MR. SURINDER MALHOTRA (PROP. M/S. CRAFT INDIA),NEW DELHI vs. ITO, NEW DELHI

At the outset, learned counsel appearing for the assessee, on instructions, did not press ground no. 2. Further, he submitted, & 3306/Del/2015 AY: 2009-10 & 2010-11 ground no. 3 on the issue of levy of interest under section 234A, 234B and 234C, being consequential, does not require adjudication. In view of the aforesaid, ground nos. 2 and 3 are dismissed.

In ground no. 1, the assessee has challenged the addition of Rs. 4,67,192/- made under section 68 of the Income-tax Act, 1961 (in short ‘the Act’).

Briefly the facts are, the assessee is a resident individual.

Learned counsel appearing for the assessee submitted that under a factual misconception that the entire outstanding sundry creditor was offered as income in assessment year 2008-09, the Assessing Officer has made the addition, which was confirmed by learned Commissioner (Appeals). He submitted, the assessee had surrendered only a part of the sundry creditors in assessment year 2008-09, since with other creditors the assessee had done transaction in subsequent years. He submitted, in subsequent years the assessee has discharged the liability of the concerned creditors. In this regard, he drew my attention to the ledger account copies of the concerned sundry creditors along with bank statement. However, he submitted, the assessee would not like to contest the additions of Rs.24,420/- representing credit balance & 3306/Del/2015 AY: 2009-10 & 2010-11 of Kangsiya Art Palace and Rs. 8,550/- relating to Ansari Wood Art.

Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).

I have considered rival submissions and perused materials on record. At the outset, I must observe that out of the addition of Rs.4,67,192/-made under section 68 of the Act, the assessee has given up its claim in respect of an amount of Rs.32,970/-. In other words, the amount in dispute before me is Rs.4,34,222/-.

In addition to the main grounds, the assessee has raised additional ground, challenging the disallowance of Rs.1,22,472/- made under section 40(a)(ia) of the Act.

I have heard rival contentions on the issue of admission of additional ground. It is observed, though, the assessee has raised the aforesaid issue before the first appellate authority, however, at the time of hearing, the assessee did not press this ground.

In fact, before me, learned counsel appearing for the assessee conceded to the aforesaid factual position. However, he submitted that in view of change in legal position, subsequently on account of introduction of second proviso to section 201(1) and 40(a)(ia) of the Act, the assessee wants to contest the issue. In my considered opinion, once the assessee, on his own volition, had 5 | P a g e & 3306/Del/2015 AY: 2009-10 & 2010-11 given up the claim in respect of an issue and accepted the addition, he cannot be permitted to raise the issue again before a higher forum. Further, in my view, application of the send proviso to section 201(1) and 40(a)(ia) is not automatic but depends upon the facts and evidences to be furnished by the assessee. Further, applicability of second proviso to section 201(1) and 40(a)(ia) to the present case would require fresh investigation into facts. In view of the aforesaid, I decline to entertain the additional ground.

In the result, the appeal is partly allowed.

Ground nos. 1, 2D and 2E, being general in nature, are dismissed.

At the time of hearing, learned counsel appearing for the assessee, on instructions, did not press ground no. 2A.

In ground no. 2B, the assessee has contested the disallowance of expenditure amounting to Rs.60,023/-. & 3306/Del/2015 AY: 2009-10 & 2010-11

Briefly the facts are, in course of assessment proceeding, the Assessing Officer noticed that the assessee has claimed expenses of Rs.1,21,048/- on car maintenance, Rs.3,80,380/- on depreciation on car, Rs.48,190/- on car insurance, Rs.50,612/- on interest paid on car loan, and Rs. 58,371/- on telephone. After calling for necessary details and examining them, the Assessing Officer, being of the view that the assessee must have used the car and telephone for personal purposes, the Assessing Officer disallowed 1/10th of the expenses, which worked out to Rs.60,023/-. This disallowance was confirmed by learned Commissioner (Appeals).

I have considered rival submissions and perused the materials on record. It is a fact that the assessee is an individual.

In view of the aforesaid, I do not find any reason to interfere with the decision of the departmental authorities as the disallowance made is reasonable. This ground is dismissed.

In ground no. 2C, the assessee has challenged addition of Rs.11,17,579/- under section 41(1) of the Act.

Briefly the facts are, in course of assessment proceeding, the Assessing Officer on verifying the balance-sheet found that the assessee has shown sundry creditors of Rs.76,47,961/-.

After calling for and examining the necessary details, he found that in respect of certain sundry creditors representing an amount of Rs.11,17,579/-, no transaction had taken place in the year under consideration. He, therefore, called upon the assessee to furnish confirmation from those creditors. Alleging that the assessee failed to furnish the confirmations and being of the view that the liabilities of the concerned creditors must have ceased to exist in terms of section 41(1) of the Act, the Assessing Officer added back an amount to the income of the assessee. Learned Commissioner (Appeals) confirmed the addition.

I have considered rival submissions and perused material on record. A reading of section 41(1) of the Act makes it clear that before invoking the provision three conditions have to be satisfied. 8 | P a g e & 3306/Del/2015 AY: 2009-10 & 2010-11 Firstly, the credit appearing in the books of the assessee must relate to a trading transaction. Secondly, the assessee in the year under consideration must receive benefit by way of cash or kind in relation to such credit amount. Thirdly, the creditors must have ceased to exist in the books of the assessee. In the facts of the present case, undoubtedly, the creditors were continuing from earlier years and where appearing as outstanding creditors in the books of the assessee. Therefore, they have not ceased to exist insofar as assessee’s books of accounts are concerned. No material has been brought on record by the Assessing Officer to demonstrate that the creditors have ceased to exist and that too, in the year under consideration. In course of hearing it has been brought to my notice that in subsequent assessment years, the assessee has discharged the entire liability of the concerned creditors. The materials placed before me demonstrate such fact.

In view of the aforesaid, I do not find any justifiable reason to sustain the addition. Accordingly, the Assessing Officer is 9 | P a g e & 3306/Del/2015 AY: 2009-10 & 2010-11 directed to deleted the addition of Rs.11,17,579/-. This ground is allowed.

In the result, the appeal is partly allowed.