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TMI Blog2012 (5) TMI 709X X X X Extracts X X X X X X X X Extracts X X X X ..... discharge its onus of proving the nature of liabilities, identity of the creditors and confirmation from the creditors and in turn failed to prove the existence of liabilities shown as sundry creditors. (ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in reducing the disallowance of labour expenses without appreciating the facts that the labour cards (primary evidences) produced in support of the labour expenses were self made and the assessee has also shown net profit lesser than 8%, which lead to drawing of inference that the assessee inflated costs on labour to show lesser profit. 3 Ground no.1 is regarding the addition made u/s 41(1) of the I T Act. 4 None appeared on behalf of the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the assessee could not file the addresses of the sundry creditors to the extent of ₹ 7,23,067/-. 6 We have heard the ld DR and carefully perused the relevant material on record. The Assessing Officer has made this addition on the ground that the creditors are very old and time barred; whereas the assessee has pleaded that the assessee is continues to repay the amount to the creditors and it has been reduced to from ₹ 32,35,921/- to ₹ 24,95,041/-. The details of the payments were also furnished by the assessee. The creditors, being barred by limitation, cannot ipso facto lead to the conclusion that the liability ceased to exist so long the assessee is accepting the liability in the books of account and making the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was any remission or cessation. The Hon ble ITAT held that the word cessation means the termination by operation of law or by an order of a Court, of legal obligation of the assessee to pay to the creditor. A contractual agreement between the parties, approved by a court to waive the debt or to terminate the legal obligation of the assessee will also cause the cessation of liability. Even in a case where a liability ceases to exist due to limitation i.e. the claim of the creditors is barred by limitation under the limitation Act, 1963 but if the liability subsists or has not been written off by the assessee or the assessee does not absolve himself from the liability, though not legally enforceable, yet it cannot be taxed u/.41(1). When th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... error or illegality in the order of the CIT(A), which is just and proper in the facts of the case. Accordingly, we upheld the findings of the Commissioner of Income Tax(Appeals) on this issue. 8 Ground no.2 is regarding disallowance of labour charges. 8.1 The Assessing Officer noticed that the assessee claimed `. 94,95,000/- toward labour expenses. In support of the same, the assessee produced labhour cards but vouchers were not maintained by the assessee. In reply to the show cause notice, the assessee contended before the Assessing Officer that the amount paid to the labourers is mentioned in the labour cards and the same are treated as vouchers. It was further contended that the contract work of the assessee is labour oriented and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he additions made u/s. 41(1) and 40a (Ia) represent artificial disallowances and the same cannot be taken into account while computing the net profit of the appellant. It is true that the appellant has maintained regular books of account and the same were audited u/s. 44AB and audit report was filed along with the ROI. However it is seen that the net profit admitted by the appellant is less than 4%. The Hon ble Mumbai Tribunal in the case of Singhal and Bros. by order no 7253/MUM/2004 for A. Y. 2001-02 dated 24.07007 upheld the estimation of income at 5% of the gross turnover. I find that addition of another ₹ 2,80,000/- would take the net profit almost to 5%. in this circumstances, I confirm the addition of ₹ 2,80,000/- instead ..... X X X X Extracts X X X X X X X X Extracts X X X X
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