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TMI Blog2010 (1) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,684/- made u/s 41(2) of the Act. 5. It is prayed that the addition of ₹ 26,02,684/- be deleted. 6. The ld. CIT(A) erred in holding that the creditor of ₹ 2,32,705/- in the capital account of your appellant is unexplained and further erred in confirming the addition of ₹ 2,32,705/- made on this account. 7. It is prayed that the addition of ₹ 2,32,705/- be deleted. 8. Your appellant craves leave to add, alter or amend any of the grounds mentioned above. ITA No.609/Ahd/2006[Revenue]. 1. On the facts and in the circumstance of the case and in law, the CIT(A) erred in deleting the addition made u/s 41(1) of the Act to the extent of ₹ 19,53,951/-, disregarding the fact that the returns of income furnished by the concerned two creditors did not confirm any outstanding dues from the assessee and the bank account extracts of these creditors furnished by the assessee did not show any transaction with the assessee. 2. The CIT(A) erred in not appreciating the fact that the credit balances of the concerned two creditors were shown as outstanding in the books of the assessee at the same amount in the preceding year as well as in the suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- 2.2 I have considered the observations of the Assessing Officer and the contentions of the appellant. A report was called for from the Assessing Officer in respect of the above submission made by the appellant s representative. The ITO, Ward 5(4), Baroda vide his letter dated 28.09.2005 has submitted his report on this issue as under :- 3 The contention of the ld. C.A. A.R. of the assessee that during the course of assessment proceedings the assessee had produced books of account is far from truth and misleading, which is self evident from the order sheet entry dated 4.2.2005 duly signed by the assessee himself and the ld.A.R. of the assessee and also notice dated 18.2.2005 (copy enclosed) duly acknowledged by the assessee and copy of the same produced by the assessee himself in the paper book. Vide the aforesaid order-sheet entry dated 4.2.2005 (copy enclosed) the assessee was asked to produce books of account and hearing was re-fixed on 9.2.2005. However, the assessee had not honoured his words and did not turn up. Vide notice dated 18/2/2005 the assessee was again asked to produce books of account (para 3 of the notice), however the assessee did not comply with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n business at ₹ 351577 is confirmed. 4. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee reiterated their contentions before the ld. CIT(A) while the ld. DR supported the findings of the ld. CIT(A). 5. We have heard both the parties and gone through the facts of the case. Undisputedly, despite various opportunities given by the AO between 30.8.2004 to 18.2.2005, the assessee did not furnish either the details of diesel and oil expenses, material testing charges, JCB hiring charges, repairs and maintenance expenses, JCB running and maintenance expenses relating to the construction business nor produced the books of account and bills and vouchers in support of these expenses. Even though before the ld. CIT(A) , the assessee furnished details of few expenses, the relevant books of accounts and bills were not produced either before the AO as mentioned in his remand report or even before the ld. CIT(A). In these circumstances, when the assessee did not produce books of account before the AO either in assessment proceedings or during the remand proceedings nor is in a position to produce the books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of assessment proceedings, the AO found that in Schedule E of the balance sheet, the assessee has shown creditors of ₹ 52,53,331/-, which included a number of creditors brought forward from the earlier years and were shown as outstanding even in the latest return furnished by the assessee for the Assessment year 2004-05. To a query by the AO, seeking complete name/ addresses and PAN of the said creditors along with the details of amount outstanding, the assessee furnished a list of creditors without mentioning any address and PAN and also failed to furnish the copies of account called for. After seeking adjournments, the assessee ultimately furnished few details on 4.2.2005. A list of various creditors is given on page 4 of the assessment order.On perusal of few details furnished by the asssessee, the AO found that despite various opportunities given, complete address, PAN and confirmations of the outstanding balance were not furnished in respect of Ekta Cement Suppliers, Shri Kamlesh Punjabhai Thidor,Shreeji Associates,Uma Lubricants,Uma Vijay Saw Mills,Shri Pratik J Shah,Shri Ranchodbhai Gavajibhai Charel, Shri Rasiklal M Shah. Accordingly, the AO concluded that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid credits, relying upon the decisions in the case of New Commercial Mills Co. Ltd. Vs. DCIT,73 TTJ 893(Ahd.),CIT Vs. Bharat Iron Steel Industries,199 ITR 67(Guj) and CIT Vs. Sugauli Sugar Works (P) Ltd.,236 ITR 518(SC), the assessee pleaded that provisions of sec. 41(1) of the Act were not applicable. After having a report of the AO on the written submissions of the assessee, the ld. CIT(A) while accepting the credits in the name of Shri Mintesh R Shah Shri Sachin Jagdishchandra Shah as genuine concluded as under :- 3.2.4 In view of the above facts, it is clear that the credit balance shown by the appellant in the names of 15 parties other than the two parties namely Shri Mitesh R. Shah and Shri Sachin Jagdishchandra Shah, totaling ₹ 26,02,684/- are not genuine. The appellant has not made any payments to these parties in the earlier year, during the year and subsequent years. These parties have not confirmed the outstanding balances and most of them are also not assessed to tax. Further in some cases, the appellant s name also does not appear in the list of debtors of these parties. Therefore, the Assessing Officer was justified in making the addition of ₹ 26, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very of the said amount or for taking appropriate action against the assessee, it cannot be said that there was a cessation of liability. The liability still remains, though it may not be enforceable at law on account of the provisions of the law of limitation. Relying upon the decision in the case of Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518.SC), Hon ble jurisdictional High Court further held that unless there is a cessation of liability or there is a remission of liability by the creditor, the liability subsists and, therefore, even if the entries are made to write back the expenditure, the amount so written back cannot be added in the income of the assessee as per the provisions of section 41(1) of the Act. 9.2 Hon ble Bombay High Court in another case of CIT Vs. Chase Bright Steel Ltd.,177 ITR 128(Bombay) while relying upon their judgment in J. K. Chemicals Ltd. Vs. CIT, [1966] 62 ITR 34 held that the liability of an assessee does not cease merely because the liability has become barred by limitation. The liability ceases when it has become barred by limitation and the assessee has unequivocally expressed its intention not to honour the liability even when demanded. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the aforesaid decisions, it is apparent that unless there is a cessation of liability or there is a remission of liability by the creditor, the liability subsists and, therefore, even if the entries are made to write back the expenditure, the amount so written back cannot be added in the income of the assessee as per the provisions of section 41(1) of the Act . In the instant case, there is nothing to suggest that the assessee has obtained any benefit either by way of remission or cessation of any liability while the aforesaid liabilities are continually admitted by the assessee in their balalncesheet . In these circumstances, we have no alternative but to vacate the findings of the ld. CIT(A) and delete the addition sustained by the ld. CIT(A) . Therefore, ground nos. ground nos. 3 to 5 in the appeal of the assessee are allowed while ground nos. 1 2 in the appeal of the Revenue are dismissed. 10. Ground nos. 6 7 in the appeal of the assessee relate to confirmation of addition of ₹ 2,32,705/- on account of unexplained gifts credited in the capital account of the assessee. During the year under consideration, the AO noticed an addition of ₹ 4,22,015/- in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the AO . 12. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. AR on behalf of the assessee while relying upon the decisions in the case of CIT Vs. Pragati Co-operative Bank Ltd.,278 ITR 170(Guj) and Murlidhar Lahorimal Vs. CIT,280 ITR 512(Guj) contended that the assessee is not required to establish source of source. Alter natively, the ld. AR pleaded that the set off may be allowed against the intangible additions. 13. On the other hand, the ld. DR supported the findings of the ld. CIT(A) , the assessee having failed to establish the creditworthiness of the donor and the genuineness of the gifts. 14. We have heard both the parties and gone through the facts of the case as also the decisions relied upon. It is well established that once there is a credit in the books maintained by the assessee, the primary onus is on the assessee, namely, to offer an explanation as to the nature and source of the credit. The assessee has to prove not only the identity of the person, but to establish the genuineness of the transactions and creditworthiness of the person who has given the money. In the case of CIT vs. United Commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o material on record that the said donor was a friend of the assessee or that there was natural love and affection. In this connection in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), their lordships laying down the significance of human probabilities held as under: that though an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where a party relied on self-serving recitals in documents, it was for that party to establish the truth of those recitals: the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals. 14.3. In the present case, not only that the assessee failed to prove the creditworthiness of the person making the payment of such amount to the assessee, the AO and the ld. CIT(A) found that the gifts were not real in nature. Since the claim of gift is made by the assessee, the onus lies on him not only to establish the identity of the person making the gift but also his capacity to make a gift and that it has actually been received as a gift from the donor. The genuineness of a gift transaction can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01 (SC) and recently in the case of Jaspal Singh vs. CIT (2006) 205 CTR (P H) 624 : (2007) 290 ITR 306 (P H). and in ACIT vs. Rajiv Tandon,294 ITRSP 219 (Delhi). In view of the foregoing, we are of the opinion tha the assessee failed to discharge the burden which lay upon him to prove the genuineness of the gifts and capacity of the donor. 14.5 We have also gone through the two decisions relied upon on behalf of the assessee. With due respect, we are of the opinion that facts in these these decisions are at variance with the facts of the case under consideration and even the ld. AR did not demonstrate before us as to how these decisions are relevant to the facts of the instant case. 14.6. In the facts and circumstances of the case and in the light of aforesaid decisions, we have no alternative but to uphold the finings of ld. CIT(A). Therefore. ground nos 6 7 in the appeal are dismissed. As regards alternate plea regarding telescoping the addition against intangible trading addition, there is no material before us nor the assessee established nexus between the two additions. Unless there was a connection between the gifts and the trading addition, it would be difficult to a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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