2023 (3) TMI 192 - AT - Income Tax

Unexplained sundry creditors and advance from customers - condition for treating the same as income of the assessee u/s 41(1) is that the liability ceased to exist as at the end of the financial year relevant to the year under consideration - HELD THAT - Hon ble High Court in MATRUPRASAD C PANDEY 2015 (4) TMI 830 - GUJARAT HIGH COURT has held that addition under section 41(1) cannot be made simply by doubting the creditor or his creditworthiness or his identity. Further, no addition can be made simply because the creditors are old. No addition can be made under section 41(1) of the Act merely on the basis of doubting the genuineness of the creditor without establishing the actual cessation of liability. Hence when the assessee is showing the liability in the books of account and has repaid in the subsequent years then the addition under section 41(1) of the Act is not sustainable. Accordingly we upheld the order of ld. CIT (A) and dismiss the appeal of the revenue. Addition on account of difference in contract receipt shown in Form 26AS vis- -vis receipts accounted by the assessee - CIT-A deleted addition - HELD THAT - The submission of the assessee was that the book entries and ledger account of parties are sufficient evidence to explain the difference. CIT (Appeals) has reproduced the party-wise reconciliation and explained the difference - We find that the ld. CIT (A) has given specific and categorical finding and reasons for deleting each addition regarding RMC sales, Hire Charges where the parties has deducted TDS on RMC sales and higher charges which are not part of contract receipts - the finding regarding difference in 26AS and contract receipts are mentioned party-wise in detail. Considering the detailed submissions and explanations made by the assessee at the appellate proceedings, we find no infirmity in the order of the ld. CIT (A) and the same is upheld. The ground of the revenue is dismissed. Disallowance of various expenses made by the AO in absence of verification - CIT (A) has considered the detailed submissions comprising of ledger accounts and other evidences furnished by the assessee in tabular chart and deleted the addition - HELD THAT - Looking to the facts and circumstances of the case, we are of the considered view that the findings given by the ld. CIT (A) are in accordance with law and accordingly deleted the disallowance. We find no infirmity in the order of ld. CIT (A), which is hereby upheld. The ground of the revenue is dismissed. Additional depreciation claimed on new plant machineries relating to manufacture of Ready Mix Concrete (RMC) - CIT (A) has considered the detailed submissions comprising of relevant bills on which additional depreciation were claimed along with evidences and deleted the disallowance - HELD THAT - As decided by CIT-A correctly there is no dispute that the appellant company is engaged in manufacture of ready mixed concrete which involved mixture of three ingredients, namely, cement, sand and aggregate and the product manufactured is mixed with other chemicals, thereafter the final product after mixing and processing has to be used within four hours of its mixing and as a result, the product manufactured by the assessee is altogether a different product from the material out of which it was produced. Further from the evidence produced by the appellant company it is also evident that the appellant has purchased this new machinery during the year under consideration and used it in its manufacturing process as discussed above as increase in sale is indication of this fact. Therefore, considering the overall facts and circumstances and evidences brought on record, it is held that the AO is not justified in disallowing the assessee's claim of additional depreciation. Appeals of the Revenue are dismissed.

Issues Involved:
1. Deletion of addition on account of unexplained sundry creditors and advance from customers.
2. Admission of additional evidence without granting requisite opportunity to the Assessing Officer.
3. Deletion of addition made on account of difference in contract receipt shown in Form 26AS vis-Ã -vis receipts accounted by the assessee.
4. Sustaining disallowance of expenses in absence of verification.
5. Holding the activity of ready mix concrete to be manufacturing and allowing additional depreciation.

Issue-Wise
Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Sundry Creditors and Advance from Customers:
The Revenue contested the deletion of Rs. 34,76,10,409/- made by the Assessing Officer (AO) on account of unexplained sundry creditors and advances from customers. The AO had added this amount as income, doubting the genuineness of the credit entries. The assessee provided detailed information, including audited balance sheets and confirmation from creditors, arguing that these were genuine trade credits. The CIT (A) found that the AO did not provide evidence that the liabilities ceased to exist and that the creditors were accepted in earlier years. The Tribunal upheld the CIT (A)'s decision, noting that the AO failed to establish cessation of liability under section 41(1) or prove the credits as non-genuine under section 68.

2. Admission of Additional Evidence Without Granting Requisite Opportunity to the Assessing Officer:
The Revenue claimed that the CIT (A) admitted additional evidence without giving the AO a chance to verify it. The Tribunal did not find merit in this ground as the CIT (A) had considered all relevant details and provided a comprehensive explanation for the deletion of the addition. The Tribunal upheld the CIT (A)'s decision, emphasizing that the AO had sufficient opportunity to verify the details during the assessment proceedings.

3. Deletion of Addition Made on Account of Difference in Contract Receipt Shown in Form 26AS vis-Ã -vis Receipts Accounted by the Assessee:
The AO added Rs. 15,95,38,544/- due to discrepancies between contract receipts in Form 26AS and the assessee's books. The assessee reconciled these differences, explaining that some receipts were not income or related to other years. The CIT (A) accepted these explanations and deleted the addition. The Tribunal upheld this decision, noting that the AO ignored the detailed reconciliation provided by the assessee and failed to substantiate the addition.

4. Sustaining Disallowance of Expenses in Absence of Verification:
The AO disallowed Rs. 42,34,358/- out of various expenses due to lack of verification. The CIT (A) reduced this disallowance to Rs. 15,00,000/-, considering the detailed submissions and improved financial results of the assessee. The Tribunal found no infirmity in the CIT (A)'s decision, noting that the AO did not provide specific findings that the expenses were not genuine or unrelated to business.

5. Holding the Activity of Ready Mix Concrete to be Manufacturing and Allowing Additional Depreciation:
The AO disallowed additional depreciation of Rs. 51,77,474/- on new plant and machinery, arguing that the assessee was not engaged in manufacturing. The assessee contended that ready mix concrete production qualifies as manufacturing. The CIT (A) agreed, citing judicial precedents that recognize ready mix concrete production as a manufacturing activity. The Tribunal upheld this view, confirming that the assessee was entitled to additional depreciation under section 32(1)(iia).

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the CIT (A)'s decisions on all grounds. The Tribunal found that the AO's additions were not substantiated with sufficient evidence and that the CIT (A) had correctly applied legal principles and considered detailed submissions from the assessee.

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