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TMI Blog2017 (10) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... 015 without remanding the matter to the AO or making any enquiries on his own. 2. Whether the Ld. CIT(A) was right in law and fact in deleting the addition amounting to Rs. 2,75,000/- on account of addition of assets (Car) without appreciating the finding of the Assessing Officer that the assessee has failed to explain the source and mode of the payment made for purchase of the said car. 3. Whether the Ld. CIT(A) was correct in law and fact in allowing relief amounting to Rs. 20,44,961/- out of total addition of Rs. 38,66,917/- on account of non-payment of Work Contract Tax (WCT) despite the fact that the assessee had not disputed the liability to the extent of Rs. 85,16,917/- on account of WCT which is also supported with the figure as reflected in the Balance sheet duly audited. 4. Whether the Ld. CIT(A) was correct in law &fact in deleting the addition amounting to Rs. 2,14,000/- for the purchase of construction material from M/s Raizada Brick Kiln despite the fact that the said party had confirmed to the AO that no such sales were made by it to the assessee. Also, it is clear that the assessee was in the habit of booking wrong amounts on the basis of forged bills as pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notary. 8. Whether the Ld. CIT(A) was correct in law & fact in deleting the addition of Rs. 3,42,166/- despite the fact that M/s Ruchi Infotech has admitted that nothing outstanding is receivable from the assessee." 3. The assessee has also filed cross objections to the appeal filed by Revenue which are supportive of Ld. CIT(A) order. 4. The brief facts of the case are that assessee filed a return of income declaring net income of Rs. 16,89,468/- from the business activity of civil construction. The case of the assessee was selected for scrutiny and during assessment proceedings, the Assessing Officer made following additions. (i) Addition of account of Unsecured loan of Rs. 1,53,458/-. (ii) Addition on account of fixed assets (Car) Rs. 2,75,000/- (iii) Addition on account of Work Contract Payments to Rs. 38,66,917/- (iv) Addition on account of bills Rs. 8,42,192/-, (v) Addition on account of static creditors to Rs. 26,60,270/- (vi) Addition on account of disallowance of expenditure u/s 40A(i)(ia) for non deduction of tax at source of Rs. 1,51,68,987/- (vii) Addition on account no provision for interest claimed U/s 40(B)(v) of the Act to Rs. 3,66,317/- (vii) Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st/overdue charges over and above the loan amount. This led to a dispute between the parties and the appellant stopped crediting interest/overdue charges to the account of the financier in its books of account and neither claimed expenses on that account. The loan is still payable by the appellant and financier is still demanding his dues. Copy of a recent letter dated 14.11.2015 received from the financier demanding an amount of 879505.45 is enclosed for your perusal (Page 1). This proves that the debt is not unexplained as alleged by the Ld. AO and is still payable by the appellant. As soon as the parties reach a settlement, the outstanding balance including additional charges if any shall be repaid. The appellant therefore requests your good self to delete the addition of Rs. 153458." I have considered the assessment order and the submissions made by the appellant stated as above. The AO has made the addition on the ground that the assessee has failed to establish the genuineness of the balance shown as outstanding in the Balance Sheet of the assessment year under consideration. The appellant, on the other hand has stated that the amount shown as outstanding has been demanded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot shown in the books of account maintained by the appellant. It is submitted that the entry for purchase of car was duly reflected in the books of account and the balance sheet of the appellant which was produced before the Ld. AO at the time of assessment. Copy of sale agreement entered with the seller was also furnished to the Ld. AO which he acknowledged in last para of page 5 of the assessment order. Copy of the same is also enclosed for your perusal. (Page 2-3). Now since the entry for purchase of car is duly supported with an affidavit and duly entered in the books of account, it is prayed that the addition of Rs. 275000/- be deleted." I have considered the above addition made by the AO. I have also considered the submissions made by the appellant. The AO has stated in the assessment order that no evidence was given in support of addition of car amounting to Rs. 2.75 lacs in the fixed assets schedule and the sale deed produced by the assessee and duly notarized by a Notary is a self serving document and thus, cannot be relied upon. The mode of payment has also not been given and also this transaction was not found to have been entered into the cash book/Journal. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om M/s. U Flex. Since, M/s. U Flex paid only a sum of Rs. 46,50,000/- to the assessee, the same was deposited in the Govt, account on account of WCT. Not convinced with the reply filed by the assessee, the AO, allowed only Rs. 46,50,000/- and added back the remaining amount of Rs. 38,66,917/- on account of unpaid work contract tax( WCT) under section 43B of the Income Tax Act. During the appellate proceedings the appellant has submitted as under:- "The appellant submits that it entered into works contract with M/s U Flex. During the year under consideration, the appellant was to receive an amount of Rs. 8516917/- from M/s U Flex on account of works contract tax (WCT) in addition to the contract receipts. This WCT was to be deposited to the account of the Govt, by the appellant. But out of the total WCT amount of Rs. 8516917/- the appellant was able to deposit Rs. 4650000/- only. The shortfall in depositing WCT was due the fact that the appellant did not receive the full payment from M/s U Flex. It can be seen from the balance sheet as on 31.03.2012; that the appellant had an outstanding balance of Rs. 8539875.91 recoverable from M/s U Flex which includes amount due towards WC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT vs. Ovira Logistics P Ltd. 377 ITR 129 and Hon'ble Delhi High Court decision in the case of CIT vsTTJoble & Hewitt (I) (P) Ltd. 305 ITR 324 in support of his claim. I have gone through both the decisions cited by the appellant. The Hon'ble Delhi High Court in the case of CIT vs. Noble & Hewitt (I) (P) Ltd. 305 ITR 324 has held that "when the assessee is following mercantile system of accounting and is not paying to Government part of service tax and has not debited the amount to the P & L A/c as an expenditure nor did the assessee claim any deduction in respect of the amount, the question of disallowing the deduction not claimed would not arise." Similarly, Hon'ble Bombay High Court in the case of CIT vs. Ovira Logistics P Ltd. 377 ITR 129 has held as under:- "Having perused the aforesaid decisions, we are of the view that section 43B does not contemplate liability to pay the service tax before actual receipt of the funds in the account of the assessee. In our view, liability to pay service tax into the treasury will arise only upon the assessee receiving the funds and not otherwise. Accordingly, when services are rendered, the liability to pay se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded in the books of account on 13/08/2011 and 06/09/2011 amounting to Rs. 3,28,725/- and Rs. 2,99,467/- respectively. When the AO, issued the notice u/s. 133(6) to the said firms, they denied to have issued any such bills or sold any such material to the assessee firm. The AO, therefore, disallowed a sum of Rs. 2,14,000/-, 3,28,725/- and Rs. 2,99,467/- totaling to Rs. 8,42,192/- and added to the income of the assessee. The appellant, on the other hand, has claimed that it had purchased construction material from M/s. Raizada Brick Klin for a consideration of Rs. 2,14,000/- for its construction business. However, inadvertently, the seller issued the bill in the name of Ch. Wali Mohd who is one of the partners of the assessee firm. Sh. Ch. Wali Mohd. has already given undertaking that he has not claimed this expenditure in his books of accounts and has also not claimed any deduction of this amount and thus, the same should be allowed in the hands of the assessee. I have considered the appellant's submission. In a business like this when a gross contract receipt at Rs. 11,17,42,214/- has been shown, it is very much possible that one of the bills might have been issued in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e further submitted that it is a fact that the assessee firm is not dealing with these parties and has withheld the payments because of working capital crunch at that time. The replies not received from these parties do not mean that the liability has ceased to exist or has been remitted. The AO, however, was not convinced with the reply of the assessee and added back the entire amount of Rs. 26,60,270/- to the total income of the assessee u/s. 41(1) of the Income tax Act. The appellant, on the other hand, in his submission made during the appellate proceedings has stated as under:- "The appellant submits as under: - The Ld. AO has made additions of Rs. 2660270/- u/s 41(1) on account of static creditors. Section 41(1) of the Income Tax Act, 1961 reads as under: Profits chargeable to tax. 41 .[ (l) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in its books of account as provided by Explanation-1 above. All the balances are shown as payable in the books of account. Copies of account of all these creditors showing that there were no transactions during the year are enclosed (Page 28-29). Moreover, the Ld. AO had not brought anything on record to prove that any amount or benefit had been obtained by the appellant during the year under consideration against liabilities which is allegedly ceased to exist. It is also an established proposition of law that onus is on the AO to establish that any benefit has accrued to the appellant against alleged liabilities during the year under consideration. Since the Ld. AO has failed to prove his case, the additions are prayed to be deleted. Case laws in support of appellant's contention are given below: - 1. ITO vs. Sh. Jagmohansingh G Dhiman ITA No. 1959/Ahd/2012 - A.Y. 2009-10 ITAT Ahmedabad (Page 30-34) 2. CIT vs. Shri Vardhman Overseas Ltd. ITA NO. 774/2009 Del HC (Page 35-50) 3. CIT v. Sugauli Sugar Works (P) Ltd. (1999), 236 ITR 518 SC (Page 51-54) 4. CIT v. Kesaria Tea Co. Ltd. (2002) 254 ITR 434 SC (Page 55-58) I have considered the rival contentions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of labour charges. The assessee hired several hundreds of labourers for executing contract works and the persons named herein were responsible for disbursal of payments to them and for looking after these persons. The assessee did not enter into any sub-contract with any person and all the workers were directly employed by the assessee. Since there was no subcontract and the payments were made on account of labour, the provisions of section 40(a)(ia) are not applicable and the expenditure is prayed to be allowed." The AO was not convinced with the above reply and added this sum of Rs. 1,51,68,987/- u/s 40 (a) (ia) of the Act on the ground that the perusal of petty contractor bills were examined on random basis which show that the payments have been made to these petty contractors on account of supply of labour/mason/carpenter/plumber. In some cases the bills have been raised on account of fixing of tiles/marble/wood work at a particular fixed rate per specified area. These bills when checked on random basis were found to have been in big amounts submitted by each petty contractor to the assessee. Each bill issued by these petty contractors runs into lacs of rupees and moreover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em is widely followed across the country. Regarding the cash payment, the payments are always made to the labourers in cash as it is not possible for the daily wagers to accept payments by cheques. What happens on the ground level that 'labour mate' gets the money from the contractor and disburse the same to the labourers on work sites. Section 194C (1) of the Income Tax Act provides that any person responsible for paying any sum to any contractor for carrying out ant work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by cheque, deduct an amount equal to one per cent or two per cent depending on the status of that person. Thus, section 194C is attracted only when there is a contract between the contractor and the person responsible for executing the work. Here, in the case of the appellant, there was no contract between the contractor and the Petty contractors (Labour Mates) and as such there is no question of deduction of TDS. It is found from the assessment order that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advocate notary was duly licensed to notarise the deed and there is nothing illegal in his doing so. The Ld. AO also pointed out that the earlier deed was duly registered in court of law whereas the supplementary deed was notarised only. It is pertinent to mention here that section 40(b) nowhere mandates that the partnership deed has to be registered in a court of law. It only prescribes that the partnership deed should be a written document. Moreover when the appellant submitted before the Ld. AO that there has been no change in constitution of the firm> it meant that there was no change in the partners and did not refer to such changes as provision of interest on capital. The Ld. AO without bringing any material on record proceeded to disallow the expenditure on account of interest paid to partners. Without prejudice to above, it is submitted that the Ld. AO has disallowed the interest on capital u/s 40(b)(v); which relates to allowance of remuneration to working partners and not interest on capital. The addition made under the wrong proviso is liable to be deleted. In view of the above, it is prayed that the expenditure of Rs. 366317/- be allowed." I have considered bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Systems. The Ld. AO noted in his assessment order that the said party has informed that there was nothing outstanding being receivable from the appellant. On this basis, the Ld. AO added the amount standing to the credit of M/s Ruchi Infotech Systems as unexplained credits u/s 68. It is submitted that the Ld. AO did not provide the appellant any opportunity to cross-examine the party on whose statement he relied on to make the addition. This is against the principles of natural justice and the additions made on this basis are liable to be quashed being unjustified and illegal. This has been held by Hon'ble Delhi High Court in the case of Vijay Kumar Ahuja vs. ACIT IT A No. 5856/Del/2012 (Page 60-67). The appellant also relies on case laws submitted at S. No. 5 above. Without prejudice, it is further submitted that the Ld. AO has observed that the appellant has not entered into any transaction with this party after 22.12.2008, which means that these credits represent the credit for earlier years. If that be the case, no addition can be made in this year under Section 68 of the Act. If it is said that these credits represent the expenses/purchases for which payments hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra.) that the question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but it is a matter which has to be decided only if the creditor has stated that the liability has ceased to exist because the creditor may enforce the debt or liability after expiry of sometime then it would not be possible for the assessee to pay back the outstanding balance. Though, M/s Ruchi Infotech has stated that all the payments have been squared up, the appellant should have been provided the opportunity to cross examine M/s Ruchi Infotech. In the absence of that the addition of Rs. 342,166/- cannot be sustained and hence, deleted. The appellant gets a relief of Rs. 3,42,166/-." 6. Aggrieved with the order of Ld. CIT(A), the Revenue is in appeal before us. 7. At the outset, the Ld. DR invited our attention to first addition of Rs. 1,53,458/- and submitted that the Ld. CIT(A) has deleted this addition on the basis of letter dated 14.11.2015 which is in fact was an additional evidence and which has not been confronted to Assessing Officer and therefore, it was prayed that the same may be set aside to the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentary deed was notarized only. He submitted that the Ld. CIT(A) has allowed relief on the basis that Advocate was competent to notarize a document and has overlooked the facts that the supplementary deed was not sighed of by all the parties. As regards the addition on account of Ruchi Infotec System, the Ld. DR submitted that the Assessing Officer during the assessment proceedings had observed that first transaction was recorded on 20.12.20104 and assessee had not done any transaction after 2.12.2008 as was confirmed by M/s Ruchi Contract Infotech System and therefore, Assessing Officer had rightly made the addition u/s 68 of the Act. He submitted that the Ld. CIT(A) has deleted the addition by holding that these credits related to earlier years and therefore, he argued that the addition made by Assessing Officer be confirmed. The Ld. AR in this respect replied to arguments of Ld. DR with respect to each addition. As regards first addition of Rs. 1,53,458/- the Ld. AR submitted that assessee had got financed an equipment from M/s SRIE Equipment Finance Limited and the said company had charged undue interest and charges and the amount had become disputed and therefore, it was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regards deletion of addition for non deduction of tax, the Ld. AR submitted that assessee is engaged in the business of executing works contract which requires engagement of labourers. Labour mates are appointed who keeps a record of the work done by each labourers and the payments are made to various labourers employed at various sites through these mates. It was submitted that it is a regular practice in the business of civil construction. It was submitted that assessee never employed any contractor. It was submitted that each mate prepared the details of work allocated to him. It was submitted that Assessing Officer did not record the statements of any such alleged contractors and therefore, also the Ld. CIT(A) has deleted the addition correctly. As regards interest on capital to partners the Ld. AR submitted that assessee entered into supplementary partnership deed dated 1.4.2007 which provided for payment of interest on capital as per the provisions of Section 40b(v) of Income tax Act. The Ld. AR submitted that copy of partnership deed was placed at page 8 of Paper Book and therefore, the Ld. CIT(A) has rightly deleted the addition. As regards the deletion of addition of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, Ground No.1 is dismissed. Addition of account of the purchase of second hand Car. The assessee had purchased a second hand Car for a sum of amount of Rs. 2,75,000/- which it had reflected in its balance sheet and for which he made entries in the books of accounts. The copy of ledger account of Car is placed at PAPER BOOK-4. The Assessee had claimed an amount of Rs. 20,625/- as depreciation and was allowed deprecation on this amount. Moreover, we find that assessee in its balance sheet in the schedule to fixed assets had declared the purchase of Car under the heading Car for purchase of second hand Car. The sale agreement placed at PAPER BOOK-2 is a sufficient document which along with other evidences in the form of entries in the books of accounts and balance sheet proves that assessee did purchase the car, therefore, Ld. CIT(A) has rightly deleted the addition, therefore, Ground No. 2 is also dismissed. Addition on account of Work Contract Tax Payment. In this respect, we find that the assessee had entered into a work contract M/s U Flex Ltd. During the year under consideration the appellant was to receive an amount of Rs. 85,16,917/- on account of Work Contract Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of Static Creditors. As regards deletion of addition on account of Static creditors, we find that the Assessing Officer during assessment proceedings noted that there were certain creditors the balance of which was outstanding for last more than three years and there was no transaction between the assessee and creditors and neither any interest has been paid and creditors had also not demanded the outstanding payments and therefore, Assessing Officer arrived at the conclusion that the above creditors might have secured/written off the balances and therefore, there was remission of liability and therefore, he made the addition U/s 41(1) of the Act. Before the Ld. CIT(A) detailed submissions were made and assessee relied on various case laws as noted by Ld. CIT(A) in his order at page 40. The case laws relied on by the assessee held that the assessee cannot be fastened with the liability U/s 41(1) unless the creditors had stated that liabilities had seized to existence. The Hon'ble'ble Delhi High Court in the case of CIT Vs Jain Exports 217 Taxman 0054 after relying on the decision of Supreme Court in the case of CIT Vs. Sugauli Sugar Works (P) Ltd., under similar facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held that section 41(1) contemplates obtaining by the assessee an amount either in cash or any other manner or any benefit by way of cessation or remission of liability. In order to come within the sweep of section 41(1) it is necessary that the benefit derived by an assessee results from cessation or remission of a trading liability. The relevant extract from the decision of the Supreme Court in the case of Sugauli Sugar Works (P.) Ltd. (supra) is quoted below: 3. It will be seen that the following words in the section are important, the assessee has obtained, whether in. cash or in any other manner whatsoever any amount in respect of such loss or expenditure of some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him'. Thus, the section contemplates obtaining by the assessee of an amount either in cash or in -any other manner whatsoever or ~ benefit by way of remission or cessation and it should be of a particular amount obtained by him. Thus, the obtaining by the assessee of a benefit by virtue of remission or cessation' is* sine qua non for application of this section." 17. The only issue that needs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the period of limitation to enforce it, does not by itself constitute cessation of the liability. In the instant case, the liability being one relating to wages, salaries and bonus due by an employer to his employees in an industry, the provisions of the Industrial Disputes Act also are attracted and for the recovery of the dues from the employer, under section 33C(2) of the Industrial Disputes Act, no bar of limitation comes in the way of the employees. After quoting the above passage, the Supreme Court held as under:- "This judgment has been quoted by the High Court in the present case and followed. We Have no hesitation to say' that the reasoning is correct and we, agree with the same. 20. In order to attract the provisions of Section 41(1) of the Act, it is necessary that there should have been a cessation or remission of liability. As held by the Bombay High Court, in the case of J.K. Chemicals Ltd. (supra) I cessation of liability may occur either by the reason of the liability becoming unenforceable in law by the creditor coupled with debtor declaring his intention not to honour his liability, or by a con t r ac t between parties or by discharge of the debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e examined in the year when the liability was recorded as having arisen, that is, in the year 1984-1985. The department having accepted the balances outstanding over several years, it was not open for the CIT (Appeals) to confirm the addition of the amount of Rs. 1,53,48,850/- on the ground that the assessee could not produce sufficient evidence to prove the genuineness of the transactions which were undertaken in the year 1984-85. 23. The present appeal does not disclose any substantial question of law for our consideration and is, according, dismissed. *In favour of assessee." In view of the above facts and circumstances and judicial precedents, we do not see any infirmity in the order of Ld. CIT(A) and therefore, Ground No. 5 is dismissed. Addition on account of non deduction of tax (TDS) As regards the addition on account of non deduction of tax at source (TDS), we find that the Assessing Officer made the addition on account of non deduction of tax on payments made to various persons who were employed by assessee as labour mates and Assessing Officer held that these were contractors and therefore, assessee was required to deduct TDS from these payments. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners was not permitted as the payment of interest was not in accordance with the said provisions. The Ld. CIT(A) has overlooked this fact that supplementary partnership deed placed at PB-8 was in fact no partnership deed but was an affidavit signed by one partner, therefore, the order of Ld. CIT(A) in this respect is reverse and therefore, Ground No.7 is allowed. Addition on account of Sec.68 of the act. As regards the addition of an amount of Rs. 3,42,166/- on account of Ruchi Infotec System, we find that Assessing Officer made the addition after examining M/s Ruchi Infotec System, by issuing notice U/s 133(6) of the Act. The Assessing Officer observed that the last transaction was recorded on 22.12.2008. The Assessing Officer held the same to be unexplained credit U/s 68 and did not allow the opportunity to assessee to Cross Examine the statements of Ruch Infotec System Ltd. We further find that appellant had not entered into any transaction with this party after 27.12.2008 which means that this credit represents the credit for earlier year and therefore, no addition can be made in this year u/s 68 of the Act. The Hon'ble Rajsthan High Court in the case of CIT Vs. Prames ..... X X X X Extracts X X X X X X X X Extracts X X X X
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