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TMI Blog2010 (10) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... further erred in completely overlooking the peculiar facts and circumstances of the case before making the disallowance. (3) The CIT(A) ought to have allowed the appeal of the assessee in toto. ITA No.578/Ahd/2008 Asst. Year 2003-04 (Revenue's appeal) 4. The Revenue has raised the following ground in its appeal :- (1) On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in directing to restrict the disallowance to 10% of sundry creditors as against the disallowance made by the AO at 25% of unverifiable expenditure (purchases) by treating the same as non-genuine. 5. The facts of the case are that the assessee is engaged in the business of art silk cloth and has been filing return of income since several years. For Asst. Year 2003-04 a return declaring total income of ₹ 6,47,400/- was filed on 28.11.2003. The assessment proceedings u/s 143(3) were initiated on 28.9.2004. Subsequently it was informed to the AO that Directorate of Revenue Intelligence, Surat (DRI in short) had visited the premises of the assessee on 8.12.2004 and carried out inspection/enquiries upto 10.12.2004 and consequently impounded all the records, files, data, computers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- Since the assessee was not able to verify these purchases he invoked the ratio of the decision in M/s Vijay Proteins Ltd. vs.ACIT (1996) 58 ITD 428 (Ahd) 76 and disallowed 25% of such expenditure resulting in an addition of ₹ 3,61,25,812/-. He also disallowed the claim under section 80 HHC on the ground that there are no corroborative evidence of the claim. He mentioned in the order that DRI authorities are investigating the case of the assessee for mis-use of DEPB/Rebate Scheme by exporting cheaper quality fabrics in the guise of high value fabrics. It has been held in the case of Vijay Proteins Ltd. (supra) as under :- Section 145 of the Income-tax Act, 1961 - Method of accounting - Additions to income - Assessment year 1991-92 - Whether assesseecompany having failedto prove genuineness of transactions with 33 suppliers of oil cakes either by producing them or brokers or transports, Assessing Officer's findings that sales invoices, vouchers for freight payments in respect of purchases were all fictitious ones, were justified - Held, yes - Whether assessee having failed to prove that such oil cakes were received from outside Gujarat State, as shown in aforesaid inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of account from DRI and also has approached the Hon'ble Gujarat High Court but unfortunately it has not succeeded. The AO had carried out some enquiries in the case of parties from whom assessee had made purchases but the parties are not traceable as long time have elapsed since the transactions. He referred to a judgment in the case of Shankar exporters vs. Addl. CIT reported in (2010) 132 TTJ (Jp) 107 wherein it is observed that adverse inference may not be drawn if parties are not traceable in spite of issue of summons. In any case, the assessee has submitted contemporary documents in the form of audit report which does reflect quantitative tally. He submitted that payments for purchases are made by cheques and if cheques are encashed through banking channels then it cannot be said that parties from whom purchases are made are bogus. He referred to a decision in the case of YFC Projects (P) Ltd. vs. DCIT (2010) 37 SOT 130 (Del) and also in the case of ITO vs. Kanchwala Gems (2009) 122 TTJ 854 which was affirmed by Hon. Court in 288 ITR 10 (St). He then referred to a decision in CIT vs. M. K. Brothers (1987) 163 ITR 249 (Guj) for the proposition that if sales are made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opper Extrusion (P) Ltd. vs. ACIT, Cen.Cir.1(4), Ahmedabad, wherein it is held that genuineness of the purchases has to be independently proved and not merely inferential and if assessee fails to discharge the burden then it is open to the Revenue authorities to disallow the purchases irrespective of any consideration that there could not have been corresponding sales without those purchases. 11. We have heard the parties and carefully perused the material on record. So far as various propositions argued by the ld. AR are concerned, they would be applicable when relevant facts are ascertained. In the present case admittedly assessment has been done ex parte, as neither the AO was able to procure any evidence nor the assessee was able to produce any evidence before the AO. There is no clear assertion by either party that DRI have declined to give books of accounts or their inspection or their copies or even to provide to either parties, copies of their report after examining various documents impounded from the assessee and further investigation thereafter. At one place ld. CIT(A) has mentioned in his order that AO reports to him that "it is concluded in the remand proceedings that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er under section 132A or in whatever manner he considers it appropriate and frame the assessment according to the law. It is in the interest of justice that assessment should be framed on the basis of data available with DRI and enquiries thereon or even otherwise. We accordingly restore the matter to the file of AO for framing the assessment de novo. Accordingly, we allow the appeal of the assessee as well as that of the Department but for statistical purposes. ITA No.559/Ahd/2008 & ITA No.579/Ahd/2008 Asst. Year 2003-04 12. These are cross appeals one filed by the assessee and the other by the Revenue. ITA No.559/Ahd/2008 Asst. Year 2003-04 (Assessee's appeal) 13. The assessee has raised the following grounds :- (1) The CIT(A) erred in upholding the addition at 10% of the overall sundry creditors on the alleged pretext that they are nongenuine purchases. (2) The ld. CIT(A) further erred in completely overlooking the peculiar facts and circumstances of the case before making the disallowance. (3) The CIT(A) ought to have allowed the appeal of the assessee in toto. ITA No.579/Ahd/2008 Asst. Year 2003-04 (Revenue's appeal) 14. The Revenue has raised the following grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2003-04 20. These are cross appeals one filed by the assessee and the other by the Revenue. ITA No.563/Ahd/2008 Asst. Year 2003-04 (Assessee's appeal) 21. The assessee has raised the following grounds :- (1) The CIT(A) erred in upholding the addition at 10% of the overall sundry creditors on the alleged pretext that they are non-genuine purchases. (2) The ld. CIT(A) further erred in completely overlooking the peculiar facts and circumstances of the case before making the disallowance. (3) The CIT(A) ought to have allowed the appeal of the assessee in toto. ITA No.582/Ahd/2008 Asst. Year 2003-04 (Revenue's appeal) 22. The Revenue has raised the following ground in its appeal:- (1) On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in directing to restrict the disallowance to 10% of sundry creditors as against the disallowance made by the AO at 25% of unverifiable expenditure (purchases) by treating the same as non-genuine. 23. Since the facts and circumstances of the cases are the same as in ITA No.s 558/Ahd/2008 Asst. Year 2003-04(Assessee's appeal) and in ITA No.578/Ahd/2008 Asst. Year 2003-04 (Revenue's appeal), then considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,028/-." However, the assessee apparently could not produce any books of account. It was submitted that a search by DRI (Directorate of Revenue Intelligence) had taken place at its premises and all the documents relating to purchases and sales and regular books were seized by them. It was also submitted that DRI has not provided relevant books of accounts even though the assessee had approached the Hon. Gujarat High Court which has directed to return the books of accounts but because of different interpretation of the decision of Hon. High Court made by the DRI books were not released. The AO, however, obtained list of documents from DRI and on that basis list of parties from whom assessee had made purchases was prepared information under section 133(6) was called for from 92 parties. The AO summarised the result of enquiries as under :- Name of parties Details of response by parties 7 parties Ledger of the party filed, no other details as called for was furnished. Even the party has not mentioned their PAN also. However, transactions shown in the ledger also reflected in the bank statement of the assessee. 5 parties No reply was received 2 parties No details filed 16 par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identity of the creditors, their creditworthiness and genuineness of the transactions, the addition under section 68 alone has to be made. He submitted that there is no case for sustaining the addition under section 41(1). 30. We have heard the parties and carefully perused the material on record. Both the parties are in support of the proposition that addition under section 41(1) cannot be made. We agree with them. There is no apparent cessation or remission of liability. Even if balances are standing for numbers years it cannot be held that the creditors have remitted the liability in favour of the assessee or liability has ceased to exist by operation of law or contractual agreement. There has to be an overt act on the part of the creditors indicating conferring benefit to the assessee by remitting the liability in favour of the assessee or there is to be an event such as operation of law or an agreement between the parties resulting in cessation of liability. In the present case no such event has taken place, therefore, provisions of section 41(1) cannot be invoked. But we agree with the ld. DR that provisions of section 68 can be invoked in respect of any creditor whether it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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