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TMI Blog2018 (5) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure. The issue before us is whether the credit purchases can be added u/s. 68 of the Act, when all the purchases have been accepted as genuine 2. After hearing the rival submissions and perusing the material available on record and paper book filed before us, we find that the issue in hand is relating to addition made on account of sundry creditor. During the course of arguments before us the ld.AR referred to page-5 of the paper book and argued that the details of purchases were verified by the AO and found satisfied with the same and accepted the expenditure incurred to that effect. The AO is wrong in making the impugned addition on account of sundry creditor, which are related to purchases and the same also accepted by the AO as genuine. Without rejecting the purchases, the sundry creditors cannot be treated as income of assessee and in support of the contention, the assessee relied on the order dt. 07-09-2016 of the Co-ordinate Bench, ITAT, Kolkata in the case of Ms/ Standard Leather Pvt. Ltd in ITA No. 2620/Kol/2013 for A.Y 2010-11, copy of the same is on record and referred to paras 10-13 of the said order. We find that the facts of the case in M/s. Standard Leather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end of every year and were duly accepted in earlier years. Even while completing the assessment for the assessment year in question, sundry creditors of the earlier years have been accepted by the AO. I also find that there were sundry debtors of equal amount in the Balance sheet which shows that in this trade there remain outstanding sundry creditors and debtors. When purchase was accepted as genuine then the sundry creditors cannot be treated as bogus. vii) Regarding applicability of provisions of section 68, I find that the appellant has brought substantial material on record to show that these are sundry creditor for purchases paid in subsequent years and that part of the purchases from the very parties were already accepted by the Assessing Officer.Evidently, the creditors were held to be bogus on the ground that enquiry letters under sec. 133(6) of the Act were received back unserved with the remarks 'not known' leaving the Assessing Officer to conclude that the appellant has failed to discharge his onus of proving the capacity of the creditors and genuineness of the transactions. Apparently, in my opinion, the Assessing Officer has not appreciated the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas Ltd. (supra). Therefore, it is abundantly clear that the provision of sec. 41(21) (a) are not applicable. No addition could be made for remission or cessation of trading liability as envisaged under section 41(1) of the Act for the assessment year under consideration. ix) In view of above discussed legal and factual position, I am of the considered view that the sundry creditors of ₹ 4,29,02,130/- cannot be treated as bogus sundry creditors and cannot be added to the income of the appellant. Accordingly, the impugned addition made by the AO is hereby directed to be deleted and thus, these grounds of the appeal of the appellant are allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 12. Before us Ld. DR vehemently relied on the order of AO whereas Ld. AR submitted that the AO has made further addition of ₹ 4,29,02,130/- from Sundry Creditors. It is submitted that these creditors stood in the books of the company and the amount was never written off. The purchases of goods from these parties have been accepted to be genuine. There was no evidence to suggest that no liability to sundry creditors was payable. The details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the sundry creditors without disallowing the corresponding purchases. From the above it is clear that the purchases in the instant case have been admitted but the corresponding sundry creditors have been added as total income of the assessee. In our considered view the action of the AO for making the addition of the sundry creditors without disallowing the purchases is based on wrong interpretation of Income Tax Laws. The sundry creditors can be added as income under section 41(1) of the Act once it is written off in the books of accounts. In the instant case the same has not been written off and very much reflecting in the books of the assessee. Therefore in our considered view the sundry creditors reflecting in the books of accounts cannot be disallowed and added to the total income of the assessee. In the instant case, the balances of many of the sundry creditors were outstanding coming from earlier years. Payments were made to some or the creditors during the year. The said payments have been accepted by the AO which means genuinity of the payments to these creditors as well as the genuinity thereof till last year have not disputed by the AO. In the instant case the firstl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined only in the year in which they were credited in the account of the assessee. It was also held that the department could not prove that the debt cannot be said to be unenforceable. It was held that the onus had wrongly been shifted by the revenue on the assessee. It was held that the liability existed since tile assessee had shown the liabilities outstanding in its balance sheet. Therefore, there was no occasion to treat the said amount as taxable under section 41 (1) and if department intends to assess the same by applying the provisions of section 41 (1), then the onus will be on the revenue to show that the liability which is appearing in the balance sheet has ceased finally and there is no possibility of the revival of the liability. Hence, addition could not be sustained under section 41(1). The said judgment of the Tribunal was confirmed by Delhi High Court on 23-12-2011 In the case of National Insulated Cable Co. v. ITO ITA No. 421/Del/2011 dt. 8-7-2011 (Del 'E'-Trib) it was held that the fact that the creditors were old creditors brought forward from earlier years has not been disputed by the department. These creditors have not been introduced during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit, the sum can be brought to tax. In CIT v. Usha Stud Agricultural Farms Ltd. (2008) 301 ITR 384 (Del) : (2009) 183 Taxman 277 (Del), it was held that since it is a finding of fact recorded by the Commissioner (Appeals) that the credit balance appearing in the accounts of assessee, did not pertain to the year under consideration, under these circumstances, the assessing officer was not justified in making the impugned addition u/s 68 and as such no fault could be found with the order of the Tribunal which had endorsed the decision of Commissioner (Appeals). In Mahabir Prasad Prem Chand Jain v. ITO (1988) 40 Taxman 35 (Del- Trib )(Tax Mag), it was held that amounts found in the books of assessee were in existence much prior to the beginning of the accounting period corresponding to the relevant assessment year and the same could not, therefore, be treated as the income of assessee earned during the relevant previous year. In Nuchem Ltd. v. Dy. CIT (2004) 87 TTJ (Del-Trib) 166, it was held that revenue had failed to prove that the amounts were credited to the books of account of the assessee in the year under consideration. These amounts were brought forward from earlier years and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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