PURNA CHANDRA BISWAL,JAJPUR vs. PRINCIPAL CIT, CUTTACK

आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI C.M. GARG, JM & SHRI L.P. SAHU, AM आयकर अपीऱ सं./ITA No.200/CTK/2018 (नििाारण वषा / Assessment Year :2013-2014) Sri Purna Chandra Biswal, Vs. Principal CIT, Cuttack Jakhapura, Jajpur-755019 स्थायी लेखा सं./PANNo. : ACLPB 1493 P (अऩीलाथी /Appellant) (प्रत्यथी / Respondent) .. ननधाारिती की ओर से /Assessee by : Shri S.K.Sarangi, AR िाजस्व की ओर से /Revenue by : Shri S.M.Keshkamat, CITDR

सुनवाई की तािीख / Date of Hearing : 14/11/2019 घोषणा की तािीख/Date of Pronouncement : 15/11/2019 आदेश / O R D E R Per L.P.Sahu, AM: Challenging the order of the Principal CIT, Cuttack, dated 30.03.2018, passed u/s.263 of the Act, the assessee has filed this present appeal on the following grounds :- 1.Under the facts and circumstances, the Ld. Pr. CIT is erred in law as well as facts and principles by considering Rs.16,164/- of sundry Accounts written off as separate income, which in fact has originated from works contract income. The action of the Ld. CIT was wholly unreasonable, uncalled for and bad in law. 2. The Ld. Pr. CIT is erred in law as well as in facts by proposing the addition of amount of sundry creditors, amounting to Rs. 2, 69, 16,055/- considering the fact that the assessment was completed by estimating profit u/s 145(3) of the IT Act in absence of books of accounts. More over the detail list of sundry creditors with address provided to the Pr. CIT as well as the AO at the time of hearing indicates that the sundry creditors relate to the earlier assessment year and after considering these details the Ld. AO has completed the assessment by estimating the profit u/s 145 (3). Thus the action of the Ld. Pr. CIT is unlawful, unjustified and unwarranted.

2 ITA No.200/CTK/2018 3. Sundry creditors taken over from erstwhile M/s Biswal Construction, partnership firm in which the assessee was a partner amounts to Rs.89,31,810/-, this amount relates to earlier assessment years and no liability during the current year has been incurred. More over all the details has been provided to the AO in course of the assessment proceedings and after considering all these facts the AO estimated profit u/s 145 (3). Now again the recommendation of the Ld. Pr. CIT, to verify the same which has already been covered in the assessment by the AO is unreasonable, uncalled for and bad in law. 4. The Ld. Pr. CIT has cited the case of Commissioner of Income Tax v. Devi Prasad Vishwanath [(1969) 72 ITR 194 (SC)], stating that addition u/s 68, 69, 69A, 69B etc is possible even in a case where income is estimated u/s 144 of the IT Act in view of rejection of books u/s 145 (3) of the Act. But the facts of the case cited above and that of the appellant are different, as because in that case there was existence of books accounts which was produced before the AO, which the AO declined to rely upon. However in the present case there is complete absence of books of accounts and hence estimation was done by the AO. Therefore, for application of section 68, there is requirement of presence of books of accounts, which is not there in the case of appellant. 5. That the Appellant craves leave to add, alter, amend, modify, substitute, delete and or rescind all or any of the Grounds of Appeal on or before the final hearing, if necessity so arises. The Appeal may be allowed & justice rendered. 2. Brief facts of the case are that the assessee engaged in the

business of executing civil contracts works and hiring of machinery and

filed his return of income on 30.10.2013 declaring total income of

Rs.28,90,580/-. Upon issuance of statutory notices, the assessee

produced audit report u/s.44AB in Form No.3CB and 3CD along with

the audited balance sheet and profit and loss account for the relevant

previous year. During the course of assessment proceedings, the

assessee produced the expenses ledger, bill register, statement of bank

accounts in support of the accounts filed with the audit report.

However, as noted in the assessment order, the assessee could not

produce cash book, resulting into rejection of books of accounts of the

3 ITA No.200/CTK/2018

assessee by the AO u/s.145(3) of the Act relying on the decision of this

Bench of the Tribunal in the case of M/s Phulchand Agarwal & Co.

passed in ITA No.182/CTK/2005 and passed order u/s.143(3) of the

Act, dated 22.03.2016 assessing the total income of the assessee in the

following manner :-

“5. Taking into account the overall facts and circumstances and the rate of profit which is normal in this line of business, the profit of the assessee is estimated as under: A. Gross receipts from contract works Rs. 3,85,58.,172/- Profit before depreciation estimated @ 12 % of gross receipts Rs.46,26,980/-(A) B. Gross receipts from machinery hire charges Rs. 38,22,927/- Profit before depreciation estimated @ 25% Of gross receipts Rs. 9,55,732/-(B) C, Profit before depreciation (A+-B) Rs. 55.82,712/- Less; Depreciation allowable Rs. 34,35,249/- D. Income from business Rs. 21,47,463/- E. Income from house property Rs. 87,115/- F. Income from other sources Rs. 7,63,190/-

Gross total income Rs.29,97,768/- Less; Deduction u/s.,8OC Rs. 1,00,000/- Total income Rs. 28,97,768/- Or, u/s. 288A Rs. 28,97,770/- Assessed u/s. 143(3} of the Income Tax Act, 1961 on a total income of Rs.28,97,770/-. Calculation sheet for tax and interest payable by the assessee is attached herewith, issued demand notice and copy of the order to the assessee.”

Act directed the AO to make fresh assessment as the assessment order

lacks detailed enquiry causing erroneous and prejudicial to the interest

of Revenue after observing as under :-

“15. In the light of the above discussion, there is no iota of doubt that the impugned assessment order is not based on detailed enquiry expected of a Revenue Officer. In the light of the above discussion, it is

4 ITA No.200/CTK/2018

held that the assessment order u/s.143(3) dated 22.03.2016 passed by the AO is erroneous and prejudicial to the interest of revenue. Hence, the same is set aside. The AO is directed to frame a fresh assessment order after proper collection and appreciation of facts and due application of law and as per the observations made herein below : i. With regard to the first issue of “Sundry Accounts Written Off” amounting to Rs.16,164/-, the AO would assess it as income. ii. With regard to the second issue of “sundry creditors for raw material and expenses” of Rs.2,69,16,055/- disclosed in the balance sheet, the AO would provide another opportunity to the assessee to furnish the complete list of such sundry creditors with their addresses, ledger account copies with confirmation letter from such creditors. iii. During the course of present proceeding u/s.263, the assessee has provided a list of sundry creditors with their addresses. A copy of the same is being enclosed herewith as Annexure-A to this order, the AO would make use of the list of such creditors and make independent enquiries u/s.133(6) in respect of these “sundry creditors for raw material and expenses” calling for details such as their confirmation letter, Aadhar card, PAN card copies bill/invoices for sale of raw material and other expenses. iv. Examine such sundry creditors for their creditworthiness and the genuineness of the transactions by issuing them summons u/s.131 of the Act, ,wherever doubt arise after their response to the requisition u/s.133(6). v. Decide on the chargeability of the above sum Rs.2,69,16,055/- representing unexplained cash credit in the form of “sundry creditors for raw material and expenses”, to income tax as the income in addition to the returned income of the assessee for assessment year concerned u/s.68 or 41(1) of the I.T.Act. vi. Alternatively, the corresponding purchases similar to the amount of bogus sundry creditors, would be disallowed at the time of computing profit from the assessee’s business. vii. As regards the A.R’s contention that when books are rejected, no verification of loans and liabilities can be made, ,the AO would follow the decision of Commissioner of Income Tax v. Devi Prasad Vishwanath [(1969) 72 ITR 194 (SC)], wherein it has been held that even in a case where income is estimated u/s.144 of the IT Act in view of rejection of books u/s.145(3) of the Act, addition u/s.68, 69, 69A, 69B etc. is possible. In that decision the Supreme Court has held as under :- There is nothing in law which prevents the ITO in an appropriate case in taxing both the cash credit, the source and nature of which is not satisfactorily explained, and the business income estimated by him under section 13 (of 1922 Act) after rejecting the books of account of the assessee as unreliable.”

5 ITA No.200/CTK/2018 4. Feeling aggrieved from the above order of Pr. CIT, the assessee is

in appeal before the Income Tax Appellate Tribunal.

dismiss the same as not pressed. And, ground No.5 is general in nature,

which does not require any adjudication.

of Pr. CIT to AO to make fresh assessment. In this regard, ld. AR

submitted that the detailed list of sundry creditors with address

provided to the Pr. CIT as well as the AO at the time of hearing which

indicates that the sundry creditors relate to the earlier assessment year

and after considering these details the AO has completed the

assessment by estimating the profit after rejecting the books of

accounts of the assessee u/s 145 (3) of the Act. Ld. AR also submitted

that when the books of accounts of the assessee has been rejected by

the AO in absence of cash book, the Pr. CIT cannot direct the AO to

accept the books of accounts as the same amounts to change of opinion,

which is not permissible under the law. Further, ld. AR submitted that

sundry creditors taken over from erstwhile M/s Biswal Construction,

partnership firm in which the assessee was a partner having share of

Rs.89,31,810/-, this amount relates to earlier assessment years and no

liability during the current year has been incurred. The AO after

considering the details as provided by the assessee has estimated the

6 ITA No.200/CTK/2018 profit, however, again the recommendation of the Pr. CIT, to verify the

same which has already been covered in the assessment by the AO, is

unsustainable and uncalled for and bad in law. With regard to case law

relied on by the Pr. CIT, ld. AR submitted that the facts of the case cited

by the Pr. CIT and that of the assessee are different, which is not

applicable in the case of the assessee as in the present case in absence

of books of accounts the AO has estimated the gross profit shown by

the assessee. Therefore, for application of section 68 of the Act, there is

requirement of presence of books of accounts, which is not there in the

case of assessee. Further, ld. AR submitted that it is now a settled

principle as has been laid down by the Hon’ble Supreme Court, Hon’ble

High Courts and different benches of the Tribunal in plethora of

judgments that where the AO has adopted one of the courses

permissible in law or where two views are possible and the AO has

taken one view with which the Pr.CIT does not agree, it cannot be

treated as an erroneous order or prejudicial to the interest of the

Revenue unless the view taken by the AO is unsustainable in law.

Finally, ld. AR submitted that the order passed by the Pr. CIT u/s.263 of

the Act deserves to be quashed.

submitted that there is no detailed enquiry conducted by the AO

properly and the assessee has not complied with the notice issued

7 ITA No.200/CTK/2018 u/s.142(1) of the Act, therefore, the Pr. CIT is justified in directing the

AO to make fresh assessment.

available on record as well as the assessment order and the impugned

order passed u/s.263 of the Act, we find that during the course of

assessment proceedings, as required by the AO, the assessee provided

audit report u/s.44AB in Form No.3CB and 3CD along with audited

balance sheet and profit and loss account for the relevant previous

year. The assessee also produced expenses ledger, bill register and

statement of bank accounts in support of the accounts filed with the

audit report. However, in absence of cash book, the AO rejected books

of accounts u/s.145(3) of the Act and framed the assessment after

estimating the gross profit of the assessee invoking provisions of

Section 144 of the Act as noted in para 3 of the assessment order.

However, the Pr. CIT invoking the provisions of Section 263 of the Act

directed the AO to decide on the chargeability of unexplained cash

credit of Rs.2,69,16,055/- in the form of “sundry creditors for raw

material and expenses”, to income tax as the income in addition to the

returned income of the assessee for assessment year concerned u/s.68

or 41(1) of the I.T.Act. From perusal of the assessment order it is clear

that the AO has rejected the books of accounts of the assessee as the

assessee could not produce the cash book and estimated the gross

8 ITA No.200/CTK/2018 profit of the assessee, meaning thereby the return income of the

assessee has not been accepted by the AO. From careful perusal of the

assessment order as well the order passed u/s.263 of the Act, prima

facie, we are of the opinion that when the return of income has not

been accepted and due to lack on the part of the assessee to produce

cash book, the AO rejected the books of accounts of assessee and

framed the assessment after estimating the gross profit of the assessee,

then again directing the AO to accept the returned income as declared

by the assessee, meaning thereby to accept the books of accounts by

the Pr. CIT invoking the reviosnary powers conferred u/s. 263 of the

Act, is not sustainable under the law. For clarity, we would like to

reproduce the direction given by the Pr.CIT in the order passed u/s.263

of the Act as under :-

“v. Decide on the chargeability of the above sum Rs.2,69,16,055/- representing unexplained cash credit in the form of “sundry creditors for raw material and expenses”, to income tax as the income in addition to the returned income of the assessee for assessment year concerned u/s.68 or 41(1) of the I.T.Act. vi. Alternatively, the corresponding purchases similar to the amount of bogus sundry creditors, would be disallowed at the time of computing profit from the assessee’s business.”

Pr.CIT is not justified in setting aside the assessment order and

substituting his opinion u/s 263 of the Act against the view taken by

the AO. On the one hand, the Pr.CIT has observed that the order passed

by the AO is erroneous and prejudicial to the interest of revenue,

9 ITA No.200/CTK/2018 however, on the other hand, the Pr.CIT has directed the AO to accept

the return income of the assessee as is evident from the observations of

the Pr.CIT reproduced hereinabove. We also observe from the

documents available before us that the assessee did not provide the

complete details as per the requirements of notice issued u/s.142(1) of

the Act, then the AO has ample rights for verification/calling for to the

creditors by issuing notice u/s.131, 136 & 133A of the Income Tax Act,

1961, which has not been done so in this case. As per our considered

opinion if the gross profit is estimated by the AO then there is no

further question for making addition on the creditors. We also observe

that the ld. Pr.CIT has alternatively directed the AO to disallow the

corresponding purchases similar to the amount of bogus sundry

creditors, which in our opinion, the Pr.CIT, ignoring the alternative

remedy, to strengthen his view ought to have directed the AO as to on

what basis to proceed further if he finds that the order of AO is

erroneous and prejudicial to the interest of revenue. In the present

case, once the gross profit has been estimated by the AO after

considering all the details produced by the assessee during the course

of assessment proceedings, in our opinion, the Pr. CIT was himself

confused in directing the AO to make addition u/s.68 or 41(1) of the

Act. To support our view, we would like to place reliance on the order

of coordinate bench of the Tribunal in the case of M/s Gulf Steel &

10 ITA No.200/CTK/2018

Minerals, ITA No.57/Ran/2016, A.Y.2010-2011, order dated

04.05.2018, wherein the Tribunal has observed as under :-

“3. We find that the issue in hand is covered in favour of assessee by the above said order of the Co-ordinate Bench, ITAT, Kolkata. Relevant portion of said order are reproduced herein below:- " 10. The assessee has shown sundry creditors in its books of account for Rs.6,24,70,343/- as on 31.03.2010. The AO during the course of assessment proceeding sent the notice at the addresses given by assessee u/s. 133(6) of the Act but all of them returned unserved. On question by the AO the assessee submitted that the sundry creditors relates to the purchases which is genuine, therefore, the creditors without rejecting the purchases cannot be treated as income of the assessee. However, the AO disregarded the claim of assessee by observing that the onus lies upon the assessee to prove identity, genuinety and creditworthiness. Accordingly, AO disallowed the creditor for Rs.4,29,02,130/- on account of non-existent and added to the total income of assessee. 11. Aggrieved assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by AO by observing as under:- "5.3.5 I have gone through the assessment order, submission of the AR, peruse the fact of the case and other materials brought on record and I am of the view that for the following reasons Rs.4,29,02,130/- cannot be added to the income of the appellant either by applying the provisions of section 41(1) or 68 of the Act.:-

(i) That the purchase of the hides from the sundry creditors is evident from the purchase bills and books of accounts maintained by the appellant. As regards the treatment of the same as bogus creditors by the AO, I find that the AO has treated the creditors for purchase made during the year as bogus and not existing. The AO was of the view that the notices u/s 133(6) issued to the creditors came back unserved and therefore the creditors were bogus. It is however found that the AO has treated the purchase made during the year from the same very persons as genuine. The payment made to them was also treated as genuine and disallowance was made only by applying the provisions of section 40A(3). I also find that such sundry creditors for supply of raw hides and skins remained outstanding at the end of every year and were duly accepted in earlier years. Even while completing the assessment for the assessment year in question, sundry creditors of the earlier years have been accepted by the AO. I also find that there were sundry debtors of equal amount in the Balance sheet which shows that in this trade there remain outstanding sundry creditors and debtors. When purchase was accepted as genuine then the sundry creditors cannot be treated as bogus.

11 ITA No.200/CTK/2018

vii) Regarding applicability of provisions of section 68, I find that the appellant has brought substantial material on record to show that these are sundry creditor for purchases paid in subsequent years and that part of the purchases from the very parties were already accepted by the Assessing Officer. Evidently, the creditors were held to be bogus on the ground that enquiry letters under sec. 133(6) of the Act were received back unserved with the remarks 'not known' leaving the Assessing Officer to conclude ITA No.57/Ran/16 that the appellant has failed to discharge his onus of proving the capacity of the creditors and genuineness of the transactions. Apparently, in my opinion, the Assessing Officer has not appreciated the facts of the case in its entirety. This is a case, where the books are not outrightly rejected, there is no adverse inference drawn regarding quantum of purchases or sales and even the purchase accounts of the sundry creditors have not been disturbed. The act that the assessee maintained regular books of account including stock register is also not negated. The Assessing Officer had not disallowed the purchases from those creditors nor the trading results were disturbed. In CIT vs. Ritu Anurag Aggarwal -IT Appeal No. 325 of 2008 dated 22/7/2009, dealing with section 68 of the IT Act in a similar case, the Hon'ble Delhi High Court observed ' ....Proceeding on this basis, the ITAT observed that the sales, purchases as well as gross profits as disclosed by the assessee have been accepted by the Assessing Officer. 4. Once this is accepted, we are of the opinion that the approach of the ITAT was correct inasmuch as the Assessing Officer did not consider this aspect while making additions of the sundry creditors under section 68 of the Income Tax Act. As there was no case for disallowance for responding purchases, no addition could be made under section 68 inasmuch as it is not in dispute that the creditors' outstanding related to purchases and the trading results were accepted by the Assessing Officer.' viii) 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 CIT v. Vardhman Overseas Ltd. in ITA No. 774//2009 decided on 23.12.2011, (2012) 343 ITR 408 (Del), the Delhi High Court, referring to its judgment in the case of Jay Engineering Works Ltd. v. CIT (22009) 311 ITR 299 (Del) and applying the ratio laid down the case of CIT v. T.V. Sundaram Iyengar & Sons Ltd. (1996) 222 ITR 344 (SC) under sec. 28 of the IT 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 sec. 41(21) (a) are not applicable. No addition could be made for remission or cessation of

12 ITA No.200/CTK/2018

trading liability as envisaged under section 41(1) of the Act for the assessment year under consideration. ix) In view of above discussed legal and factual position, I am of the considered view that the sundry creditors of Rs.4,29,02,130/- cannot be treated as bogus sundry creditors and cannot be added to the income of the appellant. Accordingly, the impugned addition made by the AO is hereby directed to be deleted and thus, these grounds of the appeal of the appellant are allowed." Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 12. Before us Ld. DR vehemently relied on the order of AO whereas Ld. AR submitted that the AO has made further addition of Rs. 4,29,02,130/- from Sundry Creditors. It is submitted that these creditors stood in the books of the company and the amount was never written off. The purchases of goods from these parties have been accepted to be genuine. There was no evidence to suggest that no liability to sundry creditors was payable. The details of these Sundry creditors were filed. The AO has also accepted that the payments to these parties were made by bearer cheques. However, as per the AO that payment by bearer cheques causes a serious doubt that sundry creditors did not exist. Simply because the AO doubted the said sundry creditors even though accepting that the payments were made by cheque, the doubt will not entitle the AO to treat the said sundry creditors as bogus creditors. It may be submitted that some of the purchases from these sundry creditors were made during the year itself and purchases from all of them have been accepted to be genuine, found recorded in the books of accounts such purchase of raw materials was also found to consumed, the disallowance for purchase was made only by applying section 40A(3) wherever the payment were in excess of Rs. 20,000/. Therefore sundry creditors cannot be said to be bogus and no addition can be made as bogus creditors. It is further submitted that even if it is presumed that there were unconfirmed creditors, then whether the provision of section 68 or section 41(1) can be invoked and whether such creditors can be treated as bogus warranting addition in the income of the assessee. It is again submitted that there is no dispute that the goods have been purchased and the genuinity of the purchase have not been disputed and it was because that the provisions of section 40A(3) have been applied. Moreover, the assessee maintained day-to-day stock register wherein the raw material purchased were entered into and the finished goods produced have been accepted. Therefore, in so far as the purchase during the year and the corresponding outstanding balance as creditors which relates the assessment year in question, addition ITA No.57/Ran/16 u/s 68 cannot be made. In so far as the balances brought forward from earlier years are concerned addition cannot be made u/s 68 since as per section 68 credits in the books should appear during the assessment year relevant previous year for invoking provision of section 68 of the Act.

13 ITA No.200/CTK/2018

" 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 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 ITA No.2620/Kol/2013 A.Y. 2010-11 ITO Wd-12(1), Kol. vs. M/s Standard Leather Pvt. Ltd. Page 15 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

14 ITA No.200/CTK/2018

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 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 ITA No.57/Ran/16 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

15 ITA No.200/CTK/2018

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. "

16 ITA No.200/CTK/2018 Thus, the order of the CIT-A is set aside and direct the AO to delete the additions involved in ground nos. 2 to 7 of the appeal raised by the assessee before us.”

it cannot be said that the view taken by the A.O. is not one of the

possible views. The Pr.CIT may be of the view that some more

disallowance/addition would have been justified, however, that by

itself will not make the assessment to be erroneous and prejudicial to

the interest of the Revenue. The course adopted by the A.O. is certainly

one of the possible views. It is now settled law that if, while making the

assessment, once the AO has completed the assessment rejecting the

books of accounts of the assessee and estimating the gross profit of the

assessee, again directing the AO to accept the returned income, which

otherwise to accept the books of accounts of the assessee invoking

powers conferred u/s.263 of the Act, amounts to change of opinion

and, therefore, the Pr.CIT is not permitted to substitute his own view

about the computation of income in place of the income assessed by the

A.O., unless the order of the A.O. is patently unsustainable in law. Our

view is supported by the decision of Hon’ble Delhi High Court in the

case of CIT Vs. International Travel House Limited, [2012] 344 ITR 554

(Delhi), wherein the Hon’ble High Court has held that the Pr. CIT does

not have unfettered power to initiate proceeding by revision, re-

examining the matter and directing fresh enquiry on his own whim for

17 ITA No.200/CTK/2018 change or having a different view. It was also held by the Hon’ble High Court that the Commissioner has been conferred with a quasi-judicial power and the same is hedged with limitations and, therefore, it has to be exercised within the parameters of the provision. When the Commissioner is himself not able to form an opinion, he cannot direct another inquiry by the Assessing Officer under section 263 of the Act. In the instant case, the Pr.CIT himself is not sure as to whether the addition can be made u/s.68 or u/s.41(1) of the Act. Accordingly, respectfully following the judicial precedent as discussed above as well as the factual aspects of the case, we hold that the Pr. C.I.T. was not justified in setting aside the assessment order to the A.O. for passing fresh assessment order after making further inquiries/verifying the matters afresh. Accordingly, we quash the impugned order passed by the ld. C.I.T. u/s.263 of the Act. Thus, the grounds No.2,3,4 raised by the assessee challenging the directions given by the Pr.CIT u/s.263 of the Act are allowed. 11. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 15/11/ 2019. Sd/- Sd/- (C.M.GARG) (L.P.SAHU) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनांक Dated 15/11/2019 Prakash Kumar Mishra, Sr.P.S.

18 ITA No.200/CTK/2018 आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीलाथी / The Appellant- 1. Sri Purna Chandra Biswal, Jakhapura, Jajpur-755019 प्रत्यथी / The Respondent- 2. Principal CIT, Cuttack आयकि आयुक्त(अऩील) / The CIT(A), 3. आयकि आयुक्त / CIT 4. ववभागीय प्रनतननधध, आयकि अऩीलीय अधधकिण, कटक / DR, ITAT, 5. Cuttack गार्ा पाईल / Guard file. 6. सत्यावऩत प्रनत //True Copy// आदेशािुसार/ BY ORDER, (Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack