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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश /O R D E R आदेश आदेश आदेश
PER MAHAVIR SINGH, VP:
This appeal by the Revenue is arising out of the order of the Commissioner of Income Tax (Appeals)-14, Chennai in Appeal No.ITA No.163/2016-17, dated 30.06.2017. The Assessment was framed by the Income Tax Officer, Non-Corporate Ward-13(5), Chennai for the Assessment Year 2013 - 2014 u/s.143(3) of the Income Tax Act, 1961, (hereinafter ‘the Act’) vide order dated 31.03.2016.
The only issue raised by the Revenue in this appeal is against the order of the CIT(A) in holding that once the Assessee is assessed u/s.44AD of the Act and that he fulfilled the conditions, no addition can be made. For this, the Revenue has raised the following grounds, as under:
“2.1. The learned CIT(A) erred in holding that no addition u/s.28 to 43C can be made when the Assessee has filed return of income u/s.44AD of the Act, which is factually not correct.
2.2. The learned CIT(A) erred in taking business income at Rs.4,98,560/- instead of Rs.2,89,476/- because interest income of Rs.2,09,084/- must be excluded from Rs.4,98,560/- to arrive at business income and business income of Rs.2,89,476/- in only 4.75% of gross receipts of Rs.60,87,980/- and therefore the return of income filed is not u/s.44AD of the Act.
2.3. The learned CIT(A) erred in concluding that the Assessee filed return of income u/s.44AD of the Act when the return filed by the Assessee shows otherwise and income from eligible business returned by Assessee is less than 8%.
3.1. The learned CIT(A) erred in not upholding the addition of Rs.2,24,73,708/- inspite of the Assessing Officer having brought on record the outcome of enquiries conducted to show that such liabilities do not exist.
3.2. The learned CIT(A) erred in deleting the addition made towards bogus outstanding liability when Assessee himself admitted that such difference was on account of trade discount, incentive and purchase returns allowed by the suppliers not accounted in the books of account of the Assessee.
3.3. The CIT(A) was not correct and justified in deleting the addition towards bogus liability
:: 3 :: ignoring the ratio laid down in the following decisions:
Bharat Dana Bera Vs. ITO (ITAT, Mum.) 153 ITD 421 Natural Gas Company (P) Ltd., Vs. DCIT (ITAT, Mum.) 44 ITR (Trib.) 208 Suresh Kumar T. Jain Vs. ITO (ITAT, Bang) 128 ITD 74 V.I.S.P(P) Ltd., Vs. CIT (MP) 265 ITR 202 Rekhakrishnaraj Vs. ITO (Kar) 91 DTR 32 Gujtron Electronics (P.) Ltd. Vs. ITO (Guj) 249 Taxman 443”
Brief facts are that the Assessee is a dealer in home appliances and filed his return of income by declaring income at Rs.4,98,560/- on the total turnover of Rs.60,87,980/-. Apart from that the Assessee has received interest income of Rs.2,09,084/-. The Assessee, chose to declare presumptive income u/s.44AD of the Act, applying the profit rate at 8% of the total turnover of sales made by the Assessee and thereby declared income at Rs.4,98,560/-. The Assessing Officer selected the case for scrutiny through Computer Aided Scrutiny Selection [CASS] and issued notice u/s.143(2) of the Act. According to the Assessing Officer, there are sundry creditors amounting to Rs.2,25,13,545/- and accordingly enquiries were conducted and these creditors were not traceable. Therefore, the Assessing Officer added the trade creditors amounting to Rs.2,24,73,708/- to the retuned income of the Assessee. Aggrieved, the Assessee preferred appeal before the CIT(A).
The CIT(A) after going through the facts of the case, deleted the addition by observing as under:
“(xvii) In view of the above detailed discussions, it is held that the sum of Rs.2,24,73,708/- standing to the creditors’ accounts representing the opening and closing balance of the sundry creditors continues to be the same and there are no transactions done with the said parties during the year and therefore no part of the said amount can be considered as income of the Appellant for the current year, even if such credits are not considered to be satisfactorily explained by the Appellant to the Assessing Officer.
(xviii) No cessation of liability is happened during the PY relevant to the A.Y 2013 – 2014 and therefore the Assessing Officer was not justified in invoking the provisions of Section 41(1) of the Income Tax Act. If at all the Assessing Officer wishes to treat the amount as cessation of liabilities, it can only be done in the relevant PY when the liability actually ceases to exist. The Assessing Officer should have investigated the matter further and determined the year in which the liability ceased to exist, and once that has been done, the Assessing Officer should have treated the same as liability that has ceased to exist only in the concerned PY when the liability actually ceased to exist. It cannot be treated as cessation of liability in the PY relevant to the Assessment Year 2013 – 2014.
(xiv) Therefore the addition made by the Assessing Officer of the amount of Rs.2,24,73,708/- u/s.41(1) of the Income Tax Act, 1961 is not factually and legally tenable and hence not justified and needs to be set aside and deleted.”
Aggrieved, the Revenue is now in appeal before the Tribunal.
We have heard the rival contentions and had gone through the facts and circumstances of the case. We noted that the Assessee has offered its income in the return of income in a presumptive basis u/s.44AD of the Act. Admittedly, the Assessee’s trading turnover is to the extent of Rs.60,87,980/-. The Assessee has declared profit on the same at Rs.4,98,560/-, i.e. net profit and had paid taxes on the same. The Assessee has fulfilled all the conditions provided u/s.44AD of the Act, as the Assessee has got his accounts audited and that the Assessee is in retail trade. Further, the Assessee has not claimed any deduction. The Assessee, being an individual, is eligible for claim on presumptive taxation u/s.44AD of the Act. The Assessing Officer has gone into the sundry creditors which are appearing in his accounts but there is no such condition provided in the provisions of Section 44AD of the Act and the CIT(A) has rightly held that, even the provisions of Section 41(1) of the Act does not apply, as there is no cessation of liability. In view of the above, we confirm the order of the CIT(A) on this issue.
Further, we notice that the Assessee has also interest income received from fixed deposits made in the Bank for Rs.2,09,084/- and this cannot be covered under presumptive taxation. The Revenue has pointed out from the Assessee’s accounts that it has made fixed deposits at Electricity Department, Bank of Baroda, Federal Bank, Syndicate Bank, Rent deposit and Sales Tax Deposits. According to :: 6 :: Revenue, this interest income is earned by the Assessee on fixed deposits made with the Banks. According to us, this is income from other sources and it has to be assessed separately. Hence, we direct the Assessing Officer to add this income apart from the income declared by the Assessee u/s.44AD of the Act and re-compute the income accordingly. This appeal of the Revenue is partly allowed as indicated above.
In the result, the appeal of the Revenue is partly allowed.
Order pronounced in the court on 11th April, 2022 at Chennai.