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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HON’BLE RAJPAL YADAV & SHRI MANISH BORAD
order of Ld. Commissioner of Income Tax(Appeals) (in short ‘Ld. CIT],-1 Indore dated 11.02.2020 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 18.12.2017 framed by ITO-3(3), Indore.
Shri Surendra Kumar Tripathi The Assessee has raised following grounds of appeal in ITANo.186/Ind/2020:
“1. On the facts and circumstances of the case and in law the ld. CIT(A) erred in confirming the demand under section 143(3) of the Act. The appellant prays that the said demand to be deleted.
Without prejudice the above, on the facts of the case and in law the Ld. CIT(A) erred in confirming the addition of Rs.13,45,000/- on account of disallowance U/S 41(1) OF THE Act as cessation of trading liability. While property against which addition is made, is not a stock-in-trade but is a fixed asset. The appellant prays that the said addition to be deleted.
Without prejudice the above, on the facts of the case and in law the Ld. CIT(A) has passed the assessment order without giving intimation regarding non-receipt of grounds of appeal
along with appeal and even failed to call for grounds of appeal at the time of hearing. The appellant prays that the said demand to be deleted.
4. The appellant craves leave to add, to later, amend, modify substitute, delete and or rescind all or any of the grounds of appellant on or before final hearing, it necessary so arises.
2. Brief facts as culled out from the records are that the assessee is an individual engaged in real estate business income of Rs. 5,95,150/- declared in the e-return of income filed on 24.09.2015 pertaining to A.Y. 2015-16. Case selected for through CASS for limited scrutiny to verify the large increase in sundry creditors with respect to turnover as compared to preceding year. Notices u/s 143(2) & 141(1) of the Act duly served upon the assessee. Ld.
Shri Surendra Kumar Tripathi AO observed that under the head sundry creditors sum of Rs.13,45,000/- was payable to Pride Construction. Information called by Ld. AO by issuing notice u/s 133(6) of the Act was not replied by Shri Pramod Kumar Jain Proprietor of Pride Construction. Ld. AO wanted to treat it as a bogus entry.
Assessee submitted that he purchased plot from Pride Construction of Rs.48,81,100/- during F.Y. 2011-12 and it is an opening balance and a genuine creditor. Ld. AO was not satisfied and he treated it as an income u/s 41(1) of the Act as deemed cessation of trading liability and added it to the returned income of the assessee. Income assessed at Rs.19,40,150/-.
3. Aggrieved assessee preferred an appeal before the Ld. CIT(A) but failed to succeed.
Now the assessee is in appeal before the Tribunal. Ld. counsel for the assessee made detailed submissions referring to the written submission and relevant documents placed at pages 1 to 144 of the paper book on 16th July,2021.
Per contra ld. DR vehemently argued supporting the orders of both lower authorities.
We have heard rival contentions and perused the records placed before us. Assessee’s sole grievance is against the finding 3
Shri Surendra Kumar Tripathi Ld. CIT(A) confirming the addition made by the Ld. AO u/s 41(1) of the Act for cessation of trading liability of Rs.13,45,000/-
We note that sundry creditor of Rs.13,45,000/- was appearing as an amount payable to Pride Construction. Ld. AO could not receive the information from Pride Construction in reply to notice u/s 133(6) of the Act. Ld. AO and treated it as bogus entry liable to tax u/s 41(1) of the Act.
We further observe that the assessee had purchased an office premise from Pride Construction situated at G-1, Pride Meridian, 2-A, Shri Nagar NX, Indore for Rs.47,81,000/- on 16.03.2012.
Copy of registry is placed at pages 78 to 99. At page 6 of the registry (paper book page 78) we find that the detail of purchase consideration of Rs.44.35 lacs is mentioned. This detail consist of 4(four) payments including one of Rs. 13,45,000/- given by cheque No.245003 dated 28.03.2012. The remaining 3 (three) payments were encashed by seller but the cheque of Rs.13,45,000/- remained un-presented.
We further observe that the alleged payment of Rs.13,45,000/- is part of the purchase consideration utilized for purchase of office which is shown as a fixed Assets in the balance sheet.
Shri Surendra Kumar Tripathi Books of accounts are audited. In schedule-V attached to balance sheet dated 31.03.2015 in the fixed asset charged at serial No.1 office at Pride Meridian purchased at Rs.47,81,000/- is appearing. No depreciation has been claimed. This fact shows that the assessee has not claimed Rs.13,45,000/- as any trading expenditure. It is also fact that the liability to pay the M/s Pride Construction is still live as it is part of the registered sale deed.
Ld. AO has applied the provision of section 41(1) of the Act for making the addition in the hands of assessee. Provision of section 41(1) comes into operation wherein allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. But on perusal of the facts of the instant case we find that the alleged amount is neither trading liability nor has been claimed as expenditure in any of the year and no relief from tax has been claimed. Therefore, under no circumstances the provisions of section 41(1) of the Act are applicable on the transaction in question.
We, therefore, under the given facts and circumstances of the case, are of the considered view that the alleged payment is merely a liability against purchase of Fixed Assets and cannot be 5
Shri Surendra Kumar Tripathi held to be a trading liability and therefore, both the lower authorities erred in applying the provisions of section 41(1) of the Act, on the alleged sum. No addition is thus called for u/s 41(1) of the Act. We, accordingly set aside the finding of ld. CIT(A) and delete the addition of Rs.13,45,000/- and allow ground no.2 raised on merit by the assessee.
Ground no.1 & 4 are general in nature which needs no adjudication and ground no.3 is raised alternative to ground no.2 and the same becomes infructous as we have already allowed ground no.2 raised by the assessee.
In the result, Assessee’s appeal in ITANo.186/Ind/2020 is allowed.
The order pronounced as per Rule 34 of ITAT Rules, 1963 on 07.09.2021.