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TMI Blog2017 (3) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... undoubtedly acknowledged by the assessee as payable to these parties as reflected in its Balance Sheet as on 31.03.2011. It is seen that many of the creditors had also initiated legal proceedings for recovery of their outstanding amounts and in some cases there was disputes as to the amounts payable/receivable. In our view, in this factual matrix of the case on hand it is clear that it was neither a case of cessation nor remission of liability and therefore the AO had wrongly invoked the provisions of section 41(1) of the Act. Prior period expenses - Held that:- No reason to interfere with the finding rendered by the learned CIT(A) in allowing the assessee’s claim for allowing its claim of prior period expenses as the appellant's business of construction and this has to be treated as normal business practice which appellant was following in the earlier years - ITA No. 2840/Mum/2015, ITA No. 3482/Mum/2015 - - - Dated:- 15-3-2017 - Shri Jason P. Boaz, Accountant Member and Shri Sanjay Garg, Judicial Member For The Assessee : Shri V. Mohan For The Revenue : Shri Saurabh Kumar Rai ORDER Per Bench These cross appeals by the assessee and Revenue are dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t expenditure ₹ 33,000/- 2.2 Aggrieved by the order of assessment dated 15.02.2014 for A.Y. 2011-12, the assessee preferred an appeal before the CIT(A)-22, Mumbai. The learned CIT(A) disposed off the appeal vide the impugned order dated 16.03.2015 allowing the assessee partial relief, by deleting the additions/ disallowances at S.Nos. (ii), (iii) and (v) listed in para 2.1 (supra), upholding the disallowance at (iii) (supra) and partly sustaining the addition at (i). 3. Aggrieved by the order of the CIT(A)-22, Mumbai dated 16.03.2015 for A.Y. 2011-12 both the Revenue and the assessee have filed cross appeals. 3.1 The grounds raised by the assessee are as under: - (1) On the facts and in the circumstances of the case and in law, Ld. CIT (Appeals) erred in disallowing 12.5% of the purchases as being bogus in nature. (2) Appellant craves leave to amend or alter the existing ground or add further grounds at the time of hearing. 3.2 The grounds raised in Revenue s appeal are as under: - 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition on account of Bogus Pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on bogus purchases @12.5% is unjustified and is to be deleted since the basis for the said estimation was certain information received from the Sales Tax Department, Government of Maharashtra without providing the assessee opportunity to cross examine the persons on whose statements adverse inference were drawn. Reliance in this regard was placed on, inter alia, the following judicial pronouncements: - (i) Imperial Imp Exp. (ITA No. 5427/Mum/2015 dated 18.03.2016) (ii) Jaybharat Textiles Real Estate Ltd. (ITA NO. 5163/Mum/2013 dated 24.02.2016) (iii) Mahesh K. Shah (ITA No. 5194/Mum/2016 dated 31.01.2017) (iv) Vaman International P. Ltd. (ITA No. 794/Mum/2015 dated 16.11.2016) 4.4.1 We have heard the rival contentions and perused and carefully considered the material on record and the judicial pronouncements cited. We have carefully perused the cases cited above by the assessee (supra) and with due respect are of the view that none of them would come to the rescue of the assessee. While it is true that the controversy generated in all the cited cases (supra) and that of the assessee in the case on hand, are a result of certain information obtained from the Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The learned CIT(A) at paras 3.3 to 3.6 of the impugned order has held as under: - 3.3. I have considered the appellant s submissions and the AO s order. The appellant had purchased the material through M/s. Chirag Steel Centre for ₹ 28,07,056/-. The Sales tax department had treated MIs. Chirag Steel Centre as a provider of accommodation bills without supplying the material. This information was received from the Investigation department. As appellant was not a regular approved vendor with the appellant and no corrugated evidence was filed, the AU disallowed the purchases made through M/s. Chirag Steel Centre for ₹ 28,07,058/- and treated these purchases as bogus in nature and added the income of the appellant. 3.4 The appellant during the submissions stated that appel lant had submitted the evidence regarding Purchase order, ledgers, copies of invoices, payment details with bank entries which are paid through bank cheques, details of receipt and transportation such as LR/RR receipt, vehicle number, gate pass records, octroi receipts, GRN, delivery challans, weighment slips, details of issue utilization of the alleged purchase. 3.5 During the appellate proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y preceding year to the assessment year under consideration the assessee had declared gross profit @ 3.56% of the total turnover. If the yardstick of 30%, as adopted by the Commissioner, is accepted GP rate will be much higher. In essence, the Tribunal only estimated the possible profit out of purchases made through non-genuine parties. No question Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain of law in such estimation would arise. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted. 3.6 Following the above decision of the Gujarat HC, AO is directed to disallow 12.5% of the purchases as bogus in nature and on this 12.5% of the amount of purchase as income of the appellant. Hence ground of appeal is partly allowed. 4.4.1 On an appreciation of the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teral act by the assessee of not making the payment thereof to the 25 creditors. 5.3.2 On appeal, the learned CIT(A) following the decision of the Hon'ble Gujarat High Court in G.K. Patel Co. (supra) and of the Hon'ble Delhi High Court in the case of Jain Exports P. Ltd (supra) held that the addition under section 41(1) of the Act is unsustainable, as even if the liability to creditors has been pending for a long time, the provisions of section 41(1) of the Act cannot be invoked in the case on hand as there is no declaration by the assessee that it does not intend to honour its liability nor any remission of liability by the creditors. In paras 4.3 and 4.4 of the impugned order, the learned CIT(A) deleted the addition under section 41(1) of the Act holding as under: - 4.3 1 have considered the appellant's submissions and AO's order. During the assessment proceedings, AO had asked for the details of with name and transaction which are outstanding for more than three years as on 31.03.2011. AO found out that there are 25 creditors whose payments were outstanding for more than 3 years, the amount involved is ₹ 1,52,29,070/-. AO further found that, in some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the principles enunciated in the decision of Apex Court in CIT v. Sugauli Sugar Works (P.) Ltd. - Tribunal, therefore, committed no legal error - Appeal filed by revenue dismissed. 4.4 On perusal of the above cases,, HC have held that if the liability is pending for more than 3 years, it cannot be treated as cessation of liability and it cannot be declared as creditor .will not honor this liability. Further held that had it been pending for long time, it 'cannot be added as income of the appellant under sec. 41(1) till payer does not disagree to pay the amount. If we compare the facts of the same, the facts are identical. Here also in the present case, creditors are :pending for more than three years so in view of the above HC's decision, AO's addition under sec. 41(1) cannot be sustained. The addition is deleted an ground of appeal is allowed. 5.3.3. In the case on hand, admittedly there were 25 creditors of the assessee to whom ₹ 1,52,29,070/- was outstanding for more than three years and in some cases 8-9 years. According to the assessee, it was unable to pay these creditors due to certain liquidity problems, but the said amounts were undoubtedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his was normal business practice of the assessee, which was accepted by the AO s in the past. The learned CIT(A) allowed the assessee s claim of prior period expenses following the decisions of the Hon'ble Delhi High Court in the case of Jagatjit Industries Ltd. (194 Taxman 158) (Delhi) and SMCC Construction (India) Ltd. (220 Taxman 354) (Delhi), on the ground that these decisions were rendered on similar facts and held as under at paras 5.3 to 5.5 of the impugned order: - 5.3 I have considered the appellant's submission. In the tax audit report of the appellant, an amount of ₹ 12,66,805/:- was mentioned prior period items and same was debited to- the Profit and loss account which is in the nature of expenditure of prior period. 5.4 During the appellate proceedings, appellant had submitted that as the business of appellant is in construction and execution of business operating, several on-site jobs are carried on. There is always delay in the receipt of bills and therefore when the accounting year closes and certain bills will be pending till end of the closing year are treated as in the next year. As details of the expenses-show that many of the bills are date ..... X X X X Extracts X X X X X X X X Extracts X X X X
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