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TMI Blog2019 (9) TMI 1232X X X X Extracts X X X X X X X X Extracts X X X X ..... e sum of 7.87 cr. treated the same as outstanding trade liability under the head customer advances. In the subsequent year assessee used the fund for investment purpose and earned interest income on the same. The fact of the above case is completely different from the case under observation, in current case sundry creditors are against the purchases and expenses incurred in earlier year and as well as in year under consideration. However in case of Gujtorn Electronics [ 2017 (7) TMI 574 - GUJARAT HIGH COURT] as per scheme it was very clear that the scheme was for 12 months and after that right of the member will be seized. Therefore in our opinion above case submitted by learned DR is not applicable to the case under observation. Whether the impugned sundry creditors can be treated as unsecured cash credit within the meaning of the provisions of section 68 ? - HELD THAT:- Provisions of section 68 do not apply to the sundry creditors for the purchases and expenses. It is because such sundry creditors are represented against the purchases and the expenses. In case the AO was to disturb the sundry creditors, then he cannot do so without disturbing the corresponding purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember And Ms. Madhumita Roy, Judicial Member For the Appellant : Shri M.S. Chhajed, AR For the Respondent : Shri Mudit Nagapal, DR ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals) 7, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-7/446/14-15 dated 20/02/2017 arising in the assessment order passed under s.143(3) r.w.s.144 of the Income Tax Act, 1961(hereinafter referred to as the Act ) dated 13/01/2015 relevant to Assessment Year (AY) 2012-13. The assessee has raised the following grounds of appeal:- 1) The order passed by the Ld CIT(A) is against law, equity and justice. 2) The Ld CIT(A) has erred in law and/or facts in upholding the order of the Ld.AO of addition of outstanding balances of sundry creditors of ₹ 1,09,29,037/-. 3) The Ld CIT(A) has erred in law and/or facts in upholding the 1/5 of expenses including depreciation allowance being ₹ 14,25,298/- out of total expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Assessee but the same was made under section 68 of the Act as assessee failed to explain the credit entries appearing in Balance Sheet. The assessee in response to the remand report submitted in its rejoinder dated 10th February 2017 that the AO in the original proceedings treated the amount of ₹ 1,09,29,037/- as the cessation of trading liabilities whereas the AO in the remand proceedings treated the same as unexplained cash credit under section 68 of the Act. The assessee furnished the breakup of the impugned trading liability as detailed under: (i) Sundry creditors (farmers) of ₹ 98,26,896/-. (ii) Other Sundry Creditors for expenses of ₹ 10,82,141/-. Further, the assessee regarding the sundry creditors (farmers) of ₹ 98,26,896/- submitted that most of such liabilities arising from the preceding year, which was reflecting on the balance sheet of the previous. There was scrutiny assessment in the previous year under section 143(3) of the Act in which the amount of sundry creditors was accepted. The assessee also claimed that the purchases correspondin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok running from pages 1 to 129 and reiterated the submissions as made before the learned CIT (A). The learned AR also submitted that the liabilities on account of sundry creditors are very much appearing in the balance sheet of the assessee. As such, these were not written off in the books. Therefore, there is no possibility of treating such sundry creditors as ceased to exist in the books of accounts. The learned AR also claimed that the addition was made by the AO and the learned CIT (A) under section 68 of the Act. Therefore, there cannot be any reference to the provisions of section 41(1) of the Act. The learned AR also submitted that the provisions of section 68 are applicable where there is cash credit found in the books of accounts of the assessee. As per the learned AR, the sundry creditors were carried forward from the previous year. As there was no cash credit in the year under consideration, therefore the impugned creditors cannot be treated as unexplained cash credit under section 68 of the Act. 6. On the other hand, the learned DR submitted that the liabilities have ceased to exist in the books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being fulfilled. Additionally such cessation or remission has to be during the previous year. In the instance case, both the elements are missing. There was nothing on record to suggest that there was remission or cessation of liability that too during the previous year relevant to assessment year under consideration. It undoubtedly a curious case. Even the liability itself seems under serious doubt. The assessing officer undertook the exercise to verify the record of so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee, nor did they know him. Of course the enquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of the liability. Therefore the amount in question can t be added back as deemed income u/s 41(1). This is one of the strange case where even if the debt itself found to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim has totally vanished. In our considered view that the facts of the above case and other cases cited by the ld. DR are also different from the facts of the current case under observation, therefore, we are not inclined to take the guidance from such judgments. 8. The 2nd question arises whether the impugned sundry creditors can be treated as unsecured cash credit within the meaning of the provisions of section 68 of the Act. In this regard we note that the provisions of section 68 do not apply to the sundry creditors for the purchases and expenses. It is because such sundry creditors are represented against the purchases and the expenses. In case the AO was to disturb the sundry creditors, then he cannot do so without disturbing the corresponding purchases or expenses. Therefore in our considered view the provisions of section 68 are not applicable with respect to the sundry creditors for the purchases and the expenses. In addition to the above, we also note that the impugned sundry creditors for the purchases of ₹ 98,26,896/- are representing the opening balances which were carried forward from the earlier year exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount. These items include kesar vatav, cloth expenses, telephone expenses, travelling expenses, kitchen expenses, miscellaneous expenses, stationary expenses, diesel expenses, etc. The AO made in the impugned disallowance on account of the fact that all the vouchers and bills produced were not verifiable. It is seen from the submissions made by the appellant that the appellant has submitted ledger copies in respect of the expenses incurred. However, I am also inclined to agree with the AO when the says that all the expenses were not verifiable since it is not possible to verify whether all expenses have been incurred for the purpose of business. Since the non business nature of expenses cannot be ruled out, in my view, a disallowance of 1/5th of the total expenses incurred would meet the ends of justice. Therefore, a disallowance of ₹ 14,25,298/- is confirmed and the appellant gets relief accordingly. Ground of appeal No.7 is partly allowed. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us. 10. The learned AR before us submitted that all the supporting vouchers and the bills were submitted be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% of all the other expenses except depreciation. Accordingly we direct the AO to restrict the disallowance of all the expenses except depreciation to the tune of 10% claimed in the profit and loss account under the head other expenses. Hence the ground of appeal of the assessee is partly allowed. The next issue raised by the assessee is that the learned CIT (A) erred in confirming the addition of ₹ 1,83,166/- on account of interest income. The AO during the assessment proceedings, based on AIR information, found that the assessee has been credited for the amount of interest from certain parties after deducting the TDS. The AO found that the assessee has not disclosed such income in the income tax return. Therefore the AO added the sum of ₹ 2,33,235/- to the total income of the assessee. Aggrieved assessee preferred an appeal to the learned CIT (A). The assessee before the learned CIT (A) claimed that it has earned an interest income of ₹ 50,041 on the deposits with UGVCL which was duly disclosed in the income tax return. Accordingly the assessee claimed that it has not earned any interest income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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