has declared income under section 41(1) of the I.T. Act. Therefore, addition on account of loss to the P & L A/c is wholly unjustified. 7. We have considered the rival submissions and do not find any justification to interfere with the Orders of the Ld. CIT(A) in deleting the addition. The assessee produced complete books of account supported by vouchers and bills at the assessment stage. The A.O. found that assessee has written off the amount of ₹ 1.57 crores of unpaid creditor which have been added as income to the Trading Account as it was added to the sal .....

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been taken by the Department against the assessee in earlier year against the purchases so made. The assessee maintained books of account which are audited and the A.O. has not pointed out any specific defect in maintenance of the books of account by the assessee. The book results of the assessee have not been rejected under section 145(3) of the I.T. Act. 8. Considering the totality of the facts and circumstances of the case in the light of finding of fact recorded by the Ld. CIT(A), we are of the view that there was no justification to disbelieve the purchases made by assessee in earlier year. Therefore, there is no reason to make such addition against the assessee on account of loss considering the same as undisclosed income of the assessee. Ultimately, assessee has declared income on account of written off creditors. Therefore, the claim of assessee should not have been rejected by the A.O. The Ld. CIT(A) on proper perspective, correctly deleted the addition. We may again note at the risk of the repetition that in case Trading & P & L A/c have been prepared properly by the concerned C.A, the present situation would not have arisen for making the addition against the ass .....

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