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Income Tax Appellate Tribunal, “D”, BENCH KOLKATA
Before: SHRI S. S. GODARA, JM & DR. A.L.SAINI, AM
सुनवाई क� तार�ख / Date of Hearing : 13/08/2018 घोषणा क� तार�ख/Date of Pronouncement: 25/10/2018 आदेश / O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned appeal filed by the assessee, pertaining to Assessment Year 2011-12, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-11, Kolkata in Appeal No.545/CIT(A)-11/DCIT, Cir-8/Kol/2014- 15/Kol, dated 01.03.2017, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 31.03.2014.
Grievances raised by the Assessee are as follows:
“1. That on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) – 11, Kolkata (hereinafter referred to as “Ld. CIT(A)”) erred in confirming the disallowance under section 41(1) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’) amounting to Rs. 45,48,387/- made in the assessment order under section 143(3) of the Act, dated 31.03.2014 for the relevant assessment year on the ground that the liabilities to the above extent were ceased to exist without appreciating that the assessee had not written back the same in its books of accounts during the relevant year and the Assessing Officer and/or the Ld. CIT(A) had not brought any material on records to substantiate that the same had actually ceased to exist on 31.03.2011.
2 Fives Stein India Pvt. Ltd. Assessment Year: 2011-12 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance under section 41(1) of the Act amounting to Rs. 45,48,387/- made in the assessment order under section 143(3) of the Act dated 31.03.2014 on the contention that the assessee had not reconciled the difference between the balance as shown in the books of the assessee and as shown in the books of some of the creditors (5 nos) without appreciating that during the course of remand proceedings the assessee had filed the reconciliation statement in respect of the aforesaid parties before the Assessing Officer and the same had also been filed before the Ld. CIT(A).
3. That the assessee craves leave to add to and/or amend, alter, modify or rescind the grounds hereinabove before or at the time of hearing of the appeal”
The brief facts qua the issue are that assessee filed its return of income for the A.Y. 2011-12 on 25.11.2011, showing a total income of Rs. 84,64,026/-. Subsequently, the assessee company filed revised return on 28.03.2013, showing total income of Rs. 1,16,26,633/-. The assessee’s case was selected for scrutiny under section 143(2) of the Act. During the scrutiny assessment, the Assessing Officer noted that some of the sundry creditors and advances from customers were bogus. Therefore, notice u/s 133(6) of the Act was issued to some of the sundry creditors/advances from customers, on a random basis to verify identity, genuineness and creditworthiness of the parties. List of the parties to whom notices U/s 133(6) of the Act were issued: SL No Party Name Amount Remarks 1. Esskay Machinery Pvt. Ltd. Rs. 1,03,42,326/- Reply not received 2. Fox Solution Rs. 74,32,278/- Reply not received 3. Genset Engineers Rs. 54,53,092/- Reply not received 4. Kaefer Punj Lloyds Ltd. Rs. 28,05,587/- Reply not received 5. Jindal Steel & Power Ltd. Rs. 89,27,150/- Reply not received 6. Modern Engineering Works Rs. 2,51,86,664/- Reply not received 7. Modern Engineering Services Rs. 60,02,163/- Reply not received (P) Ltd.
8. Bosch Rexroth (I) Ltd. Rs. 18,73,984/- Reply not received Total RS. 6,80,23,244/- Reply not received However, above parties did not reply to the assessing officer. During the assessment proceedings, the said facts were confronted to the assessee. However, the assessee failed to offer any explanation as to why the replies had not been received from the above parties. Thus, an amount of Rs. 6,80,23,244/- was 3 Fives Stein India Pvt. Ltd. Assessment Year: 2011-12 treated as the profit and gains of the business and profession u/s 41(1)(a) of the Income Tax Act, 1961 and accordingly added back to the income of the assessee.
Aggrieved by the stand taken by the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has partly deleted the addition made by assessing officer. Aggrieved by the order of the Ld. CIT(A), the assessee is in further appeal before us.
The learned counsel for the assessee submitted before us that addition under section 41(1) of the Act is not tenable as the assessee has not written back the liability in its Profit and Loss Account and the closing liability has been carried forward to next year. In the assessment order under section 143(3) of the Act, the AO has added back the balance of sundry creditors in respect of eight parties as business income under section 41(1) of the Act on the contention that he had not received any reply from those parties against notices issued to them under section 133(6) of the Act. In this regard it is pertinent to note that all the above parties had subsequently replied to the AO and the said fact has also been admitted by the AO in the remand report. Hence, the very basis on which disallowance has been made in the assessment order is clearly not tenable. The Ld. CIT(A) has also accepted the same in his appellate order wherein he has held that if the non-receipt of reply from the creditor was the sole reasons for forming an opinion for cessation of liability, the same is not hold good in view of receipt of confirmation on a subsequent date. Inspite of observing the same, the Ld. CIT(A) has upheld the addition to the tune of Rs. 45,48,387/- in respect of five parties on the contention that there has been cessation of liability under section 41(1) of the Act to that extent which is not sustainable in the eyes of law. Further, the Ld. CIT(A) has contended that since the assessee has shown higher amount payable to these five sundry creditors as against amount shown as receivable by them, the differential amount of Rs. 45,48,387/- should be disallowable as the assessee had shown excess liability to that extent. In this regard it was submitted by the ld Counsel that the said allegation has no basis because the parties themselves have shown that they would receive amount from the assessee and as such, the question of cessation of liability does not arise. Further, the parties balance in the books of assessee and assessee's balance in the books of parties may differ for various reasons viz. party may have booked in earlier or later year compared to the year of booking by the assessee etc, but the differential amount can
4 Fives Stein India Pvt. Ltd. Assessment Year: 2011-12 never be considered as cessation of liability under any circumstances within the meaning of section 41(1) of the Act. Hence, the addition made by the AO and as confirmed by the Ld. CIT(A) in respect of five parties aggregating to Rs. 45,48,387/- is wholly unjustified and bad in law and may be deleted.
On the other hand, the learned DR for the revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity.
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that during the course of assessment proceedings u/s 143(3) of the Act, the Assessing Officer had issued notice u/s 133(6) of the Act to some of the sundry creditors to verify the identity and genuineness of the parties. However, some of the parties had not replied to the said notices. The Assessing Officer during the assessment proceedings asked the assessee to explain the identity and genuineness of the parties. In response, the assessee filed reply before the Assessing Officer on 27.03.2014 and also filed the ledger account in respect of the said creditors for the relevant years. We note that the Assessing Officer has added back an amount of Rs. 6,80,23,244/- u/s 41(1) of the Act. On appeal, the Ld. CIT(A) deleted the addition partly. The ld CIT(A) asked a remand report from Assessing Officer and in the remand report submitted by the Assessing Officer on 22.05.2015, the Assessing Officer admitted that he had received reply from all the eight creditors. Therefore, we note that if the non-receipt of reply from the creditors was the sole reason for forming an opinion for cessation of liability, the same is not hold good in view of receipt of confirmation on a subsequent date.
We note that the replies received from creditors indicated figure of outstanding in their books in variance with the amount outstanding as shown by the assessee in his books of accounts. Following is the table extracted from the remand report which will clarify the position of the difference in the amount shown by the respective parties.
5 Fives Stein India Pvt. Ltd. Assessment Year: 2011-12 SL Party Name Amount Reply received Closing Balance as per No by this office on creditor 1 Esskay Machinery Ltd. 1,03,42,326/- 22.04.2014 1,05,87,755/- 2 Fox Solutions 74,32,278/- 24.04.2014 68,21,005/- 3 Genset Engineers 54,53,092/- 24.04.2014 54,33,092/- 4 Kaefer Punj Lloyd Ltd. 28,05,587/- 16.04.2014 Nil 5 Modern Engineering Works 2,51,86,664/- 19.05.2014 2,44,17,696/- 6 Jindal Steel & Power Ltd. 89,27,150/- 7 Modern Engineering 60,02,163/- 21.04.2014 56,59,604/- Services (P) Ltd. 8 Bosch Rexroth (I) Ltd. 18,73,984/- 16.04.2014 31,26,326/-
The AO has further noted in his remand report that the assessee was not able to produce documents in support of the reconciliation of the amount of variance being shown in the table above. On the basis of this finding alone, he has further opined that addition u/s 41(1) was justified.
However, ld CIT(A) confirmed the addition in respect of those amounts which were less than the amount being shown to be payable by the assessee. These figures are given in the following table: SL Party Name Amount Reply Closing balance No received by as per creditor this office on 1 Esskay Machinery (P) 1,03,42,326/- 22.04.2014 1,05,87,755/- Ltd.
2. Fox Solutions 74,32,278/- 24.04.2014 68,21,005/- 6,11,273/- 3 Genset Engineers 54,53,092/- 24.04.2014 54,33,092/- 20,000/- 4 Kaefer Punj Lloyd Ltd. 28,05,587/- 16.04.2014 Nil 28,05,587/- 5 Modern Engineering 2,51,86,664/- 19.05.2014 2,44,17,696/- 7,68,968/- Works 6 Jindal Steel & Power Ltd. 89,27,150/- 7 Modern Engineering 60,02,163/- 21.04.2014 56,59,604/- 3,42,559/- Services (P) Ltd. 8 Bosch Rexroth (I) Ltd. 18,73,984/- 16.04.2014 31,26,326/- Total 45,48,387/- The ld CIT(A) held that in absence of any attempt to reconcile these differences, it can only be concluded that the assessee has overstated its liability by the sum total of the difference shown above of Rs. 45,48,387/- and accordingly, ld CIT(A) treated Rs. 45,48,387/- to be cessation of liability. We note that the parties balance in the books of the assessee and balances in the books of the parties may differ from various reasons, for example the creditors may booked amount in his books of accounts in earlier or later year, as compared to the year of booking by the assessee etc. but the differential amount can never be considered as cessation of liability under any circumstances within the meaning of u/s. 41(1) of the Act.
6 Fives Stein India Pvt. Ltd. Assessment Year: 2011-12 9. We note that section 41 of the Act, contemplates the obtaining by the assessee of an amount either in cash or in any other manner whatsoever or a benefit by way of remission or cessation and it should be of a particular amount obtained by him. Thus, the obtaining by the assessee of a benefit by virtue of remission or cessation is sine qua non for the application of this section. Hence , the assessee under consideration has not obtained any benefit in respect of the differential amount to the tune of Rs. 45,48,387/-. The closing balance of sundry creditors as on 31.03.2011 in its balance sheet has been continued and carried forward as opening balance in the subsequent years. Therefore, it is evidently clear that the assessee had not written off any sundry creditors to its profit and loss account, hence, the addition restricted by the Ld. CIT(A), should be deleted, therefore, we delete the addition to the tune of Rs. 45,48,387/-.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 25/10/2018. Sd/- Sd/- (S. S. Godara) (A. L. Saini) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; Dated: 25/10/2018 RS, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Assessee- Fives Stein India Projects Pvt. Ltd. 1. ��यथ� / The Respondent.- DCIT, Circle 8, Kolkata. 2. आयकर आयु�त(अपील) / The CIT(A), 3. आयकर आयु�त / CIT 4. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाईल / Guard file.