THE ACIT, CENTRAL-1, INDORE vs. M/S SURYA INFRA VENTURE PVT. LTD., INDORE

आदेश / O R D E R

Per B.M. Biyani, A.M.:

Feeling aggrieved by appeal-order dated 16.08.2021 passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 23.03.2016 passed by learned ACIT(Central)-I, Indore [“Ld. AO”] u/s 143(3) of the Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2013-14, the revenue has filed this appeal on following grounds:

M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 made u/s 41(1) of the Act on account of Cessation of Liability and has overlooked the findings of the AO mentioned in the assessment order. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,86,53,917/- made on account of bogus expenses claimed under the head payment of subcontractor and has overlooked the findings of the AO mentioned in the assessment order. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 5,00,000/- made on account of disallowance out of various expenses and has overlooked the findings of the AO mentioned in the assessment order.” 2. Heard the learned Representatives of both sides at length and perused case-records.

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 5. We take up all grounds one by one in seriatim.

Ground No. 1:

Career Care Consultancy 1,30,623/- Sisodiya Enterprise 1,61,099/- Shardia Constructions 3,20,667/- Dilip Buildcon Pvt. Ltd. 19,67,423/- Abhay Pipada 9,00,000/- Asha Agarwal 8,07,000/- Total 42,86,812/-

Ld. AO further observed that the assessee has failed to prove that these liabilities shall be paid in future. Accordingly, Ld. AO invoked section 41(1) and treated the liabilities of Rs. 42,86,812/- as deemed income u/s 41(1) on the reasoning that there is a cessation of liabilities.

(i) The assessee had three accounts Dilip Buildcon 19,67,423/- of the same party in its books of Pvt. Ltd. account for different types of transactions. There is a liability of Rs. 19,67,423/- in one account but there are receivable

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 of Rs. 18,13,600/- (+) Rs. 35,00,000/- in other two accounts; thus net result is receivable of Rs. 33,46,177/-. In short, there is no liability payable by assessee. (ii) The assessee had paid these Abhay Pipada 9,00,000/- liabilities on 23.03.2015 by Asha Agarwal 8,07,000/- cheque, prior to passing of the impugned assessment-order on 23.03.2016. (iii) The assessee has written-off Career Care 1,30,623/- these liabilities in later AY 2016- Consultancy 17 and offered as income. Sisodiya 1,61,099/- Enterprise Shardia 3,20,667/- Constructions

Thereafter, Ld. CIT(A) deleted the addition by observing and holding as under:

“4.1.1 …… Considering the submission of the assessee it is evidently clear that the creditors were paid off or written off in later years, however, in the year under consideration there was no write off in the books of accounts of the appellant. Now the question arises, whether the AO can make addition in the circumstances, when the liability was not unilaterally written off in its books of accounts. The provisions of section 41(1) of the Act clearly states that the provisions of section can only be invoked when the assessee has written off the liabilities in its books of accounts by unilateral act. The appellant, thus, has not derived or obtained any benefit from the impugned trading activity. Hon’ble ITAT Indore in the case of Smt. Abha Devi Agarwal (ITA No. 58/Ind/2015 dated 16.03.2017) having similar set of facts has held as under:-

“2.5 We have considered the facts, rival submissions and perused the material available on record. We find that the provision of Section 41(1)(a) provides that where the assessee had obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof the amount obtained by him

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14

shall be deemed to be profits chargeable to tax. Thus, the Section contemplates that by obtaining any benefit by an amount either in cash or in any other manner whatsoever, whether benefit by way of remission or cessation and it should be of a particular amount obtained by him Thus, obtaining benefit by virtue of remission or cessation is sine-quo-non for the application of Section unless such liability is written off in hooks of accounts by unilateral act of the assessee We find that the liability of Rs. 6,76.266/- in respect of Mahima Porsepun was outstanding for more than three years but the same has not been written off in the books of accounts by the assessee. Therefore, there was no basis by treating the said amount as remission or cessation of a trading liability of the assessee when it was not unilateral written off by the assessee. We find that the AO has made this addition merely on the basis of expiry of limitation to file the suit by creditor, where he cannot who come up with a proceedings for enforcement of debt However we find that this amount was subsequently settled by the assessee in the succeeding yean therefore, the assessee has not derived or obtained any benefit in respect of such trading liability. Therefore, the addition made on the basis of presumption cannot be sustained in the eyes of law. The Ld. AR has relied on the case of CIT Vs. Southern Roadways Ltd 282 ITR 379 wherein the decision of the Apex Court in the case of CIT v/s Sugauli Sugar Works (P) LId, (1999) 152 CTR (SC) 46: (1999) 236 ITR 518 (SC) was considered and it was held that the principle that expiry of period of limitation prescribed under the Limitation Act, could not extinguish the debt but it would only prevent the creditor from enforcing the debt, has been well settled. If that principle is applied it is clear that some entry in the books of accounts of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the Section. The other decision as relied by the Ld. AR has mentioned above are also supports his view. Therefore, we are of the considered opinion that the provision of Section 41(I)(a) of the Act can only be invoked when the assessee has written off the liability in its books of accounts by unilateral act Since, the assessee has not Written off the aforesaid amount In its books of accounts and the payment has been settled in the subsequent year, Therefore, the addition so made by the AG, is not grounds of appeal is therefore allowed.” sustainable in the law Accordingly, the same is deleted This

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 4.1.2 Thus, judiciously following the decision of Hon’ble Indore ITAT in the case of Smt. Abha Devi Agarwal (supra), the AO was not justified in making addition invoking provisions of section 41(1)(a) of the Act and therefore, addition made by the AO amounting to Rs. 42,86,812/- is deleted. Therefore, appeal on this ground is allowed.” 9. Before us, Ld. DR vehemently supported the assessment-order and argued that the Ld. AO has categorically found that the impugned liabilities were outstanding for more than 3 years, which in itself, without proving anything, demonstrated that the liabilities have ceased to exist. Hence, according to him, Ld. AO has rightly invoked section 41(1) and made addition which must be upheld.

(i) Uttam Air Products (P) Ltd. Vs. DCIT 99 TTJ 718 (ITAT, Delhi)

(ii) New Commercial Mills Co. Ltd. Vs. DCIT (2001) 73 TTJ 893 (ITAT, Ahmedabad)

(iii) J.R. Organics Ltd. Vs. ACIT (2009) 122 TTJ 887 (ITAT, Lucknow)

(iv) ACIT Vs. Popular Vehicles & Services Ltd. (ITAT, Coachin)

Ld. AR submitted that in these decisions, it has been loudly held that section 41(1) cannot be applied unless the liability is actually written off in books of account or the Ld. AO brings some tangible proof on record to demonstrate that the creditors have given up their claims. Therefore,

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 according to Ld. AR, in the present case the requirement of section 41(1) is not met and the Ld. CIT(A) has rightly deleted the addition made by Ld. AO.

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 and law. Accordingly, we find Ground No. 1 of revenue devoid of any merit and dismiss the same.

Ground No. 2:

claimed a deduction of Rs. 1,86,53,917/- on account of payment to M/s

Lubecon Marketing for sub-contractorship work. The Ld. AO observed this

expenditure as non-genuine and disallowed deduction for the reasons that

(i) the notice u/s 133(6) and summon u/s 131 issued to the payee remained

unserved on the addresses provided by assessee; (ii) the assessee did not

produce the payee for examination; (iii) the expenditure was incurred

through a single bill recorded on 31.03.2013 and that too was outstanding

since no payment was made; and (iv) the payee had declared a meager profit

of Rs. 7,85,870/- in comparison to the receipt of Rs. 1,86,53,917/-. During

assessment-proceeding although the assessee filed documents relating to

the payee consisting of A/c Confirmation, Copy of Income-tax Return and

Computation of Total Income and also made following submission vide letter

dated 16.03.2016 which is noted by Ld. AO in para No. 4.8 of assessment-

order but the Ld. AO was not satisfied with the submissions of assessee:

“4.8 The Ld. Counsel appeared in the office and made the submission on 16.03.2016. The Submission is reproduced below: "That M/s Lubecon Marketing is subcontractor of the assessee

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 company and did earth work in the Guna Sheopur Site of the assessee company. Confirmation letter has already been given in the earlier submission along with Copy of ITR of Shri Yogendra Sharma Prop M/s. Lubecon Marketing. The assessee has also communicated to the sub-contractor to appear in your office or provide the information directly in your office. The assessee also deducted TDS on the account of Contract Bill. That in view of the above, the said firm M/s Lubecon Marketing did earth work for the assessee, by treating the said amount of sub-contract work as non-genuine is neither correct nor acceptable to the assessee.” 14. During first-appeal, the Ld. CIT(A) considered the facts and evidences

and finally deleted the disallowance by holding as under:

4.2.1 I have considered the facts of the case, plea raised by the appellant and findings of the AO. As a matter of fact the appellant has established identity of the sub-contractor with supporting evidences which has been acknowledged by the AO. The AO has neither made any independent enquiry and has alleged that a subcontractor having turnover of Rs. 1,86,53,917/- has shown profit of Rs. 8,85,867/- only which is meager amount and has paid taxes of Rs. 89,789/-. The assessment order does not have any mention on what basis it can be held that the net profit shown by the sub-contractor is very less. Further, the AO could have passed this information to the AO of the sub- contractor who could have made further rather doing so the AO has alleged the sub-contractor to be a bogus entity of the appellant company even when it is proved by the appellant beyond doubt that it is a existent company, filing regular return of income and has filed confirmation to prove genuineness of the transaction. The first reason for treating the sub-contractor as bogus entity was un-served notices u/s 133(6)/131 of the Act. The appellant to which has contended that the address provided to AO was address available with the appellant. The second reason as culled out from the assessment order is that the proprietor of M/s Lubecon marketing was not brought for examination on oath. The appellant for which has stated that it had informed M/s Lubecon Marketing to appear before the AO. Thus, the appellant has discharged its onus of proving genuineness of the payments made to sub-contractor and therefore, the AO cannot fasten the appellant to bring in person the sub-contractor for examination on oath. Once the AO has issued the notices u/s 133(6) and summons u/s 131 of the Act, the party becomes the witness of the department and the onus lies on AO to force the attendance of the third party. Similar view was taken by Hon'ble MP High Court in the case of CIT vs. Brjatiya Children Trust 225 ITR 640 (MP HC). It is also important to mention that the AO has totally failed to make any ground enquiry about the work done by the

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 sub-contractor. If any work against which payments were made was performed by the sub-contractor, then the AO cannot treated the payment made to be bogus. 4.2.2 In nutshell, appellant has furnished all the details in order to prove identity and genuineness of the transaction and thus, addition made by the AO amounting to Rs.1,86,53,917/- is deleted. Therefore, appeal on this ground is allowed.” 15. Before us, Ld. DR relied heavily upon the assessment-order and

emphasized the same observations as made by Ld. AO. Ld. DR particularly

argued that the assessee had not only failed to produce the payee but also

the notices issued by department also remained unserved, which clearly

show that the deduction claimed by assessee is non-genuine. Ld. DR

contended that the assessee has miserably failed to discharge the onus

fastened upon him to prove the genuineness of expenditure. Per contra, Ld.

AR supported the order of Ld. CIT(A). Ld. AR argued that the assessee had

filed vital documents such as A/c Confirmation, Income-tax Return and

Computation of Total Income of the payee during assessment-proceeding,

which is very much clear from Para No. 4.4 of the assessment-order itself

but, however, the Ld. AO has wrongly rejected the same by deriving self-

made conclusions and presumptions. Regarding non-service of the notices

u/s 133(6) / 131, the Ld. AR submitted that the assessee had provided

address to the Ld. AO which was exactly same as mentioned in the Income-

tax Return filed by the payee to department. Regarding non-payment to the

payee against the expenditure, Ld. AR submitted that the assessee itself is

also receiving payments after considerable delays and so is the case of

payments to the sub-contractor and this practice is very usual in this

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 business which should not have been viewed otherwise. Regarding

declaration of meager income by the payee, Ld. AR submitted that the Ld.

AO could have verified the same from the jurisdictional assessing authority

of the payee but the same was not done despite PAN-data and copy of ITR of

the payee filed to Ld. AO. Ld. AR also raised a contention that in any case,

the declaration of lower or higher income by the payee is neither a concern

nor within the authority of the assessee to look into. Ld. AR also pointed out

that the assessee had deducted TDS out of the impugned expenditure which

is also a fact on record. Additionally, Ld. AR also submitted that the

assessee has declared a net profit of Rs. 3,35,98,234/- on the turnover of

Rs. 37,56,25,467/- giving N.P. rate of 8.94%. which is much higher than 5%

net profit rate accepted by ITAT, Indore in AY 2009-10 in the case of

assessee itself. Therefore, looking from that angle too, the net profit declared

by the assessee is much higher and no adverse view should be taken on the

claim of payment made to the sub-contractor. Ld. AR also relied upon

following decisions narrated by him in Written-Submission:

Hon’ble Supreme Court in CIT Vs. Orissa Corporation (P) Ltd. 159 ITR 78 : “13. In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him then it could

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises.”

Hon’ble Jurisdictional High Court in CIT Vs. Barjatiya Children Trust 225 ITR 640: “5. We find that the Tribunal dismissed the appeal of the Department and held as under;

"He found that in the balance-sheet the loan of Rs. 20,000 given to the assessee-trust was mentioned. Under these circumstances, the Department should not have any grievance as to violation of Rule 46A. The Income-tax Officer could have taken pains to examine the income- tax file of Smt. Urmila Agrawal but instead he chose the easier course of ordering production of the creditor which cannot be appreciated. The Assessing Officer should realise the inconveniences which an assessee faces in producing the cash creditor before him. The production of the cash creditor in person should be insisted upon only when the genuineness of the transactions cannot be established with the help of documents and the record of the Income-tax Department itself. I find no infirmity in the order of the Deputy Commissioner of Income-tax (Appeals). It is sustained."

relevant facts and evidences. We observe that the assessee is engaged in the

business of infrastructure projects and claimed deduction of expenditure

incurred on account of sub-contractorship given to the payee for earth work

in the Guna Sheopur site of assessee. We also observe that the Ld. AO has

disallowed deduction claimed by assessee for certain reasons. Regarding

first reason that the notices served upon the payee u/s 133(6) / 131 were

returned, we observe that the assessee has initially provided one address to

the Ld. AO followed by another new address and the Ld. AO served notices

upon both addresses but still notices remained unserved. We observe that

the new address supplied by assessee is same as mentioned by the payee in

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 his Income-tax Return filed to department. When it is so, it cannot be said

that the assessee has supplied wrong address of payee to the AO. Regarding

non-production of the payee for examination, the reply dated 16.03.2016

recorded by Ld. AO in Para No. 4.8 of assessment-order, reproduced earlier,

clearly demonstrate that the assessee had asked the payee to appear in the

office of AO. Thus, the assessee had done whatever it could do. Regarding

non-payment to the payee, we find weightage in the submission of Ld. AR

noted earlier and there is nothing unusual therein. Regarding declaration of

meager profit by the payee, we find that the Ld. AO could have well taken

the assistance of the jurisdictional assessing authority of the payee but

certainly could not blame the assessee, if at all the profit declared by the

payee is considered to be on lower side. Thus, in this factual backdrop, we

observe that the case of assessee is directly covered by the view taken in the

decisions cited above. Therefore, in the light of those decisions, we are of the

considered view that the Ld. CIT(A) has rightly deleted the addition made by

Ld. AO. As we do not find any infirmity in the action of Ld. CIT(A), we are

inclined to dismiss Ground No. 2 of the Revenue.

Ground No. 3:

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 Expenses and Vehicle Running & Maintenance Expenses to the tune of Rs. 17,72,696/-, Rs. 16,56,081/- and Rs. 61,09,686/- respectively. But during the verification of bills/vouchers, it is found that certain bills and vouchers are not found properly vouched, some vouchers are missing and certain vouchers of these expenses are personal in nature. There are only self-made vouchers to cater such expenses. These facts brought to the knowledge of Ld. Counsel of the assessee vide order sheet entry dated 23/02/2016. As the expenses are not fully verifiable, an adhoc addition of Rs. 5,00,000/- is hereby added back to the total income of the assessee.” 19. Ld. CIT(A) delete the disallowance by observing and holding as under:

“4.3.1 I have considered the facts of the case, plea raised by the appellant and findings of the AO. The AO has failed to bring on record any such voucher which is not properly maintained. The appellant has strongly contended that it has been engaged in construction work and bills and vouchers were prepared of the actual amount/expenses made towards site expenses, miscellaneous expenses and vehicle running & maintenance expenses. It is now settled law that no adhoc disallowance can be made without pointing any specific defect in books of accounts. Similar view was taken in the case of M/s PB Shah & Co. Vs. ITO 011 ITJ 376 (ITAT Indore). Thus, the AO was not justified in making addition on pure adhoc basis. Hence the addition made by the AO amounting to Rs. 5,00,000/- is Deleted. Therefore, appeal on this ground is allowed.” 20. Before us, Ld. DR supported the assessment-order as against which

the Ld. AR relied upon the order of Ld. CIT(A). Ld. AR particularly argued

that the Ld. AO has not cited any single instance of specific bill / voucher;

that the remarks made by Ld. AO are general; and that the Ld. AO has made

adhoc disallowance without any basis which is illegal. Ld. AR submitted that

by now it is a settled law that no adhoc disallowance can be made by

assessing authority.

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 “24. We find that the assessee is a limited company and has maintained regular books of account and financial statement are duly audited and books results have not been rejected by the Brilliant Estate Pvt. Ltd. No major discrepancies have been noticed. Disallowance of Rs. 2,00,000/- has been merely made on the observation that some of the expenditure are incurred in cash and some vouchers are self-made and surprisingly there is no specific observation by the Ld. AO which could prove that the assessee has claimed the expenses with a motive to evade the tax nor any observation has been made by the Ld. AO for challenging the genuineness of the particular expenditure. In these given facts and circumstances merely making a ad-hoc disallowance of Rs. 2,00,000/- and completely disregarding the audited financial statements was certainly not justified on the part of the Ld. AO. Therefore we find no infirmity in the finding of Ld. CIT(A) deleting the disallowance of Rs. 2,00,000/- placing reliance of various judgments. In the result ground no.2 raised by the revenue stands dismissed.” 22. Thus, we observe that the case of assessee is squarely covered by the aforesaid decision of ITAT, Indore according to which adhoc addition as made by Ld. AO is not sustainable. Resultantly, we do not find any justification in the adhoc disallowance made by Ld. AO. We, therefore, countenance the view taken by Ld. CIT(A) whereby he has deleted the addition made by Ld. AO. Thus, we dismiss the Ground No. 3 of revenue.

Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 01.12.2022.

Sd/- Sd/-

(MADHUMITA ROY) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore �दनांक /Dated : 01.12.2022 Patel/Sr. PS

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M/s Surya Infraventure Pvt. Ltd. ITA No.233/Ind/2021 Assessment year 2013-14 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY

Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore

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