ACIT, CIRCLE-3, RANCHI vs. SHRI SUMIT RAMSISARIA, RANCHI

आदेश /O R D E R PER S.S.Godara, Judicial Member:- This Revenue’s appeal and assessee’s cross objection for assessment year 2014-15 arise against the Commissioner of Income Tax (Appeals)- Ranchi’s order dated 07.03.2019 passed in case No. CIT(A), Ranchi/10404/2016-17 involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’.

Heard both the parties. Case files perused.

ITA No.222/R/2019 & C.O.12/R/2019 A.Y. 2014-15 ACIT, Cir-3,RAN Vs. Sh Sumit Ramsisaria Page 2 2. The Revenue’s sole substantive grievance raised in the instant lis seeks to reverse the Assessing Officer’s action treating the assessee’s sundry creditors liability to ₹3,64,11,095/- as bogus inviting sec. 41(1) addition as upheld to the tune of ₹2,12,931/- in the CIT(A)’s order vide following detailed discussion:- [6.2] With regard to the issues raised in these grounds, the appellant stated that Ld. Assessing Officer has not done justice in assuming that no liability in the form of Sundry Creditors to the tune of Rs.3,64,11,095/- as shown by the assessee in the books of account and in the audited Balance Sheet exist and erred in law by adding back the same to the total income of the assessee u/s 41(1) of the Act without rejecting the books of accounts.

[6.3] Appellant has stated that on 02.12.2016, the A.R. of the assessee was asked to furnish the details w.r.t. the sundry creditors along with separate copies of ledger account in the books of the assessee, on 06.12.2016, i.e. after three days only. As the business firm of the assessee is situated at Delhi and Ghaziabad and there was short gap in time allowed, Ld. A.O. had verbally suggested filing the required details for seven creditors for test check. Accordingly, the required seven party's confirmation of ledger account with their postal address and PAN were filed on 06.12.2016. Most of the transactions were through account payee cheques and supported by purchase invoices. The fact was examined by the Ld. A.O. during hearing of the case.

Ld. A.O. has mentioned in first paragraph of page no. 2 of the assessment order that copy of bank account statements and other relevant details/documents were furnished by the assessee, which are placed on record and have been carefully examined. No further details/ confirmation of ledger account of sundry creditors was asked to furnish.

Ld. A.O. has issued notices under section 133(6) of the Act to various parties, from whom the assessee had claimed to have made purchases in his firm namely "M/S Nabco Batteries, Delhi" and shown them as Sundry Creditors in the books of account. Some notices issued under section 133(6) were returned unserved or no reply was received. One M/S Auto Car, has replied and stated that no such transaction was conducted with the assessee "Sumit Ramsisaria" PAN AGSPR9835J, copy of letter is filed [page no.24].

On this basis Ld. A.O. observed that there is dearth of supporting evidences on record to verify the genuineness and correctness of the transactions with the sundry creditors, therefore, added the outstanding sundry creditors as income u/s 41(1) of the Act. It is a matter of record that sundry creditor relates to the purchases which is considered genuine. It is therefore not justified to reject the creditors Without rejecting the purchases. The purchases of the battery related parts from the sundry creditors are evident from the purchase bills and books of account maintained by the assessee. The Ld. A.O. has

ITA No.222/R/2019 & C.O.12/R/2019 A.Y. 2014-15 ACIT, Cir-3,RAN Vs. Sh Sumit Ramsisaria Page 3 treated the purchases made during the year from the same very parties as genuine. All the creditors are income tax payee and their PAN was submitted by the assessee. The books of accounts have not been rejected and there is no adverse inference drawn regarding the quantum of purchase or sale and even the purchase account from the sundry creditor have not been disturbed. The payments made to them by account payee cheques were also treated as genuine and were verified from the copy of bank statements filed during hearing of the case. Ld. A.O. was therefore not justified in making the addition in income by disallowing sundry creditors u/s 41(1) of the Act. The issue raised by the appellant is, whether the credit purchases can be added under section 41(1) of the Income Tax Act, 1961 when all the purchases have been accepted as genuine and all the creditors stood in the books of accounts of the appellant. As regards applicability of provisions of section 41 (1), the facts clearly show that the appellant did not write back the sundry creditors to its profit and loss account. In Gulf & Minerals Vs ITO (04.05.2018) ITA No.57/RAN/16 ITAT Ranchi referring the various judgments has concluded that without rejecting the purchases, the sundry creditors could not be treated as income of the assessee. Copy of relevant order of ITAT is filed herewith. In CIT v. Vardhman Overseas Ltd. (2012) 343 ITR 408 (Del), the Delhi High Court, referring to its judgment in the case of Jay Engineering Works Ltd. v. CIT (2009) 311 ITR 299 (Del) and applying the ratio laid down the case of CIT v. T. V. SundaramIyengar & Sons Ltd. (1996) 222 ITR 344 (SC) under section 28 of the Income Tax Act, considered the applicability of clause (a) of sub-section (1) of section 41 as to what would constitute remissions or cessation of trading liability. The Hon'ble Court noted that in the reported case, the assessee has not unilaterally written back the accounts of the sundry creditors in its profit and loss account. Therefore, the High Court answered the substantial question of law in the negative and in favour of the assessee. The facts of the present case are similar those of the case of Vardhman Overseas Ltd. (supra). Therefore, it is abundantly clear that the provision of section 41(1) are not applicable. No addition could be made for remission or cessation of trading liability as envisaged under section 41 1) of the Act for the assessment year under consideration. In view of above discussed legal and factual position, the appellant stated that the sundry creditors of Rs.3,64,11,095/- should not be treated as bogus sundry creditors and should not be added to the income of the appellant. Accordingly, it was argued that the impugned addition made by Ld. assessing officer u/s 41(1) of the Act is required to be deleted. [7.1] The findings of the Assessment order, the written & oral submissions and documentary evidence furnished by the AR during the appellate proceedings and the remand report furnished by the AO have been considered. The following facts and

ITA No.222/R/2019 & C.O.12/R/2019 A.Y. 2014-15 ACIT, Cir-3,RAN Vs. Sh Sumit Ramsisaria Page 4 legal position are relevant for deciding the issue under consideration. Simultaneously, the Issue under consideration is also adjudicated as under:- (i) As per para 2 of page no.4of the assessment order, the AO inter alia stated the following, "looking into the time barring nature of assessment proceedings for the Asstt year 2014-15, in the given situation, when there is dearth of supporting evidences on record to Verify the genuineness and correctness of the transactions with the above listed parties, it shall be reasonable, justifiable and in the interest of revenue to assume that no such liability existed in the form. of sundry creditors to the tune of Rs.3,64,11,095/- as shown by the assessee in its books of accounts and the same amount is added back to the total income of the assessee U/S 41(1) of the 'Act." In this regard, the appellant vehemently objected to these remarks of the assessing officer as under: a) "The AO stated that looking into the time barring nature of assessment proceedings details furnished are not verifiable. In this regard, it is stated that there is no provision as such U/s 41(1) of the Income Tax Act to make additions in the total income of the assessee considering time barring nature of assessment proceedings b) The AO has stated that there is dearth of supporting evidences on record to verify the genuineness and correctness of the transactions with the sundry creditors. In this regard, it is stated that there is no dearth of supporting evidence on record except in the case of M/S AUTO CARS (INDIA), New Delhi having outstanding balance of rs.2,00,000/-, M/S AUTO CARS (INDIA) vide letter dated 13-12-16 has replied that they have not dealt with any person with the name “Mr. Sumit Ramsisaria, Purulia Road, Kantatolia, Ranchi, (PAN AGSPR 9835J) for the F.Y 2013-14”. The business transactions was with M/S Nabco Batteries, Delhi and not with Mr. Sumit Ramsisaria, The PAN of the proprietor of the firm quoted in the notice “AGSPR 9835 J” was also not correct. Correct PAN is AGSPR 9853J. Due to these two errors of the notice issued u/s. 133(6) of the Act, M/s Auto Cars (India) was unable to locate the debtors account in their books of account and accordingly informed to A.O that they have not dealt with any person with the name “Mr. Sumit Ramsisaria, Ranchi”. c) The AO has stated that it shall be reasonable, justifiable and in the interest of revenue to assume that no such liability existed in the form of sundry creditors to the tune of Rs.3,64,11,095/- as shown by the assessee in its books of accounts and the same amount is added back to the total income of the assessee u/s 41(1) of the Act. In this regard, it is stated that merely based on justification and assumption, no addition can be made as per the provision of the Income tax act. d) The AO further states that the trading liabilities do not actually exist. In this regard, it is stated that this erroneous conclusion of the AO is merely based on the doubts and suspicious. The AO has not conducted third party enquiry whatsoever and further non of the creditors have stated that the liabilities has been remitted. Under these circumstances, the erroneous conclusion of the AO is not supported by any documentary evidence whatsoever. (ii) Analysis of the deeming section 41( 1) and interpretation of statutes.

ITA No.222/R/2019 & C.O.12/R/2019 A.Y. 2014-15 ACIT, Cir-3,RAN Vs. Sh Sumit Ramsisaria Page 5 (a) Supreme Court decision on Interpretation of Statutes The appellant also placed reliance upon the decision of Hon'ble Supreme Court in the case of Smt. Tarulata Shyam and Others vs. ClT, West Bengal [1977] 108 ITR 345 (SC). The Hon'ble Supreme Court held as under- ". ... ... in a taxing Act one has to look merely at what is clearly said there is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. When the language of the section is clear and unambiguous, there is no scope of importing into the statute words which are not there. Such importation would be, not to construe, but to amend the statute. Even if three be a casus omissions, the defect can be remedied only by legislature and not by judicial interpretation.” As can be seen from the specific provisions of section 41 (1) of the Income- tax Act, 1961, it is only when a person derives some benefits in respect of such trading liabilities 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 profit and gains is not within the ambit of section 41(1). Therefore, as per the above cited decision of the Hon'ble Supreme Court, the Ld. AO is not competent to bring in any other item other than that specified in the section. (b) Provisions of Section 41(1) Section 41 (1) of the Income-tax Act, 1961 does not envisage the following: a. Doubt of the creditors and the genuity of creditors b. Satisfaction of AO regarding the genuineness and the source of sundry creditors c. Treating the trading liability as income of assessee from undisclosed sources Although the above are not envisaged in the deeming provisions of section 41(1) for the above issues which is not legally tenable. Section 41 (1) is a deeming section and deeming provision is a statutory fiction; as a rule it implicitly admits that a thing is not what it is deemed to be but decrees that for some particular purpose it shall be taken as if it were that thing. As per the statute, the provisions of section 41(1) is a deeming provision and should be interpreted strictly. There is no document available with the AO to establish that the trading liability has ceased/remitted and the AO could not have simply doubted and suspected the sundry creditors and added the same as income under this section. A deeming provision or a legal fiction as commonly called is one whose mandate does not exist but for such provision. Because of such provision alone, the given imaginary state of affairs is taken as reality despite it being at variance with the scope of the

ITA No.222/R/2019 & C.O.12/R/2019 A.Y. 2014-15 ACIT, Cir-3,RAN Vs. Sh Sumit Ramsisaria Page 6 relevant provision of the enactment. It is trite that the scope of a deeming provision has to be restricted to what is expressly stated in such a provision. There can be no inference or intendment as regards such a provision. The Hon'ble supreme Court in CIT v. Amarchand N. Shroff (1963) 48 ITR 59 considered the ambit of a deeming provision and held that the fiction cannot be extended beyond the object for which it is enacted. In CIT v. Mother India Refrigeration Industries (P) Ltd. (1985)155ITR 711 (se) the same view was reiterated by holding that the "legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond their legitimate field." • Section 41(1) of the Act would also make it clear that the burden is on the assessing officer to prove that conditions of section 41(1) of the Act have been fulfilled to treat a liability as an income on account of remission or cessation of liability in a particular assessment year. Not even a single creditor has informed the AO that the liability has been ceased/remitted. Under these circumstances, the AO could not have simply doubted and presumed that the liability has ceased or remitted. Moreover, during the appellate proceedings, the AR has furnished the confirmation from all the creditors alongwith the PAN and the AO has examined them during the remand proceedings and found the same in order. Therefore, it is stated that the liabilities has neither ceased nor remitted. The appellant has not got any benefit by way of cessation or remission of liability within the meaning of the section 41(1).In view of these facts and legal position, it is held that the Aa has erroneously invoked the deeming provisions of section 41(1), which is not envisaged as per law. • As per the settled legal position, the onus is on the AO to establish that the liability has either ceased or remitted especially when the appellant has stated that the liability has not ceased/remitted. However, the AO stated in the Assessment order that looking into time barring nature of assessment proceeding assessment has been completed in the given situation. The provisions of section 41(1) can be invoked only in case of liabilities which have either ceased or remitted. As regards the cessation or remission of liability, the onus is on the AO to establish that the liability has either ceased or remitted especially when the appellant has stated that the liabilities were outstanding as the Balance Sheet date. In the case under consideration, there is no documentary evidence brought on record by the AO to establish that the liability in the name of any of the person appearing under the head sundry creditors, have either ceased or remitted except in the case of M/s Auto Car. Moreover, during the appellate proceedings, the appellant furnished all the confirmations for the sundry creditors, which were also examined by the AO in the remand proceedings and found to be in order. Therefore, this also goes to establish that the liabilities very much existed as on the date of the Balance Sheet. Therefore, the provisions of section 41(1) are not attracted in the case under consideration. (iii) The AR stated that the appellant has incurred expenses on account of purchase of materials of Rs.4,10,78,735/- and on account of business expenses of Rs. 26,98,782/-. Thereafter, the AR stated that, the AO has accepted the claim on account of purchase of material, business expenses etc. and rightly allowed the claim

ITA No.222/R/2019 & C.O.12/R/2019 A.Y. 2014-15 ACIT, Cir-3,RAN Vs. Sh Sumit Ramsisaria Page 7 of these expenses. Having accepted the claim of expenses, the AR argued that the AO was not justified in adding the liabilities payable. The AR further argued that the purchases & business expenses claimed in the profit & loss account could be divided into two parts i.e. one part which is actually paid and another part which is payable as on the date of the Balance Sheet. Due to the action of the AO, it has led to a situation wherein the first part is allowed to be claimed but the second part which is appearing as a liability on the date of Balance sheet is not allowed to be claimed which is not at all legally tenable. The AR further stated that, the sundry creditors is a moving account and most of the creditors are for current year and have been paid in the subsequent year. The AR further argued that there is no logic at all in allowing part of the claim and adding the remaining part of the claim, which is payable. (iv) In the concluding para of assessment order, the AO has stated the following: “that no such liability existed in the form of sundry creditors to the tune of Rs.3,64,11,095j- as shown by the assessee in its books of accounts is added back to the total income of the assessee u/s 41(1) of the Act Also penalty proceedings u/s 271(1)(c) of the IT. Act, 1961 are separately initiated on account of furnishing of inaccurate particulars of income." The above statement of the Assessing Officer IS not legally tenable due to the following reasons.- The AO has assumed that no such liability existed in the form of sundry creditors to the tune of Rs.3,64,11,095/- as shown by the assessee in its books of accounts. At the out-set, it is stated that the AO has allowed the appellant to claim the entire expenses on account of purchase of material, business expenses etc. When the total expenses claimed in the Profit & Loss account has been allowed to be claimed by the AO, there is no justification to assume that no such liability existed in the Balance Sheet. The AR stated that the liability in the Balance sheet is a moving account and majority of the creditors are for current year and moreover many creditors were paid off in the subsequent year. (v) The AR argued that the sundry creditors represent the expenses claimed in Profit and Loss on account of material payments and business expenses and the AO has accepted the claim of expenses, Profit and Loss Account and Balance Sheet, tax audit report as well as net profit declared by the appellant and the Books of Accounts. Under these circumstances, the AO could not have presumed Suo moto that the sundry creditors are not genuine. When the materials purchased and Business expenses have been accepted by the AO, the AO could not have doubted the genuineness of the sundry creditors. As per the matching concept of income, there are expenses for earning any income and the assessing officer has rightly allowed the claim of expenses on account of labour charges and materials purchases claimed in the profit and loss account. However, AO has added the liability on account of such item which are payable as on 31.03.2014. In this case, the AO has accepted the gross receipt and expenditure incurred thereon and doubted the genuineness of the creditors without any basis whatsoever. (vi) The details of Creditors for the corresponding years are tabulated as under: Financial year Sundry creditors (1) (2) 2011-2012 5,16,90,154

ITA No.222/R/2019 & C.O.12/R/2019 A.Y. 2014-15 ACIT, Cir-3,RAN Vs. Sh Sumit Ramsisaria Page 8 2012-2013 4,75,36,565 2013-2014 3,64,11,096 • As can be seen from the above table, the quantum of sundry creditors is reducing year to year and there is no unusual trend during the FY relevant to the AY under consideration. Therefore, there is no valid justification for doubting the genuineness of the creditors. Rather, there was not material available with the AO to establish that the liability in any of the case has ceased/ remitted except in the case of M/s Auto Car. The AR argued that of the sundry creditors are moving account and most of sundry creditors appearing as on 31.03.2014 are for current year and have been paid in the subsequent year. (vii) The AR stated that the AO had selected the case for scrutiny by issuance of first notice dated 30.08.2015 and the subsequent questionnaire/notice seeking the requisite details of sundry creditors were issued after more than one year on 02.12.2016. The AR further argued that there were as many as 14 creditors from various places such as Ghaziabad, Noida, Delhi, Himachal Pradesh, Haryana and Chandigarh and collection of confirmation from them was a time-consuming affair. The contention of the appellant is that, had the AO initiated the assessment proceedings in time, sufficient time could have been available with the appellant to produce the confirmations before the AO. The AO could have very well started the assessment proceedings in time and could have conducted third party enquires. Without any enquiry, the AO has simply doubted the genuineness of the creditors and made the addition under a deeming provision which is not legally tenable. (viii) The AR has also brought out the legal provisions of section 41(1) of the Income- tax Act, 1961, decision of the Hon'ble SC on interpretation of statutes as well as various other court decisions establishing that the amount outstanding in the case of the appellant is not covered under the provisions of Section 41 (1) of the Income-tax Act, 1961. Further, The AR has successfully rebutted all the contention of the AO for making the addition. (ix) During the appellate proceedings, the AR has also furnished the requisite documentary evidence to establish that the amount outstanding in the name of sundry creditors have neither been ceased nor remitted and therefore, the appellant has not derived any benefit whatsoever except in the case of M/s Auto Car. The AO has not brought out any documentary evidence whatsoever to establish that any of the liability has ceased or remitted except in the case of M/ s Auto Car. (x) The AR has furnished detailed written submission along with the requisite documentary evidence which satisfactorily explains the contention of the appellant. Further, the AR .has also relied upon various judicial decisions in support of the contention of the appellant. (xi) As stated in para 2.1 above as per page no. 3 of the assessment order, the appellant had already furnished the confirmation of all major parties totalling to Rs.3,25,73,002/-. The confirmation with respect to M/s Balaji Automobile, M/s Battery Directory and Year Book and M/s Decent Link totalling to Rs.1,19,406/- were not furnished. These were also furnished during the appellate proceedings which were also verified by the AO in the remand proceedings.

ITA No.222/R/2019 & C.O.12/R/2019 A.Y. 2014-15 ACIT, Cir-3,RAN Vs. Sh Sumit Ramsisaria Page 9 (xii) During the appellate proceedings, the appellant had filed the confirmation for all the parties and thereafter, remand report was sought from the AO. The remand report is scanned and also printed above. In this regard, the AO in the remand report dated 30.03.2018 in para 2(viii) has stated as under: "During the assessment proceedings ledger account of creditors were certified to be not furnished. However, details furnished before the Ld. CIT(A) has been verified and it is found that ledger account of creditors has been filed only in five cases are as under: ALB Metals for M/s S.R. Trading and Balaji Automobile, M/s Battery Battery Directory and Year Book and Decent Link and Fujiyama Power System for M/s Noabco Batteries. The same has been verified with the bank statement furnished by the are matched to the extent payment has been made. For remaining creditors assessee has furnished copy of balance confirmation. The same has also been verified with the bank statement furnished by the assessee are matched to the extent payment has been made:" As can be seen from the above, initially the AO has commented with respect to five sundry creditors the details of which have been verified by AO. Thereafter, the AO has also stated that the remaining confirmations were also submitted, which were also verified by the AO. In effect, the appellant has submitted confirmation for all the parties and the AO has also verified the same and found to be in order. Therefore, as per the findings of the AO himself in the remand report, there is no requirement of addition on account of sundry creditors as the same has been found to be in order. As regards the sundry creditor in the name of M/s Balaji Storage Batteries Ltd., the AO has pointed out that the third party has confirmed the balance of Rs.31,30,331.90 whereas as per the balance sheet, the appellant has shown the outstanding liability of Rs.30,43,263/-. Therefore, this categorically goes to establish the liability to the extent of Rs.12,931/- in the name of Balaji Storage batteries Ltd. has been remitted/ceased. As regards the liability outstanding in the name of M/s Auto Car to the extent of Rs.2,00,000/-, the third party communicated to the AO that no such liability is existing. However, during the appellate proceedings the appellant has furnished another confirmation from M/s Auto Car that the liability is existing. This appears to be self-serving document and the third party has directly communicated to the AO that no such liability is existing. And hence, credence has been given to the same over the subsequent clarification given by the appellant. In view of these facts, it is held that the liability in the name of M/s Auto Car Rs. 2,00,000/- has ceased and therefore, provision of section 41 (1) is very much applicable with respect to M/s Auto Car. [7.2] In view of the above detailed discussion, it is held that the liability outstanding of Rs. 2,00,000/- in the name of M/s Auto Car and the part liability of Rs.12,931/- in the name of M/s Balaji Batteries Storage have ceased / remitted. Therefore, addition to the extent of Rs.2,12,931/- i hereby confirmed u/s 41(1) of the I.T. Act and remaining addition of Rs.3,61,98,164/- is hereby deleted.”

ITA No.222/R/2019 & C.O.12/R/2019 A.Y. 2014-15 ACIT, Cir-3,RAN Vs. Sh Sumit Ramsisaria Page 10 assessee’s failure in proving the sundry creditors’ liability by necessary supportive evidence. Learned authorized representative representing assessee has strongly supported the CIT(A)’s above extracted detailed discussion (supra) deleting the impugned additions. 4. We observe in this backdrop of facts that there is no dispute about the assessee having recorded the sundry creditors liability in question as pertaining to material purchases in the regular course of business. There is no denial from the department side qua the clinching aspect the corresponding material purchases have already been accepted under the head regular revenue in the course of assessment itself. Coupled with this, assessee had also successfully filed all necessary detailed evidence of the sundry creditors in remand report proceedings. It emerges from a perusal of the Assessing Officer’s remand record dated 30.03.2018 filed before the CIT(A) that he had verified the ledger account of the creditor parties with the bank statements and perused the balance(s) confirmation as well. That being the case, we quote hon'ble Madres high court’s decision in Smt. B. Jayalakshmi vs. JCIT (2018) 90 taxmann.com 480 (Mad) that no grievance is caused to the Revenue so as to prefer its appeal before the tribunal when the Assessing Officer’s remand report itself accepts the taxpayer’s explanation on facts. 5. We also proceed further and notice that once the Assessing Officer has allowed the assessee’s corresponding material purchases claim in the revenue account as a regular head of expenditure, the same very amount could not have been added as a bogus sundry creditor liability u/s 41(1) of the Act. More so, when there is no indication about the said sum involving any cessation or remission of liability as per this tribunal’s co-ordinate bench decision in Income Tax Officer Ward 12(1) Kolkata vs. M/s Standard Leather Pvt. Ltd. in ITA No.2620/Kol/2013 decided on 07.09.2016 holding as under:- “13. We have heard the rival parties and perused the materials available on record. From the aforesaid discussion we find that the addition was confirmed by the AO on account of non-service of notice issued under section 133(6) of the Act for the purpose of the confirmation of sundry creditors. However we find that the AO has confirmed the addition of the sundry creditors without disallowing the corresponding

ITA No.222/R/2019 & C.O.12/R/2019 A.Y. 2014-15 ACIT, Cir-3,RAN Vs. Sh Sumit Ramsisaria Page 11 purchases. From the above it is clear that the purchases in the instant case have been admitted but the corresponding sundry creditors have been added as total income of the assessee. In our considered view the action of the AO for making the addition of the sundry creditors without disallowing the purchases is based on wrong interpretation of Income Tax Laws. 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. In the instant case the same has not been written off and very much reflecting in the books of the assessee. Therefore in our considered view the sundry creditors reflecting in the books of accounts cannot be disallowed and added to the total income of the assessee. In the instant case, the balances of many of the sundry creditors were outstanding coming from earlier years. Payments were made to some or the creditors during the year. The said payments have been accepted by the AO which means genuinity of the payments to these creditors as well as the genuinity thereof till last year have not disputed by the AO. In the instant case the firstly the AO has not specifically invoked the provisions of section 41 (1). Further in any case no such addition can be made u/s 41. In this connection we are putting our reliance in the judgment in the case of DSA Engineers. In the case of DSA Engineers v. ITO 30 SOT 31 (Mum-Trib), the AO found that there were creditor balances which in many cases were 3 years or more than 3 years old. As per the assessee the balances represented amounts due to various parties and the liability was subsisting. The Tribunal held that in the absence of cessation of liabilities and on the mere fact that the amounts were outstanding for more than 3 years, the provisions of section 41 (1) could not be applied. In the case of Dhawan (M.R.) v. CIT 149 ITR 160 (Del), it was observed that the remission of the liability arises when the creditor voluntarily gives up the claim. The cessation of such liability arises only when it ceases to exist in the eyes of law for all intents and purposes. In the case of UOI v.J. K.. Synthetics Ltd. (1993) 199 ITR 14 (SC), the Hon’ble Court held that cessation of liability for the purpose of section 41(1) means irrevocable cessation so that there is no possibility of the liability being revived in future. If there is such a possibility, then the cessation is not complete and section 41 (1) is not attracted. In the case of Shri Vardhman Overseas Ltd. vs. Asstt. CIT 24 SOT 393 (Del ‘H’-Trib), the facts of the case were that the AO asked the assessee to prove the genuineness of some sundry creditors. The assessee did not file confirmations of said sundry creditors, except one. Therefore, AO after giving various opportunities treated the balance amount as income of assessee on account of unexplained cash credits and added the same balance amount to the income of assessee. It was held that all the parties with regard to which the addition has been made, no new amount was found credited in its account during the year under consideration hence section 68 cannot be applied. It was also held that the balances were brought forward balances and if the same were added on account of their non-genuineness, then also these amounts could not be added to the income of the assessee for the year under consideration as the question of genuineness thereof can be examined only in the year in which they were credited in the account of the assessee. It was also held that the department could not prove that the debt cannot be said to be unenforceable. It was held that the onus had wrongly been shifted by the revenue on the assessee. It was held that the liability existed since tile assessee had shown the liabilities outstanding in its balance sheet. Therefore, there was no occasion to treat the said amount as taxable under section 41(1) and if department intends to assess the same by applying the provisions of section 41(1), then the onus will be on the revenue to show that the liability which is appearing in the balance sheet has ceased finally and there is no possibility of the revival of the liability. Hence, addition could not be sustained under section 41(1). The said judgment of the Tribunal was confirmed by Delhi High Court on 23-12-2011 In the case of National Insulated Cable Co. v. ITO ITA No. 421/Del/2011 dt. 8-7-2011 (Del 'E’-Trib) it was held that the fact that the creditors were old creditors brought forward from earlier years has not been disputed by the

ITA No.222/R/2019 & C.O.12/R/2019 A.Y. 2014-15 ACIT, Cir-3,RAN Vs. Sh Sumit Ramsisaria Page 12 department. These creditors have not been introduced during the year under consideration. There is no evidence or material on record to establish that the assessee liability to pay the amount to the creditors have been ceased during the year under consideration. Further, the amount payable to these creditors can be added to the assessee’s total income in the year in which the assessee’s liability to pay the amount ceased or extinguished and not in the year under consideration where assessee has admittedly shown the liability in the balance sheet. It has been held in the case of G P International Ltd. (P & H) reported in 325 ITR page 25 that provisions of section 41 cannot be applied if the assessee is still showing the liability. It has been held in the case of Bhavesh Prints reported in 142 TTJ page 128 that simply because some of the creditors were not traceable it cannot be held that the liability is not payable. In the case of Taminadu Ware Housing Corporation reported in 292 ITR 310, it was held that so long the assessee had shown the liability in the balance sheet it cannot be said that the liability has ceased to exist. In the case of Willson and Co. Ltd reported in 121 TTJ 258 (Chennai Tribunal), it was held that unless it was shown by the Department that the liability ceased to exist during the assessment year in question it cannot partake the character of income during the assessment year in question. Similarly in the case of Dy. CIT v. Amod Petrochem (P) Ltd. (2008) 23 (I) ITCL 145 (Guj-HC) : (2008) 217 CTR (Guj) 401, it was held that as per section 68, there should be cash credits of previous year. The section provides for a deeming fiction of treating the sum found credited in the books of an assessee maintained for any previous year, being charged to income-tax as the income of the assessee of that previous year, provided (i) the assessee offers no explanation as to the nature and source of the credits, or (ii) the explanation offered by the assessee is not, in the opinion of the assessing officer, satisfactory. The crux of the issue, therefore is, there have to be credits of any sum in the books of an assessee maintained for any previous year, only then the sum so credited can be brought to tax as the income of the assessee of that previous year; in other words, first of all, there have to be credits in a previous year and only in the assessment relatable to that previous year, namely, year of credit, the sum can be brought to tax. In CIT v. Usha Stud Agricultural Farms Ltd. (2008) 301 ITR 384 (Del) : (2009) 183 Taxman 277 (Del), it was held that since it is a finding of fact recorded by the Commissioner (Appeals) that the credit balance appearing in the accounts of assessee, did not pertain to the year under consideration, under these circumstances, the assessing officer was not justified in making the impugned addition u/s 68 and as such no fault could be found with the order of the Tribunal which had endorsed the decision of Commissioner (Appeals). In Mahabir Prasad Prem Chand Jain v. ITO (1988) 40 Taxman 35 (Del- Trib )(Tax Mag), it was held that 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. In Nuchem Ltd. v. Dy. CIT (2004) 87 TTJ (Del-Trib) 166, it was held that revenue had failed to prove that the amounts were credited to the books of account of the assessee in the year under consideration. These amounts were brought forward from earlier years and it is settled law that the addition under section 68 could be made only if the amount was credited in the accounts of the assessee in the relevant financial year. In Shri Vardhman Overseas Ltd. v. Asstt. CIT (Del-Trib): 24 SOT 393, it was held that 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 section 68 of the Act. In view of above we find no reason to interfere in the order of ld. CIT(A). Hence this ground of Revenue is dismissed.”

ITA No.222/R/2019 & C.O.12/R/2019 A.Y. 2014-15 ACIT, Cir-3,RAN Vs. Sh Sumit Ramsisaria Page 13 We accordingly find no reason to accept Revenue’s arguments seeking to revive the impugned sec. 41(1) addition. Its appeal ITA No.222/Ran/2019 fails therefore. 6. Learned counsel next invited our attention to assessee’s cross objection supporting learned CIT(A)’s action deleting the impugned addition on the one hand and also pin-pointing some typographical error in the Revenue’s From- 36. The same is dismissed as rendered infructuous since we have already upheld the CIT(A)’s order deleting the impugned addition.