TMI Blog2023 (2) TMI 1222X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, had after conducting inquiry found that these adverse materials did not lead to the conclusion that the transactions of the assessee with the said party was ingenuine, the same adverse material cannot now form the basis of holding the outstanding balance pertaining to the said party in relation to very same transaction to be ingenuine.. For this reason alone, we hold that the ld.CIT(A) has rightly deleted the addition made by the AO amounting to Rs. 8,21,50,309/- by invoking section 41(1) of the Act. No infirmity in the order of the ld.CIT(A) deleting the addition made under section 41(1) - Decided in favour of assessee. Addition u/s 69 - outstanding credit balance of parties relating to preceding years - HELD THAT:- Revenue was unable to controvert the factual findings of the ld.CIT(A) that the majority addition deleted pertained to outstanding credit balance of parties relating to preceding years. The proposition of law that no addition could be made u/s 68 of the Act on account of opening credit balances of parties, also remained uncontroverted before us. In view of the same, we see no reason to interfere in the order of the ld.CIT(A) deleting the addition made of op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e filed on or before 07.11.2017. However, this appeal could not be filed in time due to the fact that the Pr. CIT-3, Ahmedabad is holding the additional charge of PCIT Gandhinagar and that there was tremendous time barring workload in each of these charges compelled with the fact that many of these appeals were of very high tax impact, which required very thorough and diligent study of the decisions of the facts on records. Further, the movement of case records from Gandhinagar to Ahmedabad and vice -versa also took some time. 4. In view of the above, it is humbly prayed that the Hon'ble ITAT may please condone the delay of 30 days. Yours faithfully, Sd/- (PRITA MENO) ITO (TECH) For Pr. Commissioner of Income-tax Gandhinagar. 3. On perusal of the contents of the above application, we are satisfied that the Department was prevented by sufficient reasons justifying delay of 31 days in filing the appeals before the Tribunal, and therefore, we are inclined to condone the delay and proceed to take up both the appeals for adjudication on merit. 4. It was pointed out that the issue arising in both the appeals was inter-linked, relating to disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said party pertained to the transaction undertaken by the assessee with the said party in the preceding year i.e. Asst.Year 2012-13 which had been completely scrutinized in the assessment proceedings, and not found to be bogus by the AO. He further contended that genuineness of the outstanding balance is further proved by the fact that the assessee had made payment of Rs. 45 lakhs to the said party in the impugned year by cheque. Copy of the bank statement of the assessee was filed as evidence. The assessee further contended that no addition in any case could be made under section 41(1) of the Act since the assessee had not written off any outstanding liability in its books, and provisions of section 41(1) are attracted only when there was cessation or remission of any liability which was not the case. The assessee further relied on the decision of Hon ble Gujarat High Court in the case of CIT Vs. Bhogilal Ramjibhai Atara, Tax Appeal No. 588 of 2013 dated 4.2.2014 for the proposition that non-confirmation of balance outstanding by a party would not tantamount to remission or cessation of the liability so as to invoke provision of section 41(1) of the Act. The AO after considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en claimed earlier by the assessee, and liability arisen on accounts of the same expenditure having ceased to exist have arisen in the impugned case, the provisions of section 41(1) had been rightly invoked. He heavily relied on the order of the AO in this regard. The ld.DR relied on the decision of the ITAT, Bangalore Bench in the case of Suresh Kumar T. Jain Vs. ITO, (2011) 128 ITD 74 (Bang) in support of his contentions. He further distinguished the case laws relied upon by the ld.CIT(A) while deleting the addition. In the case of Bhogilal Ramjibhai Atara (supra), he pointed out that the Hon ble High Court had categorically held that for invoking section 41(1) of the Act, cessation or remission has to be during previous year relating to the Asst.Year under consideration, and finding this element missing, had deleted the addition made in the said case. The ld.DR pointed out that in the present case inquiry conducted by the AO, finding the outstanding balance to be non-existent had demonstrated sufficiently the cessation of liability relating to the impugned party, and therefore, the decision in the case of Bhogilal Ramjibhai Atara (supra) does not apply to the facts of the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e laws are filed before us. 11. We have carefully considered submissions of both the parties have also gone through orders of the authorities below, as also decisions cited before us. 12. The issue to be adjudicated is with respect to the addition made by invoking provisions of section 41(1) of the Act as per which any expenses claimed by the assessee in earlier years, the liability of which ceased to exist or remitted, will be liable to be added to the income of the assessee on cessation or remission of the said liability. Before proceeding to adjudicate the issue, we first bring out relevant facts of the case. Section 41(1) has been invoked with respect to the outstanding liability in the books of the assessee as at the end of the impugned year relating to one party, M/s. Paper Star Marketing (PSM) amounting to Rs. 8,21,50,309/-. The transaction leading to the impugned outstanding balance were undertaken by the assessee with the said party in the preceding year i.e. Asst.Year 2012-13 when it was examined by the AO who had held that the purchases from PSM could not be held as non-genuine. Copy of the order of the AO for the said year i.e. Asst.Year 2012-13 was placed befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id party with the assessee. 15. When this adverse material relating to the PSM was found to be of no relevance to its transaction undertaken with the assessee in Asst.Year 2012-13 which was examined by the AO and found to be genuine, we fail to understand how on the basis of this very same adverse material, the outstanding balance pertaining to the said transaction can now be stated to be ingenuine. Since the AO in the preceding year, had after conducting inquiry found that these adverse materials did not lead to the conclusion that the transactions of the assessee with the said party was ingenuine, the same adverse material cannot now form the basis of holding the outstanding balance pertaining to the said party in relation to very same transaction to be ingenuine.. For this reason alone, we hold that the ld.CIT(A) has rightly deleted the addition made by the AO amounting to Rs. 8,21,50,309/- by invoking section 41(1) of the Act. 16. We therefore do not find any infirmity in the order of the ld.CIT(A) deleting the addition made under section 41(1) of the Act. This ground of appeal of the Revenue is dismissed. 17. In the result, the appeal of the Revenue is dismissed. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty amount cannot be added as deemed income u/s 41(1). The appellant has not written off the impugned liability shown in the accounts. The AO has not brought sufficient material on record to establish as to how the ingredients of section 41(1) are satisfied. The judgment of the Hon'ble jurisdictional High Court cited supra is squarely applicable. The same view has been taken by the Hon ble Gujarat High Court in the case of CIT Vs. Nitin Garg [2012] 208 taxman 16 and held that it has not been established that the appellant has written off the outstanding liabilities in the books of accounts and the appellant has continued to show the admitted amount as liabilities in its balance sheet so the same cannot be treated as said liability have seized to exist. Further in the case of OT V. G.K. Patel Co [2013] 212 Taxman 384, the Hon ble Gujarat High Court has held as under: To the extent the said decision holds that a unilateral act on the part of the debtor cannot bring about a cessation of his liability, the same would not be applicable to the facts of the present case, in view of the insertion of Explanation 1. However, at the cost of repetition it may be stated that in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that said person has denied transaction, it has to be made in A.Y. 2012-13 and even in said year, the AO has concluded that purchases cannot be held to be bogus even if counter party has denied such transactions and only Gross Profit is required to be added. 4.6 Considering the facts of the case and provision of section 41(1) of the Act and aforesaid decision, it has been established that no addition can be made u/s 41(1) of the Act Therefore, the addition made by the AO is directed to be deleted and ground no 1 of appeal raised by the appellant is allowed. 20. We have heard both the parties and gone through the facts of the present case. We find that there is no reason to invoke section 41(1) of the Act in the present case on a payment made by the assessee to another party. Section 41(1) is invoked, as clarified above in the Department s appeal for Asst.Year 2013-14, only when a liability is found to cease to exist in respect of an expense claimed by the assessee. In the present case, the Department has invoked section 41(1) on an alleged payment made by the assessee to a party whose balance outstanding was found to be ingenuine. The case of the Revenue, as is derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing balance of Rs. 8.2 Crs has been held by us to be rightly deleted by the Ld.CIT(A) in our order above for the preceding year, A.Y 2013-14. Since the basis for making addition of Rs. 45 lacs has been found to be incorrect, the addition therefore is not sustainable. The order of the ld.CIT(A) deleting the addition made of Rs. 45 lakhs under section 41(1) is therefore upheld. Ground of appeal No. 1 is dismissed. 23. Ground No. 2 reads asunder: 2. Whether on the facts circumstances of the case, the ld.CIT(A) was justified in deleting the addition of Rs. 4,36,54,001/- u/s. 69 of the Act. 24. Facts are that the assessee during the assessment proceedings was unable to prove genuineness of the balance pertaining to the sundry creditors and unsecured loans as under: Sundry Creditors Sr No Name Amount outstanding Remarks 01 Shri. Bharatkumar V Rajgor Rs. 20.430/- Return back with remarks NOT KNOWN from postal authority 02 Arihant Enterprise Rs. 1,08,86,065/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said party which purchases had been accepted in full by the AO. He therefore deleted the said addition also. Similarly he found no anomaly in the outstanding balance of Rs. 16,780/- pertaining to Radhe Developers noting the same to be the opening balance carried forward. With respect to the balances outstanding pertaining to Unsecured loans of Rs. 8 lacs and Rs. 10 lacs pertaining to balance of one Sh. Kalpesh Vithani, he found that the assessee was unable to discharge its onus of proving the genuineness of the same and accordingly upheld addition to the extent of Rs. 18 lacs. His findings at para 5.3 to 5.7 of the order is as under: 5.3 I have considered the facts or the case, assessment order, submission made by the appellant and the case laws relied upon. During the course of the scrutiny, appellant has submitted the copies of ledger account and duly stamped and signed confirmation of ledger balance to the AO vide its letter dated 01.08.20016. On perusal of the same it is found that in the ledger accounts of sundry creditors which is subjected to addition, no fresh credit entries are found and the ledger contains only opening balance and payment made against the same and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3657000 3636570 20430 Subcontract work. IDS made from payable amount. AO has made addition of closing balances of above referred persons u/s. 69 of the Act considering the same as no explanation has been offered by the appellant and appellant has failed to prove the identity, credit worthiness and genuineness of the transactions. The AO has not made any addition with respect to sales transaction made with Ganesh Project. Section 69 of the Act provides that- Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of accounts, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. Here, AO has not revealed any investment which has not been recorded by appellant in its books of accounts. Therefore the provision of section 69 of the Act i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take appropriate action u/s 68 of the Act in the year of receipt, in case AO is not satisfied with genuineness and creditworthiness of transaction. 5.5 On perusal of the submission made by appellant, it is found that the ledger A/c of M/s. Radhey Furniture, there is no movement in the ledger and opening balance of Rs. 19,66,440/- is carried forward as closing balance of Rs. 19,49,660/-. Appellant also submitted confirmation submitted by party on 12.08.2016 to the AO in response to notice u/s 133(6) of the act. The first lines of that forwarding clearly acknowledge and confirm the balance as reflected in the ledger of the appellant. Further, the duly stamped and signed confirmations submitted by appellant to AO on 01.08.2016 also confirm the same amount. Considering the same on factual basis, AO is hereby directed to delete the addition of Rs. 16,780/- made on account of difference in ledger A/c of both the parties. 5.6 So far as addition of Rs. 20,430/- pertaining to Bharatbhai V. Rajgor is concerned, Appellant has made purchases of Rs. 36,57,000/- as against which payment along with TDS for Rs. 36,36,570/- is made and remaining amount of Rs. 20,430 is shown as outstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Gujarat High Court in the case of Manojkumar Saraf V/s ITO 45 taxmann.com 63 has held that where even though Appellant took unsecured loan through cheque, yet he doubt not establish identity and creditworthiness of lenders, amount of loan was rightly added to Appellant' taxable income under Section 68. Similar view is also held by Hon'ble Delhi High Court in the case of Ridhi Promoters Pvt Ltd V/s CIT 58 taxmann.com 367, Hon'ble Supreme Court in case of E. Ummer Bava V/s CIT 77 taxmann.com 1, Hon'ble Kerala High Court in the case of Sunil Thomas V/s ITO 80 taxmann.com 61. Relying upon these decisions, addition made by AO for Rs. 18,00,000 with respect to above three parties is confirmed. Thus, this ground of appeal is partly allowed. ' 26. The ld.DR relied on the order of the AO. The ld.counsel for the assessee, on the other hand, supported the order of the ld.CIT(A). We have gone orders of the authorities below. 27. We see no reason to interfere in the order of the ld.CIT(A). The Revenue was unable to controvert the factual findings of the ld.CIT(A) that the majority addition deleted of Rs. 4,18,16,791/- pertained to outstanding credit ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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