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Facts
The assessee, an individual and proprietor of Mahesh Petroleum, appealed against the order of the CIT(A) for AY 2017-18. The grounds of appeal primarily concerned additions made by the Assessing Officer (AO) relating to unexplained investment in house renovation, unexplained investment, deemed rental income, and sundry creditors.
Held
The Tribunal found that the AO made additions based on discrepancies in the capital account and Schedule-AL without fully considering the assessee's personal books of account. For the unexplained investment in house renovation, the Tribunal directed the AO to examine personal books. For unexplained investment related to a shop, the Tribunal allowed revised computation and remanded the matter to the AO. For deemed rental income, the Tribunal directed the AO to delete the addition, noting that development permission was obtained later. For sundry creditors, the Tribunal directed the AO to verify the discharge of liability in subsequent periods, allowing the ground for statistical purposes.
Key Issues
Whether the additions made by the AO for unexplained investment in house renovation, unexplained investment, deemed rental income, and sundry creditors are justified, considering the assessee's submissions and evidence provided.
Sections Cited
69B, 23(1)(a), 23(5), 69A, 115BBE, 40(a)(ia), 41(1), 68, 69C
AI-generated summary — verify with the full judgment below
Assessee represented by Shri Hiren R. Vepari, C.A. Department represented by Shri Mukesh Jain, Sr.DR Date of hearing 30/12/2024 Date of pronouncement 04/03/2025 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) [in short, the ld. CIT(A)] dated 29/08/2024 for the Assessment Year (AY) 2017- 18. The assessee has raised following grounds of appeal: “(I). Unexplained investment of Rs.37,96,897: (1) The learned CIT(A) was blind folded to the evidence while deciding the appeal. (2) The CIT(A) was not justified in confirming a sum of Rs.37,96,897 particularly when the appellant's personal balance sheet clearly included this as investment. (3) The CIT(A) was driven by extraneous considerations without looking at the asset side of the balance sheet. (4) On the facts and circumstances of the case, the addition is required to be deleted. (5) The learned CIT(A) was not justified in confirming the misapplied provision of 69B of the Act when on the facts of the case, the provision was not applicable. (II) Unexplained investment of Rs.5,36,794:
Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT (1) The learned CIT(A)'s order being totally lopsided without even referring to the complete reconciliation and evidence, is required to be quashed. (2) The learned CIT(A) was not justified in confirming a sum of Rs.5,36,794 being difference between the particulars of assets disclosed by the appellant under the AL schedule of the ITR. (3) The difference only emanating out of clerical error during A.Y.2016-17, the learned CIT(A) ought to have appreciated the proposition. (4) With the difference fully explained, there was no justification in making the addition and more particularly when the asset in question sat in the books of the appellant. (5) On the facts and circumstances of the case, the addition is required to be deleted. (6) The learned CIT(A) was not justified in confirming the misapplied provision of 69B of the Act when on the facts of the case, the provision was not applicable. (Ill) Deemed rental of Rs. 1,26,000: (IV) The learned CIT(A) was not justified in not entertaining additional evidence under Rule 46A, particularly when the appellant demonstrated that he was deprived of the reasonable opportunity during the assessment. (1) Despite the fact that property was pending approval from the necessary authorities for completion, the learned CIT(A) was not justified in confirming estimated income of Rs. 1,26,000 (Rs. 1,80,000 - deduction u/s.24(b) Rs.54,000). (2) The learned CIT(A) ought to have taken into consideration the intention of the legislature u/s.23(5) inserted from the Finance Act, 2018. (3) On the facts and circumstances of the case, the estimated addition is unwarranted. (V) Addition in respect of debtors of Rs.6,55,944: (1) The learned CIT(A) was not justified in not entertaining additional evidence under Rule 46A, particularly when the appellant demonstrated that he was deprived of the reasonable opportunity during the assessment. (2) On the facts and circumstances of the case, there was no justification in confirming the addition. (3) The learned CIT(A) was not justified in confirming the misapplied provisions of section 69A particularly when they were inapplicable to the facts of the case since all the impugned transactions were recorded in the books of the appellant. (4) Without prejudice to the above, provisions of section 115BBE are not applicable to the case as also they have been held not to be applicable retrospectively. (VI) Addition of Rs.6,02,049 being 30% of Rs.20,06,830 made u/s.40(a)(ia): On the facts and circumstances of the case, the learned CIT(A) was not — justified in confirming the disallowance. (VII) Addition of Rs.61,10,903 in respect of sundry creditors:
Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT (1) The learned CIT(A) was not justified in not entertaining additional evidence under Rule 46A, particularly when the appellant demonstrated that he was deprived of the reasonable opportunity during the assessment. (2) The learned CIT(A) was not justified in confirming the addition particularly when the transactions with the creditors were bona fide and copies of ledger filed. (3) Merely because the confirmations from the creditors are not availed would not render the sundry creditors as non-existent. (4) The learned CIT(A) ought to have allowed the appeal when the appellant demonstrated that creditors were paid in the subsequent paid. (5) On the facts and circumstances of the case, there was no justification in making addition. (VIII) Miscellaneous: (1) All of the above grounds are prejudiced to one another. (2) The appellant craves leave to add, alter or vary any of the grounds of appeal.
2. At the time of hearing of appeal, the learned Authorised Representative (ld. AR) of the assessee submits that he is not pressing grounds No. (V) and (VI) of appeal. Considering the submission of ld. AR of the assessee, grounds No. (V) and (VI) of appeal are dismissed as not pressed.
Brief facts of the case qua the other grounds of appeal are that the assessee is individual and proprietor of ‘Mahesh Petroleum’ having authorised dealership of fuel station related to Hindustan Petroleum Corporation Limited. The assessee filed its return of income for the A.Y. 2017-18 on 14/10/2017 declaring income of Rs. 60,93,441/-. After claiming deduction of Chapter VI- A, the assessee declared net income of Rs. 59,33,440/-. The assessee in his computation of total income, has shown business income from Petrol Pump of Hindustan Petroleum Corporation Limited, business from carting activities in the name of ‘Mahesh Ramanlal Modi’, income from ‘other sources’ and profit from partnership in ‘Maheshchandra Modi & Company’. The case of assessee was selected for scrutiny. During the assessment, the Assessing Officer noted that the assessee has shown renovation/construction of Bungalow situated at Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT A/17 at Hitesh Nagar Society of Rs. 37,96,897/-. The assessee has shown total withdrawal from capital account of Rs. 19,54,697/- which includes the household withdrawal and repayment of housing loan. On the basis of such observation, the Assessing Officer issued show cause notice to the assessee by taking view that there is no deduction/withdrawal from capital account on account of renovation in Bungalow and the assessee was asked as to why renovation expenses should not be added to the total income on account of unexplained expenditure. The assessee filed his reply dated 20/12/2019. In the reply, the assessee submitted that all expenses were properly accounted in his books of accounts. The assessee furnished copy of bills and the details of expenses incurred. Submission of assessee was not accepted by the Assessing Officer. The Assessing Officer reiterated his contention as recorded in his show cause notice. The Assessing Officer extracted the capital account of proprietory concern of petroleum business on page No. 4 of assessment order and noted that there is no deduction on account of renovation expenses from the capital account. The Assessing Officer also extracted the part of audited account of expenditure and recorded that no such expenditure has been shown in the capital account and net profit is directly credited to the capital account. The Assessing Officer treated the said expenditure as unexplained and added to the income of the assessee.
4. The Assessing Officer further noted that on verification of schedule-AL of return of income, the total investment in immovable property is of Rs. 1.88 crores whereas in the preceeding year, the figure of investment was at Rs. 1.45 crores, therefore, there was a difference of Rs. 43.33 lacs out of which Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT Rs. 33.96 lacs is taken into consideration on account of unexplained expenditure of renovation of Bungalow and there is difference of amount of Rs. 5,36,794 (Rs. 43,33,691-37,96,897). The assessee was asked to explain the difference of Rs. 5,36,794/- and why it should not be considered as unexplained investment. The assessee filed its reply dated 20/12/2019. In the reply, the assessee submitted that in show cause notice, the difference Rs. 53,67,940/- pointed out on account of investment in immovable property. The assessee stated that they have not purchased any new immovable property nor any capital expenditure was incurred on the renovation of Bungalow. The assessee stated that while reporting for A.Y. 2016-17, a property ‘shop No. 93 at Narmada Market’ of Rs. 5,51,300/- had inadvertently remained to be reported. The assessee furnished balance sheet of assessee for Financial year (F.Y.) 2015-16 wherein investment held by assessee as reported in Schedule- G and explained that there is no change in the immovable property other than renovation expenditure. The assessee furnished copy of Schedule-G of balance sheet for F.Y. 2015-16 and F.Y. 2016-17 wherein only addition in Bungalow No. A/17 is shown and rest of the property are as it is i.e. in F.Y. 2015-16 as well as in F.Y. 2016-17. The reply of assessee was not accepted by the Assessing Officer. The Assessing Officer reiterated the contention of show cause notice and held that the assessee has not produced any documentary evidence for proof of payment for purchase and source of investment. The assessee is merely furnishing unsinged copy of balance sheet which was not uploaded at the time of filing of return of income. There is no provision in the Income Tax Act for managing return of income as per decision of Hon'ble Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT Supreme Court in the case of Goetz (India) Ltd. Vs CIT dated 24/03/20026 (RS-21-SC-2006-O). The Assessing Officer thus, treated the differential of amount vis a vis A.Y. 2016-17 and A.Y. 2017-18 in Schedule-AL and added Rs. 5,36,794/- under Section 69B of the Act.
The Assessing Officer further noted that in Schedule-AL, the assessee has shown commercial property/asset at Revenue Survey No. 3, Vasugana, Bharuch of Rs. 16,61,908/- but no income under the head ‘house property’ is offered against such property. The assessee was issued show cause notice as to why deem rental value @ Rs. 15,000/- per month should not be added as total deemed income as per provisions of Section 23(1)(a) of the Act. The assessee filed his reply dated 20/12/2019. In the reply, the assessee stated that he owned immovable property/asset at Revenue Survey No. 3 Vasugana, Bharuch which was purchased for construction for running a hotel. However, no approval/ sanction has been received from Bharuch Ankleshwar Urban Development Authority (BAUDA) to start the construction. Until the approval is received, the assessee cannot start the business. The property is not ready to use. Thus, there is no question for deemed rental income. Submission of assessee was not accepted by the Assessing Officer. The Assessing Officer was of the view that the assessee was required to offer deemed rental income in respect of property other than self-occupied property if not let out during the year. The Assessing Officer further held that reference made by assessee about the Finance Act, 2018 wherein concept of deemed rental income under Section 23(5) was inserted from 01/04/2018, the Assessing Officer was of the view that such amendment is not applicable for the year under consideration.
Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT The Assessing Officer worked out the deemed annual letting value at the rate of Rs. 1.26 lacs after allowing standard deduction @ 30% and added to the income of assessee.
The Assessing Officer further noted that as per Annexure-H for audited balance sheet, the assessee has shown sundry creditor of Rs. 61,10,903/-. The assessee while issuing show cause notice dated 16/12/2019 was asked to furnish details, communication address of sundry creditors alongwith ledger account and details of entity and in case of failure, the amount would be added to the income of assessee. The assessee filed his reply dated 20/12/2019. Alongwith reply, the assessee furnished details of sundry creditors. The assessee stated that liability continues as on 31/03/2017 which did not cease to exist. There is no remission or cessation of liability. The Assessing Officer cannot decide that the liability has ceased to exist. In support of its claim, the assessee relied upon certain case laws. The Assessing Officer recorded that PAN and address of creditors are mandatory for their identification by increasing the liability, the portion of profit has been suppressed to manipulate account and to match the balance sheet. The Assessing Officer reproduced the statement of party wise details and current liabilities disclosed by the assessee on page No. 16 of assessment order. The Assessing Officer noted that all the creditors appear to be transporter. The assessee is liable to deduct TDS, if transporter owns more than ten vehicles during the year. The assessee has not deducted TDS of transporter. The Assessing Officer also recorded that due to time constraint in the show cause notice, it was difficult to obtain PAN and address of the creditors. The Assessing Officer concluded that the assessee Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT has no clarity about the facts of the case on the issue raised by the department. Sufficient time was allowed to the assessee to furnish the required details. The assessee has not provided PAN and address of such creditors and merely furnished copy of ledger account. The onus was on the assessee which the assessee failed to prove thereby genuineness of transaction is not proved. The Assessing Officer disallowed sundry creditors and added the amount of creditors to the income of assessee to the extent of Rs. 61,10,903/- to the total income of assessee.
Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) confirmed all the additions made in the assessment order. While confirming the addition on account of renovation expenses in House No. A/17, the ld. CIT(A) by referring the observation of Assessing Officer, held that as per findings given by the Assessing Officer in the body of order, he do not find any infirmity. For the addition of Rs. 5,36,749/-, the ld. CIT(A) held that in the course of assessment proceedings, the assessee could not reconcile the discrepancies pointed out by the Assessing Officer, thus the Assessing Officer was justified in making addition of Rs. 5,36,794/- under Section 69B of the Act. On the addition of deemed rental income under Section 23(4)(b) of the Act of Rs. 1,26,000/-, the ld. CIT(A) held that the submission of assessee was duly considered by the Assessing Officer, which was not found acceptable to him, no supporting evidence that hotel was not fit to use was not produced by the assessee. The reference of Finance Act, 2018 which it applicable for the transaction on or after 01/04/2018 is not applicable for the year under consideration. Thus, the Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT ld. CIT(A) concurred with the finding of the Assessing Officer that the assessee was required to offer deemed rental value if asset not occupied. During the appellate proceedings, the assessee failed to bring on record that the impugned property was for use of commercial purpose as claimed. The assessee failed to offer any justification for invoking Rule 46A and confirmed the action of Assessing Officer. On the addition of sundry creditors, the ld. CIT(A) held that the assessee was required to file details of PAN and communication address of sundry creditors of Rs. 61,10,903/-. PAN and address of creditors are mandatory. Even during the assessment, despite allowing opportunity, the assessee failed to furnish PAN and address of such creditors. The assessee failed to furnish such details. Further, the assessee failed to demonstrate as to why additional evidence filed should be treated as admissible under Rule 46A and confirmed the addition. Further aggrieved, the assessee has filed present appeal before this Tribunal.
We have considered the rival submissions of both the parties and have gone through the orders of the lower authorities carefully. Ground No. I relates to addition on account of unexplained investment on house renovation of Rs. 37,96,897/-. The ld. AR of the assessee submits that the assessee maintained separate books of account for petrol pump business which is duly audited. The assessee also maintained personal books, wherein besides holding personal assets, income from other sources and income from carting business is accounted. Statement of total income for A.Y. 2017-18 is filed on page No. 62 and 63 of paper book. As the income of assessee during the relevant financial year is more than Rs. 50.00 lacs, therefore, he is required to furnish particulars Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT of personal assets/liabilities in the schedule to the income tax return. Such particulars of personal assets and liabilities are shown in Schedule-AL of the income tax return (ITR), copy of which is filed at page No. 112, 113 and 114 of paper book. During assessment, the Assessing Officer has not disregarded personal books. Those assets and renovation expenses are shown in assessee’s personal balance sheet. Personal balance sheet of assessee is not disputed. In fact, the Assessing Officer, while making addition has considered personal balance sheet and personal assets disclosure by the assessee under Schedule-AL of return of income as base. Actual renovation expenses are of Rs. 37,92,391/- in respect of Bungalow No. A/17, Hitesh Nagar Society. The Assessing Officer failed to appreciate, why the assessee would disclose the expenditure in his ITR, if such expenditure is unaccounted. The assessee maintained personal books of account in the name of “Mahesh Ramanlal Modi” for his personal transaction, independent of his books for proprietor business of petroleum in the name of “Mahesh Petroleum”. The Assessing Officer and ld. CIT(A) referred page No. 101 being capital account of the petroleum business for the source. Copy of personal books of account is placed at page No. 107-109 and copy of books of proprietory business is filed at page No. 99- 106. The assessee furnished ledger extract, details of bills of expenses incurred to show that renovation expenditure to his Bungalow were meet out of his personal books of account maintained in the name of Mahesh Ramanlal Modi. The assessee also furnished personal balance sheet as on 31/03/2016 and as on 31/03/2017, relevant pages are at page No. 107 to 111, which clearly shows renovation expenses at Rs. 37,92,391/- (1,46,57,000/- minus 1,08,64,609/-).
Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT The assessee also furnished additional evidence by way of Rule 46A which was conveniently ignored by the ld. CIT(A). The ld. AR of the assessee submits that the provisions of Section 69B is not otherwise applicable, as renovation expenditure are duly accounted not only personal books but also disclosed in the ITR. Personal books were ignored while making this addition, however, while considering the other addition, personal balance sheet was acknowledged, which clearly shows that personal balance sheet was available before lower authorities. The ld. AR of the assessee submits that the addition of renovation expenses is liable to be deleted.
On the other hand, the ld. Sr. DR for the revenue supported the orders of lower authorities. The ld. Sr. DR for the revenue submits that renovation expenditure is not recorded in the books of account maintained by assessee. Assessee specifically asked to explain the discrepancies which the assessee failed.
We have considered the rival submission of both the parties and have gone through the orders of the authorities below carefully. We find that the Assessing Officer made addition only on the basis of withdrawal from the capital account of business income and has not considered personal books of account. The Assessing Officer was of the view that withdrawal from capital account of “Mahesh Petroleum” are insufficient. We find that the ld. CIT(A) while confirming the addition also considered the withdrawal of capital from the business account and not from the personal books. Considering the fact that the assessee is maintaining separate personal books of account in the name of Mahesh Ramanlal Modi and independent books of account for his Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT proprietory business of petroleum in the name of Mahesh Petroleum. Therefore, we direct the jurisdictional Assessing Officer to examine personal books of account and books of account of proprietory business of petroleum and allow appropriate relief to the assessee, if there are sufficient withdrawal to meet out renovation expenses. In the result, this ground of appeal
is allowed for statistical purpose.
11. Ground No. II of appeal relates to addition on account of unexplained investment. The ld. AR of the assessee submits that if the arithmetic error is corrected with regard to addition which is subject matter of ground No. 1, the addition worked out to be Rs. 5,41,300/-. The ld. AR of the assessee submits that during the year, due to inadvertence, the addition of shop No. 93, Narmada Market, Bharuch was reported at Rs. 10,000/- instead of Rs. 5,51,300/- in Schedule-AL for A.Y. 2016-17, which was corrected in Schedule- AL during A.Y. 2017-18. The shop No. 93, Narmada Market was purchased in A.Y. 2014-15, A.Y. 2016-17 and A.Y. 2017-18, the assessee continued to hold the same at value of Rs. 5,51,300/-. Such fact can be verified from the personal balance sheet of assessee for A.Y. 2016-17. The Assessing Officer as well as ld. CIT(A) totally ignored personal balance sheet which resulted in addition. There is no investment in property, there is no question of establishing source of investment or investment being unexplained. The personal balance sheet was available before Assessing Officer which was considered for making other addition for working out difference in Schedule-AL. The Assessing Officer made addition by making reference of other additions on the basis of personal balance sheet. In fact, based on personal balance sheet, the assessee has Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT complied by filling Schedule-AL of return of income, which regrettably has been made basis of addition to hold as if difference in Schedule-AL with reference to asset as an unaccounted. There is no unaccounted asset. Though, such revised/corrected statement could not be considered by Assessing Officer as per the decision of Hon’ble Supreme Court in Goetz (India) Ltd. Vs CIT (supra), however, such restriction was not applicable on the power of ld. CIT(A) to consider, verify from the financial statement of earlier years and to allow relief to the assessee.
12. On the other hand, the ld. Sr. DR for the revenue supported the orders of lower authorities. The ld. Sr. DR submits that in para 6.4 of impugned order, the ld. CIT(A), by referring the observation of Assessing Officer, particularly with regard to Schedule-AL that investment in immovable property was at Rs. 1.88 crore, whereas in preceeding year, it was shown at Rs. 1.45 crore, therefore, there was a difference of about Rs. 43.33 lacs, out of which, Rs. 37.96 lacs was considered as unaccounted expenditure on renovation on Bungalow and remaining of Rs. 5.3 lacs was added as unexplained investment.
We have considered the contentions of both the parties and have gone through the orders of the lower authorities carefully. We find that the main contention of the ld. AR of the assessee, before us, is that while filing return of income for A.Y. 2017-18, one property i.e. Shop No. 93, Narmada Market was included in Schedule-AL at its actual cost of Rs. 5,51,300/- by rectifying the error occurred in filing return for A.Y. 2016-17. It is the further contention of ld. AR of the assessee that the said shop was purchased by assessee in A.Y. 2014- 15 and during A.Y. 2016-17 and 2017-18, the assessee continued to hold the Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT same at the same value at Rs. 5,51,300/- and that there was no fresh investment. We find that the Assessing Officer disregarded the contention of assessee that the assessee has not produced relevant documentary evidence of acquisition of property and source of investment. The revised computation was not accepted by the Assessing Officer by taking shelter of decision of Hon’ble Supreme Court in Goetz (India) ltd. Vs CIT (Supra). The ld. CIT(A) confirmed the action of Assessing Officer without giving any independent finding. We find that it is settled position in law that Assessing Officer cannot accept revised claim in absence of revised return of income, however, such restriction is not applicable on the power of appellate authorities as has been held by the Hon’ble Jurisdictional High court in CIT Vs Mitesh Impex (2014) 46 taxmann.com 30 (Guj). Hence, considering overall facts and circumstances of the case in hand, the additional/ revised computation income and additional evidences filed by the assessee are allowed and same are taken on record. Further considering the facts that the assessee’s revised financial statement is accepted for the first time for consideration, therefore, this ground of appeal is remanded back to the file of Assessing Officer to verify facts and pass the order in accordance with law. Needless to direct that, before passing the order afresh, the Assessing Officer shall allow reasonable opportunity to the assessee. The assessee is also directed to make timely compliance before Assessing Officer and furnish require details and evidence to substantiate his claim. In the result, ground No. II of appeal raised by the assessee is allowed for statistical purposes.
Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT 14. Ground Nos. III, which is also clubbed with ground No. IV relates to deemed rental income of Rs. 1,26,000/-. The ld. AR of the assessee submits that the Assessing Officer made addition on the basis of assessee’s personal balance sheet and information furnished by assessee in Schedule-AL of return of income, corresponding with personal balance sheet. The basis of addition was that the assessee has not furnished documentary evidence to substantiate that the property at R.S. No. 3, Vasugana, Bharuch was to be used for hotel or that necessary approvals from BAUDA was pending during the year. The assessee made application to BAUDA on 27/09/2019, copy of which is filed at page No. 120 to 122 of paper book. The legal heirs of assessee has received development permission from BAUDA as on 13/06/2023, copy of which is filed at page No. 123 to 130 of paper book. Such development permission was filed before the ld. CIT(A). When the permission to construct was received only on 13/06/2023, no deemed rental income can be estimated in respect of an open land. Though, the evidence was furnished before the ld. CIT(A) to build a hotel dated 13/06/2023, still the ld. CIT(A) held that no evidence was filed ignoring the material evidence. The ld. AR of the assessee submits that the addition of deemed rental income is liable to be deleted.
On the other hand, the ld. Sr. DR for the revenue supported the orders of the lower authorities.
We have considered the rival submission of both the parties and have gone through the orders of the lower authorities carefully. We have also considered various evidences in support of contention that permission to build a hotel was applied to BAUDA on 29/07/2019 and development permission in respect of Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT impugned property was received on 13/06/2023. Thus, considering the development permission dated 13/06/2023, we do not find any justification in estimating the annual letting value of the property i.e. Plot of land at R.S. No. 3, Vagusana, Bharuch. Thus, we direct the Assessing Officer to delete the addition. In the result, ground No. III and IV of appeal are allowed.
Ground No. VII of appeal relates to addition on account of sundry creditors of Rs. 61,10,903/-. The ld. AR of the assessee submits that the Assessing Officer made addition on the basis of personal balance sheet of assessee by taking view that there was lack of identity i.e. PAN and address of creditors. Such information of creditors was extracted from balance sheet. In the subsequent period, out of total closing balance of creditors of Rs. 61,10,903/-, the creditors discharged liability of Rs. 31,36,000/- by way of cheques and Rs. 23,48,818/- by way of cash, the ld. AR of the assessee submitted that he has furnished such details in annexure-A to the chart of various grounds of appeal
. Even otherwise, in response to notice dated 08/11/2019, the Assessing Officer sought details of current liabilities with address, which were duly complied. The Assessing Officer at the fag end of assessment i.e. on 16/12/2019, sought details, when only four days’ time was allowed to respond. In such short period, the assessee managed to submit all ledger accounts of all creditors, copy of which is placed at page No. 147 to 151 of paper book. The assessee also provided extract of all creditors in subsequent period i.e. most of the liability had been discharged. In the entire assessment, there is no whisper about the cessation or remission of liability or application of Section 41. Payments made to creditors either during the year or in subsequent year is Late Mahesh Ramanlal Modi through L/H-Manish Mahesh Modi Vs ACIT not disputed by the Assessing Officer of ld. CIT(A). The Assessing Officer has not invoked Section 68 or 69C of the Act. If carting expenses to be disallowed as unexplained, gross profit would be 100% which is not possible. In fact, the addition resulted in 200% gross profit on revenue, which is impossible. The ld. AR of the assessee finally submits that once the assessee has discharged liability either during the relevant financial year or in subsequent period, no addition on account of creditors, is to be sustained. On validity of addition of sundry creditors, that where there is no declaration by assessee that it does not intend to honour its liability nor there is discharge of debt, provisions of section 41(1) cannot be invoked, the ld AR of the assessee relied on a series of decisions, copies of which is also filed on record, in the form of legal paper book.
18. On the other hand, the ld. Sr. DR for the revenue supported the orders of the lower authorities. The ld. Sr. DR submits that during assessment, the assessee failed to furnish explanation regarding the genuineness of transaction involving sundry creditors.
19. We have considered the rival submissions of both the parties and have gone through the orders of the lower authorities carefully. We find that the Assessing Officer made addition of sundry creditors mainly by taking view that the assessee failed to prove the identity of creditors and discharge his primary onus. The ld. CIT(A) concur with the findings of Assessing Officer. Before us, the ld. AR of the assessee vehemently argued that majority of creditors liability was discharged by way of cheques in subsequent year i.e. in A.Y. 2018-19. The assessee also discharged certain liability by way of cash. We find that once