DCIT CIRCLE 2(3)(1), MUMBAI, MUMBAI vs. NISSIM TRADERS PRIVATE LIMITED, MUMBAI

Ground Nos. 1 and 2 raised by the Revenue are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in deleting the additions made by the AO. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

We have heard counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that the AO observed unsecured loans received from Premier Consultants and Traders Ltd. and Servo Tech Engineering India Ltd. and, due to failure on the part of the assessee to provide full supporting documents during the assessment proceedings, additions were made. Whereas, on the contrary, it was submitted that the additions were wrongly made by the AO under Section 68 of the Act, and our attention was drawn towards the fact that full details and bank statements were submitted and the said transactions were also reflected in the audited accounts and tax audit report.

We noticed that all the details like PAN, address, jurisdiction, and other documents were already placed on record during the course of assessment, along with bank statements and confirmations furnished to the AO during the assessment proceedings. We further noticed from the records that the AO made additions only on account of non-response to the notices issued under Section 133(6) of the Act. It was explained before us that the amount shown as loan from Servo Tech Engg. Ind. Pvt. Ltd. was an accounting error, as Rs. 17 lakhs received from Servo Tech India Ltd. was included in the Servo Tech Engineering account; therefore, corresponding accounting corrections along with ledgers and confirmations were also submitted before the AO.

After having considered the facts and documents placed on record, we noticed that PAN, address, ledger accounts, confirmations, and bank statements substantiating the loans as reflected in the audited financial statements were already placed on record, and the AO could not find any fault or defect in the documents so placed on record and relied upon by the assessee. We are of the view that mere non-appearance in response to notices issued under Section 133(6) of the Act cannot override the documentary evidence provided by the assessee, especially when identity and confirmations are available. Reliance in this regard is placed upon the decision in CIT vs. Orissa Corporation Ltd. (1986) 159 ITR 78 (SC).

As far as the difference in the Servo Tech loan is concerned, the same is attributable to the admitted and explained posting error and not on account of inflow of unexplained funds. Reliance in this regard is placed upon the decision of the Hon’ble Bombay High Court in the case of PCIT vs. Tania Investments in ITA No. 273/2017, wherein it was held that once the assessee had discharged the initial onus, the burden shifts upon the AO, and failure on the part of a creditor to respond to notice or to physically appear, especially when the transaction is otherwise corroborated, cannot by itself justify the addition.

Even otherwise, no new facts, circumstances, or documents have been placed on record by the Ld. DR in order to controvert or rebut the lawful findings so recorded by the Ld. CIT(A). Therefore, we see no reason to interfere with or deviate from the findings so recorded by the Ld. CIT(A). Hence, we dismiss these grounds raised by the Revenue and uphold the order of the Ld. CIT(A) deleting the additions.

Ground Nos. 3 and 4 raised by the Revenue are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in deleting the additions made by the AO under Section 41(1) of the Act.

We have heard counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that the AO made additions on account of outstanding trade payables to four parties amounting to Rs. 2,05,53,618/-, which remained unpaid for over three years with no transactions and no response from the creditors to summons issued under Section 133(6) of the Act. The AO held that the assessee did not provide confirmation of continued liability or payment thereof, therefore, the same was treated as ceased liability under Section 41(1) of the Act.

Whereas, the Ld. AR refuted the contents of the assessment order and submitted that the assessee had not written off these liabilities and there was no remission or cessation thereof. The assessee further submitted that the creditors were subsequently paid and duly reflected in the next year’s balance sheet. It was also argued that the AO cannot treat old liabilities as income except where the same are written off by the assessee.

After having considered the factual position and hearing the parties at length, we found that the provisions of Section 41(1) apply only if:

In this regard, we noticed that the Hon’ble Gujarat High Court in the case of CIT vs. Bhogilal Ramjibhai Atara (2014) 43 taxmann.com 333 held that unilateral action by the AO on account of non-response of creditors is not sufficient, there must be a conscious act of writing back by the assessee or conclusive evidence of remission.

In the present case, as per the case set up by the AO, the outstanding trade payables remained unpaid for over three years, with no transactions and no response from the creditors to summons issued under Section 133(6) of the Act. In these circumstances, the response of the creditors assumes importance. Although the creditors had not responded to the summons issued by the AO, the assessee argued that the creditors were subsequently paid. However, the order of the Ld. CIT(A) is not clear as to when the payments were made by the assessee to the creditors. Therefore, in our view, in order to obtain a clear picture, it is necessary to verify this factual position.

Accordingly, for this limited purpose, the matter requires to be remitted back to the file of the AO to verify as to when the assessee had repaid the creditors and thereafter decide the issue afresh strictly in accordance with law. Therefore, these grounds stand allowed for statistical purposes.

In the result, appeal filed by the Department is partly allowed.