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Income Tax Appellate Tribunal, HYDERABAD BENCH “A”, HYDERABAD
Before: SHRI D. MANMOHAN & SHRI B. RAMAKOTAIAH
THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “A”, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA No.153/Hyd/2017 Assessment Year: 2010-11 M/s. Sabir Dam Water vs. Asst. Director of Income Works Construction Tax, (International Company, Hyderabad. Taxation)-II, Hyderabad. PAN – AAICS2794L (Appellant) (Respondent) Assessee by : Shri A. Srinivas Revenue by : Shri M. Naveen
Date of hearing : 08-05-2018 Date of pronouncement : 11-05-2018 ORDER PER SHRI B. RAMAKOTAIAH, AM: This is an appeal by Assessee against the order of CIT(A)-10, Hyderabad dated 31.08.2016. Assessee has raised the following grounds:
“2. The Appellate Commissioner ought not to have rejected the additional evidence filed by the Appellant u/s 46A. 3. The Appellate Commissioner erred in upholding the order of the A.O is adding an amount of Rs. 41,82,873/- 4. The Appellate Commissioner erred in coming to a conclusion that the liability was not proved by the assessee”. Ground Nos 1 and 5 are general in nature.
Briefly stated, Assessee is a foreign company owned by the Government of Iran. The company has bid for irrigation contracts in the state of Andhra Pradesh and
2 ITA No. 153/Hyd/2017 M/s Sabir Dam Water Works Construction Company, Hyderabad. after successfully bidding for M/s Sabir Dam Water Works Construction Company, the company had entered into back to back agreement in the nature of sub-contract with M/s Sri Avantika Contracts and M/s Poineer Builders. The company retains 0.5% of the net bills recorded as its fees for having allotted the works to the sub-contracts. During the course of scrutiny assessment proceedings, A.O noticed that an amount of Rs. 41,82,873/- was shown as current liability in the balance sheet. A.O asked Assessee to file a confirmation letter from M/s AMR Constructions Ltd. In the absence of confirmation, the above said amount has been declared as ‘unexplained’ and added back to the total income as per the provisions of Sec. 41(1)(a) of the IT Act (sic).
Before Ld. CIT(A), Assessee submitted that this amount was not claimed as a liability during the year and the amount was payable in the earlier assessment years and pending adjudication of the FSD receivable from the principal contractor and the same will be paid as and when the said contract gets over. Assessee filed the confirmation letter from M/s AMR Constructions Ltd., for the subsequent year to the year in appeal, as a contemporaneous evidence. The documents filed by Assessee were sent to A.O on remand and A.O submitted a remand report on 20.07.2016. Ld. CIT(A) seems to have forwarded the remand report to Assessee and since no reply has been received, Ld. CIT(A) confirmed the above addition stating that Assessee did not prove that liability
3 ITA No. 153/Hyd/2017 M/s Sabir Dam Water Works Construction Company, Hyderabad. was existing, and the amount was not includable in total income of Assessee for the assessment year under consideration. Not only that, Ld. CIT(A) also rejected the evidence filed on the reason that assessee has not made any plea to admit the evidence.
After hearing the rival contentions, we are of the opinion that the matter require re-examination by A.O. First of all, it is not understandable how A.O would treat the amount as ‘unexplained’ when the same was shown in the balance sheet as an outstanding liability. If any cash credit is treated as ‘unexplained’ then it provisions of Sec. 68 of the IT Act, would apply but not to an outstanding liability. A.O invoked the provisions of Sec. 41(1)(a) of the IT Act, without establishing that there was a ‘cessation’ of liability. Even in the remand report A.O seems to have been confused with the nature of liability and reported in para 5 as under:
“5. From the observations made by the undersigned and from the remarks made in the assessment order, it is clear that, the expenditure claimed by the assessee as current liability is not tenable and was hence rightly disallowed under the provisions of 41(1)(a)”.
4.1 Even in the remand report, A.O classified that it is an ‘expenditure claimed’ by Assessee when in fact, it was the submission that the liability was incurred in earlier years which was allowed to Assessee in those years and was outstanding as on date, as there was a dispute. It is equally surprising that having admitted the evidence and
4 ITA No. 153/Hyd/2017 M/s Sabir Dam Water Works Construction Company, Hyderabad. sending it to A.O for remand, the incumbent CIT(A) rejected the same, on the reason there is no plea made. We are unable to understand how the additional evidence can be rejected at that stage as not admitted, after sending it to A.O for remand under the provisions of Rule 46A of the IT Act i.e giving an opportunity to A.O on the additional evidence. The actions of A.O and CIT(A) are neither in accordance with the provisions of Act nor according to the principles of nature of justice.
It is the contention of Assesse that this amount was an amount payable in earlier years which was outstanding against M/s AMR Constructions Ltd., and the same was also outstanding in subsequent years and justified by filing the account copies and also confirmation from the said company. These contentions have not been examined by A.O or CIT(A) in the proper perspective.
For invoking the provisions of Sec. 41(1)(a) of the IT Act, there should be a cessation of liability. The burden is on Revenue to prove that there is a cessation of liability since Assessee has neither written off the amount nor paid the amount pending dispute. We direct A.O to examine the issue afresh and invoke the provisions of Sec. 41(1)(a) of the IT Act only in case it could be established that there is a cessation of liability. The matter is set aside to the file of A.O for fresh examination after giving due opportunity to Assessee. In the result grounds are allowed for statistical purposes.
5 ITA No. 153/Hyd/2017 M/s Sabir Dam Water Works Construction Company, Hyderabad. 7. In the result, appeal filed by Assessee is allowed for statistical purposes.
Pronounced in the open court on 11th May, 2018.
Sd/- Sd/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, Dated 11th May, 2018. KRK 1) M/s Sabir Dam Water Works Construction Company, Plot No. 7-1-618, 610 B, Nilgiri Block, Aditya Enclave, Ameerpet, Hyderabad 2) Asst. Director of Income Tax (International Taxation)-II Hyderabad. 3) CIT(A) -10, Hyderabad. 4) The Commissioner of Income Tax (IT &TP), Hyderabad. 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File