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Income Tax Appellate Tribunal, ‘C’ BENCH, BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI INTURI RAMA RAO
O R D E R Per INTURI RAMA RAO, AM :
This is an appeal filed by the revenue directed against the order of the CIT(A),Mangalore, dated 18/03/2015 for the assessment year 2010-11.
The revenue raised the following grounds of appeal: 1. “The order of the CIT (Appeals) is against Law & Facts of the case.
2. Based on the facts and circumstances, the Ld. CIT (A), has erred deleting the addition of Page 2 of 6 Rs 24,94,928/- made under "non existing credits" by not appreciating the fact that the verification of genuineness, identity and creditworthiness of sundry creditor is now an established precedent to decide the taxability of credit in the books of account of the assessee and in the assessee's case, the genuineness of those credits could not be confirmed by the assessee.
The learned CIT(A) has erred in deleting the addition made u/s 41(1).As liability of Rsl,13,30,1 17/- towards M/s J S enterprises and Shri K M Musthafa is denied by Shri K M Musthafa in his sworn statement, and the assessee has failed to prove to the satisfaction of AO, that the liability existed during the relevant previous year and hence the addition u/s 41(1) has been made which the Ld.CIT(A) has failed to appreciate.
The Ld.CIT(A) has erred by holding that the liabilities pertain to earlier year cannot be added u/s 41(1) whereas the provisions of section 41(1) have been specifically incorporated in the act to cover the particular situation where the trading liability was allowed as deduction in earlier year in computing the business income of the assessee and the assessee has obtained a benefit in respect of trading liability by way of remission (or) cessation of liability.
The learned CIT(A) has erred by relying on the decision of Hon'ble Gujarat High court decision which differs from the facts of this case. The learned CIT(A) failed to appreciate the decision rendered by Hon'ble Rajasthan High court in the case of Rama Steel Rolling Mills and General Eng. Works [35 taxmann.com 262] which held that if the assessee failed to produce creditor (or) unable to give exact address then such liability would stand ceased during the year ....and certainly be added to income of assessee under section 41(1).
The learned CIT(A) has erred by not considering the decision of Hon'ble Punjab and Haryana High court in the case of Mrs.AdarshSood vs CIT [47 taxmann.com 268] wherein it is held that after the creditors denied of any claim over the moneys and in case of the third party the credit being non-
Page 3 of 6 genuine, it can be held that .. the liability to pay back ceased to exist.
7. The learned CIT(A) has erred by not taking into account of the recent honorable Mumbai ITAT decision in the case of Bharat Dana Bera vs ITO [153 ITD 421 (2015)] wherein it is held that if the creditors in question were not genuine, then addition to assessee's income under section 41(1) is valid since liability towards creditors remained in existence for a long time and, moreover, assessee failed to establish genuineness of those liabilities by producing supporting evidences.
For these and other grounds that may be urged at the time of hearing, the order of CIT(A) may be set aside on these points and that of assessing officer be restored. 9. The appellant craves leave to add, delete, amend or modify any of the grounds of appeal. ”
3. Briefly, facts of the case are that the respondent-assessee is a partnership firm formed under the provisions of the Partnership Act. It is engaged in the business of catering and retail sales on railway platforms. Return of income for the assessment year 2010-11 was filed on 28/03/2011 declaring a total income of Rs.16,52,830/-. Against said return of income, the case was selected for scrutiny assessment and the assessment was completed u/s 143(3) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] at a total income of Rs.1,54,77,875/-. While doing so, the AO made addition of on account of unconfirmed sundry creditors balance outstanding for long time of Rs.24,94,928/- and a sum of Page 4 of 6 Rs.1,13,30,117/- on account of alleged liabilities ceased to exist u/s 41(1) of the Act.
4. Being aggrieved by the above additions, an appeal was preferred before the CIT(A) who, vide impugned order, deleted the additions holding that it is not open to the AO to question the genuineness of the sundry creditors outstanding in subsequent assessment proceedings and as regards the addition of Rs.1,13,30,117/- made u/s 41(1) of the Act, the CIT(A), following the judgment of the Hon’ble Gujarat High Court in the case of CIT vs. Bhogilal Ramjibhai Atara held that the provisions of sec.41(1) have no application.
5. Being aggrieved by this order, revenue is in appeal before us in the present appeal. 5.1 Learned Departmental Representative vehemently contended that the CIT(A) ought to not to have granted relief to the respondent-assessee without appreciating facts surrounding the additions. He submitted that on enquiries made by the department, sundry creditors had stated that no balance was due to the respondent-assessee. Without considering the statement given by the creditors on oath, the CIT(A) has deleted the addition. 5.2 On the other hand, learned AR of the assessee relied on the orders of the CIT(A).
Page 5 of 6 6. We heard rival submissions and perused material on record. Additions were made by the AO solely on the ground that sundry creditors shown in the books of account are bogus and to come to this conclusion, he relied upon the statements given by sundry creditors exercising the power vested with him under the provisions of sec.133(6) of the Act. We find from record that the AO had not given an opportunity to the respondent-assessee to rebut the statements given by sundry creditors. However, the CIT(A), without going into factual background of the case had granted relief simply following the decision of the Hon’ble Gujarat High Court in the case of Bhogilal Ramjibhai Atara. The moot question involved in this appeal is whether the credits relate to assessment year under consideration or not. There is no material brought on record suggesting that credits were made in the year under consideration or in the earlier years. In such circumstances, following the decision of the Hon’ble Gujarat High Court in the case of Bhogilal Ramjibhai Atara, by CIT(A) is not correct. Therefore, we are of the considered opinion that this matter is fit to be remitted back to the file of the AO to examine in which year credits were made and also give an opportunity of cross-examination of the creditors, to the respondent-assessee. Only after complying with this procedure, the AO is entitled to come to a conclusion whether addition is warranted or not. Accordingly, we remit the matter back to the file of AO for de
Page 6 of 6 novo assessment after affording an opportunity of being heard to the respondent-assessee.
In the result, the appeal of the revenue is partly allowed for statistical purposes.