SANJIB GHOSH,KOLKATA vs. ACIT, CIRCLE 26, KOLKATA (FORMERLY ACIT, CIRCLE - 53), KOLKATA

This appeal filed by the assessee is against the order of Ld. CIT(A)-7, Kolkata, dated 11.12.2015 for AY 2009-10.

The sole issue against which the appeal has been filed by the assessee is against the action of the Ld. CIT(A) in upholding the addition of Rs.3,90,000/-.

Brief facts of the case are that the assessee is an individual and proprietor of M/s. S. G. Enterprise which is in the business of trading of building materials and contractor. The AO took note of the fact that the assessee had shown huge sundry creditors for goods purchased by its proprietary concern M/s. S. G. Enterprise. The AO took note of the fact that though the assessee has shown to have purchased from M/s. K. K. Steel material worth Rs.3,90,000/-, the creditor confirmed the purchase of Rs.22,062/- only. The AO confronted the assessee with the aforesaid discrepancy and since the Ld. AR could not offer satisfactory explanation in respect of the balance amount of Rs.3,68,138/- the same was not allowed as an expenses which was added back to the total income. Aggrieved, the assessee preferred 2 Sanjib Ghosh, AY 2009-10 an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved, the assessee is before us.

We have heard rival submissions and gone through facts and circumstances of the case. The main grievance of the assessee is that the entire amount of Rs.3,90,000/- is the opening balance as on 01.04.2008 in the books of S. G. Enterprises in respect of M/s. K. K. Steel (creditor from whom assessee has made purchases). We note that Rs.3,90,200/- was the opening balance in respect of M/s. K. K. Steel which was the closing balance on 31.03.2008 i.e. in respect of the previous assessment year i.e. AY 2008-09. We have gone through the ledger account of the creditor M/s. K. K. Steel in the books of the assessee (S. G. Enterprises) and we note that on 01.04.2008, the opening balance was Rs.3,90,200/- and cash was paid on 20.06.2008 onwards on various dates and the assessee had squared up the debts in March, 2009. The AO has made the addition only because the creditor M/s. K. K. Steel has confirmed only with regard to payment of Rs.22,062/- which we note has been paid by cheque in the month of December, 2008 drawn on UTI bank cheque no. 341585. The rest of the amount we note has been made by the assessee in cash on different dates which is less than Rs. 20,000/- According to the Ld. AR, the reason for the creditor in confirming only Rs.22,062/- was because the payment was made through banking transaction and he wondered as to why the creditor did not confirm receiving the rest of the cash amount which was paid on various dates which has been duly reflected in the ledger account produced by the assessee before the authorities below. We note that neither from a perusal of the order of the AO nor the order of the Ld. CIT(A) it is clear as to whether the impugned addition is being made u/s. 68 of the Act or u/s. 41(1) of the Act. We note that it is not in dispute that none of the transaction with the creditor (K. K. Steel) took place during the previous year relevant to the assessment year under consideration. In other words, the balances were opening balance of the earlier financial years and no balance arose out of the transactions during the previous year. Therefore, sec. 68 of the Act cannot be invoked to make the addition. On identical facts, the Hon’ble Delhi High Court in the case of Shri Vardhaman Overseas Ltd., ITA No. 774/2009 dated 23.12.2011 reported in 343 ITR 408 (Del) has clearly laid down that sec. 68 of the Act will be attracted only if the sum found credited in the books of account of an assessee maintained for the previous year of the assessment year under consideration. Since admittedly, the amount in question was the 3 Sanjib Ghosh, AY 2009-10 opening balance as on 01.04.2008 section 68 of the Act cannot be attracted. Similarly, sec. 41(1) of the Act is also not attracted as in the present case there is nothing on record to show that there was either remission or cessation of liability of the assessee. In fact there is no reference either in the order of the AO or Ld. CIT(A) to the expression ‘remission or cessation of liability’ We rely on the decision of the Hon’ble Delhi High Court in the case of Shri Vardhaman Overseas Ltd. (supra) wherein on identical facts the Hon’ble Delhi High Court held that sec. 41(1) of the Act is not attracted. In para 16 of the said order the Hon’ble Delhi High Court has taken note of the decision of the Hon’ble Supreme Court in CIT Vs. Sugauli Sugar Works Pvt. Ltd in which the Apex court affirmed the Calcutta High Court’s order reported in this case (1981) 23 CTR 226 (Cal), wherein the Hon’ble Supreme Court has held that even a unilateral action of the debtor (like assessee in this case) cannot bring about a cessation or remission of the liability because remission can be granted only by the creditor and a cessation of liability can only occur either by a reason of operation of law or the debtor unequivocally declared its intention not to honour his liability when payment is demanded by the creditor or by a contract between the parties or by discharge of debt. In this case, it is not the case of AO/Ld. CIT(A) that any of the conditions stated above are fulfilled for invocation of sec. 41(1) of the Act, so even Sec. 41(1) of the Act cannot be invoked to make addition, for that we rely on the order of the Hon’ble Delhi High Court in Vardhaman Overseas Ltd. (supra) and thus we are of the considered opinion that the opening balance of Rs.3,90,000/- cannot be added back as the income of the assessee by invoking sec. 68 or sec. 41(1) of the Act and, therefore, the Ld. CIT(A) erred in confirming the addition made by the AO. Therefore, we direct deletion of the addition made by the authorities below. Appeal of assessee is allowed.

In the result, the appeal of assessee is allowed. Order is pronounced in the open court on 10th January, 2018 Sd/- Sd/- (M. Balaganesh) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 10th January, 2018 Jd.(Sr.P.S.)