TMI Blog2019 (5) TMI 1767X X X X Extracts X X X X X X X X Extracts X X X X ..... ent liabilities has not pointed out any defect during the assessment proceedings. In our considered view the AO before making any reliance on the statement furnished to the bank was to point out the defects/infirmities in the current liabilities and the provisions shown by the assessee in its balance sheet. We also note that the learned CIT (A) has given a finding that the creditors shown by the assessee in its books of accounts exist in the books of accounts. The learned DR for the Revenue has not disputed this finding of the learned CIT (A). In view of the above, we do not find any reason to disturb the finding of the learned CIT (A). Hence the ground of appeal of the Revenue is dismissed. Cession of liability u/s 41(1) - AO during the assessment proceedings noticed that the assessee has not entered into a transaction with certain sundry creditors in the last three years - HELD THAT:- Liabilities as discussed above were not written off in the books of accounts of the assessee. Accordingly, in our considered view, the same cannot be treated as income under the provisions of section 41(1) of the Act on account of the cessation of liabilities.. In the present case also, the lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HDPE/PP woven sacks jacquard woven labels, trading of fabrics labels. The assessee in the year under consideration has shown closing stock in its balance sheet ending on 31-03- 2009 amounting to ₹ 9,49,65,860/- whereas it has shown stock in the stock statement furnished to the bank amounting to ₹ 10,34,45,277/-. Thus the difference of ₹ 84,79,417.00 was found as discussed above. 2.1 Accordingly, the AO issued a notice to the assessee for its explanation about the difference in stock amounting to ₹ 84,79,417/- as discussed above. The assessee in response to the notice submitted as under: 1) The AO didn t provide the stock statement collected form the on which he has relied in pointing out the difference in the impugned stock. 2) In most of the item, the difference was due to the valuation of the stock. In certain case, the stock has been valued based on last purchase bill. However, the statutory auditor took the value of the stock for finalizing the accounts as per accounting standard/ guideline issued by the ICAI. 3) The difference in the value of a stock is representing only 8.90% of the total value of the stock. 4) The stock statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regard the stock lying at silisva unit; it was submitted that some error occurred while collecting the information for the valuation of stock lying at silisva unit. But the stock statement has to be furnished within 15 days from the closing of the month to the bank. Therefore it was not possible to furnish the accurate value of the stock to the bank. 3) The assessee further submitted that the stock lying with other unit was already included in the stock shown in the balance sheet. However, the AO presumed that the assessee had made an unexplained investment in the books of account amounting to ₹ 31,85,824/- on account stock not included in the stock statement furnished to the bank. 4) The AO has not disputed that the stock difference is not on account of quantity difference. 5) The books of accounts of the assessee are subject to audit and excise duty. The AO has not pointed out any defects in the books of accounts, i.e., purchase, sale, etc. 6) AO has reached his conclusion for suppression of the stock without rejecting the books of accounts. 7) In the subsequent year, the AO accepted the opening stock, which was closing stock in the year under consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to refer to the judgment of Hon ble Gujarat High Court in case of CIT Vs. Arrow Exim Pvt Ltd. reported in 230 CTR 293 wherein it was held as under: Where addition was made on account of excess stock as there was discrepancy between stock as per books of account and that shown in the statement given in bank allegedly to obtain higher credit facilities but the Tribunal deleted the addition: Held that, the Tribunal had accepted the explanation given by the assessee and in that context had stated that when the books of account or the accounting system had been found to be genuine supported by vouchers, etc. the addition was not justified. It was required to be mentioned that the stocks were hypothecated and not pledged, which was explained by the assessee and, therefore, in order to avail higher credit facilities the statement was given, but the stock was with the assessee. Thus, the deletion of addition was justified. 6.3 The facts of the case on hand are identical to the facts of the case, as discussed above. In the present case also, there was no whisper about any defect/infirmity in the books of accounts of the assessee by the AO. Therefore we are of the considered opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and on estimate basis without any name of the creditors in the statement furnished with the bank. 9. The Ld.CIT (A) after considering the submission of the assessee directed to AO to delete the addition made by him by observing as under: i. It is clear that the statement furnished with the bank was only to secure more credit facility and the creditors were furnished on estimate basis. ii. The profit has been calculated based on the entries made in the books of account on which tax payable by the assessee. If the assessee disclosed the fewer creditors to the bank, it would not make any difference as the inquiries have also revealed that the creditors were existing. iii. The finding of the AO that the assessee inflated its books of account by showing more value of sundry creditors without any basis. In view of the above, the CIT accordingly directed the AO to delete the addition of ₹ 4,14,60,245 made by him. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 10. The learned DR before us vehemently supported the order of the AO. 11. On the contrary, the learned AR before us reiterated the submissions as made before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the creditors shown by the assessee in its books of accounts exist in the books of accounts. The learned DR for the Revenue has not disputed this finding of the learned CIT (A). In view of the above, we do not find any reason to disturb the finding of the learned CIT (A). Hence the ground of appeal of the Revenue is dismissed. The issue raised by the Revenue in the ground no. 3 is that the Ld. CIT (A) erred in deleting the addition made by the AO on account of the cession of liability u/s 41(1) of the Act amounting to ₹ 3,08,000/- only. 13. The AO during the assessment proceedings noticed that the assessee has not entered into a transaction with certain sundry creditors in the last three years. The details of the creditors stand as under: 1) Shivani travels 1,58,000/- 2) Desai tejbhai 1,50,000/- 13.1 These parties also did not contact for payment. Furthermore, the time limit to file suit has also expired. 13.2 Thus the AO was of the view that these liabilities only exist in the books of account of the assessee, but the assessee is not required to pay the same. 13.3 However, the assessee submitted that in the case of Shivani travels the amount has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducts Private Ltd reported in 96 Taxmann.com 82 wherein it was held as under: 3. Now so far as proposed question no.(b) is concerned, the same is squarely covered against the revenue in view of the decision of the Hon'ble Supreme Court in the case of Commissioner v. Mahindra Mahindra Ltd. [2018] 93 taxmann.com 32/255 Taxman 305. The factual matrix, which came to be considered by the learned Tribunal is that the learned Tribunal while deleting the addition made under Section 41(1) of the Income Tax Act on account of cessation of the liability, namely, the assessee had not written off the liability in the books of accounts, and therefore, the liability with respect to debtors is not ceased is concerned, considering the aforesaid factual matrix and when in the books of accounts the assessee carried forward and continued the liability and has not written off, no error has been committed by the learned Tribunal in deleting the addition of ₹ 54,24,294/- made by the learned Assessing Officer under Section 41(1) of the Income Tax Act on account of cessation of liability. 18.2 The facts of the case on hand are identical to the facts of the case as discussed above. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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