TMI Blog2020 (12) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no indication about the said sum involving any cessation or remission of liability as per this tribunal s co-ordinate bench decision in Income Tax Officer Ward 12(1) Kolkata vs. M/s Standard Leather Pvt. Ltd . [ 2016 (9) TMI 1437 - ITAT KOLKATA] no reason to accept Revenue s arguments seeking to revive the impugned sec. 41(1) addition - Decided in favour of assessee. - ITA No.222/Ran/2019 And Cross Objection No.12/Ran/2019 - - - Dated:- 14-12-2020 - Shri J.Sudhakar Reddy, Accountant Member And Shri S.S.Godara, Judicial Member For the Assessee : Shri R.K. Garodia, FCA For the Respondent : Shri Inderjit Signh CIT-DR ORDER PER S.S.GODARA, JUDICIAL MEMBER:- This Revenue s appeal and assessee s cross objection for assessment year 2014-15 arise against the Commissioner of Income Tax (Appeals)- Ranchi s order dated 07.03.2019 passed in case No. CIT(A), Ranchi/10404/2016-17 involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short the Act . Heard both the parties. Case files perused. 2. The Revenue s sole substantive grievance raised in the instant lis seeks to reverse the Assessing Officer s action treating the assessee s sundry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions with the sundry creditors, therefore, added the outstanding sundry creditors as income u/s 41(1) of the Act. It is a matter of record that sundry creditor relates to the purchases which is considered genuine. It is therefore not justified to reject the creditors Without rejecting the purchases. The purchases of the battery related parts from the sundry creditors are evident from the purchase bills and books of account maintained by the assessee. The Ld. A.O. has treated the purchases made during the year from the same very parties as genuine. All the creditors are income tax payee and their PAN was submitted by the assessee. The books of accounts have not been rejected and there is no adverse inference drawn regarding the quantum of purchase or sale and even the purchase account from the sundry creditor have not been disturbed. The payments made to them by account payee cheques were also treated as genuine and were verified from the copy of bank statements filed during hearing of the case. Ld. A.O. was therefore not justified in making the addition in income by disallowing sundry creditors u/s 41(1) of the Act. The issue raised by the appellant is, whether the cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position are relevant for deciding the issue under consideration. Simultaneously, the Issue under consideration is also adjudicated as under:- (i) As per para 2 of page no.4of the assessment order, the AO inter alia stated the following, looking into the time barring nature of assessment proceedings for the Asstt year 2014-15, in the given situation, when there is dearth of supporting evidences on record to Verify the genuineness and correctness of the transactions with the above listed parties, it shall be reasonable, justifiable and in the interest of revenue to assume that no such liability existed in the form. of sundry creditors to the tune of ₹ 3,64,11,095/- as shown by the assessee in its books of accounts and the same amount is added back to the total income of the assessee U/S 41(1) of the 'Act. In this regard, the appellant vehemently objected to these remarks of the assessing officer as under: a) The AO stated that looking into the time barring nature of assessment proceedings details furnished are not verifiable. In this regard, it is stated that there is no provision as such U/s 41(1) of the Income Tax Act to make additions in the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal [1977] 108 ITR 345 (SC) . The Hon'ble Supreme Court held as under- . ... ... in a taxing Act one has to look merely at what is clearly said there is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. When the language of the section is clear and unambiguous, there is no scope of importing into the statute words which are not there. Such importation would be, not to construe, but to amend the statute. Even if three be a casus omissions, the defect can be remedied only by legislature and not by judicial interpretation. As can be seen from the specific provisions of section 41 (1) of the Income-tax Act, 1961, it is only when a person derives some benefits in respect of such trading liabilities 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 profit and gains is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the Act have been fulfilled to treat a liability as an income on account of remission or cessation of liability in a particular assessment year. Not even a single creditor has informed the AO that the liability has been ceased/remitted. Under these circumstances, the AO could not have simply doubted and presumed that the liability has ceased or remitted. Moreover, during the appellate proceedings, the AR has furnished the confirmation from all the creditors alongwith the PAN and the AO has examined them during the remand proceedings and found the same in order. Therefore, it is stated that the liabilities has neither ceased nor remitted. The appellant has not got any benefit by way of cessation or remission of liability within the meaning of the section 41(1).In view of these facts and legal position, it is held that the Aa has erroneously invoked the deeming provisions of section 41(1), which is not envisaged as per law. As per the settled legal position, the onus is on the AO to establish that the liability has either ceased or remitted especially when the appellant has stated that the liability has not ceased/remitted. However, the AO stated in the Assessment order t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, which is payable. (iv) In the concluding para of assessment order, the AO has stated the following: that no such liability existed in the form of sundry creditors to the tune of ₹ 3,64,11,095j- as shown by the assessee in its books of accounts is added back to the total income of the assessee u/s 41(1) of the Act Also penalty proceedings u/s 271(1)(c) of the IT. Act, 1961 are separately initiated on account of furnishing of inaccurate particulars of income. The above statement of the Assessing Officer IS not legally tenable due to the following reasons.- The AO has assumed that no such liability existed in the form of sundry creditors to the tune of ₹ 3,64,11,095/- as shown by the assessee in its books of accounts. At the out-set, it is stated that the AO has allowed the appellant to claim the entire expenses on account of purchase of material, business expenses etc. When the total expenses claimed in the Profit Loss account has been allowed to be claimed by the AO, there is no justification to assume that no such liability existed in the Balance Sheet. The AR stated that the liability in the Balance sheet is a moving account and majority of the credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued after more than one year on 02.12.2016. The AR further argued that there were as many as 14 creditors from various places such as Ghaziabad, Noida, Delhi, Himachal Pradesh, Haryana and Chandigarh and collection of confirmation from them was a time-consuming affair. The contention of the appellant is that, had the AO initiated the assessment proceedings in time, sufficient time could have been available with the appellant to produce the confirmations before the AO. The AO could have very well started the assessment proceedings in time and could have conducted third party enquires. Without any enquiry, the AO has simply doubted the genuineness of the creditors and made the addition under a deeming provision which is not legally tenable. (viii) The AR has also brought out the legal provisions of section 41(1) of the Income-tax Act, 1961, decision of the Hon'ble SC on interpretation of statutes as well as various other court decisions establishing that the amount outstanding in the case of the appellant is not covered under the provisions of Section 41 (1) of the Income-tax Act, 1961. Further, The AR has successfully rebutted all the contention of the AO for making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to five sundry creditors the details of which have been verified by AO. Thereafter, the AO has also stated that the remaining confirmations were also submitted, which were also verified by the AO. In effect, the appellant has submitted confirmation for all the parties and the AO has also verified the same and found to be in order. Therefore, as per the findings of the AO himself in the remand report, there is no requirement of addition on account of sundry creditors as the same has been found to be in order. As regards the sundry creditor in the name of M/s Balaji Storage Batteries Ltd., the AO has pointed out that the third party has confirmed the balance of ₹ 31,30,331.90 whereas as per the balance sheet, the appellant has shown the outstanding liability of ₹ 30,43,263/-. Therefore, this categorically goes to establish the liability to the extent of ₹ 12,931/- in the name of Balaji Storage batteries Ltd. has been remitted/ceased. As regards the liability outstanding in the name of M/s Auto Car to the extent of ₹ 2,00,000/-, the third party communicated to the AO that no such liability is existing. However, during the appellate proceedings the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is caused to the Revenue so as to prefer its appeal before the tribunal when the Assessing Officer s remand report itself accepts the taxpayer s explanation on facts. 5. We also proceed further and notice that once the Assessing Officer has allowed the assessee s corresponding material purchases claim in the revenue account as a regular head of expenditure, the same very amount could not have been added as a bogus sundry creditor liability u/s 41(1) of the Act. More so, when there is no indication about the said sum involving any cessation or remission of liability as per this tribunal s co-ordinate bench decision in Income Tax Officer Ward 12(1) Kolkata vs. M/s Standard Leather Pvt. Ltd. in ITA No.2620/Kol/2013 decided on 07.09.2016 holding as under:- 13. We have heard the rival parties and perused the materials available on record. From the aforesaid discussion we find that the addition was confirmed by the AO on account of non-service of notice issued under section 133(6) of the Act for the purpose of the confirmation of sundry creditors. However we find that the AO has confirmed the addition of the sundry creditors without disallowing the corresponding purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessation is not complete and section 41 (1) is not attracted. In the case of Shri Vardhman Overseas Ltd. vs. Asstt. CIT 24 SOT 393 (Del H -Trib), the facts of the case were that the AO asked the assessee to prove the genuineness of some sundry creditors. The assessee did not file confirmations of said sundry creditors, except one. Therefore, AO after giving various opportunities treated the balance amount as income of assessee on account of unexplained cash credits and added the same balance amount to the income of assessee. It was held that all the parties with regard to which the addition has been made, no new amount was found credited in its account during the year under consideration hence section 68 cannot be applied. It was also held that the balances were brought forward balances and if the same were added on account of their non-genuineness, then also these amounts could not be added to the income of the assessee for the year under consideration as the question of genuineness thereof can be examined only in the year in which they were credited in the account of the assessee. It was also held that the department could not prove that the debt cannot be said to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similarly in the case of Dy. CIT v. Amod Petrochem (P) Ltd. (2008) 23 (I) ITCL 145 (Guj-HC) : (2008) 217 CTR (Guj) 401, it was held that as per section 68, there should be cash credits of previous year. The section provides for a deeming fiction of treating the sum found credited in the books of an assessee maintained for any previous year, being charged to income-tax as the income of the assessee of that previous year, provided (i) the assessee offers no explanation as to the nature and source of the credits, or (ii) the explanation offered by the assessee is not, in the opinion of the assessing officer, satisfactory. The crux of the issue, therefore is, there have to be credits of any sum in the books of an assessee maintained for any previous year, only then the sum so credited can be brought to tax as the income of the assessee of that previous year; in other words, first of all, there have to be credits in a previous year and only in the assessment relatable to that previous year, namely, year of credit, the sum can be brought to tax. In CIT v. Usha Stud Agricultural Farms Ltd. (2008) 301 ITR 384 (Del) : (2009) 183 Taxman 277 (Del), it was held that since it is a finding of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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