MR. KRISHAN KUMAR BANSAL,DELHI vs. ITO, NEW DELHI

This is the second round of appellate proceedings. In the first round the Delhi D Bench of the ITAT in ITA 3834/Del/07 for the A.Y. 2007-08 has set aside the matter to the file of the A.O. by observing as follows. “5. We have heard rival contentions, perused the material available on record. From the assessee’s accounts it emerges that both he suppliers had opening balances and in the year in question the assessee’s balance sheet showed above amounts outstanding in their favour. AO has indicated that from the accounts of the suppliers it emerged that there were no balances recoverable from assessee. Thus there was a difference in the accounts of the assessee and the suppliers. Assessee contends that its books of accounts are correctly maintained and the difference is to be explained by suppliers. In this situation, it is desirable to examine as to why in the books of suppliers there is no balances recoverable from assessee. It may be caused by Sh. Krishan Kumar Bansal suppliers having credited some amounts in their books as cash paid by the assessee, goods return claim, cessation of liability etc. In our view when assessee’s books indicate a liability and no explanation is asked from the suppliers who claim extinguishment of liability, it is desirable that the relevant facts are properly examined by calling the suppliers and their books. In our view, without considering these aspects it cannot be held that there is cessation of liability u/s 41(1) of the Act. The issue about addition being maintainable in this year also needs to be examined by AO. Consequently, we are inclined to set aside the issue back to the file of AO to decide the same afresh in accordance with law.” 2.1. The A.O. in a set aside assessment proceedings issued notice u/s 133(6) of the Act to M/s Saksham International and M/s Subhash Bearing and Mill Store. These notices were received back as ‘undelivered’. The assessee was asked to produce the above parties along with their books. The assessee could not produce them. There after a show cause notice was issued stating that outstanding amount of Rs.2,19,875/- in the case of M/s Saksham International and Rs.2,50,849/- in the name of M/s Subhash Bearing and Mill Store to be treated as income and added back to the total income under S.68 of the Income Tax Act 1961 (the Act). The assessee replied that both the parties, had cleared the balances of the assessee during the Previous Year, in their books of accounts by introducing bogus cash. He submitted that the assessee never paid any cash to these parties on the dates and during the period claimed by the two parties. The A.O. relied on the decision of Hon’ble Calcutta High Court in the case of CIT vs. Ashoka Timber reported in 125 ITR 336 (Cal.) and the judgement of Hon’ble Supreme Court in the case of CIT vs. Sundaram Iyengar & Sons Ltd. reported in 222 ITR 345 (SC) and made an addition of these three amounts. Aggrieved the assessee carried the matter in appeal. The First Appellate Authority considered the various submissions of the assessee and confirmed the additions made by the A.O. He dismissed the appeal. 2.2. Aggrieved the assessee is in appeal before us on the following grounds.

Saksham Enterprises - Rs. 2,91,875/- 2. Subhash Bearing & Mill Store - Rs.2,15,849/- Total: Rs.5,07,724/- B. That without prejudice, under the facts and circumstances, in no case, addition for the sundry creditors of Rs.5,07,724/- can be made in AY 2007- 08, more so and apart from other reasons, for the reason that both the creditors are opening creditors and have been continuing as it is from last several years.”

After hearing rival contentions, I find the sum and substance of the submissions of the Ld.Counsel for the assessee is that: (a) addition cannot made u/s 68 of the Act during the current year, as there is no credit in the books of accounts during the current year. (b) that S.41(1) of the Act is also not applicable as there is no cessation of liability during the year. (c ) that the A.O. has not carried out the directions given by the ITAT, as the books of the suppliers were not examined by him, though they are assessed by the same Assessing Officer.

I have perused the photo copies of statements of accounts of the assessee in the books of Saksham International as well as in the books of Sh. Krishan Kumar Bansal M/s Subhash Bearing and Mill Store. These are at pages 7,8,9,10,11 and 12 of the assessee’s paper book. 4.1. In the case of Saksham International the copy of accounts in the assessee’s books disclosed that on 18.2.2004, “to bill no.202’ a sale of Rs.1,28,425/- was made to the assessee. This is the balance outstanding as on 31.3.2004. The same balance continues on 31.3.2005. On 31.3.2005, this opening balances are shown as repaid through a series of 7 cash entries. As on 31.3.2006, M/s Saksham International, by giving an account copy to the assessee, states that no amount whatsoever is due from the assessee on account of the sale. When I examined the statement of account of Saksham International in the books of accounts of Satyam Trading Co., I find that on 31st March, 2004 the balance is Rs.2,91,875/- and as on 31st March, 2007 the balance is Rs.2,51,875/- after payments in cash of Rs.80,000/-. The difference is unexplained. When Saksham International has given an accounts statement that the assessee does not owe it any money and when the assessee himself, in his reply to the Assessing Officer vide letter dt. 14.2.2014, which is reflected at para 8 of the assessment order, acknowledges the fact that no amount need be paid to M/s Saksham International, in my view there is no more liability payable by the assessee to this party. The AO in this case has made every attempt to verify the books of Saksham International, without success. The assessee in his reply states that as the parties have cleared the balances of the assessee during the previous years in their books and made the balance of the assessee as nil in their books by introducing bogus cash. In view of this statement, there is no necessity of verifying the books. If the assessee claims that bogus cash entries were introduced by M/s Saksham International and M/s Subhash Bearing and Mill Store, which is a serious allegation, it is for him to prove the facts. Having not done so I am of the opinion that the addition is correctly made. 4.2. In the case of M/s Subhash Bearing and Mills Store, the copy of the assessee shows that certain purchases were made on credit basis during the A.Y. 2003-04 and the balance is Rs.7,68,819/- as on 31.3.2003. During the Sh. Krishan Kumar Bansal Financial Year 2003-04, the assessee had paid amounts through cheque to the tune of Rs.6,93,371/- and the balance of Rs.76,448/- remained. For the A.Y. 2005-06 this balance has been cleared as per the accounts statement and confirmation given by M/s Subhash Bearing and Mills Store.

On the other hand in the books of the assessee, for the A.Y. 2005-06, the amount due to M/s Subhash Bearing and Mills Store is disclosed at Rs.2,15,849/-. Certain payments are recorded in cash from 1st April,2006 to 31st March,2007 and the closing balance is shown at Rs.1,75,849/-. For the same reasons that I have given while confirming the addition in the case of balances in the accounts of Saksham International, I confirm the addition in the case of M/s Subhash Bearing and Mills Stores.

In my view S.68 of the Act is not attracted as this is a case of repayment of liability, which is not recorded in the books of the assessee, it cannot fall under the category of cessation of liability u/s 41(1) of the Act. At best it can be unexplained investment.

In the result, I confirm the additions and dismiss the appeal of the assessee. Order pronounced in the Open Court on 30th November,2015.