Income Tax Appellate Tribunal - Mumbai
Electromac Industries, Mumbai vs Income Tax Officer-24(1)-5, Mumbai on 31 July, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
"E" BENCH, MUMBAI
BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND
G. MANJUNATHA, ACCOUNTANT MEMBER
ITA no.4697/Mum./2017
(Assessment Year: 2008-09)
ITA no.4698/Mum./2017
(Assessment Year: 2009-10)
ITA no.4699/Mum./2017
(Assessment Year: 2010-11)
ITA no.4700/Mum./2017
(Assessment Year: 2011-12)
M/s Electromac Industries,
28, AFNew Empire Indl. Estate, Kondivita
Road, J.B. Nagar, Andheri (E), ................ Appellant
Mumbai
PAN-AAAFE0557A
v/s
The Income Tax Officer,
24(1)-5, Mumbai ................ Respondent
Assesseeby : Sh. Ashwin Chhag, AR
Revenue by :Sh. Manoj Kumar Singh, Sr, DR
Date of Hearing -09.07.2019 Date of Order -31.07.2019
ORDER
PER: MANJUNATHA G. 2 These four appeals filed by the assessee are directed against common order of the ld. CIT(A)-51, Mumbai dated 15.5.2017 for the assessment years 2008-09, 2009-10, 2010-11 and 2011-12. Since, facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed of by this consolidated order.
2. The assessee, has more or less raised common grounds of appeal for all assessment years. For the sake of brevity, grounds of appeal taken for assessment years 2008-09 in ITA No. 4697/Mum/2017 are reproduced as under:-
"i. That the reopening of assessment for the 1st time in the 6th year of the assessment from the end of relevant financial year, is without authority of the law for more than one reason, as stated here under:-
(a) That the reopening under section 147 is without authority of the law as notice issued under section 148 is merely on proposal put up for the perusal and approval on last day of the limitation period to reopen the proceeding under section 147.
(b) That the addition estimating the income is bad in law as it is violating the article 14 of the Constitution of India as income estimated alleging that the industry rate of GP is 30% without bringing any comparative cases and hence, assessment completed is arbitrary and hence, void ab initio.
(c) In view of aforesaid, reopening doesn't survive as being bad in law and hence, addition under section 41 is also without authority of the law.3
ii. (On Merit)
(a) The lower authorities have failed to appreciate that the reasons for treating the transaction under the sales tax law was failure to pay the taxes collected by the creditors which had resulted claim of wrong input credit under the said law and hence, on payment of the same deficiency claimed by the said law was corrected and hence, transactions could not be held as in-genuine unless AO brings any corroborative evidence for such claim.
(b) It is urged that maximum of the evidences were provided to prove the genuineness of the purchase like, inter alia, delivery challan, bank certificate, stock details etc., and hence, genuineness of the transaction may be seen in view of principle preponderance of probability rather than suspiciously, if anything is missing.
(c) Ld. CIT(A) has failed to appreciate that the appellant has already offered addition made under section 41 in the Assessment Year 2016-17 and hence, if the addition is not directed to delete, it would be a case of double taxation which is contrary to the law.
3. The brief facts of the case are that the assessee is a partnership firm which is engaged in the business of manufacturing of Bond Traps etc., filed its return of income for all assessment years under section 139(1) of the Income Tax Act, 1961 and such returns filed by the assessee have been processed under section 143(1) of the I.T. Act, 1961. Thereafter, the assessments for assessment year 2008-09 to assessment year 2011-12 have been reopened under section 147 of the Income Tax Act, 1961 for the reasons recorded as per which the assessee is beneficiary of accommodation entries of purchase of bills issued by suspicious / 4 hawala dealers as per list prepared by the Sales Tax Department, Govt. of Maharashtra and accordingly, notice under section 148 was issued and served on the assessee. In response to the notices, the assessee had filed a letter and requested to treat returnsfiled under section 139(1) of the Act as returns filed in response to notice issued u/s 148 of the Income Tax Act, 1961. The cases were selected for scrutiny and statutory notices u/s 143(2) and 142(1) of the Act, were issued. In response to the notices, the AR of the assessee appeared from time to time and filed various details as called for.
4. During the course of assessment proceedings, the AO in order to verify purchases claims to have made from certain parties as listed in the list of Sales Tax Department, Government of Maharashtra called upon the assessee to file necessary evidences including purchase bills and other supporting evidences to justify purchases. Simultaneously, in order to verify the genuine purchases, notices under section 133(6) has been issued to all parties, but such notices were returned unserved by the postal authorities with remark 'left'or 'not exist'. Thereafter, one more notice under section 142(1) was served on the assessee calling for various details. In response, the assesseehas filed various details including purchase bills / delivery challans, month wise, sales and 5 purchase details, ledger accounts of the suppliers and also ledger accounts of the parties from whom purchase are made. The assessee had also filed bank statement, proof of payment against such purchases through proper banking channels. The AO after considering the submissions of the assesseeand also taken note of report of Sales Tax Department, Government of Maharashtra came to the conclusion that mere furnishing of purchase bill and payment through proper banking channels is not sufficient enough to prove purchases claims to havemade from alleged suspicious / hawala dealers, more particularly when the parties had admitted before the Sales Tax authorities in their statement alongwith the deposition or affidavit that they were involved in providing accommodation entries without any business activity and also returned cash to the parties after deducting their commissions / brokerage. The AO further observed that although assessee has furnished purchase bill and payment proof, but failed to file further evidences in the backdrop of clear fact brought out during assessment proceedings that the parties are suspicious / hawala dealers therefore, when the genuineness of transaction is in doubtful it is for the assessee to produce necessary documents to clear the air. He, has also taken support from provisions of section 101 of the Indian Evidence Act, 1832 to come to the conclusion that when the dependant justifies 6 existence of facts, he must prove that those facts exist and accordingly, he opened that the assessee has failed to prove purchases to the satisfaction of the AO with necessary evidences. He, further observed that upon consideration of facts and circumstances the only conclusion that can be reached is that the assessee was a beneficiary of accommodation bills issued by the hawaladealers without actual delivery of goods. Further, when sales are claimed to be genuine, the only inference that could be drawn is that the assessee must have purchased goods from the gray market and to cover up such purchases obtained bills from accommodation entry providers and accordingly by taking support from the decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth {355 ITR 290 (Guj)}estimated profit on alleged bogus purchases ranging from 25% to 34.40% depending upon facts of each case.
5. Aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A). Before the ld CIT(A), the assesseehad filed elaborate written submissions on the issue which has been extracted at para 4 on page 5 to 9 of learned CIT(A) order. The sum and substance of arguments of the learned counsel for the assesseebefore the ld. CIT(A)are that purchases from the above parties are genuine which are supported by necessary evidences and also payment for such purchases has been paid by account 7 payee cheques. The AO never pointed out any discrepancies in books of accounts nor doubted sales declared by the assessee.In absence of any finding as to incorrectness in books or sales declared by the assessee, purchases from certain parties cannot be doubted merely on the basis of information received from the Sales Tax Department. The ld. CIT(A) after considering the submissions of the assesseeand also taken support from the decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth {355 ITR 290 (Guj)} scaled down estimation of profit on alleged bogus purchases to 15% for all years on the ground that whenthe AO has not doubted sales declared by the assessee, purchases from certain parties cannot be doubted so as to make estimation of profit at a higher rate. The relevant findings of the CIT(A) are as under:-
5.5. HELD. At the outset, it is categorically untrue that AO has not made efforts beyond getting information from Investigation Wing. The notices u/s.
133(6) of the Act was issued to the above listed party which was returned unserved. AO has afforded opportunities to the appellant to produce the parties. In the appellate proceedings, appellant failed to produce the weightment slips. The next aspect to consider is the claim of the appellant that the purchases were made from the alleged supplier. Here, it is relevant to take into account that the enquiries conducted by the Sales Tax Department as well as the Investigation Wing of Income Tax Department/the Assessing Officer have established that the said suppliers are not genuine. The said parties were not produced for examination. 5.6. The two aspects mentioned above lead to the irresistible conclusion that the appellant did make the sale of goods and, therefore, made the corresponding purchases. However, the claim of purchases from alleged suppliers identified by the appellant cannot be accepted due to reasons mentioned above. In other words, while the impugned purchases were made from bogus parties, the purchases as such did happen as mentioned by the AO himself. This has its implications in terms of price advantage 8 secured by the appellant, since it would not have indulged in this modality for any other reason. The purchase prices debited and claimed cannot be accepted as being in tandem with the prevailing market rates, given the supplier discrepancy. The appellant has not furnished any evidence to show comparable supported by purchase of similar items from other parties to establish that the transactions were at arm's length. Accordingly, additional gross profit needs to be estimated on the purchases claimed to be made from the suspected suppliers.
5.7. In case of CIT v Simit P. Sheth {355 ITR 290 (Guj)}, the Hon'ble Gujarat High Court adjudicated upon a case of a steel trader wherein the AO had made additions on account of bogus purchases based on statements recorded from some steel suppliers that they had only provided bills for a small amount of commission. The assessee challenged the matter in appeal wherein the CIT(A) held that while the assessee had not made purchases from the declared parties, the purchases had been made from other parties in the open market at lower rates and upheld addition tothe extent of 30% of purchase cost as the probable profit of the assessee. -On further appeal, the Tribunal held that the estimated profit @ 12.5 % of the said purchases as follows:
Having heard the submissions of both sides, we have been informed that the malpractice of bogus purchase is mainly to save 1O% sales tax etc. it has also been informed that in this industry about 2.5% is the profit margin. Therefore, respectfully following the decisions of the co-ordinate bench pronounced on identical circumstances, we hereby direct that the disallowance is required to be sustained at 12.5% of the purchases from those parties. With these directions, we hereby decide. The grounds of the rival parties which are partly allowed".
5.8. The matter travelled further to the High Court where the Hon'ble Court, when considering the matter noted that the vital aspect for consideration was whether the entire amount of purchases was to be held as bogus or that the purchases were held to be made not from the parties from which they were claimed but from the grey market without proper billing and documentation. The Court further observed that when the sales in question were accepted by the AO, the purchases would have been made from some source and held that only the profit element was to be added to the income of the assessee. The relevant part of the order is as follows:
"We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, the vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and non existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation.9
In the present case, the Commissioner of Income tax(Appeals) believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total sale /s accepted by the Assessing Officer, he could have questioned the very basis of the purchases. In essence, therefore, the Commissioner (Appeals) believed the assessee's theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of account.
That being the position, not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. So much clear by the decision of this Court. In particular, the court has also taken a similar view in the case of CIT v Vijay M Mistry Construction Ltd. Vide order dated January 10,2011 passed I Tax Appeal No. 1090 of 2009
- since reported in [2013] 355 ITR 498(Guj) and in the case of CIT v Bholanath Poly Fab P Ltd, vide order dated October 23, 2012, passed in Tax Appeal No.63 of 2012 - since reported in [2013] 355 ITR 290 (Guj). The view taken by the Tribunal in the case of Vijay Proteins Ltd v. Asstt. CIT [1996] 58 ITD 428 (And) came to be approved.
If the entire purchases were wholly bogus and there was a finding of fact on record that no purchases were made at all, counsel for the Revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in the case of Asstt. CIT (OSC) v Pawanraj B Bokadia(supra)".
5.9. In the decision rendered in the case of DCIT v Rajeev G. Kalathil .- {Mum} {51 taxman.com 514}, the Tribunal adjudicated upon a case of an assessee in the business of executing civil contracts, where the AO made an addition of Rs. 13.69 lakhs as bogus purchases/expenses based on the fact that one of the involved parties was declared as a 'hawala' operator by the VAT authorities. The Tribunal deleted the addition holding that such addition cannot be sustained on mere suspicion as follows:
" We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a .good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries (supra) is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AO, about the cash trial. Secondly, proof of movement of goods is not in doubt. Therefore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to 10 endorse the view taken by the AO. So, confirming the order of the FAA, we decide ground No. 1 against -the AO".
5.10. Thus, a study of different cases, wherein addition on account of bogus purchases has been dealt with by various Courts and Tribunals shows that such additions have been upheld in their entirety only in a few cases including decisions rendered in the cases of La Medica, Sri Ganesh Rice Mills, Vicky Foods (P.) Ltd. etc. where apart from various other factors there was lack of reliable record with reference to quantitative details etc. and where evidence produced for payment was found lacking. In other cases, where the full quantitative details are not available or details produced were not fully reliable inasmuch as consumption of material was shown but yield was too low and payments were also doubtful (including the cases of Vijay Proteins Ltd., Bholanath Poly Fab Pvt. Ltd., Simit P. Sheth, Sanket Steel Traders, Sathyanarayan P. Rathi etc.) addition was upheld in the range of 25% (as in Viiav Proteins case) to 12.5 % to augment the possible suppression in GP applying real income theory depending on the facts of the case.However perusal of decisions of Tribunals and High Courts on this issue shows that all such cases are decided on the basis of facts and involve no uniform question of law. From the above decisions, the ground-rule that emerges is that where suppliers are not available, the presence of reasonable quantitative details and payments by account payee cheques are primary tests on when the genuineness of purchases is required to be tested. In addition, from cases like NikunjEximp Enterprises (P.) Ltd (High Court as well as ITAT), M. K. Brothers, Nangalia Fabrics Pvt Ltd., Rajiv G. Kalathil, Permanand, Sagar Bose, Diagnostics etc., it emerges that other aspects such as statements of hawala providers recorded by Sales Tax Authorities; affidavits filed by such suppliers before Sales Tax Authorities; absence of evidence in support of transportation/delivery of material etc., have been held less relevant as mere indicators and not decisive factors, to draw a conclusion regarding genuineness of purchases. Thus in essence, the benefit derived by the assessee by showing purchases from such bogus parties is the lowering of GP that would have been earned by the assesse had such purchases and corresponding sales been removed from the accounts. In other words, the effective lowering of the GP is the real additional income of the assessee by showing such purchases and only such component would therefore be taxable.
5.11. In the present appeal, there is compelling evidence to show that this would be a case of purchases made from bogus parties rather than a case of bogus purchases. There is nothing to show that without making the purchases, it was possible for the appellant to complete the sales declared in the return of income which have not been disturbed by the AO. On the other hand, the appellant has failed to establish the genuineness of purchases made from the parties claimed. This would indicate that the purchases were made from the open market without insisting for genuine 11 bills and in such cases the suppliers would be willing to sell at a much less rate as compared to the rate that they would have charged otherwise. 5.12. Keeping in mind the totality of circumstances as discussed above and the fact that the appellant has not brought on record any evidence to corroborate his arguments during appellate proceedings, in order to meet the ends of justice, the disallowance is restricted to 15 percent of the bogus purchases of Rs.7,01,346/- amounting to Rs.1,05,202/-. Appellant gets relief of Rs.1,05,202/-. The grounds of appeal are partly allowed. This will ensure that only the real income gets subjected to tax and not a notional income or an exaggerated amount determined in an arbitrary manner."
6. In so far as, additions made by the AO towards cessation/ remission of liability under section 41(1) of the Income Tax Act, 1961 for A.Y. 2008-09 in respect of trade creditor, the ld. CIT(A) observed that there is no dispute with regard to the liability in the name of M/s Vatco Electricals Pvt. Ltd., is a trading liability and also the benefit of deduction has been allowed in earlier years. He, further observed that the amount is outstanding in the name of the party since financial year 2006-07 and also the party written off the amount on 31.3.2008, consequently the assessee also should have treated the same as cessation or remission of liability within the meaning of section 41(1) of the I.T. Act, 1961.Therefore, there is no error in the findings of the ld. AO in making additions towards trade creditor under section 41(1) of the Act. Aggrieved by the ld. CIT(A) order, the assessee is in appeal before us.
7. The first issue that came up for our consideration from ground no. 1 and 2 of assesseeappeal is validity of reopening of assessment 12 under section 147 of the I.T. Act, 1961. The ld. AR for the assessee submitted that the reopening of assessment is bad in law for want of jurisdiction,as such reopening is based on borrowed belief of the other department and at the behest of other authorities, rather than belief of the AO, therefore all proceedings including reassessment proceedings is bad in law and liable to be quashed. The assessee further submitted that reopening is without authority of the law as notice issued under section 148 or reasons recorded under section 148(2) or order of assessment does not claims that the reopening was followed by approval under section 148 of the I.T. Act, 1961.
8. The ld. DR,on the other hand, strongly supported the order of the AO as well as the ld. CIT(A).
9. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. Although, the assessee has not challenged reopening of assessment before the ld. CIT(A), it has taken a ground in its memorandum of appealalongwith regular grounds of appeal to challenge reopening of assessment for the first time before the tribunal. It is an admitted position of law that when reopening is challenged first time before, the Tribunal the assessee ought to have taken this issue by way of filing additional grounds of appeal, 13 because the same has been taken first time before the Tribunal. However, considering the nature of legal ground taken by the assessee, we are of the considered view that the same needs to be adjudicated in light of facts brought out by the AO as well as arguments of the assessee and hence admitted and adjudicated on merits. Having said so, let us examine whether reopening is valid or not. We noted that reopening of assessment has been made in light of information received from external agencies like Sales Tax Department, Government of Maharashtra as per which income chargeable to tax had been escaped assessment within the meaning of section 147 of the I.T. Act, 1961 and the AO on the basis of such information formed a reasonable belief of escapement of income which is evident from reasons recorded for reopening of the assessment therefore, we are of the considered view that there is no merit in the arguments of assessee challenging validity of reopening of assessment and hence, the ground taken by the assesseechallenging reopening of assessment for all assessment years is hereby dismissed.
10. The next issue that came up for our consideration for all assessment years is additions towards alleged bogus purchases from certain dealers appeared in the list of suspicious/hawala dealers prepared by the Sales Tax Department, Government of 14 Maharashtra. The ld. AR for the assessee submitted that the ld. CIT(A) erred in restricting additions made by the AO towards alleged bogus purchases to 12% to 15% of such purchases without appreciating the fact that the reasons for treating transactions under the sales tax law was failure to pay taxes collected by the dealers which caused claim of wrong input credit and hence on payment of the same, deficiency claimed by the said law was corrected and accordingly transactions could not be held as non- genuine for want of AO bringing any corroborative evidence for said claim. The AR further submitted that the assessee has furnished all possible evidences to prove genuineness of purchases, inter alia delivery challan, bank statement, stock details etc., and hence merely for the reasons that the parties could not appear before the AO in response to 136(3) notices,no adverse inference could be drawn against the assessee, more particularly when the assessee has discharged its burden by filing enormous documents. The AO neither disputed sales, nor made out any discrepancy in books of accounts. In absence of any finding as regards books of accounts, making additions towards purchases is totally arbitrary and also estimating such a huge profit margin is also contrary to industry practice.
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11. The ld. DR, on the other hand, strongly supported the orders of the ld. CIT(A) submitted that, although the AO has estimated higher profit on alleged bogus purchases, the ld. CIT(A) after considering relevant facts has scaled down additions to 15% such purchases therefore, no reason to interfere with the finding of ld. CIT(A).
12. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. The AO has made additions towards alleged bogus purchases on the basis of information received from Sales Tax Department, Government of Maharashtra coupled with enquiries conducted during the course of assessment proceedings which clearly reveals that the purchases claims to have made from certain parties are not proved with necessary evidence. The AO has reached to above conclusion on the basis of evidences filed by the assesseeand also independent enquiries conducted during the course of assessment proceedings, ,where notices under section 133(6) were returned unserved with the remarks 'left' or 'not claimed'. The AO was also taken support from documents furnished by the assesseein support of above purchases as per which although primary evidences including purchases bills and payment proof against purchases through proper banking channels was furnished but further 16 evidences including lorry receipt, good receipt note and other details was not furnished so as to clear the suspicion above purchases from the above parties in the backdrop of findings from the Sales Tax Department. Except, this the AO has not brought on record any other corroborative evidence or circumstantial evidences to prove that purchases from the above parties are non-genuine which are not supported by evidences. On the other hand, the assesseehas furnished documentary evidences in form of purchases bills / delivery challans and payment details for having paid to the parties through account payee cheques. The assessee has also furnished books of accounts and month wise purchases and sales figures. The AO, neither disputed sales declared by the assessee, nor made out a case of sales outside books or discrepancy in stock details furnished by the assessee. In absence of any finding as to incorrectness in books of accounts or sales outside books, no adverse inference could be drawn against the assesseeonly on the basis of information received from the Sales Tax Department, more particularly when the assesseehas filed primary evidences in support of such purchases. Under these facts and circumstances, it is difficult to accept the arguments of the ld. AO that purchase are non-genuine which are not supported by evidences. At the same time, it is difficult to accept the arguments of the assessee that purchases are 17 genuine which are supported by necessary evidences merely on the basis of purchase bill and payment proof, more particularly when the dealers themselves admitted in their statement alongwith affidavit before the sale tax authorities that they are involved in providing accommodation entries. This fact was further strengthened by the investigation carried out during the course of assessment proceedings, where notices under section 133(6) were returned unserved. The lower authorities after considering relevant facts and also taken support from certain judicial precedents including the decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth {355 ITR 290 (Guj)} estimated profit element on alleged bogus purchases. Although, the AO has estimated profit ranging from 25% to 34% for different years, but failed to support his rate of profit with comparable cases of similar nature of business or any other scientific method. The ld. CIT(A) after considering relevant facts has scaled down estimation of profit to 15% on the basis of ratios laid down by certain judicial precedents including the decision of Hon'ble Gujarat High Court in the cae of CIT vs. Smith P. Sheth(supra). We further noted that this is a recurring issue, where the Coordinate Bench of ITAT Mumbai in number of cases had taken a consistent view and directed the AO to estimate profit ranging from 10% to 15% 18 depending upon facts of each case. We further noted that the Hon'ble Bombay High Court in the case of PCIT vs. Mohd Haji Adam& Companyin ITA No. 1004/2016 vide its order dated 11.2.2019 had considered an identical issue and held that the addition has to be restricted to the extent of the G.P. rate of purchases at the same rate of the other genuine purchases where the purchases are considered to be bogus in nature. Therefore, considering overall facts and circumstances of this case and also consistent with view taken by the Coordinate Bench, we are of the considered view that in order to settle the dispute between the parties a reasonable percentage of profit needs to be estimated on alleged bogus purchases and accordingly by taking support from the decision of Hon'ble Bombay High Court in the case of PCIT vs. Mohd Haji Adam & Company(supra), we direct the AO to estimate 12.5 net profit on alleged bogus purchases for all assessment years, because in this case gross profit rate declared by the assessee on regular purchases is more than 12.50%.
13. The next issue that came up for our consideration for assessment year 2008-09 is additions towards trade creditors under section 41(1) of the I.T. Act, 1961. The AO has made additions towards trade creditors amounting to Rs. 76,237/- on the ground that the creditor has written off amount due to the assessee on 19 31.3.2018, consequently, the assessee has derived benefit for the year under consideration on account of cessation of liability,consequently the same is liable to be taxed under section 41(1) of the I.T. Act, 1961. It is claim of the assesseebefore the AO that although the creditor has stated that the amount has been written off as on 31.3.2008, but the assessee was on the beliefthat amount due to the creditor is still payable and accordingly the same has been continued in its books of accounts. The assessee further claimed that it has written of amount due on M/s Vatco Electricals Pvt. Ltd., in its books of accounts on 8.1.2016 i.e. assessment year 2016-17 and the same has been credited to profit & loss account therefore, further additions towards same in the impugned year under section 41(1) amounts to double additions which is incorrect.
14. Having heard both the sides and considered materials available on record, we find that in order to bring any credit within the ambit of section 41(1) of the Act, the assessee must derive certain benefit out of cessation of liability on account of write off of amounts in the books of accounts. In this case, although the creditor claims to have written of amounts due to the assesseein their books of accounts as on 31.3.2008, the assesseecontinued to claim liability in its books of accounts up to assessment year 2016-
17. Further, the liability has been written of in its books of accounts 20 on 8.1.2016 i.e. for assessment year 2016-17 and also offered to tax by crediting to profit & loss account. Once, the liability has been written of in the books of accounts for subsequent years, when the same is no longer payable, making additions towards same liability in the previous year amounts to double addition for the same amount which is not permissible under the law. Therefore, we are of the considered view that the AO was erred in making additions towards trade creditors under section 41(1) of the I.T. Act, 1961 for the impugned assessment year even though the assessee claims to have written of said liability for the assessment year 2016-17. Hence, we direct the AO to delete additions towards trade creditors under 41(1) of the I.T. Act, 1961.
15. In the result,appeals filed by the assessee for all assessment years are partly allowed.
Order pronounced in the Open Court on. 31. 07.2019.
Sd/- Sd/-
(PAWAN SINGH) (G. MANJUNATHA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
MUMBAI, DATED: 31.07.2019
Copy of the order forwarded to:
(1) The Assessee;
(2) The Revenue;
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(3) The CIT(A);
(4) The CIT, Mumbai City concerned;
(5) The DR, ITAT, Mumbai;
(6) Guard file.
By Order
SH
(Dy./Asstt.Registrar)
ITAT, Mumbai