Income Tax Appellate Tribunal - Agra
Hindustan Construction , Farrukhabad vs Dcit Circle-2(1), Farrukhabad on 10 October, 2018
In the Income-Tax Appellate Tribunal,
Agra Bench, Agra
Before: Shri A.D. Jain, Judicial Member And
Shri Dr. Mitha Lal Meena, Accountant Member
ITA No. 418/Agr/2017
Assessment Year: 2012-13
M/s Hindustan Construction, vs. DCIT, Circle-2(1),
Keshav Nagar, Nekpur, Chaurashi, Farrukhabad
Fatehgarh, Farrukhabad
PAN AAEFH1640R
(Appellant) (Respondent)
ITA No. 251/Agr/2017
Assessment Year: 2012-13
M/s Hindustan Construction, vs. DCIT, Circle-2(1),
Keshav Nagar, Nekpur, Chaurashi, Farrukhabad
Fatehgarh, Farrukhabad
PAN AAEFH1640R
(Appellant) (Respondent)
Appellant by Shri Anurag Sinha, Advocate.
Respondent by Shri Waseem Arshad, Sr. DR
Date of Hearing 05.09.2018
Date of Pronouncement 10.10.2018
ORDER
Per Dr. Mitha Lal Meena, A.M.:
These appealsare filed by the assessee against the order of the CIT(A) Aligarh.
2
ITA No. 418 & 251/Agr/2017
2. The assesseehas taken following grounds of appealin ITA No. 418/Agra/2017 A.Y 2012-2013:
1. Because, the Ld. CIT(A) had erred in law and on facts in applying net profit rate to 8% without consideration of the past history of the appellant.
2(a) Because the Ld. CIT(A), Aligarh has grossly erred in law in enhancing and making addition of Rs. 90,33,414/- on account of cessation of liability under section 41(1) of the Income Tax Act, 1961.
2(b) Because the addition of Rs. 90,33,414/- is bad in law and in law having been arrived on the basis of rejected books of accounts. The addition is bad on facts and in law too.
3. Because the CIT(A), Aligarh while estimating income ought to have allowed the statutory claim of depreciation of Rs. 33,89,415/- which was allowed by the AO. Enhancement of income is without considering the law and facts of the case.
4. Because the CIT(A), Aligarh has grossly erred in law in sustaining the addition of Rs. 1,98,983/- on account of Income Tax refund received by the assessee without properly appreciating the facts and circumstances of the case.
5. Because the CIT(A), Aligarh has grossly erred in law in sustaining the addition of Rs. 13,88,945/- on account of Trade Tax refund received by the assessee without properly appreciating the facts and circumstances of the case.
6. Because in any view of the matter the impugned order to the extent making and sustaining the addition is bad on facts and in law.
7. That the appellant craves leave to add, alter, amend or withdraw any ground of appeal.
In ITA No.251/Agra/2017/A.Y.2012-13 the assessee has raised the following grounds:
1 That the Ld. CIT(A)-Aligarh had grossly erred in law in imposing penalty of Rs.27,91,325 without properly appreciating the facts and circumstances of the case.3
ITA No. 418 & 251/Agr/2017 2 That thepenalty order as had been passed by the CIT(A) is void ab-initio in view of the fact that the Notice as was issued to the appellant by the CIT(A) was not in conformity with the law as laid down by the Hon'ble Courts in this regard.
3. That before imposing penalty of Rs.27,91,325/- under s. 271(1)(c) of the IT Act no opportunity was provided by the CIT(A), Aligarh.
4. That the addition made by CIT(A) by enhancing addition of Rs.
90,33,414/- being the alleged unverifiable sundry creditors on the basis of which penalty was imposed is subject matter of appeal before Hon'ble Tribunal.
5. That the CIT(Appeal), Aligarh has grossly erred in law and on facts in making addition of sundry creditors of Rs. 90,33,414/- and imposing penalty on this account without properly appreciating the facts and circumstances of the case.
6. That the CIT(A),Aligarh himself issued enhancement notice and later on imposed penalty without appreciation that there is neither furnishing of inaccurate particulars nor concealment of income.
ITA No. 418/Agra/2017 A.Y 2012-2013
3. Briefly, facts of the case are that assessee is a Partnership Firm, engaged in the business of civil construction.It has filed its Income Tax Return for Assessment Year 2012-13 on 29.09.2013 declaring Income of Rs. 86,31,2010/-. While completing the assessment under scrutiny, the AO, observed that the complete books of accounts were not produced by the assessee and that hehas rejected the books of accounts, and applied 8% Net profit rate on contract receipts of 15,09,14,996/- as against 5.72% shown by the assessee besides addition of FDR interest amounting to Rs. 17,27,922/- as income from other sources alleging no details were 4 ITA No. 418 & 251/Agr/2017 submitted by the assessee. The AO allowed deduction of Depreciation and deductions claimed under section 40(b) of the Act being Salary and Interest paid to Partners.
4. In appeal,the Ld. CIT(A) has issued show cause notice dated 11.04.2016 to the effect as to why addition be not made under section 41(1) with regard to Sundry Creditors,treating liability to have been ceased and also on the account as to why allowance of Depreciation be not withdrawn.
5. After considering the submission of the assessee the Ld. CIT(A) held that though separate addition on account of FDR Interest is not called for,however, the action of the AO in invoking section 145(3) of the Act is justifiedand accordingly, confirmed the AO's action in applying N.P rate of 8% and made enhancementof Rs. 90,33,314/- against trade creditors treating cessation of liability assessable under section 41(1) of the Act. The Ld. CIT(A) also withdrew claim of Depreciation amounting to Rs. 33,89,415/- as was separately allowed by the AO.
6. The Ld. Counsel for the assessee submitted that the authorities below, while estimating the income by applying the profit rate at 8% by rejecting the books of account and estimating the income have completely 5 ITA No. 418 & 251/Agr/2017 ignored the procedure laid down u/s 145(3) read with sec 144 of the Act , contending that when provisions of sec. 145(3) of the Act are invoked, the assessment has to be completed as per the procedure laid down in the sec. 144 of the Act, which mandates that the AO shall complete the assessment of the assessee on the basis of material gathered by him. He further submitted that the power to make best judgment assessment is not an arbitrary power, it is an assessment based on best judgment of the AO i.e, wisdom. It must be based on some relevant material and should be in a logical manner, so that when it the impugned order is put to test on the ground of arbitrariness it should withstand the test of appeal and should not appear to have been passed merely to punish the assessee. In the case under consideration, it was submitted by the Ld. A.R that the AO has not gathered any material on the basis of which the assessment could be completed by application of Profit @ 8% as being done in the case of the assessee. No evidence is on record that either in the year under consideration or in any preceding or in any subsequent year assessee has earned this exorbitant rate of profit.
(a) D.M. Brothers Vs CIT in (2010) 44 DTR (All) 13
(b) Pragati Engineering Corporation Vs CIT in (2013) 85CCH048 (All)
(c) CITVs Target Construction Co. Ltd.in (2015) 55 Taxmann.com 294 (All)
(d) Shri Devendra Kumar Vs ACIT in ITA No. 495/Agra/2015 6 ITA No. 418 & 251/Agr/2017
(e) Smt. Archana Dutta Vs ACIT in ITA No. 330/Agra/2016
(f) Shri Siddheswar Engineers Vs ACIT in ITA No. 160/Agra/2015
(g) M/s Infra Developers Vs ITO in ITA No. 52/Agra/2013
7. The Ld.Counsel, referring to the above Judgments/Orders passed by the Jurisdictional High Court and the ITAT, Agra Bench,contended that the income of the assessee from contract business, after rejection of accounts has to be estimated taking into consideration the past history of the assessee for the last years.
8. He also submitted that there is consistency in the trading results shown by the appellant, thus, as per past history, the assessee's income during the year under consideration is entitled to be accepted and addition made on this score by applying the profit rate of 8% is liable to be deleted, being without any basis for such exorbitant estimation.
9. The ld. DR,on the other hand, supported the impugned order submitting that the AO while completing the assessment observed that complete books of accounts were not produced, numerous discrepancies were noted such as cash payments of Rs.20,000/- or more without supporting bills and vouchers and no stock register was maintained by the assessee. The AO also noted that assessee had shown sundry creditors of Rs. 1,09,15,621/-, name and addresses of sundry creditors were also not 7 ITA No. 418 & 251/Agr/2017 furnished. In view of the above, assessee was show caused as to why book result may not be rejected and income of the assessee be computed after application of Profit @ 8%, since no reply was furnished by the assessee it was under the aforementioned circumstances that the AO computed the business income after application of Profit at the rate of 8%.
10. We have heard the parties, perused the records in the light of precedents. It is an undisputed fact that books of account were rejected by invoking provisions of Section 145(3) of the Act, such rejection was upheld in first appeal by the Ld CIT(A). The assessee has not objected to the rejection of the books of account. However, the fact remains that neither the authorities below has specified circumstances under which it could have been presumed that the reported rate of profit is low nor has cited any comparable case, in support, for application of "high profit rate" on gross total receipt. The past history of the assessee as furnished vide PBP-111 which is backed by Audit Reports of all such years (PBP-112-150) which position when tabulated emerges as under:
Assessment Turnover inclusive Net Profit Net Profit Year FDR Interest in (%) 2010-11 15,79,72,464/- 84,13,469/- 5.32 8 ITA No. 418 & 251/Agr/2017 2011-12 8,09,56,392/- 43,83,160/- 5.41 2012-13 15,26,42,919/ - 86,31,209/- 5.65 2013-14 2,15,46,367/- 11,37,654/- 5.25
11. In view of the precedents referred above, there is a consistency in judicial opinion that after rejection of books of accounts, income is to be computed after due consideration of the past history of the assessee.
12. We find that the authorities below were in gross ignorance of the binding Judgments of the Jurisdictional High Courts and Agra bench of ITAT without consideration of the past history of the appellant and without any instance of some comparable case on identical facts in applying profit rate of 8%, in the case of the assessee. On perusal of the comparative 'Net Profit Chart' of the assesses's past history on profit rate, as above, it is evident that the Net Profit Rate after depreciation is reasonably declared at 5.65%% as against 5.32 % in Assessment Year 2010-11 and 5.41% in Assessment Year 2011-12. It is also a matter of records that subsequent to passing of the Assessment order for A.Y 2012-13, assessment of the assessee for succeeding Assessment Year 2013-14 was also completed under section 143(3) of the Act where the AO accepted N.P rate of 5.28% to be correct. Being guided by the Jurisdictional High Court Judgments and 9 ITA No. 418 & 251/Agr/2017 orders passed by the co-ordinate Bench it is factually clear that in the year under consideration the N.P rate is progressive being 5.65% and the profit rate applied and sustained by authorities below at 8% is without any evidence and unreasonable too.
13. In view of above, it would be just, fair and reasonable to estimate the income of the assessee at the Net Profit rate of 5.75% of the gross total receipts of Rs. 15,26,42,919/- [as adopted by CIT(A)]for the year under appeal. Thus, the assessee gets relief of 2.25% in estimation of profit rate on the gross total receipts, as against the 8% net profit rate estimated by the Authorities below. Thus, the 1st ground of appeal of the assessee is partly allowed.
14. Apropos Ground No.2(a) & (b) the assessee has challenged the action of the Ld CIT(A) in making enhancement and thereby making addition of Rs. 90,33,.414/- against outstanding liability in the accounts of trade creditors appearing as payable in the Balance Sheet taking aid of section 41(1) of the Act. The Ld CIT(A) has made the addition by observing as under:
"As regards issue of sundry creditors, it is observed that out of total 33 creditors only 6 creditors have confirmed their balances. Verified creditors are as under:-
S. No. Name of the Sundry Father Name Amount Address 10 ITA No. 418 & 251/Agr/2017 Creditors
1. Shri Ajeet Gupta Late K.L. Gupta 4,14,024/- 2/74, Ganesh Prasad, Farrukhabad.
2. Shri Brijesh Shukla Shri Ram Kumar 4,23,810/- Bhaisan Nagla P.O. Shukla Munder, Hardoi
3. Shri Divya Prakash Late Raja Ram 92,072/- 4/12, Palariya, Shukla Shukla Farrukhabad.
4. Shri Ramendra Shukla Late Divya Prakash 3,31,267/- Palariya, Farrukhabad.
Shukla
5. Shri Vinay Shukla Late Raja Ram 2,74,485/- Palariya, Farrukhabad.
Shukla
6. Shri Vipin Shukla Shri Ram Prakash 3,46,549/- Keshav Nagar, Shukla Chaurasi, Farrukhabad.
Thus, it is seen that out of total sundry creditors of Rs. 1,09,15,621/- only sundry creditors to the extent of Rs. 18,82,207/- have been confirmed and hence, it is reasonable to hold that liability in respect of other creditors amounting to Rs. 90,33,414/- has ceased to exist. The appellant has denied the cessation of liability on the ground that these creditors have been paid in the subsequent years. However, no evidences has been furnished in this regard. In the given facts, it is reasonable to hold that the liability pertaining to sundry creditors of Rs. 90,33,414/- ceased to exist and the same deserves to be added to the total income in accordance with the provisions of section 41(1) of the IT Act. The income is being exchanged accordingly.
15. It was contended by the assessee that the enhancement made by Ld. CIT(A) resulting into addition of Rs. 90,33,414/- is bad in law and on facts in as much as that provisions of section 41(1) of the Act has wrongly been pressed into service ignoring the fact that the liability is an existing liability, 11 ITA No. 418 & 251/Agr/2017 part of which was paid in subsequent assessment year (A.Y 2013-14) assessment of which was completed under section 143(3) of the Act vide order dated 31.12.2015 passed by the DCIT, Circle 2(1), Farrukhabad after accepting the books of accounts which bears the details of repayment made to such trade creditors.
16. As regards the applicability of the Section 41(1) of the Act, it was contended by the assessee that no addition can be made under that section unless it is shown that the liability had ceased to exist. According to him mere fact that few creditors have chosen not to respond to AO's Letter and few Letters remained undelivered with the postal remark of incomplete address, thisispo facto do not constitute positive evidence of cessation of liability. The assessee relied upon the judgment of the Supreme Court in the case of 'CIT v. Sugauli Sugar Works (P) Ltd.', (1999), 236 ITR 518 (S.C) and contended that the question whether the liability ceased to exist or not was not a matter to be decided by considering the assessee's conduct alone, but was a matter to be decided only if the creditor also appears before the concerned authority and that in the absence of the creditor it is not possible for the concerned authority to come to the conclusion that the liability has ceased to exists, barred by limitation and had become unenforceable. It was further pointed out on behalf of the 12 ITA No. 418 & 251/Agr/2017 assessee that the aforesaid view was reiterated by the Supreme Court in the case of 'CCIT v. Kesaria Tea Co. Ltd.', (2002) 254 ITR 434 (S.C). Reliance was also placed to the order passed by the co-ordinate bench in the case of 'M/s Wasan& Co. Vs ACIT', Agra in ITA No. 111/Agra/2018.
17. He also argued that in the case under consideration books of accounts were rejected and which rejection was even upheld by the Ld CIT(A) and business income was worked out after application of N.P rate implying that no specific deduction has been allowed in respect of such trade creditors and therefore, under this factual premise alsothe Ld CIT(A) cannot be held justified in falling back to the same books of accounts for making disallowance on the alleged ground that liability shown in the Books of Accounts allegedly ceased to exist.
18. Per contra, the Ld Sr. D.R submitted that the Ld CIT(A) was quite justified in enhancing the income to the extent of Rs.90,33,414/-and such an action is founded on the fact that upon postal enquiry undertaken by the AO out of 33 creditors six of them confirmed, 21 creditors have not responded to AO's Letter and 6 Letters remained unserved, returned with postal remark of incomplete address or old address.He also placed reliance 13 ITA No. 418 & 251/Agr/2017 to the Judgment by the Hon'ble Allahabad High Court in the case of 'CIT Vs M/s G.S Tiwari & Company', ITA No. 5 of 2008.
19. Since, theaddition has been made under section 41(1) of the Act;accordingly, it will bepertinent to discuss the provisions of the said section. As per theprovisions of section 41(1) addition can be made towards remission orcessation of liability, if the following conditions are fulfilled.
"Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year: --
(a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or
(b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss 14 ITA No. 418 & 251/Agr/2017 or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly, chargeable to income-tax as the income of that previous year."
20. Reliance was placed by the AR's to the case of 'M/s Wasan& Co. Vs ACIT (supra)', wherein the action of the revenue authorities in making and sustaining addition under section 41(1) was brought to challenge, where the objections raised by the revenue authorities were as under:
(a) Notice under section 133(6) were issued to thirtythree creditors, out of which fourteen notices could only be served, but none of them replied, eighteen Notices were returned with the postal remarks such as 'incomplete address, left and does not live here;
(b) Liabilities standing against above creditors pertains to some twenty years;
(c) No correspondence was brought on records to show existence of these credit balances in the Balance Sheet of the appellant;
(d) Non availability of present address and contact number were made available to the revenue authorities.
21. On the above facts and after due consideration of the precedents available on the issue, it was held as under:
15
ITA No. 418 & 251/Agr/2017 "7. We have heard both the sides, perused the orders and the relevant material on record.It is seen that the AO has made the addition in respect of cessation of trading liabilities without considering the fact that the assessee has not been benefited by remission or cessation of such trading liability because he has not written off any amount in his books unilaterally. In fact, there is no reference in the order of the AO to the expression remission or cessation of liability. The contention of the counsel was that the trading liability under the head Sundry Creditors in the name of the creditor parties was proved and verifiable with reference to the Balance Sheet of the assessee and therefore, the same cannot be treated as cessation of liability under section 41(1) of the Act.
8. We find that the Id. CIT(A) has deleted similar disallowance in the assessee's own case for the assessment year 2008-09 in Appeal No. 185/C1T(A)-
1/ Agra/ITO-2(3)/Agra/2010-11 dated 25.10.2012 (PB 75-78), wherein he has held as under --
"4.5 I have considered the discussion made by the AO in the There is also force in the argument of the Id. AR that it is for the assessee to declare the remission of the liability as his income after he receives the information about such remission of liability and it is not for the AO to decide as to when a liability is either ceased or remitted. Therefore, agreeing with the Ld. AR, I hold that no addition is required to be made in the impugned assessment year u/s. 41(1) on account of remission or cessation of the liability and hence, addition of Rs. 4,42,000/- is deleted. Accordingly, ground no.2 & 3 are allowed."
9. In the case of CIT vs. Alvares& Thomas', (2016) 69 taxmann.com 257 (Karnataka) it was held that-
The principal contention of revenue is that unless the burden is discharged with regard to the existence of the liability by the assessee, it is open for the revenue to invoke the provisions of section 41(1) and to make addition on the premise that the liability has ceased to exist. [Para 5] Another submission of revenue was that 16 ITA No. 418 & 251/Agr/2017 reliance placed by the Tribunal in case of Shri Vardhman Overseas Ltd., (supra) cannot be applied to the facts of the present case since in the said decision, it was not a case where the party/creditor was not verifiable or that the address was not changed. [Para 6] There are two requirements for invoking the provision of section 41. The sine qua non is, the remission or cessation of the trading liability and the additional requirement is, some benefit in respect of such trade liability is taken by the assessee. If the aforesaid conditions are satisfied, then only section 41(1) could be invoked by the Assessing Officer. [Para 7] Coming to the facts of the present case, it is not the case of the department that, any benefit in respect of such trading liability was taken by the assessee but, the revenue contends that since the burden was not discharged of existence of the liability, it be treated as cessation of the liability and therefore, section 41(1) could be invoked. Further, standof the revenue is that when in respect of debt in question, confirmation was called for a letter was produced of the creditor with its address but, when the same was verified, the report was that party could not be traced and therefore, it was not verifiable. [Para 8] Even if one accepts the contention of the revenue that the party could not be traced and therefore debt could not be verified then also, by no stretch of imagination can it be held that it would satisfy the requirement of cessation of liability. In legal parlance, merely because the creditor could not be traced on the date when the verification was made, same is not a ground to conclude that there was cessation of the liability because cessation of the liability has to be cessation in law, of the debt to be paid by the assessee to the creditor. The debt is recoverable even if the creditor has expired, by the legal heirs of the deceased creditor. Under the circumstances, in the present case, it can hardly be said that the liability had ceased. If the liability had not ceased or the benefit was 17 ITA No. 418 & 251/Agr/2017 not taken by the assessee in respect of such trade liability, the conditions precedent were not satisfied for invoking section 41(1) of the Act. [Para 9]
10. The judgment relied upon by the CIT(A) and the Id. DR are distinguishable on facts. The Id. counsel in his written synopsis has explainedthat in the cases relied by department, all the necessary documentary evidences were brought on record to the effect of proof and verification of the trading liability for invoking provisions of section 41(1) of the Act where as in the present case, no documentary evidence were brought on record to the effect of proof and verification of cessation of trading liability. Thus, the conditions precedents were not satisfied for invoking section 41(1) of the Act, in the case of the assessee.
11. From the above, it is clear that although the addition was made by the AO u/s 41(1) but the AO did not mentioned any section in the assessment order. The Assessing Officer has stated that this liability does not exist at present. For any addition to be made u/s 41(1), it is essential that the liability should cease to exist as per the judgment of the Hon'ble Apex Court rendered in the case of Chief Commissioner of Income Tax vs. Kesaria Tea Co. Ltd [2002] 254 ITR 434 (SC). In this case, it was also held that it is essential that a benefit is obtained in respect of such trading liability by way of remission or cessation thereof during the year. In the present case, it is seen that the assessee is still showing these creditors as outstanding liability. Now we examine the provisions of section 41(1) of the Act. We find that as per Explanation- 1 to section 41(1), if the assessee has written back the liability in his accounts then it will be considered that even by unilateral act of theassessee, there is remission or cessation of the liability. But in the present case, the assessee has not written back the liability in his accounts.
12. In the light of the provisions of section 41(1) and the judgment of Hon'ble Apex Court in the case of Kesaria Tea Co. (supra) and another judgment of 18 ITA No. 418 & 251/Agr/2017 Hon'ble Apex Court rendered in the case of CIT vs. Sugauli Sugar 236 ITR 518, we hold that the addition made by the Assessing Officer in this regard and confirmed by the CIT(A) is not sustainable. We accept the grievance of the assessee as justified and delete the entire addition of Rs. 1,27,88,607/- in respect of trading liability u/s 41(1) of the Act.
13. In the result, the appeal of the assessee is allowed."
22. There is no dispute with regard to the fact that these liabilities were being shown in the books of accounts of the assessee for the year ended 31.03.2012 and it was the claim of the assessee that these liabilities are payable to the persons from whom the construction material were purchased on credit and the parties therefore, are trade creditors. On perusal of the facts, it has not been proved by the Ld. CIT(A) as to how the liabilities ceased or crystallized during the previous year relevant to the assessment year under appeal. Merely because there was no response by the creditors it does not prove that the liabilities ceased during the assessment year 2012-13. If the parties choose not to appear or did not respond or even did not come forward in compliance to Letter by the AO does not prove that the trade creditors have either given up there claim in favour of the assessee or such creditors were not in existence so as to invoke provisions of section 41(1) of the Act. It is also a settled position that there is no bilateral act of the assessee and the creditors, which 19 ITA No. 418 & 251/Agr/2017 indicates that the said liabilities have ceased to exist. In the absence of any bilateral act, the said liabilities could not have been treated to have ceased.
23. Perusal of the order passed by the Ld CIT(A) reveals that the conditions mentioned under section 41(1) of the Act are not fulfilled in the instant case. Remission and cessation have been presumed merely on the ground that when at the instance of the Ld. CIT(A) postal enquiry was undertaken by the AO in which out of total thirty-three creditors, six creditors have confirmed their balances,twenty one creditors did not respond to the enquiry letter of the AO and in respect of six creditors letters issued by the AO returned un-served with postal remark of incomplete/old address. It is pertinent to observe that in none of the creditor's case any such reply was either received or brought on records by the revenue authority wherein the creditor may have stated to have foregone the amount due from the assessee. The Ld. CIT(A) solely banking upon the result of postal enquiry as was undertaken at his instance by the AO concluded that liability shown in respect of creditors has ceased to exist. The Ld. CIT(A) had not brought anything on record to prove that any amount or benefit had been obtained by the appellant during the year under consideration against liabilities which is allegedly ceased to exist moreso when no such specific allowance in respect of material purchased 20 ITA No. 418 & 251/Agr/2017 was allowed in present assessment where income was initially and finally upto this stage is arrived after application of flat rate of profit. It is also an established proposition of law that onus is on the revenue to establish that any benefit has accrued to the appellant against alleged liabilities during the year under consideration.
24. It is also an undisputed fact that the outstanding amount due towards trade creditors was partly paid in subsequent assessment year (A.Y 2013-
14) assessment of which was completed under section 143(3) of the Act vide order dated 31.12.2015 passed by the DCIT, Circle 2(1), Farrukhabad after accepting the books of accounts which bears the details of repayment made to such trade creditors. Under these factual circumstances the view if the Ld. CIT(A) that liability ceased to exist can not withstand.
25. Reliance placed to the Judgment of Hon'ble Allahabad High Court in the case of 'CIT Vs M/s G.S Tiwari & Co.', in ITA No. 5 of 2008 is fully misplaced. In the relied upon case the facts before the Hon'ble High Court as meticulously noted by their lordships were that assessee claimed telescoping of the Net Profit determined on estimate basis against sundry creditors as is evident from the pleading made by the Counsel representing the respondent-assessee. The Hon'ble High Court found that the plea of the assessee to be unacceptable for the assessee did not file any 21 ITA No. 418 & 251/Agr/2017 'Schedule-C' of Sundry Creditors as was mentioned the Balance Sheet though it was claimed, even their full name and addresses were made available during the course of proceedings, based on this the Hon'ble High Court concluded that there are no creditors as even the balances of creditors were not known to the assessee, the Hon'ble High Court also found that even no single detail from the books of accounts was furnished by the assessee in fifteen month. On the aforementioned facts the Hon'ble High Court held that though the assessee consistently stated that the creditors are genuine but at no point of time assessee took a stand that sundry creditors are referable to business income which is determined on estimate basis. Hence, the Hon'ble High Court held that assessee failed to establish that the unexplained sundry creditors were referable to the business income. In the referred case no question of addition under section 41(1) was present for consideration and therefore, the case is not an authority in the facts of the case on hands where addition under section 41(1) of the Act is made. The case is further distinguishable as in the referred case assessee sought telescoping of Net Profit determined on estimate basis against sundry creditors, whereas in the case on hands no such plea was ever taken. In the case under consideration there is no finding that the creditors appearing in the balance sheet are other than 22 ITA No. 418 & 251/Agr/2017 trade creditors. In view of the above distinguishing facts no help can be derived from the Judgment of 'CIT Vs M/s G.S Tiwari & Co',(Supra).
26. In the light of the provisions of section 41(1) of the Act and the Judgment of Hon'ble Apex Court in the case of 'Kesaria Tea Company (supra)' and 'CIT Vs Sugauli Sugar', we hold that the action of the Ld CIT(A) in making addition of Rs. 90,33,414/-is unsustainable on facts and in law. Therefore, addition of Rs. 90,33,414/-is deleted.
27. In the next Ground, the assessee challenges the action of the Ld CIT(A) in not allowing statutory claim of Depreciation amounting to Rs. 33,89,415/- by making enhancement to this extent.
28. Issue heard.We are of the considered view that claim of Depreciation has already been taken care while applying N.P rate of 6% and therefore, no further allowance is called for. Thus Ground No.3 is rejected.
29. In Ground No.4,the assessee has challenged the action of the authorities below in making separate addition of Rs. 1,98,983/-against Income Tax refund. During the course of hearing the Counsel of the assessee fairly conceded that this represents Interest on Income Tax Refund, which is liable for addition. We therefore, confirm the addition of 23 ITA No. 418 & 251/Agr/2017 Rs. 1,98,983/-being the Interest on Income Tax refund. Thus, Ground of Appeal No. 4 is rejected.
30. In Ground No.5, assessee has challenged separate addition of Rs. 13,88,945/- towards amounts received as Trade Tax Refund.
31. Heard. We find that VAT has been deducted by various Departments on contract payment and the assessee has claimed debit of Rs. 46,08,996/- against VAT paid. Correspondingly assessee has received Refund of Trade Tax amounting to Rs. 13,88,945/-. Since, no specific deduction has been allowed in respect of VAT paid and being deducted by various Department on the same analogy, Trade Tax Refund cannot be separately added. Thus, Ground of Appeal No. 5 is allowed. ITA No. 251/Agra/2017/A.Y. 2012-13
32. This appeal is directed against the order dated 12.02.2018 passed under section 271(1)(c) of the Act by the Ld CIT(A), Aligarh who imposed penalty of Rs.27,91,325/- in respect of addition made by him of Rs. 90,33,414/- being the alleged unverifiable sundry creditors under section 41(1) of the Act.
33. Since, the basis for imposition of penalty was the addition of Rs. 90,33,414/- being the alleged unverifiable sundry creditors, which is stood 24 ITA No. 418 & 251/Agr/2017 deleted in quantum appeal as above,therefore, the consequential penalty of Rs.27,91,325/-levied u/s 271(1)(c) by the CIT(A) would not survive and as such deleted.
34. In the result,ITA No. 418/Agr/2017 is partly allowed and ITA No. 251/Agr/2017 is allowed.
(Order pronounced in the open court on 10/10/2018) Sd/- Sd/-
(A. D. JAIN) (DR. MITHA LAL MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Aks-DOC
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
25
ITA No. 418 & 251/Agr/2017
Date
1. Draft dictated (DNS) 04.102018 PS
2. Draft placed before author 10.10.2018 PS
3. Draft proposed & placed before the second member JM/AM
4. Draft discussed/approved by Second Member. JM/AM
5. Approved Draft comes to the Sr.PS/PS PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk PS
8. Date on which file goes to the AR
9. Date on which file goes to the Head Clerk.
10. Date of dispatch of Order.