ITO 20(1)(2), MUMBAI vs. ASLAM KASAM MERCHANT, MUMBAI

ORDER

PER N.K. PRADHAN, AM

raised by the Revenue read as under:

1. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in admitting additional evidence of Rule 46A notwithstanding the facts Shri Aslam Kasam that the assessee has failed to submit the relevant details at the time of the assessment proceedings.

2. The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored.

3. During the course of assessment proceedings, in response to a query raised by the Assessing Officer (AO), the assessee furnished the following details of creditors outstanding from Financial Year (FY) 2008-09: Name Amount (Rs.)

1. Fathima Timbers 10,00,000

2. Yenepoya Moideen Kunhi & Co. (Mangalore) 20,00,000 Total 30,00,000 The AO observed that the assessee had not made any transaction with the above parties during the FY 2008-09 and 2009-10. During the course of assessment proceedings, vide order sheet noting dated 13.03.2014, he asked the assessee to show cause as to why the creditors outstanding for more than three years shall not be added to the total income. The assessee neither produced any proof nor filed any explanation in this regard. Therefore, the AO made an addition of Rs.30,00,000/- as ceased liability u/s 41(1) of the Act. Further, the AO observed that the assessee had shown unsecured loans of Rs.38,90,000/- in the balance sheet. In response to a query raised by the AO the assessee filed a list of parties from whom unsecured loans were taken. The AO issued notice u/s 133(6) to the Shri Aslam Kasam parties in order to verify their identity and creditworthiness. The AO did not receive any reply from them. Further, the assessee failed to submit a confirmation from the following parties:

1. Bimal M Seth Rs.1,40,000 2. Narendra D. Seth Rs.1,50,000 3. Dhiraj N. Seth Rs.50,000 4. Kanchanben J. Doshi Rs.10,00,000 5. Mahesh J. Doshi (HUF)) Rs.6,00,000 6. Surendra J. Doshi (HUF) Rs.6,00,000 7. International Steel Furniture Rs.1,50,000 Total Rs.26,90,000 In absence of details and proof/confirmations, the AO made an addition of Rs.26,90,000/- as unexplained unsecured loans.

4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). At para 5.1 and 5.2 of his order dated 16.03.2016, the Ld. CIT(A) held : “5.1 Ground 1: This is against the action of the AO in adding Rs.30,00,000/- on account of cessation of liabilities. The AO noticed that the appellant had payable to two parties as discussed above. He also noticed that the appellant has not transacted with these parties and has not paid them during the year. The AO therefore added the sums payable to these two parties totalling to Rs.30,00,000/- u/s 41(1). Before me, the appellant stated that the amounts of Rs.10,00,000/- and Rs.20,00,000/- due to Fathima Traders and Yenepoya Shri Aslam Kasam Moideen Kunhi have been repaid on 31/03/2015 and Dec 2015 onwards respectively. Towards this end he has produced the bank statement and confirmations of receipt from these two parties. I find that the sum of Rs.10,00,000/- has been paid to Fathima Traders on 31/03/2015 through RTGS and is duly reflected in the bank account of the appellant. Fathima Traders has also confirmed the receipt of this amount and has squared off the account of the appellant in its books. Similarly, in the case of Yenepoya Moideen Kunhi, I find that the appellant has paid the sum of Rs.20,00,000/- as Rs.5,00,000/- through cheque no. 135226 on 10/12/2015, Rs.5,00,000/- cheque no. 135232 on 20/12/2015, Rs.6,00,000/- cheque no 135250 on 10/01/2016 and Rs.4,00,000/- through RTGS on 22/02/2016. In the light of these facts, the action of the AO in adding these amounts as cessation of liability u/s 41(1) is unwarranted. I may also state that in this case, there is no benefit obtained by the appellant through remission or cessation of liability towards these trade payables to 2 parties. The evidence produced before me indicates that the 2 parties have in fact been chasing the appellant for the outstanding payments. The AO has not examined this at all and has simply held that merely because the appellant has not transacted with these 2 parties in the earlier two years, the liability towards them has ceased. I am afraid I cannot agree with the AO on the invocation of sec 41(1) itself. I therefore delete the addition of Rs30,00,000/- made by the AO. Ground 1 is allowed. 5.2 Ground 2: This is against the action of the AO in adding Rs.26,90,000/- on account of unsecured loans. As regards this issue is concerned, I find that the appellant has been able to produce the confirmations from the various parties before me. Most importantly, these loans added by the AO are actually opening balances as on 01/04/2010 and are not fresh loans availed during the year. On this fact alone the addition made by the AO cannot survive. In any case, the confirmations have been filed before me, I therefore delete the addition of Rs.26,90,000/- made by the AO solely on the grounds that this