DCIT, CENTRAL CIRCLE-1, UDIPUR vs. M/S. WAGAD CONSTRUTION COMPANY, UDAIPUR

2. On the facts and in the circumstances of the case and in law, ld. CIT (A) has erred by admitting additional evidence without granting requisite opportunity to the Assessing Officer.

3. That the appellant craves to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal.

: 1. Whether on the facts and circumstances of the case, and in law the ld. CIT (A) erred in deleting the addition of Rs. 15,95,38,544/- (1,63,00,741+9,94,269+47,56,615+68,12,269+13,06,74,650) made on account of difference in contract receipt shown in Form 26AS vis-à-vis receipts accounted by the assessee.

2. On the facts and circumstances of the case and in law the ld. CIT (A) erred in sustaining disallowance of Rs. 15,00,000/- against disallowance of Rs. 42,34,358/- out of various expenses made by the AO in absence of verification.

3. On the facts and circumstances of the case and in law the ld. CIT (A) erred in holding the activity of ready mix concrete to be manufacturing and hence allowing additional depreciation of Rs. 51,77,474/-.

4. On the facts and circumstances of the case and in the law the ld. CIT (A) had erred by admitting additional evidence without granted requisite opportunity to the Assessing Officer.

First, we deal with the appeal in .

Ground Nos. 1 & 2 are inter-connected and relates to deletion of addition on account unexplained sundry creditors and advance from customers.

per attached audited balance sheet the sundry creditors are comprising of sundry creditors and advance from customers of Rs. 25,91,01,791/- and Rs. 8,85,08,618/- respectively. The assessee vide show cause notice dated 13.10.2016 and 13.12.2016 and AR order sheet entry dated 03.11.2016 and 08.12.2016 were asked to provide list of creditors along with PAN, Address. Moreover, assessee/AR was asked to provide confirmation from the creditors having transaction of Rs. 50,000/- or more. A/R was further asked to produce credit bills of purchase etc. for verification and to provide subsequent payment details. In compliance to the above show cause notices, the assessee vide letters dated 17.06.2016 and 21.12.2016 furnished the required information. The AO was not satisfied with the information supplied by the assessee as it was not possible to verify the genuineness of credit entries and accordingly the AO passed the order as per material available on record, treating all the credit entries as part of the current year. The ld. A/R of the assessee claimed the credit entries in the books of accounts of the assessee as genuine, but the AO was not satisfied with the explanation as the assessee has failed to prove even the identity of creditors and genuineness of transaction. Thus the AO completed the assessment by making addition of Rs. 34,76,10,409/- on account of bogus sundry creditors. Being aggrieved by the order of AO, the assessee preferred appeal before the ld. CIT (A). The ld. CIT (A) vide his order after discussing the matter in great details allowed the appeal of the assessee by deleting the addition.

Now the Revenue is in appeal before us.

3. Before us, the ld. D/R supported the order of the Assessing Officer. The ld. D/R submitted that the assessee has failed to furnish the details in respect of the credit entries and advances received from the customers to the satisfaction of the assessing officer. He, therefore, submitted that the addition made by the AO be sustained.

4. On the other hand, the ld. Counsel for the assessee submitted that the assessee was having outstanding closing balance comprising of sundry creditors and advance from customers of Rs. 25,91,01,791/- and Rs. 8,85,08,618/- respectively totaling to Rs. 34,76,10,409/- which are duly reflected in the return of income filed by the assessee. The ld. A/R submitted that credit entries are genuine and reflected in the regular books of accounts maintained by the assessee. The books of accounts of the assessee are duly audited as per the provisions of section 44AB of the IT Act and the necessary audit report in Form No. 3CA and 3CD were furnished to the Assessing Officer. The ld. A/R further submitted that the assessee has complied with the requirements mentioned in the show cause notices and accordingly submitted the list creditors and ledger copies. The ld. A/R vehemently contested the AO’s action by stating that all sundry creditors consisted of previous years balances including security/advances from customers totaling to Rs. 8,85,08,618/- outstanding as on 31.03.2014. The assessee gave details of specific credit entries / liabilities outstanding as on 31.03.2014 in Balance Sheet objecting to the AO’s action by submitting that in the instant case, no addition could be made either under section 41 or section 68 of the Act. The ld. A/R submitted that the assessee has furnished copies of assessment orders passed in earlier years and pointed out that in the said scrutiny assessments, above creditors/purchase/expenses were accepted as genuine, hence they could not be added in the current year under appeal. The ld. A/R further claimed that the assessee vide letter dated 21.12.2016 had provided all the required details viz. total list of creditors exceeding Rs. 50,000/- and list of all creditors with opening and closing balances which were ignored by the AO. The AO has confirmed the addition of the sundry creditors without disallowing the corresponding purchases. The ld. A/R further submitted that the sundry creditors can be added as Income under section 41(1) of the Act once it is written off in the books of accounts. But in the instant case, the same were outstanding as at year end and liabilities were cleared/mostly paid in subsequent years to the extent of 52.27% percent amounting to about Rs. 19,25,08,224/- as per detailed party-wise chart enclosed from 01.04.2013 to 31.03.2019 and the remaining balances are only outstanding in the books of accounts, balance sheets were filed before the AO as on 31.03.2014 and 31.03.2015, subsequent years Balance sheets were filed along with the ITRs. The ld. A/R submitted that since in the instant case the amount of Rs. 34,76,10,409/- has not been written off and is reflected in the books of accounts of the assessee to the extent unpaid, therefore, sundry creditors & advances from customers reflecting in the books of accounts cannot be disallowed and added to the total income of the assessee. The ld. A/R placing reliance on the various judicial pronouncement submitted that no addition can be made either under section 41(1) or under section 68 of the Act as the AO himself did not specify the section under which he intended to make the addition. The ld. A/R further relied on the judgment of Hon’ble Punjab & Haryana High Court in the case of G.P. International Ltd. 325 ITR 25 (P&H) wherein it is held that “ provisions of section 41 cannot be applied if the assessee is still showing the liability ”. The assessee further relied on a number of decisions relating to the issue under consideration, few of the decisions are as under :-

ITO vs. Bhavesh Prints (P) Ltd. 142 TTJ 128. Tamilnadu Ware Housing Corporation 292 ITR 310 . Willson and Co. Ltd. 121 TTJ 258 (Chennai Trib.) Dy CIT vs. Amod Petrochem (P) Ltd. (2008) 217 CTR (Guj.) 401. CIT vs. Usha Stud Agricultural Farms Ltd. (2008) 301 ITR 384 (Delhi)

Relying upon the above cited decisions, the ld. A/R has submitted that so long the assessee is showing the liability in the books even if it is time barred, it is neither remission nor cessation of trading liability. Only when the assessee treated the liability as a remission or cessation, the same will be treated as income under section 41(1) of the Act. Non-response from the creditor is not enough for making the addition under section 41(1) of the Act but the AO has to prove how the trading liability ceased to exist. Thus the ld. A/R has submitted that the AO has committed an error by treating the trade credits as income of the assessee when assessee has shown the liability on the books of accounts and AO has not established that the liability has actually ceased to exist.

The ld. A/R therefore, submitted that the assessment passed by the AO is based on without considering the facts of the case and records available with him at the time of hearing and did mistakes which were clearly apparent very well from records, hence considering the totality of facts the AO is not correct in adding total Sundry creditors and advances from customers for the year ended 31.03.2014 as income of the assessee and the addition of Rs. 34,76,10,409/- deserves to be deleted.

Whereas the assessee claimed that vide letter dated 21.12.2016 provided all the required details viz. total list of creditors exceeding Rs. 50,000/- and list of all creditors with opening and closing balances which were ignored by the AO.

Therefore, the condition for treating the same as income of the assessee under section 41(1) is that the liability ceased to exist as at the end of the financial year relevant to the year under consideration. The AO has not written any facts or any evidence on record to show that the said liability has ceased to exist except doubting the genuineness of the creditors. The ld. CIT (A) dealt with the issue elaborately while deciding the issue of sundry creditors and advances from the customers by observing in paras 7 to 11 of his order as under :-

“ 7. It is seen that the AO has not specified any section under which this addition was made, however, considering the nature of this addition, it could be either u/s. 41(1) of the Act or u/s. 68 of the Act. From the facts and details as furnished by the appellant, it is seen that total sundry creditors consisted of following items:-

Particular Amount Advances from customers 8,85,08,618/- Old Creditors 25,91,01,791/- Total 34,76,10,410/- Advances from Customers Rs. 8,85,08,618/- Out of total addition of Rs. 34,76,10,410/-, 8,85,08,618/- pertained to Security/Advances from two Customers only. The amount of Rs.8.74 Crore consisted of two advances of Rs. 3.49Crore and Rs. 5.25 Crores from Wagad Infraprojects Private Limited, sister concern of the appellant company and Executive Engineer, Canal Division, Dungarpur respectively. The appellant has pointed out that the AO holds jurisdiction on the company M/s. Wagad Infraprojects Pvt. Ltd., had framed the assessment for the said company u/s 143(3) of the Act and the advances made by the said company to the Appellant company were accepted in the assessment order for the same assessment year in the case of the said company after considering all the relevant details viz. Full name, address, PAN etc., however, the AO conveniently ignored the same and grossly erred in holding that the appellant failed to furnish the details called for and wrongly added this amount also as Income. The appellant furnished the Partywise Details of this amount of Rs. 8,85,08,618/- in tabular form as under:- Particulars Amount Remarks/Justifications Exe. Eng. Som 10,74,429 1. Amount Outstanding for Earlier Years Kamla Amba, Canal deposit. Dn. Dungarpur 2. Details was submitted at the time of hearing for the Asstt. Year 2013-14.

3. Amount was received earlier against deposits deducted in earlier years, wrongly the transfer entry was not passed in earlier year. (So the credit appeared) 4. Copy of Ledger account enclosed for ready reference.

5. Subsequently this amount of credit was Squared up against Deposit a/c already existing in Debit side. Advance for 3,49,17,898 1. Details was submitted with reply Dumper, Vehicle dated 17.06.2016. (WIPL) 2. Copy of Ledger account from 01.04.2013 to 31.03.2017 in support of Assets sold is enclosed.

2. Details was submitted at the time of hearing for Asstt. Year 2013-14.

3. Copy of Ledger account from 01.04.2013 to 31.03.2017 in support of Assets/Machinery sold is enclosed.

5. Further Jurisdiction of Wagad Infraprojects Private Limited (WIPL) is also with Ld. AO ACIT/DCIT, Circle-1, Udaipur and details were also submitted at the time of hearing for WIPL for AY 2014-15.

6. Thus these two amounts of Advances from Wagad Infraprojects Pvt. Ltd. i.e. 3,49,17,898 + 5,25,16,291= 8,74,34,189 were squared up after 31.03.2014 against supply of Assets & Equipments as per Ledger a/c enclosed again for ready reference. Total 8,85,08,618

Considering the facts of the case and above details, I find force in the appellant's claim. It may be noted that all these details were submitted by the appellant before the AO vide its replies dated 17.06.2016 and 21.12.2016 during the course of assessment proceedings, however, the AO failed to consider the facts and details mentioned above in respect of total credit of Rs. 8,85,08,618/-. The appellant has duly established that this amount of Rs. 8,85,08,618/- outstanding was paid off/cleared against supply of plant & machinery, Equipment etc. in subsequent years as under:- Outstanding as on Paid/Debited 31.03.2014 2014-15 2015-16 2016-17 2017-18 8,85,08,618 5,37,37,705 0 3,47,70,913 NIL

Thus, in respect of two parties in whose name advances were shown as outstanding, the appellant duly proved the identity and creditworthiness of the creditor and genuineness of the transaction, thus fulfilled necessary ingredients of provisions of sec. 68 of the Act. Even there is no case of attracting the provisions of section 41(1) of the Act. The appellant has submitted that these creditors were for supply of fixed assets during the FY 2013-14, whom the payments had duly been made in the FY 2014-15 and 2016-17. The appellant has established that there was no cessation of liability as the assessee has not obtained any amount in respect of such expenditure or has not obtained any benefit in respect of such trading liability by way of remission or cession thereon. Section 41(1) of the Act contemplates existence of a debt/liability and the remission or cessation thereof in the year under consideration. For the purpose of taxing any income on account of remission or cessation of liability, the Assessing Officer has to establish that there was an existing liability and that there was remission or cessation of such liability in the previous year relevant to the assessment year in which such income is sought to be taxed. It is observed that while the assessee has shown the trading liability in its books of account, no benefit has been obtained in respect of such trading liability by way of remission or cessation thereof; under the circumstances, the requirements of section 41(1) of the Act are not satisfied in the present case. In the instant case, the appellant has adduced sufficient evidences to prove that he made the payments in subsequent assessment years as detailed above. In view of the factual and legal position as discussed above, it is held that the AO's action in treating the credit entry of Rs. 8,85,08,618/- was not based on proper appreciation of facts and the AO was not justified in making the addition of Rs. 8,85,08,618/- to the total income which is hereby directed to be deleted.

It is clear from the plain reading of sec. 68 that any credit entry in the books of account maintained for the previous year, after assessee's failure in explaining the same, may be charged to tax in the year it was credited, However, in the instant case, there is no new sum credited in the year under consideration and the said balance of creditors was mainly carried forward balance. The table below further clarifies the situation:-

Earlier years Creditors Creditors Net Creditors Net Outstanding Carried Forward arised during Paid during Outstanding as as on Creditors FY 2013-14 the FY 2013- on 31.03.2014 31.03.2015 Opening Balance under appeal 14 under in Balance (next year) as on appeal Sheet after Payment 01.04.2013 in Balance Sheet 30,39,40,262.61 1,19,71,654.09 56810125.91 25,91,01,790.79 26,05,56,927.14

As on 31.03.2014 31.03.2013 31.03.2012 31.03.2011 YEAR Ended 2013-14 2012-13 2011-12 2010-11 PARTICULAR Advance from Customer (A) WIPL *87,434,189.00 5,25,16,291.00 - - Other 1,074,429.00 11,823,624.00 - - Total (A) 88508618.00 6,43,39,915.82 SUNDRY CREDITORS(B) 259,101,790.79 303,940,262.61 319,863,553.74 198,793,676.98 Total (A+B) 347,610,408.79 36,82,80,178.43 319,863,553.74 198,793,676.98

"amounts found in the books of assessee were in existence much prior to the beginning of the accounting period corresponding to the relevant assessment year and the same could not, therefore, be treated as the income of assessee earned during the relevant previous year." Since no new amount had been credited by assessee in its account during the year under consideration, therefore, applicability of section 68 of the Act is also ruled out and addition could not be made under 66 of the Act. Moreover, from the langague of section 68, it is also clear that while treating any credit entry as unexplained, the AO is required to consider the overall facts of the case. In the case of Sumati Dayal v. CIT, [1995] 214 ITR 001/80 Taxman 89, the Hon'ble Supreme Court held as under :- "…….But, in view of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to Income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the asessee, viz., the receipt of money, and if he falls to rebut it is the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably." The Hon'ble Supreme Court specifically held that the opinion of AO is required to be formed objectively with reference to the material available on record and while considering the explanation of the assessee the AO cannot act unreasonably. Upon perusal of details filed by the appellant viz. copies of account of all sundry creditors, details of outstanding liabilities at year end, audit reports etc. I find that these trade creditors regularly purchased goods from the assessee and the payments were made through banking channel. In fact, the AO himself has not doubted the purchases/sales made in respect of above parties. I further find that in the subsequent year also, the appellant supplied goods against advances received from the above traders. On an identical issue, the Hon'ble Allahabad High Court in the case of CIT Vs Pancham Dass Jain (2006) 205 CTR 440 held as under:-

"The Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the AO had accepted the purchases, sales as also the trading result disclosed by the assessee. It had recorded a finding that the two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of Sec. 65 could not be attracted in the present case. The view taken by the Tribunal on this issue is sustainable inasmuch as, on the basis of the findings recorded by it that these two amounts represented purchases made by the assessee on credit and the purchases and sales having been accepted by the Department, the question of addition of the said two amounts under Sec. 68 did not arise inasmuch as the provisions of Sec. 68 would not be attracted on the purchases made on credit."

In fact, the AO has not made any adverse inference regarding the trading results declared by the appellant firm including the transaction with these parties. The appellant duly deducted the TDS on the payments made to these parties. The entire payments were made by the appellant company to these parties through banking channel. All the relevant details establishing that these parties were genuine and trade outstanding appearing in their names were also genuine, were filed before the AO which were not considered by the AO and it was repeatedly stated that the assessee did not obtain confirmations from these sundry creditors. There are enough evidences brought on record by the appellant firm to establish the genuineness of these parties and the fact that amounts received as advances in earlier years in the books of accounts of the assessee were in the due course of business. In the instant once, the AO accepted the trading results, he cannot doubt the advances simply because these parties were not produced before him. The Hon'ble Lucknow Bench 'A' (Third Member) in the case of ITO vs. Zazsons Exports Ltd. held that where Assessing Officer had drawn an adverse conclusion only on account of non-verifiability of sundry creditors but there being no dispute as regards purchases, and trading results having been accepted, addition made under section 68 was not sustainable. The head note is reproduced as below:- “ Section 68 of the Income-tax Act, 1961- Cash credits (Sundry creditors) - Assessment year 2005-06-Assessee company was carrying on business of export of finished leather and manufacture of shoe uppers and shoes- While framing assessment, Assessing Officer required assessee to furnish complete list of persons from whom raw hides of goats were purchased and from whom advance in shape of credit had been taken by assessee and to whom huge amounts were payable - Not being satisfied with reply given: by assessee, Assessing Officer made addition under section 68 on ground that assessee failed to give postal address, whereabouts, creditworthiness of vendors and also could not prove genuineness of transaction - Whether mere non- verifiability of sundry creditors ipso facto would not lead to conclusion that sundry creditors were bogus - Held, yes - Whether since Assessing Officer had drawn an adverse conclusion only on account of non-verifiability of sundry creditors but there being no dispute as regards purchases and trading results having been accepted, addition made under section 68 was not sustainable - Held, yes [Paras 15.2 & 15.3] [In favour of assessee]" In the case of Continental Carbon India Ltd. vs. ITO (ITA Nos. 5269, 5270 & 5271/Del/2010 Asstt. Yrs: 2003-04, 05-06 & 06-07), the Hon'ble Delhi Bench "B" New Delhi held as under:- "The assessee has discharged its onus to file evidence for genuineness of suppliers. The issue of creditworthiness will not be applicable in this case as the credit balances are due to purchases made by the assessee from these suppliers. Therefore, the discharge of burden of creditworthiness is implicit from these facts. Looking from any angle, the assessee cannot be held to be liable for any non- discharge of onus. In these circumstances, the additions cannot be made only because the departmental authorities failed to exercise their power and duties for serving and enforcing the summons. In the entirety of facts and circumstances of the case and the evidence produced by the assessee, the additions made u/s 68 on account difference in balances or non-receipt of reply to summons etc. cannot be made in the hands of the assessee. All these additions in the years before us are deleted. Corresponding assessee's grounds in A.Y. 2003-04 and 2005-06 are allowed and that of revenue dismissed." Further, as per the provisions of Section 68 of the Act, it is not mandatory that in case the assessee fails to satisfy the assessing officer about the outstanding credits, the same are mandatorily required to be added as income of the assessee. Section 68 gives a discretion to the assessing officer, as can be seen from its provisions.

This view has also been upheld by the Hon'ble Supreme Court in the case of 'CIT vs. Smt. P.K. Noorjahan' (1000) 237 ITR 570 (SC). The assessing officer has to take into account the overall facts. Accordingly, in the case of the assessee the overall facts need to be considered. The amount/advance being credit on account of goods to be supplied to these parties, it is not mandatory therefore that in the absence of verification of the creditors, the same need to be added statutorily. Considering the factual matrix of the case and decisions cited above, it is held that the appellant has satisfactorily discharged its onus of proving the genuineness of the transactions and creditworthiness and identity of these trade creditors. Therefore, it is held that the AO was not justified in making the addition of Rs. 25,91,01,791/-treating it as unexplained cash credit.

[Explanation 1 - For the purposes of this sub-section, the expression- loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts." Explanation 1 which was inserted w.e.f. 1.4.1997 is not attracted to the present case since there was no writing off of the liability to pay the sundry creditors in the assessee's accounts. The question has to be considered de hors Explanation 1 to Section 41(1). In order to invoke clause (a) of Sec.41(1) of the Act, it must be first established that the assessee had obtained some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as expenditure in computing the business income of the assessee. The second question is whether by not paying them for a period of more than one year the assessee had obtained some benefit in respect of the trading liability allowed in the earlier years. The words "remission" and "cessation" are legal terms and have to be interpreted accordingly. In the present case, there is nothing on record to show that there was either remission or cessation of liability of the appellant. Section 41(1) of the Act can be applied, provided the following conditions are fulfilled : - In the assessment of any assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him:

- any amount is obtained in respect of such loss or expenditure, or any benefit is obtained in respect of such trading liability by way of remission or cessation thereof,

- such amount or benefit is obtained by the assessee;

- such amount or benefit is obtained in a subsequent year, Thus, where a debt due from the assessee is foregone by the creditor in a later year, it can be taxed under section 41(1) of the Act in such later year when it was foregone. Section 41(1) of the Act, therefore, contemplates existence of a debt/liability and the remission or cessation thereof in the year under consideration. Therefore, for the purpose of taxing any income on account of remission or cessation of liability, the Assessing Officer has to establish that there was an existing liability and that there was remission or cessation of such liability in the previous year relevant to the assessment year in which such income is sought to be taxed. Moreover, any such cessation or remission of liability has to be in the previous year relevant to the assessment year under consideration, in the facts of the present case, it is not the case of the Assessing Officer that the liabilities ceased to exist in the previous year relevant to the assessment year under consideration. In fact the Assessing Officer has doubted the very genuineness of such liabilities. Therefore, in the absence of any liability, the question of taxing any income on the ground that there was remission or cessation of such non-existent liability would not arise.

The decision of Hon'ble Gujarat High Court in the case of Bhogilal Ramjibhai Atara (Atara) [2014] 43 taxmann.com 55/222 Taxman 313.) would be squarely applicable to the facts of the present case, wherein the court held thus: "We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the 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. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries 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 liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(1) f the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed."

In the light of the above decision, the impugned addition is contrary to the well settled position of law; no addition could have made under section 41(1) without proving that liability ceased to exist and that too in the year under consideration. Nothing has been brought on record by the AO to show that some benefit has actually accrued to the assessee during the year under consideration. I find that the case of the present appellant is more stronger on the fact that amount was being shown as payable in balance sheet of assessee which would establish that there was no cessation of liability. The appellant's case is also squarely covered by the decision of the Hon'ble ITAT Delhi Bench 'G' in the case of Satpal & Sons (HUF) vs. ACIT [2017] 85 taxmann.com 283 (Delhi - Trib.). The relevant facts of this case were that assessee had shown outstanding sundry creditors since last three financial years in its balance sheet, on verification, Assessing Officer found that sundry creditors were not available at address provided and PAN of such creditors were also found incorrect, assessing Officer held that liabilities would ceased to exist and applied section 41(1), the assessee contended that these creditors had been paid in subsequent years through banking channels. The Commissioner (Appeals) upheld the order of the Assessing Officer. On appeal, the Hon'ble Tribunal held that where assessee had shown outstanding sundry creditors for last three years in its balance sheet and no provision was made to write off outstanding liabilities in its books of account, there would be no remission or cessation of liability under section 41(1) even if sundry creditors were not in existence at address provided and PAN of creditors were found to be invalid, addition u/s. 41(1) cannot be sustained. Similarly, in the instant case the assessee had not written off outstanding liabilities in his books of accounts and made the payments to these creditors paid in subsequent years through banking channels. In the instant case, the appellant has adduced evidence before me to prove that creditors of Rs. 5,68,10,125.91/- were paid off during the Financial year 2013-14 and the outstanding Liabilities were cleared/ mostly paid in subsequent years to the extent of 52.27 percent amounting to about Rs. 19,25,08,224/- and the remaining balances were only outstanding in books of accounts. Upon perusal of the details and evidences furnished by the appellant, it is clear that in the instant case, old sundry creditor of Rs. 25,91,01,791/- as added by the AO were not written off by the appellant in the books of account and were reflecting in the books of the appellant to the extent unpaid, therefore in my considered opinion, these cannot be disallowed and added to the total income of the assessee. Considering the facts and circumstances of the case, legal position and judicial precedents cited supra, it is held that the addition of Rs. 25,91,01,791%- could not have been made either u/s. 68 or u/s. 41(1) of the Act and hence, the addition made at Rs. 25,91,01.791/- is directed to be deleted. Considering my findings contained in para Nos. 7 & 11 (Supra), the total addition of Rs. 34,76,10,409/ is directed to be deleted, ground Nos. 2 to 6 raised by the appellant regarding this issue are allowed.”

5.1 Similarly, the Hon’ble Gujarat High Court in the case of Principal CIT vs. Matruprasad C. Pandey (2015) 377 ITR 363 (Guj.) while dealing with the similar matter has held in para 6 & 7 as under :-

23 & 119/Jodh/2020 M/s. Wagad Construction Co. & M/s. Wagad Infra Project Pvt. Ltd., Udaipur. “ 6. Heard Shri Varun Patel, learned advocate appearing on behalf of the revenue at length. We have perused and considered the assessment order, the order passed by the learned CIT(A) as well as the impugned judgment and order passed the learned Tribunal. 6.1 At the outset, it is required to be noted that the Assessing Officer made the addition of Rs. 56,96,645/- invoking Section 41(1) of the Income Tax Act by doubting certain sundry creditors amounting to Rs. 56,96,645/- appearing in the balance sheet of the assessee since past several years. However, it is required to be noted that as such those sundry creditors mentioned in the balance sheet of the assessee were shown as sundry creditors since past several years from the relevant assessment year and at no point of time earlier the Assessing Officer doubted the creditworthiness and/or identity. In any case the addition on the aforesaid ground under Section 41(1) of the Act cannot be made unless and until it is found that there was remission and/or cessation of the liability that too during the previous year, relevant to the assessment year in question, there cannot be any addition invoking the provision of Section 41(1) of the Act. Identical question came to be considered by the Division Bench of this Court in the case of Nitin S. Garg (supra) and in the similar set of facts and circumstances of the case when the addition was made invoking Section 41(1) of the Act by doubting the creditworthiness and/or identity of the sundry creditors mentioned in the balance sheet and it was found that those sundry creditors were very old and no interest had been paid on those loans, the Division Bench has deleted such addition made under Section 41(1) of the Act. In paragraph 15 the Division Bench has observed and held as under; "15. In the case before us, it is not been established that the assessee has written off the outstanding liabilities in the books of account. The Appellate Tribunal is justified in taking the view that as assessee had continued to show the admitted amounts as liabilities in its balance sheet the same cannot be treated as assessment of liabilities. Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have seized to exist. The Appellate Tribunal has rightly observed that the Assessing Officer shall have to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof which is not the case before us. Merely because the assessee obtained benefit of reduction in the earlier years and balance is carried forward in the subsequent year, it would not prove that the trading liabilities the assessee have become non existent. 6.2 The aforesaid decision of the Division Bench in the case of Nitin S. Garg (supra) has been considered and followed by the Division Bench of this Court in the case of Bhogilal Ramjibhai Atara (supra) and the addition made under Section 41(1) of the Act in the similar facts and circumstances of the case is ordered to be deleted. In paragraph 8 the Division Bench has observed and held as under :- "We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the 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. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries 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 liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) f the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed." In the present case there was no remission and/or cessation of the liability during the previous year relevant to the assessment year under consideration. As such, there is no remission and/or cessation of the liability during the year under consideration subject to the conditions contained in the statute being fulfilled. In the present case, both the aforesaid elements are missing.

7. Under the circumstances, as such, no error has been committed by the learned Tribunal in deleting the additions made under Section 41(1) of the Act. The proposed substantial questions of law (A) and (B) with respect to deleting the addition made under Section 41(1) of the Act are answered against the revenue.”

Thus the Hon’ble High Court has held that addition under section 41(1) cannot be made simply by doubting the creditor or his creditworthiness or his identity. Further, no addition can be made simply because the creditors are old. In view of the above facts as well as the various binding precedents discussed by the ld. CIT (A) hereinabove, we are of the considered opinion that no addition can be made under section 41(1) of the Act merely on the basis of doubting the genuineness of the creditor without establishing the actual cessation of liability. Hence when the assessee is showing the liability in the books of account and has repaid in the subsequent years then the addition under section 41(1) of the Act is not sustainable.

Accordingly we upheld the order of ld. CIT (A) and dismiss the appeal of the revenue.

Now we take up appeal of the Revenue in :

The assessee e-filed its return of income for the AY 2014-15 on 23.11.2014 declaring total income at Rs. 3,52,86,190/-. The case was selected for scrutiny under CASS and notice under section 143(2) of the I.T. Act, 1961 was issued on 31.08.2015. After hearing the assessee, the AO completed the assessment under section 143(3) of the Act on 27.12.2016 determining the total income of the assessee at Rs. 20,53,00,090/- making the additions/disallowances. Aggrieved by the order of the AO, the assessee preferred appeal before the ld. CIT (A). The ld. CIT (A) by giving relief, partly allowed the appeal of the assessee. Being aggrieved by the order of the ld. CIT (A), now the Revenue is in appeal before us.

Ground No. 1 of the revenue relates to deletion of addition of Rs. 15,95,38,544/- made on account of difference in contract receipt shown in Form 26AS vis-à-vis receipts accounted by the assessee.

8. Before us, the ld. D/R relied on the order of the Assessing Officer.

9. On the other hand, the ld. Counsel for the assessee reiterated the submissions as made before the ld. CIT (A) and submitted that the assessee had filed all the details explaining the difference in receipts appearing in books of accounts and as reflecting in Form 26AS. The ld. A/R submitted that while filing of return of income, it tallied Form 26AS dated 27.10.2014 with its books and there was no major difference and total contract receipts and sales turnover were at Rs. 88,99,18,296/- which was more than what was reflected at Rs. 52,83,90,243/- in Form 26AS. The ld. A/R submitted that the assessee by filing detailed submissions before the AO explained the difference in Form 26AS receipts with books of accounts and TDS deducted thereby reconciled the difference, but the AO ignoring the explanations made the addition of Rs. 16,05,44,170/- on the basis of revised 26AS.

The ld. A/R submitted that the AO has failed to appreciate that the deductor may have deducted at source unilaterally on the expenditure booked by it or advance payment made by them or on certain amount which may not be income of the appellant or may be related to other year. The submissions of the assessee find mentioned in the order of ld. CIT (A) in paras 24.1 to 24.2.10 at pages 7 to 18. The ld. A/R, therefore, submitted that the ld. CIT (A) was reasonably considered the submissions and explanations furnished by the assessee and considering the same allowed the relief to the assessee. He, therefore, submitted that the order of ld. CIT (A) deserves to be upheld.

10. We have heard rival contentions, perused the material available on record and deliberated upon the orders of the Revenue authorities. The AO made the addition on the ground that the assessee was unable to explain the difference between contract receipts accounted for in the books of accounts and contract receipts as per 26AS. We find that the ld. CIT (A) has dealt with the entire issue of addition of Rs. 16,05,44,170/- on account of difference in 26AS and books of accounts of the assessee para-wise in para 4.2 to 4.3 at pages 18 to 28 of his order and accordingly deleted the addition of Rs. 15,95,38,544/-. Before the ld. CIT (A), the assessee submitted party wise reconciliation of contract receipts with 26AS. The assessee has also contended that the difference in accounted receipts and 26AS are self-explanatory. The AO has made the addition for want of supporting evidence ignoring the detailed submissions and explanations furnished by the assessee. The submission of the assessee was that the book entries and ledger account of parties are sufficient evidence to explain the difference. The Learned CIT (Appeals) in para 4.2 has reproduced the party-wise reconciliation and explained the difference of Rs.16,05,44,170/-. We find that the ld. CIT (A) has given specific and categorical finding and reasons for deleting each addition viz. in para 4.2.1 regarding RMC sales of Rs. 1,63,00,742/-, in para 4.2.2 regarding Hire Charges of Rs. 9,94,269/- where the parties has deducted TDS on RMC sales and higher charges which are not part of contract receipts. In para 4.2.3 to para 4.2.7 the finding regarding difference in 26AS and contract receipts are mentioned party-wise in detail. Considering the detailed submissions and explanations made by the assessee at the appellate proceedings, we find no infirmity in the order of the ld. CIT (A) and the same is upheld. The ground of the revenue is dismissed.

Ground No. 2 of the revenue relates to sustaining disallowance of Rs. 15,00,000/- against disallowance of Rs. 42,34,358/- out of various expenses made by the AO in absence of verification.

11. Before us, the ld. D/R supported the order of the Assessing Officer.

12. On the other hand, the ld. Counsel for the assessee submitted that the AO without considering the submissions of the assessee has summarily mentioned that the assessee has claimed large other expenses of Rs. 42,34,35,788/- in the profit and loss account and failed to furnish bills and vouchers and made the addition of Rs. 42,34,358/- disallowing 1% out of claim of expenses. The ld. A/R submitted that before the ld. CIT (A) the assessee submitted all the ledger accounts along with other evidences which are reproduced in para 8.1 of the order of ld. CIT (A) and after taking into consideration the detailed submissions furnished by the assessee, the ld. CIT (A) partly deleted the disallowance. The ld. A/R submitted that the order of the ld. CIT (A) deserves to be upheld.

“ 8.2. I have considered the facts of the case, assessment order and appellant's written submissions. The AO, for want of proper bills and vouchers, disallowed Rs 42,34,358/- being 1% of total claim of other expenses at Rs. 42,34,35,788/- The appellant submitted that all the expenses were incurred wholly and exclusively for the business purpose and were duly supported by proper bills and vouchers. The appellant also explained the nature of these expenses. I find that though the appellant claimed that the AO was not justified in making the addition of Rs. 42,34,358/ but failed to controvert the findings of the AO regarding various discrepancies pointed out by him in the assessment order. As per provisions of sec. 37 of the IT Act, 1961, any expenditure incurred wholly and exclusively for the purpose of business and not being in the nature of capital expenditure or personal expenses is allowable in computing the income chargeable under the head "profits and gains" of business or profession. The onus lies on the assessee to substantiate by documentary evidences when called upon to the effect that all expenditures claimed in the P&L accounts are laid out or expended wholly and exclusively for the purpose of business. The appellant has failed to establish fully the genuineness of the appellant's claim of expenses. Hence, the claim regarding expenses cannot be accepted as it is. However, the disallowance @ 1% made by the AO appears to be on higher side considering the fact that during the year under consideration, there was increase in turnover and GP/NP rates were also better. It is relevant to mention here that the appellant company declared better results in terms of GP rate. The quantum of expenditure depends on so many factors such as business prudence of the businessman and his perception of business exigencies. The Assessing Officer can disallow such expenses only if he finds that these expenses are not relatable to business and/ or are not genuine. I find that the Assessing Officer has not given any finding to the effect that these expenses were not incurred wholly & exclusively for the business purpose. Though it may be the case that vouchers were not kept properly, still there has to be clear finding that these expenses were not incidental to the business of the assessee or were bogus. This finding is totally lacking in the assessment order. The Hon'ble Supreme Court in the case of J. K. Woollen (72 ITR 612) had observed that the question as to whether an amount claimed as expenditure was laid out or expended wholly or exclusively for the purpose of business, profession or vocation as required under s. 10(2)(xv) of 1922 Act has to be decided on the facts and in the light of the circumstances of each particular case, but the final conclusion on the admissibility of an allowance is one of law. Keeping in view the details of the expenses furnished by the appellant in para 8.1 (supra), particularly the fact that the turnover of the appellant had increased substantially during the year with improved gross profit and net profit rates- from 65.55% and 2.70% in preceding year to 81.95% and 4.53% in the instant year, the addition made at Rs. 42,34,358/- appears to be on higher side. Keeping in view the overall facts and circumstances of the case and considering the nature and volume of the appellant's business, it is held that a lump sum addition of Rs.15,00,000/- would be sufficient to cover up all possible leakages in the trading and profit & loss account. The addition made at Rs. 42,34,358/- is sustained to the extent of Rs 15,00,000/-. The appellant gets partial relief. The ground no. 9 raised by the appellant regarding this issue is partly allowed.”

Looking to the facts and circumstances of the case, we are of the considered view that the findings given by the ld. CIT (A) in para 8.2 (supra) are in accordance with law and accordingly deleted the disallowance. We find no infirmity in the order of ld. CIT (A), which is hereby upheld. The ground of the revenue is dismissed.

Ground No. 3 of the revenue relates to holding the activity of ready mix concrete to be manufacturing and hence allowing additional depreciation of Rs. 51,77,474/-.

“ 26.1 The Ld. AO erred in Law and fact of the case by disallowing additional depreciation of Rs. 5177474 claimed on new plant & machineries relating to manufacture of Ready Mix Concrete (RMC).

26.2 The appellant company claim of additional depreciation on Plant & Machinery relating to Manufacturing of Ready Mixed Concrete under section 32(1)(iia) of the Act is allowable as it is engaged in the manufacturing of ready mixed concrete which involved mixture of three ingredients, namely, cement, sand and aggregate. The product manufactured is mixed with other chemicals. The final product after mixing and processing has to be used within four hours of its mixing. The product manufactured by assessee is altogether a different product from the material out of which it was produced. The product produced is known by a different product name and is bought and sold as distinct product from the raw material. The raw material once mixed cannot be reconverted into its original shape. Thus, assessee was carrying out manufacturing activity and entitled to the benefit available under section 32(1)(iia) of the Act on the additions in new plant and machinery installed during the year relating to Manufacturing of Ready Mix Concrete.

26.3 The above facts has been accepted by in a similar case additional depreciation has been allowed by Delhi Tribunal on RMC plant in case of YFC Projects (P) Ltd. vs Dy. CIT (2010) 46 DTR 496 (Delhi Trib (copy enclosed); relying on decisions rendered by Hon'ble Supreme Court and following other judgments in cases of :- i. India Cine Agencies v. CIT (2009) 308 ITR 98 (SC) ii. Bangalore Water Supply and Sewerage v. R. Rajappa AIR 1978 SC 548 iii. CITY. J.B. Kharwar and Sons [1987] 163 TTR 394(Guj) iv. CIT v. Premier Tobacco Packers (P) Ltd. [2006] 284 ITR 222 (Mad.) v. Singh Engg. Works (P) Ltd.(Supra) (All).

26.4 In support of same relevant bills on which additional depreciation was claimed were submitted at the time of hearing on 21.12.2016 to Ld. AO is enclosed again for your ready reference.

26.5 But on checking all the bills the AO could not point out any specific query in respect of relevant bills, Ld AO disallowed additional depreciation by general statement that the these machineries were not used in any manufacturing unit.

26.6 Accordingly to the explanation. case laws & fact of the case the Appellant company is engaged in Manufacturing of Ready Mix Concrete (RMC) and the above machineries were used for production of RMC and made sale of RMC of Rs. 36,18,19,401 as per its Profit and Loss account.

26.7 The AO failed to appreciate that in Note nos. 26 & 27 of Audited Balance Sheet filed to him, the Manufacturing details, Q Tally, Quantities,

Information in respect of Raw Material consumed was also given for Manufacturing of Ready Mix Concrete (RMC).

26.8 Thus on basis of all bills, details, case Laws, claim proofs filed Additional depreciation of Rs. 5177474 is allowable to assessee company.”

The ld. A/R submitted that before the ld. CIT (A) the assessee submitted all the details regarding ready mix concrete, bills etc. along with other evidences which are reproduced hereinabove and after taking into consideration the facts and circumstances and evidences brought on record, the ld. CIT (A) allowed the claim of the assessee by deleting the disallowance. The ld. A/R submitted that the order of the ld. CIT (A) deserves to be upheld.

“ 7.2. I have considered the facts of the case, assessment order and appellant's written submissions. The AO disallowed the assessee's claim of additional depreciation amounting to Rs. 51,77,474/- on account of purchase of new machinery by stating that the assessee failed to prove that these machineries were used in manufacturing unit. The appellant explained the manufacturing process of its business and claimed that new plant & machineries relating to manufacture of Ready Mix Concrete (RMC) were used in manufacturing process and hence it is eligible for additional depreciation on these plant and machinery u/s. 32(1)(iia) of the Act. To support its claim, the appellant relied on the judgment of the Hon'ble Delhi Tribunal in the case of YFC Projects (P) Ltd. vs. Dy. CIT (2010) 46 DTR 496 (Delhi)(Trib.) I have gone through the judgment of the Hon'ble Delhi Tribunal in the case of YFC Projects P. Ltd. (supra) and find that the issue in hand is squarely covered by this judgment. The findings as given by the Hon'ble Delhi Tribunal on this issue are reproduced as under :-

"Separation of RMC is not as simple as construed by the CIT (A). The assessee has been carrying out this activity in an organized manner with the help of heavy machinery and computer. Its activity is not as simply mixing of sand, cement, etc. by a labourer on the right side. Though in the common parlance, sometimes, it does not sound logic to say that mixing of RMC is a manufacturing activity but if one looks into its activity carried out by the assessee from the point of an expert who has laid down BIS standard then it would indicate that it is a complicated affair. The mixing of four products in prescribed ratio would result in a different identifiable product which cannot be reconverted to its original shape. Therefore, the Revenue Authority has erred in holding that the assessee is not carrying out any manufacturing activity. The AD is directed to allow additional depreciation on machinery used for the production of ready mixed concrete….” In the instant case also, there is no dispute that the appellant company is engaged in manufacture of ready mixed concrete which involved mixture of three ingredients, namely, cement, sand and aggregate and the product manufactured is mixed with other chemicals, thereafter the final product after mixing and processing has to be used within four hours of its mixing and as a result, the product manufactured by the assessee is altogether a different product from the material out of which it was produced. Further from the evidence produced by the appellant company it is also evident that the appellant has purchased this new machinery during the year under consideration and used it in its manufacturing process as discussed above as increase in sale is indication of this fact. Therefore, considering the overall facts and circumstances and evidences brought on record, it is held that the AO is not justified in disallowing the assessee's claim of additional depreciation amounting to Rs. 51,77,474/- on account of purchase of new machinery. The addition made at Rs. 51,77,474/- is hereby directed to be deleted. The ground of appeal raised by the appellant regarding this issue is allowed.”

Looking to the facts and circumstances of the case, we are of the considered view that the findings given by the ld. CIT (A) in para 7.2 (supra) are in accordance with law and accordingly deleted the disallowance. We find no infirmity in the order of ld. CIT (A), which is hereby upheld. The ground of the revenue is dismissed.

Order pronounced in the open court on 12/01/2023.