2013 (6) TMI 358 - AT - Income Tax

Cessation of liability appearing in the name of Shri Amit Kumar, Prop Singla Trading Co. - CIT(A) deleted the addition made u/s 41(1) - assessment was completed u/s 144 - Held that - CIT(A) has adjudicated the issue correctly because some legal heirs may later on make the claim against the receivables by Singla Trading Co. Moreover the assessee may be liable to pay to the bank and in any case the assessee has not written off the amount during the year, therefore, the liability cannot be said to have ceased. Thus nothing wrong in the order of the CIT(A). Against revenue. Addition in the income on account of gross profit by increasing gross profit ratio by CIT(A) - Held that - Nothing wrong with the order of the CIT(A) though it was claimed that the assessee had loss in basmati paddy but in the details submitted before CIT(A) the assessee has himself shown gross profit @ 21.35% on trading of basmati. Further gross profit in the immediately preceding year was 7.76%. In case no books of account are produced and the AO is required to estimate the profit, he is duty bound to estimate such profits in a judicial fashion. No better yard stick can be available to the AO then the trading results of the assessee shown in the earlier years. AO has been more than reasonable to estimate the gross profit at 5% despite the fact that in the immediately preceding year the gross profit declared by the assessee was 7.76%. No infirmity in the order of the CIT(A) and confirm the same. Against assessee. Addition on account of cessation of liability towards M/s Lachhi Ram Ramesh Chand by CIT(A) - Held that - Nothing wrong with the order of the CIT(A) as nobody would show the receipt of cash because that would mean that such party is forgoing the claim, therefore, it is clear that the assessee himself has paid the cash and liability ceased to exist. Against assessee.

Summary

Issues:
1. Departmental appeal against deletion of addition under section 41(1) of the Act.
2. Assessee's appeal against addition of gross profit and cessation of liability towards M/s Lachhi Ram Ramesh Chand.

Departmental Appeal - Deletion of Addition under Section 41(1) of the Act:
The Department appealed against the deletion of an addition of Rs. 83,81,902 made under section 41(1) of the Act by the ld. CIT(A). The Assessing Officer added this amount to the income of the assessee as he observed that a liability in the name of a trading company ceased to exist due to the demise of the proprietor and family members. However, the ld. CIT(A) ruled in favor of the assessee, stating that legal heirs may still claim the receivables, and the liability cannot be considered ceased until further clarity. The appellant also argued that the liability was only Rs. 30,97,931 as per the company's books, and the appellant might have to pay as a guarantor to ICICI Bank. The Tribunal agreed with the ld. CIT(A) and dismissed the Department's appeal.

Assessee's Appeal - Addition of Gross Profit and Cessation of Liability:
In the assessee's appeal, two main grounds were raised. Firstly, the addition of Rs. 25,74,652 in income due to an increase in gross profit ratio. The Assessing Officer estimated the gross profit at 5% as no books were provided, rejecting the declared profit of 2.95%. The ld. CIT(A) upheld this addition, stating that the appellant failed to provide evidence supporting the claim of loss in basmati rice trading. The Tribunal confirmed this decision, noting the significant difference in declared profits from the preceding year. Secondly, the addition of Rs. 2,60,000 due to the cessation of liability towards M/s Lachhi Ram Ramesh Chand. The Assessing Officer concluded that no balance was outstanding based on the partner's confirmation. The ld. CIT(A) partially allowed this ground, stating that even if the firm wrongly squared up the account, no amount was due from the appellant. The Tribunal upheld this decision, emphasizing that the liability ceased to exist as confirmed by the party. The assessee's appeal was dismissed.

Cross-objections:
Cross-objections were filed by the assessee, which were found to be identical to the issues raised in the assessee's appeal. As these issues were already adjudicated in the appeal, the Cross-objections were deemed infructuous and dismissed accordingly.

In conclusion, all appeals and cross-objections were dismissed by the Tribunal, upholding the decisions made by the ld. CIT(A) in both the Departmental appeal and the Assessee's appeal.