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TMI Blog2016 (2) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence and some deficiency persist in evidence, part expenditure is disallowed on estimated basis. Being so, by placing reliance on the above decision of the Tribunal, the CIT(A) is justified in disallowing only 10% of the sub-contract expenses not supported by proper bills.- Decided in favour of assessee in part. Addition made u/s 41(1) as cessation of liability - Held that:- Before coming to the conclusion by the Assessing Officer that the creditors were no more existing, it is incumbent upon the Assessing Officer to make necessary enquiry to bring on record material that the creditors were ceased to exist. He could have made necessary enquiry to this effect. The assessee herein is a limited company and as per the legal position the acknowledgement of the liability in favour of the creditors in its Balance Sheet extends the period of limitation for the purpose of sec. 18 of the Limitation Act. It is the assessee’s claim that the debts are subsisting and it continues to be liable to pay the creditors. Therefore, it is not open to the Assessing Officer to draw the conclusion that the creditors have remitted the liability or that the liability has otherwise ceased without eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of them as recorded in the M. Book. On verification of the M. Book produced by the assessee before the Assessing Officer, the Assessing Officer found that the entries made in the M.Book was without any separate bill or invoice, but were found to be based on self-made hand written by the assessee itself. Thereafter, the Assessing Officer issued summons u/s 131 to each of the 15 parties to appear personally with the relevant details. In response to the summons, none appeared before the Assessing Officer. However, the summon letters in respect of the two parties were returned stating that no such persons were existing in the addresses provided. The Assessing Officer accepted the letter of confirmation received from M/s Sakthi Kanna Construction Pvt. Ltd as genuine and held that the expenses debited in the name of other 14 parties as non-genuine. The Assessing Officer held that the 14 parties have provided accommodation entries to the assessee on the basis of the inferences drawn from the copies of the income-tax returns produced. The Assessing Officer observed that all the individuals are related to the assessee-company and have done work only with the assesseecompany. The income ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atives of the appellant or known to the appellant. The entire disallowance made by the assessing officer in respective expense debited in the name 14 parties cannot be accepted without disproving the confirmations received, disproving the payments made to them beyond doubt, disproving the execution of the work order. However there is a possibility of the inflation of the expenses in respect of road work carried out by the appellant as a whole. In the earlier A.Ys, the department accepted the 5% of the turnover declared by the appellant after detection of the inflation of the expenses by carrying out survey action. In the year under consideration, there was increase in GP and Net profit ratio declared by the appellant as compared to the GP and Net profit ratio declared in the earlier years. However the net profit declared by the appellant at 3.83% is less than the 5% of the Net profit accepted by the department in the earlier years. The 5% of the Net profit on the turnover of ₹ 3334.16 lacs comes to ₹ 166.7 lacs. The appellant had declared ₹ 127.53 lacs as Net profit. The difference comes to about ₹ 39.178 lacs. In the course of the appellant proceedings, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over and above retuned income is reasonable. The offer of the 10% of the total disallowance would lead to net profit ratio more than 5% of the turnover which was any way accepted by assessing officer in the earlier years. Therefore, the assessing officer is directed to restrict the disallowance to ₹ 44,10,821.00 as against the disallowance of ₹ 4,41,08,210.00. The grounds of appeal raised by the appellant on this issue are treated as disposed off accordingly. Against the above, the Revenue is in appeal before us. 5. We have heard both the parties and perused the material on record. In this case, it is admitted fact that 14 persons have furnished confirmation and some of the parties in response to summons issued to them have furnished the copies of income-tax return and also copies of bank account. Some of the parties also confirmed that they do not have invoice copies and maintain only Method book which was returned by the assessee. The copy of M.Book gave details of work done for a particular period, measurement upto the date of work with the signature of supervisor of the company. 11 parties have sent the details from far off places to the Assessing Officer th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eletion of addition made u/s 41(1) of the Act as cessation of liability. 7. The facts of this issue are that the Assessing Officer made an addition of ₹ 18,16,728/- towards creditors as they are outstanding for more than three years and any claim beyond three years is not good in law as per Limitation Act. However, the CIT(A) observed that there is no cessation of liability as on the date of the accounts since the assessee has not written off these amounts in its books of account. According to the CIT(A), Explanation 1 sec. 41(1)(4) also to apply to the facts of this case. Accordingly, he deleted the addition against which the Revenue is in appeal before us. 8. We have heard both the parties and perused the material available on record. In the present case, the Assessing Officer has not issued any notice to the creditors to confirm from them whether they have given up their dues from the assessee. The assessee has also not written back these amounts in its books of account. Except for the fact that the amounts are outstanding, there was no material evidence to show that there was remission or cessation of liability. It is the Assessing Officer who has presumed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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