ITO, WD-29(3), KOLKATA, KOLKATA vs. ALOKE SENGUPTA, KOLKATA

- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-8, Kolkata dated 22.01.2015. Assessment was framed by ITO Ward-29(3), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 08.01.2013 for assessment year 2010-11. Shri S. Dasgupta, Ld. Departmental Representative appeared on behalf of Revenue and Shri Ravi Tulsiyan, Ld. Authorized Representative appeared on behalf of assessee.

Solitary issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for ₹2,17,20,218/- on account of cessation of liability. A.Y. 2010-11 ITO Wd-29(3), Kol. Vs. Aloke Sengupta Page 2 3. Briefly stated facts are that assessee is an individual and engaged in business of manufacturing of hydraulic system and doing business in the name and style of “M/s Infab Engineering Co”. The assessee in his balance- sheet has shown credit balance of M/s Larsen & Toubro Ltd (L&T for short), for ₹2,17,20,218.25 only. The AO during the course of assessment proceedings issued notice under section 133(6) of the Act for the confirmation of the said amount. M/s L&T in compliance thereto submitted that the outstanding balance in its books in the name of assessee is NIL. On being confronted the reply of L&T, the assessee submitted that the impugned difference between its accounts and L & T is arising out from the earlier years and this balance will be written off from this year. The assessee also submitted that there is no difference in respect of transactions carried out with L&T during the year.

However, AO disregarded the contention of assessee by observing that there is no outstanding liability against the L&T as on 31.03.2010. Accordingly, the AO disallowed the same and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that there was debit balance shown by it in the name of L&T as on 31.03.2010 for ₹1,91,29,243.44 which was adjusted against the credit balance of Rs. 2,17,20,218.00 and accordingly net balance of ₹ 25,10,974.81 (credit balance 21720218.25 – debit balance 1,91,29,243.44) was duly shown in the balance-sheet. The assessee in support of his claim also filed copy of re-conciliation statement. However, Ld. CIT(A) called for remand report from AO on the submissions / documents filed by assessee who in turn conceded the fact that there is no outstanding balance which has ceased to exists during the year and relevant portion of remand report is reproduced below:- “I have examined the documents contained in the paper book, and compared the books of the assessee vis-à-vis L&T’s book. On a perusal of the same it is evident that the assessee has duly recoded all the purchase and sale transactions with L&T and no bogus entries exist. The net outstanding balance standing in the books of the assessee as A.Y. 2010-11 ITO Wd-29(3), Kol. Vs. Aloke Sengupta Page 3 on 31.03.2010 is in fact Rs.25,90,974.81 and thee aid difference is since prior to 1-4-2006.” Ld. CIT(A) after considering the submissions made by as well as remand report deleted the addition made by the AO by observing as under:- “5.1 In view of the foregoing and also considering the rejoinder of the AR of the appellant, it quite clear that necessary reconciliation was not done properly at the assessment stage. During the appellate proceedings, reconciliation was filed and it was explained that the liability (as on 31.03.2010) in the books of the appellant was ₹25,90,974.81 (after netting off debit and credit balances) and not ₹2,17,20,218/-. Further, it was explained that the said liability had ceased prior to 01.04.2006 and hence no addition should be made in the year under consideration. The AO had examined the ledger account of L &T Ld. In the appellant’s books and the account of the appellant in the books of L&L Ltd. After examining the same he has confirmed that no bogus entries exist. The net outstanding balance standing in the books of the assessee as on 31.03.2010 was ₹25,90,974.81 and the said difference is since prior to 01.04.2006. The amount of net liability in the books of the appellant in the name of M/s L&T Ltd. was only ₹25,90,974.81 whereas addition has been made to the tune of ₹2,17,20,218/- which was the gross liability. Debit balance to the tune of ₹1,91,29,243.44 has been wrongly ignored. The liability had not ceased in the AY 2010-11, rather it had ceased in a period before AY 2007-08 i.e. before 01.04.2006. Thus, addition cannot be made in AY 2010-11. In view of the above, the addition made by the Assessing Officer is now directed to be deleted.” Being aggrieved, by this order of Ld. CIT(A) Revenue is in appeal before us.

Before us both parties relied on the order of Authorities Below as favorable to them.

We have heard the rival contentions of both the parties and perused the material available on record. From the foregoing discussion, we find that the addition was made by AO on account of different observed between credit balance shown by assessee and the balance shown by L&T. Accordingly, AO was of the view that the liability has ceased to exist in the books of assessee and accordingly he invoked the provision of Section 41(1) of the Act. However, Ld. CIT(A) deleted the addition made by AO by observing that the AO in his remand report has clearly stated that there was no outstanding