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TMI Blog2023 (2) TMI 1222X X X X Extracts X X X X X X X X Extracts X X X X ..... ear, had after conducting inquiry found that these adverse materials did not lead to the conclusion that the transactions of the assessee with the said party was ingenuine, the same adverse material cannot now form the basis of holding the outstanding balance pertaining to the said party in relation to very same transaction to be ingenuine.. For this reason alone, we hold that the ld.CIT(A) has rightly deleted the addition made by the AO amounting to Rs. 8,21,50,309/- by invoking section 41(1) of the Act. No infirmity in the order of the ld.CIT(A) deleting the addition made under section 41(1) - Decided in favour of assessee. Addition u/s 69 - outstanding credit balance of parties relating to preceding years - HELD THAT:- Revenue was unable to controvert the factual findings of the ld.CIT(A) that the majority addition deleted pertained to outstanding credit balance of parties relating to preceding years. The proposition of law that no addition could be made u/s 68 of the Act on account of opening credit balances of parties, also remained uncontroverted before us. In view of the same, we see no reason to interfere in the order of the ld.CIT(A) deleting the addition made of opening c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be filed in time due to the fact that the Pr. CIT-3, Ahmedabad is holding the additional charge of PCIT Gandhinagar and that there was tremendous time barring workload in each of these charges compelled with the fact that many of these appeals were of very high tax impact, which required very thorough and diligent study of the decisions of the facts on records. Further, the movement of case records from Gandhinagar to Ahmedabad and vice -versa also took some time. 4. In view of the above, it is humbly prayed that the Hon'ble ITAT may please condone the delay of 30 days. Yours faithfully, Sd/- (PRITA MENO) ITO (TECH) For Pr. Commissioner of Income-tax Gandhinagar." 3. On perusal of the contents of the above application, we are satisfied that the Department was prevented by sufficient reasons justifying delay of 31 days in filing the appeals before the Tribunal, and therefore, we are inclined to condone the delay and proceed to take up both the appeals for adjudication on merit. 4. It was pointed out that the issue arising in both the appeals was inter-linked, relating to disallowance made on account of cessation of liability as per provisions of section 41(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the preceding year i.e. Asst.Year 2012-13 which had been completely scrutinized in the assessment proceedings, and not found to be bogus by the AO. He further contended that genuineness of the outstanding balance is further proved by the fact that the assessee had made payment of Rs. 45 lakhs to the said party in the impugned year by cheque. Copy of the bank statement of the assessee was filed as evidence. The assessee further contended that no addition in any case could be made under section 41(1) of the Act since the assessee had not written off any outstanding liability in its books, and provisions of section 41(1) are attracted only when there was cessation or remission of any liability which was not the case. The assessee further relied on the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Bhogilal Ramjibhai Atara, Tax Appeal No. 588 of 2013 dated 4.2.2014 for the proposition that non-confirmation of balance outstanding by a party would not tantamount to remission or cessation of the liability so as to invoke provision of section 41(1) of the Act. The AO after considering the submissions of the assessee held that the assessee had failed to prove genuineness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing ceased to exist have arisen in the impugned case, the provisions of section 41(1) had been rightly invoked. He heavily relied on the order of the AO in this regard. The ld.DR relied on the decision of the ITAT, Bangalore Bench in the case of Suresh Kumar T. Jain Vs. ITO, (2011) 128 ITD 74 (Bang) in support of his contentions. He further distinguished the case laws relied upon by the ld.CIT(A) while deleting the addition. In the case of Bhogilal Ramjibhai Atara (supra), he pointed out that the Hon'ble High Court had categorically held that for invoking section 41(1) of the Act, cessation or remission has to be during previous year relating to the Asst.Year under consideration, and finding this element missing, had deleted the addition made in the said case. The ld.DR pointed out that in the present case inquiry conducted by the AO, finding the outstanding balance to be non-existent had demonstrated sufficiently the cessation of liability relating to the impugned party, and therefore, the decision in the case of Bhogilal Ramjibhai Atara (supra) does not apply to the facts of the present case. Referring the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Nitin S. Gar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also gone through orders of the authorities below, as also decisions cited before us. 12. The issue to be adjudicated is with respect to the addition made by invoking provisions of section 41(1) of the Act as per which any expenses claimed by the assessee in earlier years, the liability of which ceased to exist or remitted, will be liable to be added to the income of the assessee on cessation or remission of the said liability. Before proceeding to adjudicate the issue, we first bring out relevant facts of the case. Section 41(1) has been invoked with respect to the outstanding liability in the books of the assessee as at the end of the impugned year relating to one party, M/s. Paper Star Marketing (PSM) amounting to Rs. 8,21,50,309/-. The transaction leading to the impugned outstanding balance were undertaken by the assessee with the said party in the preceding year i.e. Asst.Year 2012-13 when it was examined by the AO who had held that the purchases from PSM could not be held as non-genuine. Copy of the order of the AO for the said year i.e. Asst.Year 2012-13 was placed before us giving this finding, and this has been noted by the ld.CIT(A) also in para 4.3 of his order which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its transaction undertaken with the assessee in Asst.Year 2012-13 which was examined by the AO and found to be genuine, we fail to understand how on the basis of this very same adverse material, the outstanding balance pertaining to the said transaction can now be stated to be ingenuine. Since the AO in the preceding year, had after conducting inquiry found that these adverse materials did not lead to the conclusion that the transactions of the assessee with the said party was ingenuine, the same adverse material cannot now form the basis of holding the outstanding balance pertaining to the said party in relation to very same transaction to be ingenuine.. For this reason alone, we hold that the ld.CIT(A) has rightly deleted the addition made by the AO amounting to Rs. 8,21,50,309/- by invoking section 41(1) of the Act. 16. We therefore do not find any infirmity in the order of the ld.CIT(A) deleting the addition made under section 41(1) of the Act. This ground of appeal of the Revenue is dismissed. 17. In the result, the appeal of the Revenue is dismissed. 18. We now take up the Department's appeal in ITA No. 2765/Ahd/2017 for Asst.Year 2014-15. The grounds raised in the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The AO has not brought sufficient material on record to establish as to how the ingredients of section 41(1) are satisfied. The judgment of the Hon'ble jurisdictional High Court cited supra is squarely applicable. The same view has been taken by the Hon'ble Gujarat High Court in the case of CIT Vs. Nitin Garg [2012] 208 taxman 16 and held that it has not been established that the appellant has written off the outstanding liabilities in the books of accounts and the appellant has continued to show the admitted amount as liabilities in its balance sheet so the same cannot be treated as said liability have seized to exist. Further in the case of OT V. G.K. Patel & Co [2013] 212 Taxman 384, the Hon'ble Gujarat High Court has held as under: "To the extent the said decision holds that a unilateral act on the part of the debtor cannot bring about a cessation of his liability, the same would not be applicable to the facts of the present case, in view of the insertion of Explanation 1. However, at the cost of repetition it may be stated that in this case there is no unilateral act on the part of the debtor so as to bring about a cessation of its liability. Therefore, the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that purchases cannot be held to be bogus even if counter party has denied such transactions and only Gross Profit is required to be added. 4.6 Considering the facts of the case and provision of section 41(1) of the Act and aforesaid decision, it has been established that no addition can be made u/s 41(1) of the Act Therefore, the addition made by the AO is directed to be deleted and ground no 1 of appeal raised by the appellant is allowed." 20. We have heard both the parties and gone through the facts of the present case. We find that there is no reason to invoke section 41(1) of the Act in the present case on a payment made by the assessee to another party. Section 41(1) is invoked, as clarified above in the Department's appeal for Asst.Year 2013-14, only when a liability is found to cease to exist in respect of an expense claimed by the assessee. In the present case, the Department has invoked section 41(1) on an alleged payment made by the assessee to a party whose balance outstanding was found to be ingenuine. The case of the Revenue, as is derived from para 3.3 of the assessment order is that the transaction of the assessee with PSM relating to work sub contracted to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since the basis for making addition of Rs. 45 lacs has been found to be incorrect, the addition therefore is not sustainable. The order of the ld.CIT(A) deleting the addition made of Rs. 45 lakhs under section 41(1) is therefore upheld. Ground of appeal No. 1 is dismissed. 23. Ground No. 2 reads asunder: "2. Whether on the facts & circumstances of the case, the ld.CIT(A) was justified in deleting the addition of Rs. 4,36,54,001/- u/s. 69 of the Act." 24. Facts are that the assessee during the assessment proceedings was unable to prove genuineness of the balance pertaining to the sundry creditors and unsecured loans as under: Sundry Creditors Sr No Name Amount outstanding Remarks 01 Shri. Bharatkumar V Rajgor Rs. 20.430/- Return back with remarks "NOT KNOWN" from postal authority 02 Arihant Enterprise Rs. 1,08,86,065/- Return back with remarks "NOT KNOWN" from postal authority 03 Jolly Enterprise Rs. 1,46,19,865/- No reply received till date from party 04 Simmons Enterprise Rs. 28,09,739/- Return back with remarks "LEFT" from postal authority 05 Angana Corporation Rs.1,35,01,122/- Return back with remarks "LEFT&quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08.20016. On perusal of the same it is found that in the ledger accounts of sundry creditors which is subjected to addition, no fresh credit entries are found and the ledger contains only opening balance and payment made against the same and closing balance, the ledger account of unsecured loan contains acceptance and repayment of deposit but the same are through account payee cheque only. The same has been summarised in following table. Sr. No Name of party Opening Balance Credit Debit Closing Balance Observation 1 Arihant Enterprise 1488606 5 0 4000000 10886065 No fresh credit entry 2 Jolly Enterprise 2373098 8 0 9111123 14619865 No fresh credit entry 3 Simmons Enterprise 8171685 0 5362146 2809739 No fresh as credit entry * 4 Angana Corporation 1350112 2 0 0 13501122 No fresh* credit entry 5 Radhey Furniture 1966440 0 0 1966440 No fresh credit entry 6 Kalpesh K. Vithlani 0 1000000 0 1000000 Unsecured loan taken by account payee cheque. 7 Amee Construction 0 700000 0 700000 Unsecured loan taken by account payee cheque 8 GirijanAgro 0 3900000 4000000 100000 Unsecured loan t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no fresh credit during the year. In the cases relied upon by the appellant, Glen Williams Vs. ACI ITA No. 1078/Bang/2014 where in it has been held that the section 68 of Income Tax Act, 1961, will not apply to the opening balances of creditors which did not arise out of any transaction during the previous year. Similar view has been taken by the Hon'ble Delhi high court in the case of GT Vs. Shri Vardhman Overseas Ltd ITA No 774/2009 dated 23-12-2011 343 UR 408, Hon'ble Gujarat High Court also had given a judgment in favour of appellant in the case of M/s. Dy CIT Vs. Amod Petrochem Pvt Ltd [2008] UA No: 122 of 1999 and held that there has to be credit of any sum in the books of appellant maintained for any previous year only then sum so credited can be brought to tax as income of the appellant therefore liability to pay tax in respect of unexplained deposit u/s 68 did not arise in respect of old opening balances. Considering the aforesaid decision and on the facts of the case and interpretation of section 68 and 41(1) of the Act, addition made by the AO in respect of closing balance of Arihant Enterprise Rs. 1,08,86,065/-, Jolly Enterprise Rs. 1,46,19,865/-, Simmons Enterp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en stated that "no reply is received". Thus, Appellant has failed to prove creditworthiness and genuineness of the transactions. The Appellant has submitted copy of Return of Income for Grijan Agro, Prop: Nisha Goswami along with bank statement and similar document for Kalpesh Vithlani. However, these documents were not submitted before AO and no additional evidence application has been submitted under Rule 46A hence such additional evidences submitted by Appellant are rejected. The provision of Section 68 of the Act requires Assessee to prove identity, genuineness and creditworthiness of the transactions and in present Appellant has failed to prove such creditworthiness and genuineness of the transaction. It is observed that Hon'ble Delhi High Court in the case of CIT V/s Ultramodern Exports Pvt. Limited 40 taxman 458 has held that "whether in order to ascertain genuineness of Assessee's claim relating to receipt of share application money, AO sent notices to share applicants which were returned unserved, however, Appellant still managed to secure documents such as their income tax returns as well as bank account particulars, and in such circumstances, AO wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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