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TMI Blog2018 (11) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... be assessed as undisclosed income in the hands of the assessee, and there was no justification for adding the entire receipt side of the seized papers” - Thus both the lower authorities erred in confirming the addition of ₹ 6,02,895/- being the total of unexplained credit amount appearing in the impounded documents and set off of debit entries appearing in the very same documents should have been given to the assessee. - Decided in favour of assessee Addition made u/s 41(1) - liability outstanding for more than 3 years - cessation of liability - Held that:- A.O has merely made addition u/s 41(1) being the creditors pending for payments more than 3 years without providing on record any evidence to prove that the alleged creditor M/s. Kartik Traders is not genuine. In case the information was called for by the revenue authorities from M/s. Kartik Traders and it refused to have any such outstanding liability then would have been the merit for the addition made by AO. However in the instant case the genuineness is not challenged by M/s. Kartik Traders as the credit balance of alleged sundry creditors appears in audited balance sheet. During the financial year 2012-13 the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now in appeal before the Tribunal raising following grounds of appeal; In the facts and in the circumstances of the case, Ld.CIT(A)-III, Indore erred in :- 1. Partly sustaining the order passed by Ld.A.O which is contrary to the material on record and provisions of the Act, unjust and bad in law. 2. Sustaining the addition of ₹ 6,02,895 made by Ld.AO in respect of entries recorded on the impounded papers under the head income from other sources by holding that peak credit cannot be accepted in absence of verification of the expense side entries. 3. Partly sustaining addition u/s 41(1) amounting to ₹ 2,72,389/- which is unjust and bad in law as liability still exists in the books and hence cannot be said to be cessation of liability u/s 41(1), and despite holding that liability towards M/s Kartik Traders continues. 4. The appellant craves leave to add, amend, alter or otherwise raise any other ground of appeal 5. Ground No.1 is general in nature which needs to adjudication. 6. Apropos Ground No.2 relating to addition of ₹ 6,02,895/- made by the Ld.A.O on the basis of unexplained credit entries recorded in the impounded papers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of assessee firm, in proper perspective and proceeded to add the amount of ₹ 6,02,895 as income from other sources. [AO Page 5 1st Para] 5. During the proceedings before Ld. CIT(A), assessee had taken same stand that the entries noted on the impounded loose papers were mapped and reconciled before Ld. AO from the books of account. Transactions which did not materialize could not be mapped in the books of accounts. Further these books impounded (BI-l to BI-3) reflects both token money received and also expense entries, these un-mapped expenses entries were not considered by Ld. A.O [PB 99 -164 and PB 86 - 87] 6. Further, Ld. AO characterized these receipts as income from other sources while making the addition which is grossly incorrect. It is submitted that when most of the entries on these loose papers were mapped and reconciled with the regular books of account, they all are related to the business of the assessee. Thus, those entries which could not be mapped from the same loose papers they would also relate to the business of the assessee. The only source of income for the assessee firm is of business of commission agent for agriculture produce. Assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 10. We have perused the impounded documents appearing at BI-1 to BI-3 which pertains to transactions entered into with the farmers with whom the transactions did not materialize and amount was refunded by the by the assessee. We observe that in these impounded documents there are credits and debit entries. However this fact is not disputed that the Ld.A.O has merely made the addition if the unexplained credit entries without giving any set off of unexplained debit entries appearing in these documents. Complete details of such debit and credit entries were placed before the first appellate authority and they were duly incorporated in the appellate orders of Ld.CIT(A). From perusal thereof, we find that the peak credit is shown at ₹ 2,90,346/-. This figure of peak credit has not been controverted by the revenue authorities. The Hon'ble High Court of Gujarat in the case of Tirupati Construction Company 55 taxmann.com 308 (2015) has upheld the decision of I.T.A.T Ahmedabad Bench holding that only peak of debit and credit entries of the seized papers/diary could be assessed as undisclosed income in the hands of the assessee, and there was no justification for adding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that provisions of section 41(1) would apply in a case where some benefit has been received in respect of the trading liability and there has been remission or cessation of liability during the previous year relevant to the assessment year under consideration. 16. It was also submitted before Ld. CIT(A) that the balance of Kartik Traders is being carried forward to the subsequent assessment years. There is no unilateral act on the part of assessee to cease the liability. Cessation or remission of liability may occur either by reason of the operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honor his liability when payment is demanded by creditor, or contract between parties, or by discharge of the debt - the debtor making payment thereof to his creditor. [PB 175 - 179] . 17. Liability to pay has been carried forward to subsequent assessment years. The principle of expiry of period of limitation prescribed under the Limitation Act does not extinguish the debt but prevents the creditor from enforcing the debt. Thus, when a debt becomes time barred it does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of lower authorities. 14. We have heard rival contentions and perused the records placed before us. Assessee is aggrieved with the addition of sundry creditor namely M/s Kartik Traders having outstanding balance of ₹ 2,72,389/- made by the Ld.A.O u/s 41(1) of the Act treating it as cessation of liability. It is pleaded by the Ld. Counsel for the assessee that the outstanding amount of M/s. Kartik Traders at ₹ 2,72,389/- existed as payable in the books and the liability never ceased, coupled with the fact that no benefit have been received in respect of the alleged liability. 15. Hon'ble Apex Court in the case of Bombay Dyeing Mfg Co Ltd 1958 AIR 328 has pointed out that expiry of the limitation period only deprives the creditor of his remedy to institute a suit in a court of law to recover the debt, but the indebtedness, nevertheless continues 16. We further observe that the Co-ordinate Bench of Indore in the case of Shapers Industries Limited I.T.A.No.112/Ind/2016 held that Nothing was brought on record by the Assessing Officer to hold that the assessee is not required to pay the liability nor was there any material to suggest that the assessee has w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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