TMI Blog2021 (8) TMI 787X X X X Extracts X X X X X X X X Extracts X X X X ..... the sundry creditors should not continue unless tangible evidence is brought on record to disprove the genuineness of the outstanding sundry creditors. In this regard, the assessee had already submitted the balance sheet. The assessee explained that it did not receive the sale consideration by the time the survey was conducted and the sundry creditors were not paid by that time, thus the transaction stands explained. Similar issue was considered by the coordinate bench in Tum Nath Shaw. v.Assistant Commissioner of Income Tax, Circle- 2, Burdwan, .[ 2019 (2) TMI 783 - ITAT KOLKATA] and decided the issue against the revenue and in favour of the assessee. AO did not make any enquiries or bring any evidence to prove that the outstanding creditors are bogus or the assessee has made the payments outside the books of accounts in the assessment year under consideration. The assessee has shown the liability in the balance sheet and stated to have paid the creditors subsequently. Therefore, in the absence of any evidence to disprove the genuineness of the outstanding creditors or to controvert the submission of the assessee, there is no reason to make the addition, hence, we uphol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors in the assessment proceedings of the earlier year. Thus, viewed that there is no reason to suspect the genuineness of the sundry creditors, since, the same was established in the scrutiny proceedings of immediately preceding A.Y.2014-15. The Ld.CIT(A) further observed that the assessee had admitted additional income as declared in survey proceedings, inclusive of the outstanding sundry creditors, for which, the assessee was unable to furnish the details and hence viewed that remaining outstanding creditors were genuine and the same was established in assessment proceedings earlier year and also paid subsequently. The Ld.CIT(A) also observed that the AO did not bring any material on record to show that the opening sundry creditors were not genuine or otherwise. Therefore, the Ld.CIT(A) held that no addition is warranted and accordingly, allowed the appeal of the assessee. 4. Against the order of the Ld.CIT(A), the department is in appeal before us. During the appeal hearing, the Ld.DR vehemently supported the order of the AO and argued that the assessee was unable to discharge its liability during the course of survey and surrendered certain outstanding creditors as additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had demonstrated this fact by taking our attention to the balance sheet filed in the paper book as discussed earlier. The AO also did not bring any evidence to show that either the sundry creditors were cropped up during the year or cash credits were introduced in the year under consideration. Though the addition was made, the AO did not invoke any sections of IT Act for making such addition. In this regard, it is found that the A.O had accepted the books of accounts in the earlier year, as well as in the year under consideration. The sundry creditors represent the expenditure incurred for purchases and to make the disallowance of expenditure the issue is be dealt with u/s 37(1) in the year in which it was incurred, but not to be added in the subsequent year. The AO did not make any enquiries to disprove the genuineness of outstanding creditors to invoke the section 41(1) of the act. It was also accepted fact that in the earlier year, assessment was completed u/s 143(3) and accepted the genuineness of purchases or as well as the outstanding creditors. Thus, having accepted the genuineness of the sundry creditors in the earlier year merely because the assessee could not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to adduce any tangible material on record to prove that the said difference belongs to unaccounted money of the assessee. We note that assessee's purchases had not been doubted by the Assessing Officer. The Assessing officer also did not doubt the sales made by the assessee therefore, so far the accounting principles are concerned, if the total sales and total purchases are not doubted then balance of creditors are going to be genuine, if it is not otherwise proved by the assessing officer. 12. We note that the difference between creditors recorded in his books vis- vis balance in the books of creditors, should not be treated as cessation of liability. At this juncture it is appropriate to go through the relevant provisions of section 41(1) of the Act, the relevant extracts of which is reproduced below: Section 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 whats ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be said that the assessee had availed any benefit, as specified in (b) above, during the relevant year. Hence, the condition prescribed in section 41(1) of the Act has not been fulfilled in instant case. Besides ,the Explanation 1 to section 41(1) of the Act is also not applicable in instant case since the assessee has not credited the same to its Profit Loss account for the relevant year. In such a situation, it cannot be contended that the liability of different assessment years, as mentioned in the grounds of appeal had ceased to exist. Furthermore, the above liabilities has been continued from earlier years. Hence, the addition on account of bogus creditors is wholly unjustified. 13. In this regard it is also pertinent to note that the AO has not brought on record any evidence to justify that the aforesaid liabilities had actually ceased to exist during the relevant year. In such a situation the question of addition does not arise. Reliance in this regard is placed on the decision in the case of CIT v. Sugauli Sugar Works (P). Ltd. [1999] 236 ITR 518/102 Taxman 713 (SC) wherein, affirming the decision of the Hon'ble Calcutta High Court, the Hon'ble Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the assessee`s case under consideration, the assessee has not received any benefit by way of remission or cessation of liabilities during the relevant year towards balance of sundry creditors and as such, it can be stated that it has not fulfilled the conditions as specified by the Hon'ble Apex Court in the above referred decision. Thus, applying the ratio of the Hon'ble Apex Court, it can be stated that the aforesaid liabilities cannot be added back under section 41(1) of the Act for the relevant respective assessment year. Hon ble ITAT, Delhi also considered the similar issue and held that addition on account of outstanding sundry creditors is not permissible unless the AO disproves genuineness. We extract the relevant parts of the order of coordinate bench of ITAT, Delhi in Smt. Sudha Loyalka. v.Income Tax Officer, Ward 35 (2), New Delh[2018] 97 taxmann.com 303 (Delhi - Trib.) which reads as under: 6.1 There is no evidence that the liability has ceased to exist and that too in the year under appeal. The very fact these amounts are being shown as payable in the balance sheet of the assessee go to establish that there was no cessation of the liability as he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer without which the addition cannot be made and if made is liable to be deleted. 6.5 The first pre-requisite for the applicability of section 41(1) is there must be a trading liability in respect of which the deduction has been claimed and allowed and burden to prove the twin conditions to the effect of the above facts, it goes without saying, is on revenue. There is not even an iota of whisper as to whether the impugned creditors were in respect of trading liability for which any deduction was ever claimed and allowed and if allowed, in which year was it allowed so on so forth. This is evident from a plain reading of the assessment order. Therefore, Ld. A.O. miserably failed to discharge the said burden in view of the following decisions and therefore this addition is liable to be deleted on this Short ground alone. There could very well be the possibility of the loan creditors or advances from the business constituents under the head of sundry creditors for which there could never be any claim of deduction having been allowed. 6.6 The A.O. has not established with evidence that the liability in respect of the above outstanding balances has ceased ..... X X X X Extracts X X X X X X X X Extracts X X X X
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