CMI Ltd., New Delhi V. DCIT, Circle-5(2), New Delhi

CO 105/DEL/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1042 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-09-2022
• Assessment Year: 2004-2005
• Appeal Filed On: 20-08-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Reasonable cause
• Section: 28; 143(3); 133(6); 195; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘B’ : NEW DELHI) SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and SHRI YOGESH KUMAR US, JUDICIAL MEMBER ITA No.2639/Del./2019 (ASSESSMENT YEAR : 2004-05) DCIT, Circle 5 (2), vs. CMI Limited, New Delhi. C – 483, Yojna Vihar, New Delhi – 110 092. (PAN : AAACC2156L) CO No.105/Del/2019 (in ITA No.2639/Del./2019) (ASSESSMENT YEAR : 2004-05) CMI Limited, vs. DCIT, Circle 5 (2), C – 483, Yojna Vihar, New Delhi. New Delhi – 110 092. (PAN : AAACC2156L) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rajesh Jain, CA REVENUE BY : Shri S.L. Anuragi, Sr. DR Date of Hearing : 26.09.2022 Date of Order : 12.10.2022 ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : The appeal by the Revenue and the cross objection by the assessee are arising out of order of ld. CIT (Appeals)-2, New Delhi dated 13.12.2018 and pertains to Assessment Year 2004-05. ITA No.2639/Del./2019 CO No.105/Del/2019 2 2. The grounds of appeal of Revenue’s appeal read as under :- “1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT (A) is justified in deleting the addition of Rs.2,26,29,757/- on account of ceased liability of amount payment to creditors made by the AO during the course of assessment proceedings on account of cost of Dunnage. 2. Whether on the facts and in the circumstances of the case and in law, the ld. CIT (A) is justified in deleting the addition of Rs.1,12,211/- on account of late deposit of employee contribution to PF & ESI made by the AO during the course of assessment proceedings. 3. Whether on the facts and in the circumstances of the case and in law, the ld. CIT (A) is justified in deleting the addition of Rs.37,60,314/- on account of bad debts written off which had not been offered as income in earlier year during the course of assessment proceedings.” 3. Apropos Ground No.1 : Brief facts of the case are that the assessee company is mainly engaged in the business of manufacturing of Jelly Filled Communication Cable & Insulated Wires and Cable. During the course of assessment, Assessing Officer noted that assessee company filed details of sundry creditors. AO issued notice u/s 133(6) of the Income-tax Act, 1961 (for short 'the Act') to the parties whom addresses were provided by the assessee company to furnish details in respect of transactions made with the assessee company along with the copy of ledger account etc. He noted that some of the notices have returned unserved and only in a certain cases, certain differences were noted. AO further noted that in AY 2003-04 also, certain creditors were added back ITA No.2639/Del./2019 CO No.105/Del/2019 3 u/s 68 of the Act. He noted that assessee has failed to produce the creditors. Hence, he added the sundry creditors as disallowed in earlier year amounting to Rs.2,26,29,757/-. 4. Upon assessee’s appeal, ld. CIT (A) noted that creditors are the same as in the AY 2003-04. Facts and findings on this issue are also identical. He deleted the addition by holding as under :- “Following are the findings of fact in this case: • Similar addition in respect of same credit balances was made in A.Y. 2003-04 on the same ground of non- confirmation of balances. The AO repeated the same process in A.Y. 2004-05 and made enquiry about the outstanding sundry creditors by issuing letters u/s 133(6) to 28 parties requiring them to confirm the balance. Out of 28 notices, 8 notices returned unserved. 13 parties did not confirm even though the notices were served. Only 7 parties confirmed the balance. Even out of these 7 parties, the amount tallied, in case of only one party. In one case out of the 7 parties, there was a substantial difference of balance Rs.81,79,345/- • The assessee was confronted on these anomalies. It reconciled the balances and submitted that it had incurred huge losses and was unable to pay the creditors and the cheques were dishonoured. Therefore, they did not cooperate. It was then required to produce the parties which had failed to confirm. The assessee failed to comply. It did not file any confirmation. It repeated the same reply as submitted earlier. Then the AO made addition of Rs.2,26,29,757/- treating the entire credit balance including opening balance as unexplained cash credit u/s 68 as done in A.Y. 2003-04. • These credit balances are trade credits and not a loan or deposit to be treated as cash credit which can be hit by ITA No.2639/Del./2019 CO No.105/Del/2019 4 the provisions of Sec. 68. In A.Y. 2002-03, the case was assessed U/S 143(3) accepting the trade creditor balances. In A.Y. 2003-04 and A.Y. 2004-05 (the impugned year), the entire trade creditor balances including opening balance has been added u/s 68. • Similar addition in respect of same credit balance was made in A.Y. 2003-04 which was deleted after detailed discussion on trade creditors and AO's remand report by CIT(A) on the ground that these are trade credit balances. Due to heavy loss and non-payment of dues, the creditors had not cooperated, that many of them were paid off their dues and dues were settled according to court order. It was, thus, decided in A.Y. 2003-04 after detailed investigation that these trade creditors were genuine and cannot be hit by provisions of Sec. 68. • Most cases were settled by the Court as seen from CIT(A) order for A.Y. 2003-04 and submission of this year. In 8 cases, the account was settled by making payment. The appellant enclosed bank statement to explain the fact regarding clearance of cheques. In 6 cases, the credit balance was written back in P&L account as not payable due to cessation of liabilities. The ITAT, in A.Y.2003-04, confirmed the order of CIT(A) deleting the addition on this ground in case of same creditors. • In A.Y. 2004-05, i.e. the impugned year, same creditors have been added. As in A.Y. 2003-04, the appellant has explained in detail that these are trade credit balances and are genuine and that there was reasonable cause for non- cooperation of the creditors in respect of inquiry made by the department. All the documents were sent to the AO as fresh evidence and the case was remanded to the AO for examination of these papers. • No adverse comments on the these facts compiled in detailed written submission and paper book have been made by the AO in the remand report. AO has not controverted any of the facts and findings of the ITA No.2639/Del./2019 CO No.105/Del/2019 5 Appellate Authorities on established genuineness of the trade creditors. The only adverse remark of the AO is that no confirmation has been filed even after settlement of dues and making payments. This being already explained due to adverse circumstances in A.Y. 03-04 as well as in this year, the genuineness of sundry credit balances stands explained. 7.2 On the basis of finding of facts and legal status of the case as above, it is clear that all the creditors are the same as in A.Y. 2003-04, facts and findings on this issue are also identical and AO has not controverted any of the facts and findings. The reasonable cause for non-cooperation of the creditors and genuineness of trade creditors stands explained. The allegation on the ground of bogus balances or as unexplained cash credit, therefore, does not stick any more. The addition on this ground is, thus, not liable to be sustained. This ground is allowed.” 5. Against this order, Revenue is in appeal before us. We have heard both the parties and perused the record. 6. Ld. DR for the Revenue submitted that AO’s order is to be upheld. Per contra, ld. Counsel of the assessee submitted that similar addition in AY 2003-04 was deleted by the ld. CIT (A) which was confirmed by the ITAT in ITA No.5187/Del/2012 vide order dated 02.07.2014. 7. Upon careful consideration, we note that ITAT in assessee’s own case for AY 2003-04 (supra) had confirmed the order of the ld. CIT (A) deleting the addition by observing as under :- “2. We have heard both the sides on this issue. The assessment for immediately preceding year i.e. assessment year 2002-03 completed under sec. 143(3) of the Income-tax Act, 1961 and all the sundry creditors were accepted as genuine. The opening balance for the year 2003-04 of sundry creditors was of RsA,68,"71,979. Thus, the Assessing Officer could not have ITA No.2639/Del./2019 CO No.105/Del/2019 6 considered the opening balance for the disallowances for the year. Further the addition was made under sec. 68 of the Income-tax Act, 1961 which is applicable to the loans and deposits, however in assessee's case, these were trading liabilities which are not covered by the provisions of section 68 of the Income-tax Act, 1961. It has been also pointed out before us that the accounts with 14 parties was settled in the subsequent years. Learned CIT (Appeals) has verified this aspect. The balance in respect of 5 parties has been written back in the books of accounts and offered for taxation in the subsequent years. The assessee submitted the copy of Board's Resolution and Management Certificate in this regard. Even in the remand report, learned Assessing Officer has not made any adverse comments with regard to the documents submitted by the assessee, therefore, in our considered view, the Learned CIT(Appeals) has rightly deleted the addition. Learned DR has not controverted the findings recorded by the Learned CIT (Appeals) in his order. Considering all these aspects, we dismiss this ground of revenue's appeal.” 8. We find that AO himself has made the addition of the creditors of last year which have already been deleted by the ITAT as above. Further, ITAT has also held that addition cannot be added u/s 68 of the Act. Since facts are identical and it is also not the case that ITAT order has been reversed, we uphold the order of the ld. CIT (A) on this issue. 9. Apropos Ground No.2 : On this issue, AO has made addition on account of late deposit of employee’s contribution to PF and ESI. Ld. CIT(A) deleted the same. We find that this issue is squarely covered in favour of the assessee by the decision of ITAT, Delhi in the case of ITA No.5570/Del/2017 in M/s. Express Roadway vs. ACIT who has followed Hon’ble Delhi High Court decision in the case of CIT vs. AIMIL Ltd. ITA No.2639/Del./2019 CO No.105/Del/2019 7 321 ITR 508 and SPL Industries vs. CIT 9 taxmann.com 195 for the proposition that such additions are not sustainable if the impugned payments are done upto the date of filing of return of income for the concerned assessment year. Hence, we uphold the order of the ld. CIT (A) on this issue also. 10. Apropos Ground No.3 : on this issue, AO noted that in the balance sheet attached with IT return, following was stated :- “The AO has noted that the liabilities not payable at all or assets not recoverable was thoroughly reviewed by the management as per audit note and they have been charged to the P&L ale as under: a) Receivables outstanding for more than a Rs.1,66,724 year and could not be realized b) Trade loans & advances not recoverable Rs.2616,525 c) Outstanding liabilities recognized as not Rs.9,77,665 payable 11. AO asked the assessee to show-cause as to why this amount should not be disallowed. AO was not satisfied with the assessee’s submission and made the addition of entire sum of Rs.37,60,314/-. 12. Ld. CIT (A) on this issue noted that a remand report was called for from the AO and AO had not made any adverse comment in the remand report. Hence, ld. CIT (A) deleted the addition by holding as under :- “10.1 It was submitted by the appellant that the treatment given to these balances in P&L ale and computation of income is as under: ITA No.2639/Del./2019 CO No.105/Del/2019 8 a) Receivables which could not be realized in Rs.1,66724 16 cases, written off in P&L a/c b) Trade loans & advances not recoverable Rs.2616,525 already added back in computation of income c) Outstanding liability as not payable written Rs.9,77,665 back in P&L a/c 10.2 During remand proceedings, no adverse comment of the AO was made on these facts. - He has simply repeated the submission of the appellant. It is seen that the balances. like bad debts have been written off, unclaimed liabilities have been written back due to cessation of liabilities as allowed u/s 41 and trade loans and advances have already been added back in the computation. All these findings have not been controverted by the AO in remand report. On the basis of no adverse remark, the addition is considered uncalled for and is deleted. This ground is allowed.” 13. Against the above order, Revenue is in appeal before us. We have heard both the parties and perused the record. 14. Ld. DR for the Revenue relied upon the order of the AO. Per contra, ld. Counsel for the assessee stated that the ld. CIT (A) has duly called for remand report and after obtaining the remand report, when AO has no objection, he deleted the addition. He submitted that similar addition for earlier year was also deleted. 15. Upon careful consideration, we note that ld. CIT (A) has fairly deleted the addition and has referred to remand report of the AO. In the CIT(A)’s order, it has been noted that assessee has duly explained items and it was found that these items are not to be added. Hence, we do not ITA No.2639/Del./2019 CO No.105/Del/2019 9 find any infirmity in the order of the ld. CIT (A) on this issue and uphold the same. 16. In the result, the appeal of the Revenue is dismissed. 17. The grounds of cross objections filed by the assessee read as under:- “1. On the facts and circumstances of the case, the Learned CIT (A) erred in upholding addition of Rs.3,05,601/- on account of purchases from concerns of the respondent, without judicially appreciating the submissions filed during the proceedings. 2. On the facts and circumstances of the case, the Learned CIT (A) erred in upholding disallowance of Rs.1,41,931/- out of administrative expenses incurred on account of Diwali Expenses etc. incurred by the respondent arbitrarily.” 18. Ld. Counsel for the assessee submitted that he shall not be pressing these grounds, hence these grounds are dismissed as not pressed and the cross objection is dismissed. Order pronounced in the open court on this 12 th day of October, 2022. Sd/- sd/- (YOGESH KUMAR US) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 12 th day of October, 2022 TS ITA No.2639/Del./2019 CO No.105/Del/2019 10 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT (A)-2, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.