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Income Tax Appellate Tribunal, RANCHI BENCH, RANCHI
Before: SHRI C.M.GARG, JM & SHRI L.P. SAHU, AM
आयकर अपीऱीय अधिकरण, रााँची न्यायपीठ, रााँची IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH, RANCHI श्री चन्द्र मोहन गगग, न्द्याययक सदस्य एवं श्री एऱ.ऩी.साहु, ऱेखा सदस्य के समऺ । BEFORE SHRI C.M.GARG, JM AND SHRI L.P. SAHU, AM आयकर अऩीऱ सं./ITA No.106/RAN/2019 & आयकर अऩीऱ सं./ITA No.53/RAN/2019 (नििाारण वषा / Assessment Year :2015-2016 & 2013-2014) Shri Navneet Modi, Vs. DCIT, Circle-2, Ranchi Modi House, Kanke Dam Side Road, Kanke, Ranchi स्थायी ऱेखा सं./ PAN No. : ACTPM 1511 F (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) .. यनधागररती की ओर से /Assessee by : Shri Devesh Poddar, Advocate राजस्व की ओर से /Revenue by : Shri Inderjeet Singh, CIT(DR)
सुनवाई की तारीख / Date of Hearing : 30/08/2019 घोषणा की तारीख/Date of Pronouncement : 30/10/2019 आदेश / O R D E R Per Bench: ITA No.106/Ran/2019 has been filed by the assessee against the order of Commissioner of Income Tax (Appeals), Ranchi, dated 25.01.2019 for the assessment year 2015-2016 arising out of the order passed u/s.143(3) of the Act and ITA No.53/Ran/2019 has been filed by the assessee against the order dated 03.10.2018 passed by CIT(A), Ranchi for the assessment year 2013-2014 confirming the penalty levied u/s.271(1)(c) of the Act.
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ITA No.106/Ran/2019 (AY : 2015-2016)(quantum appeal) :
In this appeal, the assessee has raised the following grounds of
appeal :-
For that Ld. CIT(A) was not justified in confirming the addition of Rs.2,77,65,917/- being the sundry creditors U/s 68 as alleged unexplained cash credit in the books of the assessee. 2. For that out of the sundry creditors amount of Rs. 2,12,36,651/- was the opening balance for the year under consideration. By no means can the opening balance be considered as unexplained cash credit and addition can be made U/s 68 for the year under consideration. As such, Ld. CIT(A) was not justified in confirming the addition made by the Ld. AO to the tune of opening balance for the year under consideration. As such, the addition made is fit to be deleted. 3. For that for the year under consideration there was an additional sundry creditors for Rs. 65,29,356/-. Due to certain mishaps reasons we were unable to furnish complete details of the sundry creditors as such, as a matter of fact, this amount was duly disclosed by us under IDS scheme wherein the assessee disclosed Rs. 1 Crore under the head business income. Disclosure was made thereby wherein taxes as due was paid. As such, Ld. CIT(A) was not justified in confirming the addition made to this amount as unexplained cash credit. 4. For that the amount of sundry creditors was duly disclosed in our books of account and the same has not been written off for the year under consideration. As such, Ld.AO was not justified in making the addition for the same amount for the year under consideration. As such, the addition made is fit to be deleted. 5. For that the Ld. Assessing officer was not justified in charging interest on the assessed income. Interest U/s 234A and 234B be charged on returned income following the decision of Hon'ble Jharkhand High Court. 6. For that other grounds in detail will be argued at the time of hearing.
Brief facts of the case are that the assessee is an individual, who
derives income from trading of mining tools and filed his return of
income on 30.09.2015 declaring total income at Rs.62,90,060/-. The
3 ITA No.106 & 53/Ran/2019 case was selected for limited scrutiny under CASS. Accordingly, the AO
passed the assessment order u/s.143(3) of the Act determining total
income of the assessee at Rs.3,40,55,980/- making addition u/s.68 of
the Act at Rs.2,77,65,917/-. Against the said order of AO, the assessee
filed appeal before the CIT(A), however, the CIT(A) has dismissed the
appeal of the assessee.
Feeling aggrieved from the order of CIT(A), the assessee is in
further appeal before the Income Tax Appellate Tribunal.
Ld. AR before us submitted that it is a settled preposition of law
that where the purchases made have been accepted by the AO and the
same is not disputed, then no disallowance of creditors is called for
resulting the same. It was also contended by the ld. AR that moreover
the authorities below failed to consider and accept our plea that the
sundry creditors added during the year amounting to Rs.65,29,356/-
stands disclosed under IDS. Assessee made a disclosure under IDS of
Rs.1 crore under the head of Sundry Debtors and Business Income.
Business income includes the amount of sundry creditors as the same if
and when written off is treated to the income earned from business
operations. The plea of the assessee should have been accepted and no
further query was called for. In this regard, ld. AR relied on the order of
coordinate bench of the Tribunal in the case of M/s Gulf Steel &
Minerals, in ITA No.57/Ran/2016 for the assessment year 2010-2011,
4 ITA No.106 & 53/Ran/2019 order dated 04.05.2018 and submitted that in this case the Tribunal
has deleted the addition made u/s.68 of the Act. Therefore, addition
made in the case of assessee u/s.68 of the Act may kindly be deleted.
Further, ld. AR submitted that the addition confirmed by ld CIT(A)
treating the same to be cessation of liability is uncalled and for this
purpose he relied upon the decision of Coordinated Bench of Ranchi
Tribunal in the case of M/s Gulf Steel & Minerals Vs ITO Ward 1(4)
Jamshedpur, in ITA No.57/Ran/2016, order dated 04/05/2018 and in
the case of Swapan Kumar Sarkar Vs ACIT Circle 3 Jamshedpur, in ITA
No.05/Ran/2017, order dated 15/02/2019. Accordingly, ld. AR
submitted that the appeal of the assessee may kindly be allowed.
On the other hand, ld. DR relied on the orders of authorities
below.
With regard to ground Nos.1 to 4, the assessee has agitated the
addition of sundry creditors. After considering the submissions of both
the parties and perusing the entire material available on record along
with the orders of authorities below as well as the case relied upon by
the ld. AR of the assessee, we find in this case that the lower authorities
have disallowed only sundry creditors for want of verification but the
corresponding purchase, sales and net profit declared by the assessee
have been accepted by the authorities below. Our this view is
supported by the decision of coordinate bench of the Tribunal in the
5 ITA No.106 & 53/Ran/2019
case of M/s Gulf Steel & 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.
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.
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When purchase was accepted as genuine then the sundry creditors cannot be treated as bogus.
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.
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
7 ITA No.106 & 53/Ran/2019
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 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.
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,
8 ITA No.106 & 53/Ran/2019
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. 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.
9 ITA No.106 & 53/Ran/2019
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 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
10 ITA No.106 & 53/Ran/2019
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. "
The AO in our view was confused. He at para (3) of his order states that the addition u/s 68 of the Act and at para 3.6 states that he is disallowing Sundry Creditors. The ld. CIT-A also did not dispute the facts that the purchase is genuine. While so Sec 68 of the Act cannot be invoked.
11 ITA No.106 & 53/Ran/2019
In view of above, we are of the view, the Tribunal has analyzed the issue with various case laws. The case laws are also relevant to the present facts of the case. Thus, the CIT-A was not justified in confirming the impugned additions challenged in ground nos. 2 to 7 of the appeal. 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.”
Respectfully following the above observations of the Tribunal, we
are of the considered opinion that the CIT(A) is not correct in
confirming the impugned additions raised by the assessee in grounds
No.1 to 4. Accordingly, ground Nos.1 to 4 are allowed.
Ground No.5 relates to charging interest u/s 234A& 234B of the
Act by the AO and confirmed by the CIT(A). Since we have set aside the
order of CIT(A) and directed to delete the main addition, therefore, this
ground of appeal being consequential in nature, has become
infructuous.
Thus, appeal of the assessee in ITA No.106/Ran/2019 is partly
allowed.
Now, we shall take up appeal of the assessee in ITA
No.53/Ran/2019, wherein the assessee has agitated the sole ground
with regard to confirmation of penalty levied u/s.271(1)(c) of the Act.
Since we have directed to delete the addition made by the AO on
account of sum found credited to the books of assessee under the head
sundry creditors, in the quantum appeal of the assessee above(i.e. ITA
No.106/Ran/2019), therefore, the penalty levied u/s.271(1)(c) of the
12 ITA No.106 & 53/Ran/2019 Act is not sustainable and accordingly, the same is directed to be deleted. Thus, the sole ground raised in the appeal of the assessee is allowed and consequently, the appeal of the assessee i.e. ITA No.53/Ran/2019 is allowed. 13. In the result, both appeals of the assessee are allowed. Order pronounced in pursuance with Rule 34/4 of ITAT Rules, 1963 by putting the copy of the same on Notice Board on 30/10/2019 at Ranchi. Sd/- Sd/- (C.M.GARG) (L.P.SAHU) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER रााँची Ranchi; ददनांक Dated 30/10/2019 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीऱाथी / The Appellant- . 1. Shri Navneet Modi, Modi House, Kanke Dam Side Road, Kanke, Ranchi प्रत्यथी / The Respondent- 2. DCIT, Circle-2, Ranchi आयकर आयुक्त(अऩीऱ) / The CIT(A), 3. आयकर आयुक्त / CIT 4. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, रााँची / DR, ITAT, Ranchi 5. गार्ग पाईऱ / Guard file. 6. सत्यावऩत प्रयत //True Copy// आदेशािुसार/ BY ORDER,
(Senior Private Secretary) ITAT Cuttack Bench, Cuttack