INCOME TAX OFFICER, DHAR vs. SHRI SUNIL KUMAR JAIN PROP. M/S SUNIL TRADERS, KANWAN, BADNAGAR

PER Ms. MADHUMITA ROY - JM:

The instant appeal filed by the Revenue is directed against the deletion of addition of Rs.6,41,59,626/- made by the Ld. Commissioner of Income Tax (Appeals)-II, Indore (in short ‘CIT(A)’) under Section 41(1) of the Act, arising out of the order dated 26.12.2016 passed by the ITO, Dhar under

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section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2014-15.

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“2. The assessee in the ground No. 4 of the present appeal, has challenged the addition of Rs. 6,41,59,626/- u/s 41(1) made to the income of the assessee on account of same balances of £5 creditors carried forward from last three years. 3. During the course of assessment, the Ld AO called upon the assessee produce ledger copies, confirmation letters of all sundry creditors whose same. balance are carried forward in A.Y. 2012-13, 2013-14 and 2014-15. Further he asked to produce copy of bank statements if payments were made in next succeeding year's. The assessee filed ledger copies of all such creditors. However, before filing of the remaining documents, an addition of Rs. 6, 41,59,626/- was made u/s 41(1) to the income of the assessee on the ground that since creditors and outstanding for more than three years, therefore they are time barred under Limitation Act. The ledger copies of creditors and bank statements to prove payments made to them in next year which could not be filed before assessing officer but enclosed as per Paper Book ( Page No. 31 to 80 ) filed along with Application u/r 46A,with a request to accept the same as additional evidence under rule 46A of the Income Tax Act. 4. From the ledger copies and Bank statements enclosed as above, it is evident that the assessee has paid to most of the creditors in succeeding years. Details of payments are given as per the following chart:-

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NAME OF BALANCE AS DATE OF AMOUNTPA MODE OF BALANCE THE ON 31.03.2014 PAYME NT ID PAYMENT PARTY

Dahisar 47,03,127/- 16.1.15 47,00,056/- Che.92315 Trading co. 5 Cash Indore 16.1.15 3071/- Bhumiya 35,05,056/- 07.1.15 35,00,056/- Che.92315 Trading co. 07.1.15 4994/- 2 Cash Ashta

Deepak 30,61,260/- 16.1.15 30,00,056/- Che.92315 Traders, 19.1.15 18,500/-- 6 Cash Ujjain 24.1.15 18,500/- Cash 04.2.15 18,000/- Cash 10.2.15 6204/- Cash Jagdamba 61,56,490/- 16.6.14 30,00,000/- Che.66310 Oil Flower 24.2.15 31,50,056/- 7 Mill 24.2.15 6434/- Che. 923545 Cash Maa 17,59,725/- 07.1.17 17,50,000/- RTGS Cash NIL Annapurna 10.1.17 9725/- Traders, Dhar Mewati 28,26,563/- 06.1.15 25,00,0567 Che.92315 NIL Trading 06.1.15 15,000/ 3 Cash Co. Bhind 12.1.15 11,507/ Cash

Nandi 11/69,600/- 10.2.15 11,50,600/ Che. NIL Enterprises 15.2.15 19, 600 / 923533 , Indore Cash

AMOUNT NAME OF THE BALANCE AS ON DATE.OF MODE OF BALANC PARTY 31.03.2014 PAYMENT PAYMENT E 2,47,065/- 14.2.17 NIL Navin Trading 2,35,700/ RTGS Company, Bidwal Discount 11,365/- 9; 05,374/ - NIL Pankaj Kumar 10.1.17 9, 00, 000 / RTGS 13.1.17 Cash Anil Kumar, 5,374/ Indore

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2,09,725/- NIL Piyush Traders, 04.02.15 19500/- Cash 08.02.15 Cash Mandsaur 19000/- 14.02.15 Cash 19000/- 20.02.15 Cash 19500/- 27.02.15 Cash 19500/- 03.03.15 Cash 19000/- 07.03.15 Cash 18500/- 13.03.15 Cash 19000/- 19.03.15 Cash 19500/- 25.03.15 Cash 19000/- 29.02.15 Cash 19225/- 1,50,667/- Raj Traders 04.2.15 19000/- Cash NIL Ratlam Cash 11.2.15 18500/- Cash 14.2.15 18500/- Cash 17.2.15 19000/- Cash 26.2.15 19000/- Cash 03.3.15 19000/- Cash 07.3.15 18500/- Cash 17.3.15 19167/- 10,63,800/- NIL R.R. Agro 10.2.15 10,50,000 Che. 923532 Industries, Dewas Cash 15.2.15 13,800 8,27,326/ NIL Ratan Lal & Sons, 21.3.17 8,00,000 RTGS Cash Indore Cash 25.3.17 15,000 28.3.17 12,326 2,10,960/- 07.3.17 2,10,960 RTGS NIL Ravi Traders, Indore 15,00,000/- 24.2.15 15,00,000 Che. 923546 NIL Shivam Trading Company, Indore 23,45,200/- NIL Shri.Kamna.th 10.2.15 23,40,000 Che. 923531 traders Cash 10.2.15 5,200 Murena 19,70,640/- 22.5.14 20,00,000 Che. 000051 NIL Shri Traders, Dhar 10,20,720/- NIL Siddhi Vinayak 10.2.15 10,20,000 Che. 923529 10.2.15 720 Cash Enterprises, Indore NIL 1,43,875/- Sonu Traders 04.2.15 19500/- Cash Beena, sagar 11.2.15 9400/- Cash 19.2.15 18500/- Cash 26.2.15 1 8500/- Cash 04.3.15 13500/- Cash 11.3.15 19500- Cash 17.3.15 19000/- Cash 10975/- 27.3.15 Cash

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NIL Surbhi Traders, 1,03,357/- 07.2.15. 19500/- Cash Bhikangav 17.2.15 19500/- Cash 28.2.15 18500/- Cash 07.3-.15 18500/- Cash 14.3.15 18000/- Cash 20.3.15 9357/- Cash NIL Surbhi Traders, 1, 84,12, 756/ 09.6.14 35,00,000 Che.663100 Murena 16.12.14 50,09,056 Che.923514 16.1,2.14 50,00,056 Che, 923513 22.12.14 49,00,056 . Che. 923521 22.12.14 12,587 Cash NIL Swastik Trading 8,47,300/- 10.02.15 8,40,000/ Che.923530 Company, Dewas 7300/ cash Vidhya Trading 22,36,700/ 47,36,700/ 16.01.17 25,00,000 RTGS Company, Astha -

Vinod Kumar Anil 4,79,334/- During the Kumar, Mandsaur 94,97,250/- ( year the assessee Soyabean has purchased) purchased goods of Rs. 94,97,250/ - from the party. Therefore, balance of Rs. 24,334/- is, related to current year.

The above chart clearly indicates that the assessee has paid Rs.5,60,95,586/- till 31/03/2017. Regarding balance payment of Rs.80,64,040/- it is submitted that the assessee has been facing liquidity crunch and gradually paying to the creditors as and when fund available with him.

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self will kindly appreciate the fact that neither balance of these creditors was time barred for the assessee had any intention to not pay them in future. In this regard we draw your attention to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Shri Vardhman Overseas Ltd. [2011] 16 taxmann.com 350(Delhi) wherein referring to various judgments it has been held that' the disclosure by the assessee company in the Balance Sheet of the accounts of the sundry creditors amount to an acknowledgement of the debts in their favour for the purpose of section 18 of the Limitation Act (para 17). Further we draw your attention to the decision of the Hon'ble High Court of Kamataka High Court in the case of CIT v/s Alvares & Thomas[2016] 69 taxmann.com 257 (Karnataka) wherein by referring to the judgment of Hon'ble Supreme Court in the case of Bombay Dyeing &Mfg. co. Ltd. v. State of Bombay AIR 1958 SC 328, it has been held that when a debt becomes time barred, it does not become extinguished, but only unenforceable in court of law. (Para 13).

i DSA Engineers( Bombay) v. ITO [2009] 30 SOT 31 (Mum), ii CIT v Puridevi MahendrakumarChaudhary[2014] 221 Taxman 375 (Guj). ". ; . 7. It is humbly submitted that that there are two requirements for invoking the provisions of Section 41. The'sine qua non is, the remission or cessation of the trading liability and the additional requirement -is some benefit in respect of such trade liability is taken by the assessee. If the aforesaid conditions are satisfied, then only section.4.1(1) could be invoked by the assessing officer. In the present case the assessee has been regularly paying to the 'creditors and meanwhile neither there is any cessation or remission of liability by the creditors nor the assessee has taken any benefit by writing off any liability in his books of accounts. It is thus submitted that the additions made u/s 41(1) are bad in law and deserve to be deleted. In this connection attention is drawn to the following cases. i CIT vs Combined transport 174 ITR 528( M.P. High Court) ii CIT v/s Shri Vardhman Overseas Ltd. [2011] 16 taxmann.com 350(Delhi) Hi CIT v/s Alvares&Thomos [2016] 69 taxmann.com 2 5 7( Karnataka) ivCIT v/s Sugauli Sugar Works (P). Ltd.[1999]236ITR 518/102 Taxman 713(SC) * . v CCIT v/s Kesaria Tea Co..Ltd.[2002]254ITR 434/112 Taxman 91(SC) vi Abha Devi Agrawal (ITAT-Indore )

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vii CIT vs Compaq Electric Ltd [2O11] 16 taxmann.com 385 (Karnataka)."

“Additions of Rs. 6,41,59,626/- made as per the provisions of section 41(1) of the Income tax , Act, 1961: 1. The assessee in this ground of the present appeal, has challenged the addition of Rs. 6,41,59,626/- u/s 41(1) made to the income of the assessee on account of same balances of 35 creditors carried forward from last three years. 2. The appellant had submitted additional evidences such as copies of Bank statement and ledger copies of suppliers for the period in which payments were made. The above evidences were submitted to justify the fact that most of the creditors were paid in succeeding years. Therefore, neither balances of these creditors were time barred nor the assessee had any intention to not pay them in future. 3. That since all evidences are additional evidences, therefore, your good self has sent the same to the Income Tax Officer, Dhar for his remand report. Further, during the course of remand proceedings the assessee had produced copies of VAT Form 31 A, .Bills for purchase of goods from creditors Confirmation letters from creditors and bank statement in support of the fact that payments were made to them in succeeding years. 4. The Income Tax. officer , Dhar has mentioned in his remand report that he has verified copies of Form 3TA of VAT Rules Madhya Pradesh to check the business transactions of the assessee with the said parties. Further, he has also checked the purchase bills. Bank statements has been called from the banks and he also checked the amount paid to creditors in the succeeding years. He also mentioned that confirmation letters were .received from , . creditors during the course of remand proceedings. 5. That the Ld AO has checked the identity of the creditors and also payments made to them . Further, foe has not recorded any adverse comments on the above evidences. From the, above facts , it is evident that the assessee has proved that identity of the creditors and payments made to them.

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i) The Ld AO has assumed that since the liability is outstanding for more than 3 years old,, therefore it is time barred and ceased to exist, therefore required to be added u/s 41(1) to the income .of the assessee. However, the assessee has disclosed balance payable to all such creditors in his balance Sheet as on 31.03.2014 and as explained before most of the creditors were paid in succeeding year. Therefore, your good self will kindly appreciate the fact that neither balances of these creditors were time barred nor the assessee had any intention to not pay them in fu.tu.re. In this regard we draw your attention to the decision of the Hon'ble Delhi High Court in the case ofCIT v/s Shri Vardhman Overseas Ltd. [2011] 16 taxma.nn.com 350(Delhi) wherein referring to various judgments it has been held that the disclosure by the assessee company in the Balance Sheet of the accounts of the sundry creditors amount to an acknowledgement of the debts in their favour for the purpose of section 18 of the Limitation Act.( para 17). Further we draw your attention to the decision of the Hon'ble High Court of Karnataka High Court in the case of CIT v/s Alvares& Thomas[2016]' 69 taxmann.com 257 ( Karnataka)wherein by referring to the judgment of Hon'ble Supreme Court in the case of Bombay Dyeing &Mfg. co. Ltd. v. State of Bombay AIR • 1958 SC 328, it has been held that when a debt becomes time barred, it does not become extinguished but only unenforceable in court of law. ( 1 Para 13). The judgements of the above cases are squarely applicable to the case of the assessee. The assessee's books of accounts were duly audited by a chartered Accountant and the assessee had duly disclosed the balances 'of all such creditors in his balance sheet and this amount to an acknowledgement of the debts in their favour for the purpose of- section 18 of the Limitation Act. ii) It is humbly submitted that section 41(1) will not be attracted for an assessee (being entitled to make payment in respect of a debt) when debts become time barred. But it shall be attracted if a liability or a time barred liability is written off in the books of accounts. Conversely sundry creditors appearing in Balance Sheet ( Not written off unilaterally) for a period longer than 3 years can not be taken as deemed, income under section 41(1) if there is no indication that the said liability ceased, to exist. iii) Further, it is humbly submitted*that that there are two requirements for invoking the provisions of Section 41. The sine qua non is, the remission or cessation of the trading liability and the additional requirement is some benefit in respect of such trade liability is taken by

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the assessee. If the aforesaid conditions are satisfied, then only section 41(1) could be invoked by the assessing officer. In the present case the assessee has been regularly paying to the creditors and meanwhile neither there is any cessation or remission of liability by the creditors nor the assessee has taken any benefit by writing off any liability in his books of accounts. It is thus submitted that the additions made u/s 41(1) are bad in law and deserve to be deleted. In this connection attention is drawn to the following cases. i. CIT vs Combined transport 174 ITR 528( M.P. High Court) ii. CIT v/s Sugauli Sugar Works (P). Ltd.[1999J236ITR 518/102 Taxman 713(SC) iii. CIT vs Compaq Electric Ltd [2011] 16 taxmann.com 385 (Karnataka) In view of the-above, we kindly request your honour to please consider the facts and evidences on record and kindly delete the addition of Rs.6,41,59,626/- u/s 41(1) of the Income Tax Act, 1961.”

“8.1 I have gone through the assessment order as well as the submissions of the appellant in this regard. It has been submitted that most of the creditors were paid in succeeding years. Therefore, the AO had erred in holding that since the creditors were outstanding for more than 3 years, they were time barred and required to be added u/s 41(1) to the income of the appellant.

8.2 The case of the appellant had been remanded to the assessing officer. During the course of remand proceedings, the appellant had produced copies of VAT Form 31A, bill's, for purchase of goods from creditors, confirmation letters from creditors and bank statement to prove that the payments has already been made to creditors in succeeding years. The Income Tax officer, Dhar has categorically mentioned in his remand report that he had verified copies of Form 31A of VAT Rules Madhya Pradesh to check the business transactions of the appellant with the said parties. Further, he had also checked the purchase bills. Bank statements had been called from the banks and he had also checked the amount paid to creditors in the succeeding years. The AO had also mentioned in

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his remand report that the confirmation letters were received from creditors during the course of remand proceedings. The AO had checked the identity of the creditors and also the payments made to them. Further, the AO has not recorded any adverse comments on the above evidences in his remand report. From the above facts, it is evident that the appellant has proved that identity of the creditors and payments made to them.

8.3 It was also pleaded that the Ld AO had acted arbitrarily in holding that since the creditors were outstanding for more than 3 years, therefore were required to be added u/s 41(1) to the income of the appellant had disclosed balance payable to all such creditors in his balance Sheet as on 31.03.2014 and most of the creditors were paid in succeeding year. Therefore, it is evident that neither balances of these creditors were time barred nor the appellant had any intention to not to pay them in future.

8.4 The Hon’ble Delhi High Court in the case of CIT v/s Shri Vardhman Overseas Ltd. [2011] 16 toxmann.com 350(Delhi) wherein referring to various judgments held that the disclosure by the appellant company in the Balance Sheet of the accounts of the sundry creditors amounted to an acknowledgement of the debts in their favour for the purpose of section 18 of the Limitation Act.( para 17).

8.5 It was also submitted that Section 41(1) would not be attracted for an appellant (being entitled to make payment in respect of a debt) when debts become time barred. But it would be attracted if a liability or a time barred liability was written off in the books of accounts. Conversely, sundry creditors appearing in Balance Sheet (Not written off unilaterally) for a period longer than 3 years could not be taken as deemed income under section 41(1) if there was no indication that the said liability and ceased to exist. The appellant has relied for this proposition on the following cases:-

(i) DSA Engineerst Bombay) v. ITO [2009] 30 SOT 31 (Mum), ; CIT v Puri devi Mahendra kumar Chaudhary [2014] 221 Taxman (ii) 375(Guj). (iii) CIT vs Combined transport 174 ITR 528( M.P. High Court) (iv) CIT v/s Shri Vardhman Overseas Ltd. [2011] 16 taxmann.com 35O(Delhi) (v) CIT v/s Alvares&Thomos [2016] 69 taxmann.com 257( Karnatdka) (vi) CIT v/s Sugauli Sugar Works (P). Ltd.[1999]236ITR 518/102 Taxman 713(SC) (vii) CCIT v/s Kesaria Tea Co..Ltd.[2002]2S4ITR 434/112 Taxman 91(SC) (viii) Abha Dvi Agrawal (ITAT-Indore)

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(ix) CIT vs Compaq Electric Ltd. [2011] 16 taxmann.com 385 (Karnataka) 8.6 On the basis of the facts of the case, it is clear that the appellant had already made payments to creditors in succeeding years, therefore neither there was any recession or remission of liability by the creditors nor the appellant had taken any benefit by writing off any liability in his books of accounts. Hence, respectfully following the decisions of the Hon'bie Delhi High Court in the case of CJT u/s Shri Vardhman Overseas Ltd. [2011] 16 taxmann.com 350(Delhi), the addition so made is hereby deleted and the appeal of the appellant is allowed on this point.”

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liability in his books of accounts. We do not find any ambiguity in such order passed by the First Appellate Authority so as to warrant interference. The same is therefore upheld. Revenue’s appeal, thus, found to be devoid of any merit and dismissed.

This Order pronounced on 21/11/2022

Sd/- Sd/- (BHAGIRATH MAL BIYANI) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore; Dated 21/11/2022 TRUE COPY S. K. Sinha, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Indore 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

(Dy./Asstt.Registrar) ITAT, Indore 1.Date of dictation on 03.11.2022 2.Date on which the typed draft is placed before the Dictating Member 09.11.2022 3.Date on which the approved draft comes to the Sr.P.S./P.S. 4.Date on which the fair order is placed before the Dictating Member for pronouncement 5.Date on which the fair order comes back to the Sr.P.S./P.S 6.Date on which the file goes to the Bench Clerk 7.Date on which the file goes to the Head Clerk…………. 8.The date on which the file goes to the Asstt. Registrar for signature on the order…………………… 9.Date of Despatch of the Order………Date on which the typed draft is placed before the Dictating Member 19.12.2019Other Member………………Date on which the approved draft comes to