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2015 (4) TMI 864 - AT - Income TaxAddition u/s 41(1) - unverifiable creditors - AO has made the addition invoking section 41(1) of the Act, when he found out through his inspector that the addresses of the sundry creditors were wrong; and neither the assessee could furnish the correct address nor produced the creditors before him - CIT(A) deleted the addition - Held that - The copy of the bank statement from January 2010 to April 2010 reveals that entries given against date and amount tallies with the chart given which establish that amount have been remitted to the respective firms in their bank account by account payee/ RTGS as contended by the assessee as early as 15.12.2011 before the AO, which culminated in assessment order dated 26.12.2011. From a perusal of the chart and bank statement will reveal that the outstanding payments to the aforesaid sundry creditors for the instant Assessment Year, stands credited to their respective bank accounts by bank transfer before 28.04.2010 i.e. six months before the impugned addition made by the AO, though it was brought to his knowledge as stated above, that payments have been made. In the remand report of the AO, he states after perusal of the aforesaid bank statement evidencing account payee transfer of amount to their respective bank account, that appellant has filed copies of bank statements and same was examined. So the ld CIT(A) has rightly concluded in the light of the aforesaid evidence that sundry credit balance in the name of Nitesh Enterprises and Shri Ram Traders were genuine credit balance for purchase of material by the assessee and the liability in the name of such parties have been duly discharged by the assessee by making payment through RTGS i.e. a/c payee cheques. Moreover, it is an undisputed fact that the assessee has not written off the amount to the credit of the profit and loss accounts and the outstanding liabilities were still in existence which would prove that the assessee acknowledged his liabilities as per the book of account. Thus it has not treated the money as its own money. Accordingly, it has not become richer by the impugned amount as it continues to hold out that it is indebted to the aforesaid creditors, so it cannot be inferred that the said liability had ceased to exist. Section 41(1) is attracted only when there is cessation or remission of a trading liability. The AO in this case has failed to prove that the assessee has obtained the benefits in respect of such trading liability by way of remission or cessation thereof. Simply because the address of the sundry credits had changed, which fact was brought to the knowledge of the AO, without making any enquiry at the changed address, the AO on mere presumptions, conjectures and surmises has resorted to make the additions with the aid of Section 41(1) of the Act was misconceived and so the ld CIT(A) after considering the evidence on record and the remand report of AO has rightly held that there was no cessation of trading liability. So the question of fastening the addition with the aid of Section 41(1) does not arise. - Decided against revenue. Addition on account of rejection of books u/s 145 - estimated profit @8.7% of gross receipt - CIT(A) deleted the addition - Held that - Books of account was produced by the assessee before the AO, so it does not lie in the mouth of the AO to simply say, the assessee failed to produce books of account when he himself say in Page 2 of the assessment order that assessee has produced books and he cannot reject the books of account without pointing out any defects in the books of account which are audited as per the law, and in the light of all supporting evidences produced by the assessee, we concur with the finding of the ld CIT(A) that the order invoking section 145 is bad in the eyes of law and is therefore legally not tenable. And in respect to the estimate @8% of gross receipt, we concur with the CIT(A) that neither the AO pointed out any wrong claim or bogus expense in the books nor has given any comparative cases wherein the net profit is shown @8% of the gross receipts. So we find no justification for the AO to estimate @ 8 % of gross receipts. Hence the ld CIT(A) has rightly deleted the addition made by the AO of ₹ 64,10,847/- - Decided against revenue.
Issues Involved:
1. Deletion of addition made under Section 41(1) of the Income Tax Act, 1961. 2. Deletion of addition made by rejecting books under Section 145 of the Income Tax Act, 1961 and estimating profit. Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 41(1): The primary issue revolves around the deletion of an addition of Rs. 7,48,92,621/- made by the Assessing Officer (AO) under Section 41(1) of the Income Tax Act, 1961. The assessee, a civil contractor, showed sundry creditors amounting to Rs. 16,11,74,448/- as of 31.03.2009. The AO observed that the assessee could not furnish confirmation from certain creditors, specifically M/s Nitesh Enterprises and M/s Shri Ram Traders, which had credit balances of Rs. 4,01,03,113/- and Rs. 3,47,89,508/- respectively. An inspector's report indicated that these firms were not found at the given addresses, leading the AO to conclude that the liabilities had ceased and to invoke Section 41(1). The CIT(A) deleted the addition, noting that the assessee provided new addresses, PAN numbers, and other details of the creditors. Payments to these creditors were made through account payee cheques and RTGS before the assessment order was passed. The CIT(A) concluded that the liabilities were genuine and had not ceased, thus Section 41(1) was not applicable. The Tribunal upheld this finding, emphasizing that the AO did not conduct further inquiries on the new addresses and that the payments made to the creditors were genuine. 2. Deletion of Addition by Rejecting Books under Section 145: The second issue pertains to the deletion of an addition of Rs. 64,10,847/- made by the AO by rejecting the books of accounts under Section 145 and estimating the profit at 8% of the gross receipts. The AO alleged that the assessee did not produce books of accounts and vouchers and could not justify certain expenses, leading to the rejection of the books and the estimation of profit. The CIT(A) deleted the addition, observing that the AO had acknowledged in the assessment order that the books of accounts and other relevant documents were produced and perused. The CIT(A) noted that the books were audited and prepared according to prescribed accounting standards. The Tribunal upheld this finding, stating that the AO did not point out specific defects in the books of accounts and that the rejection of books was not legally permissible. The Tribunal also agreed that the AO's estimation of profit at 8% of the gross receipts was unjustified as no comparative cases or specific discrepancies were pointed out. Conclusion: The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order that deleted the additions made under Section 41(1) and by rejecting the books under Section 145. The Tribunal found that the AO's actions were based on incorrect findings and lacked proper inquiry and justification. The assessee had provided sufficient evidence to prove the genuineness of the liabilities and the correctness of the books of accounts.
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