DCIT CEN CIR 4(2) CEN RG 4, MUMBAI vs. ALLIANCE FINSTOCK LTD, MUMBAI

ORDER

PER N.K. PRADHAN, AM

s filed by the revenue read as under: i. On the facts and circumstances of the case and in law, the Ld. CIT(A), was justified in deleting the disallowance u/s 41(1) wherein assessee failed to prove the identity and creditworthiness of the creditors as well as genuineness of the transaction. ii. On the facts and circumstances of the case and in law, the Ld. CIT(A), was justified in deleting the disallowance u/s 41(1) wherein opportunity has not been to the AO regarding submission of new evidences i.e. certificate of the Chartered Accountant etc. during the appellate proceedings on the admissibility of new evidence under Rule 46A.

3. The cross-objection raised by the assessee is as under: On the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have deleted the addition u/s 41(1) of Rs.1,00,00,000/- of alleged remission/cessation of trade liability since the assessee had not written back the liability and had acknowledged the liability in its audited books of accounts; On the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have deleted the addition u/s 41(1) since the alleged remission or cessation of alleged trade liability is not made during impugned year.

4. The assessee is engaged in the business of broking and trading of shares and securities. It filed its return of income for the assessment year (AY) 2013-14 on 28.09.2013 declaring a total income of Rs. Nil. On examination of the books of accounts, the AO observed that the assessee has shown total trade payables to the tune of Rs.1,41,11,482/-. In M/s Alliance Finstock Ltd. CO No. 53/Mum/2018 response to a query raised by the AO to file details of creditors pending in the books of accounts for more than three years, the assessee provided details of two creditors namely Dosti Corporation and Paras Corporate Services (P) Ltd. having an outstanding balance of Rs.50,00,000/- each totalling to Rs.1,00,00,000/-. The AO noted that earlier the assessee treated it as sundry creditors and after a query is raised, it termed it as old loans. Moreover, no confirmation was filed from the said parties. The AO further observed that in all its previous years, the assessee had continuously shown these two outstanding amounts under the head trade payable as ‘sundry creditors’. In response to a query raised by the AO to explain why the above amount should not be added in hands of the assessee as liability no longer exists, the assessee failed to file any explanation. Thus, considering the facts the AO made an addition of Rs.1,00,00,000/- u/s 41(1) of the Act.

5. Aggrieved by the order of the AO the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) observed that these amounts of Rs.50,00,000/- each were received from M/s Paras Corporate Service Pvt. Ltd. and M/s Dosti Corporation during FY 2006-07 and 2007-08, details of which are as under:

Name, Address & PAN of the Date of receipt of Bank & Mode of Amount (Rs.) party amount by receipt assessee M/s Paras Corporate Service 27/08/2007 HDFC Bank-DD No. 10,00,000 Pvt. Ltd., 6/2 Vijay Aprts., Bajaj 622718 dt. Road, Vile Parle (W), Mumbai- 25/08/2007 400056 (PAN: AACCP1517A)

27/08/2007 HDFC Bank – DD 10,00,000 No. 622719 dt.

M/s Alliance Finstock Ltd. CO No. 53/Mum/2018 25/08/2007 27/08/2007 HDFC Bank – DD 10,00,000 No. 622720 dt. 25/08/2007 27/08/2007 HDFC Bank – DD 10,00,000 No. 622721 dt. 25/08/2007 27/08/2007 HDFC Bank – DD 10,00,000 No. 622722 dt. 25/08/2007 M/s Dosti Corporation 17/04/2006 Canara Bank 50,00,000 Cheque No.579760 The Ld. CIT(A) observed that (i) these amounts have not been received during the year, but in earlier years and have been brought forward since them, year after year, (ii) these amounts have been duly credited in the bank account of the assessee maintained with HDFC Bank, (iii) these companies are being assessed to tax in Mumbai itself- M/s Paras Corporate Service Pvt. Ltd. with ITO, Ward-10(3)(3), Mumbai and M/s Dosti Corporation with ITO, Ward-20(1)(4), Mumbai, (iv) the auditor has given a certificate that an amount of Rs.50,00,000/- in case of M/s Paras Corporate Service Pvt. Ltd. has been outstanding since 27.08.2007 and it was not in the nature of a trade liability and has not been charged to the P&L account, (v) a similar certificate has been given in respect of M/s Dosti Corporation that this amount has been outstanding since 17.04.2006 and was not in the nature of trade liability, (vi) the scrutiny assessment has been done in the case of the assessee M/s Alliance Finstock Ltd. CO No. 53/Mum/2018 for AY 2007-08 and AY 2008-09, but the AO has not taken any action in respect of these creditors in those years. In view of the above facts, the Ld. CIT(A) held that the assessee has proved the identity, genuineness of the transaction and further these amounts were received during AYs 2007-08 and 2008-09 and therefore, the same cannot be treated as unexplained in the hands of the assessee during the year.

M/s Alliance Finstock Ltd. CO No. 53/Mum/2018 It is found from the written submission dated 24.06.2016 filed by the assessee before the Ld. CIT(A) that at para 2.1 (page 46-47 of P/B), the AR of the assessee has stated the following: “In support of the fact that the outstanding balance of such parties relate to unsecured loans and does not pertain to trade liability, the understated documents are relied upon :- a. Ledger account of M/s Paras Corporate Services Pvt. Ltd. and M/s Dosti Corporation from FY 2006-07 till impugned year; b. Bank book disclosing the receipt of money from such 2 parties during FY 2006-07 and FY 2007-08; c. C.A. certificate issued by K.N. Shah & Co. Chartered Accountants certifying that such outstanding balance does not pertain to trade liability and has not been charged to P&L A/c in any earlier years; d. Assessment order u/s 143(3) of earlier years wherein such liability has been accepted as genuine in all assessment;” A perusal of the assessment order passed by the AO, the written submission filed by the assessee before the Ld. CIT(A), the order of the Ld. CIT(A) and the P/B filed before us shows that there is no evidence that above documents were filed before the AO. Once these were filed before the Ld. CIT(A), he should have allowed the AO to have his say. Rule 46A(3) enjoins upon the first appellate authority, if he thinks it proper to admit additional or fresh evidence, to allow and afford a reasonable opportunity to the AO- (i) to examine the evidence or document so produced by the assessee appellant; M/s Alliance Finstock Ltd. CO No. 53/Mum/2018 (ii) to cross-examine any evidence so produced; and (iii) to produce any evidence or document or any witness in rebuttal of the additional evidence so produced. Unless such an opportunity has been allowed to the AO, the fresh evidence so produced cannot be taken into account by the first appellate authority. In view of the above facts, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make an order afresh after giving reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant documents/evidence before the AO. As the matter has been restored to the file of the AO, we are not adverting to the case-laws relied on by the Ld. counsel.