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TMI Blog2017 (2) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... well reasoned. Addition u/s 41(1) - cessation/remission of liability in respect of two creditors - Held that:- Trading liability of both the parties, i.e, M/s. Fastech Telecommunication Private Limited and M/s Scientech Technology Private Limited are appearing as opening balance in the Ledger accounts of the parties in the books of accounts the assessee irrespective of the fact that in the books of accounts of the parties the balances of the assessee are shown as nil. Thus, it is clear that in books of account of the assessee, liability has not been remitted or ceased to exist. Secondly, from the nil opening balances in ledger accounts of the assessee in the books of accounts of those parties, it manifests that the liability has been either paid or waived in earlier years and not in the year under consideration. Thus, it is evident that the liabilities of both the parties have not been remitted by the assessee in its books of accounts at least in the year under consideration and no benefit has been obtained in respect of the trading liabilities, therefore, the provisions of section 41(1) of the Act are not applicable in the facts of the assessee in the year under consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover of the assessee. 3.1 The facts in respect of issue in dispute are that the Assessing Officer observed that besides non-payment of some of the bills for material purchase, payments to two parties by cheque not reflected in their books of accounts and most of the bills in respect of purchase of material for installation were without any TIN, the assessee also did not maintain any stock register in respect of the material purchased for installation. In respect of stock register, it was explained by the assessee that he was engaged in installing the equipments at the customer site and, therefore, the entire stock either gets consumed or remained with the customer, which is evident from the closing stock in books of account. The Assessing Officer concluded that there might be a closing stock available at the end of customer but same has not been considered by the assessee in the books of account. In view of the discrepancies, the Assessing Officer invoking the provisions of section 145(3) of the Act rejected books of accounts and the gross profit rate of 25 % was applied over the sales of the assessee, which yielded the gross profit of ₹ 2,53,56,334/-. After subtracting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken issue only in respect of gross profit rate reduced by the learned Commissioner of Income-tax (Appeals) to 20.78% from the gross profit rate of 25% applied by the Assessing Officer. We find that the rate of 25% applied by the Assessing Officer was without any comparable case, whereas the learned Commissioner of Income-tax (Appeals) has applied the gross profit rate shown by the assessee in the immediately preceding assessment year. We find that learned Senior Departmental Representative could not controvert the fact that there is no material change in the business activity of the assessee in the year under consideration as compared to the immediately preceding year. As regard to the arguments of learned Authorized Representative of the assessee, we find that the assessee has neither filed any cross objection or appeal contesting the issue of rejection of books of accounts and not taken any additional ground in this respect and therefore the arguments of learned Authorized Representative, not to reject the books of accounts, cannot be considered. 3.5 In view of the facts and circumstances of the case, we are of the considered opinion that the findings of the learned Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance of ₹ 1,46,51,600/-, payment by cash of ₹ 10 lakhs and by cheque of ₹ 9,25,000/- and the closing balance was shown at ₹ 1,27,26,600/-. 4.4 The Assessing Officer summarized the position of the opening and closing balance of the above mentioned two parties in the books of accounts of the assessee as under: Sl. No. Name of party Position as on 1.4.2007 Position as on 31.3.2008 1. M/s. Fastech Telecommunication (I) Pvt. Ltd. 2,10,02,800/- 1,72,77,800/- 2. M/s. Scientech Technology Pvt. Ltd., Indore 1,46,51,600/- 1,27,26,600/- 3,56,54,400/- 3,00,04,400/- 4.5 Further, the position of the assessee s Ledger account in the books of account of the above two-party was summarized by the Assessing Officer as under: Sl. No. Name of the Party Position as on 1.4.2007 Position as on 31.3.2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se liabilities were created in pursuance of the respective invoice/debit note details of which have been mentioned above. This invoice/debit note has not been held to be false. In the books of accounts' of the appellant, liabilities towards both the parties have been shown as outstanding liabilities i.e. there is neither any discharge of the liabilities by the appellant; nor is there any contract between the appellant and the creditors with regard to their cessation/ remission. (ii) In the books of accounts of the creditors, they have neither shown any opening balance nor any closing balance due from the appellant. Thus even as per the books of accounts of the creditors the liabilities of the appellant towards them have not ceased/ remitted during the year under consideration. (iii) The books of account of the appellant have been rejected by the AO on account of specific defects pointed out in the same. The rejection of books of accounts of the appellant and application of a profit rate has been upheld as discussed in later part of this order. 4.9 The learned Commissioner of Income-tax (Appeals) also held that books of account have been rejected and the gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances, no further addition under section 41(1) of the Act was required. In this connection, the learned Authorized Representative, relied on the following decisions: (i) Indwell constructions, reported in (1998) 232 ITR 776 (AP); (ii) Bhandari Lal Bansi Dhar, reported in (1998) 229 ITR 229 (All); (iii) M/s. Exim Cargo Kare, in ITA No. 5134/ Mum/2011(Trib.)(Mum.) 4.14 We have heard the rival submissions and perused the relevant material on record. We have also gone through the provisions of section 41(1) of the Act. We find that under the provisions of section 41(1) of the Act, following benefits obtained by the assessee are brought to tax: (i) any amount obtained in cash or in any other manner in respect of loss or expenditure; (ii) any benefit obtained in respect of any trading liability by way of remission or cessation thereof; where such loss or expenditure or trading liability was allowed as deduction in earlier year or years. 4.15 In the case in hand, there is no dispute as to the trading liability was allowed in earlier year. The only dispute between the parties is that whether the trading liability has been remitted during the year. The conte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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