ECR BUILDERS,ALWAR V. PCIT (CENTRAL), DELHI-3, DELHI

ITA 2506/DEL/2024

AI Insights

The case involves ECR Builders, who appealed against the order of the Ld. PCIT (Central), Delhi-3, which revised the assessment order for the AY 2019-20. The revision was based on the belief that the assessee's declaration of Rs. 1.03 crore as additional income from written-off sundry creditors should be taxed under section 68 and at special rates under section 115BBE, rather than under section 41(1) as accepted by the AO. The tribunal examined the proceedings and found that the AO had taken a possible view by accepting the income under section 41(1), and that the assessee's treatment of the income was correct as the creditors were opening balances from previous years, not current year credits.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 313991 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2019-2020
• Other Referred Cases: Malabar Industrial Co. Ltd. vs. CIT, CIT vs. Max India Ltd., CIT vs. Garbrial India Ltd., CIT vs. Shri Vardhman Overseas Ltd, DCIT vs. Amod petrochem (P) Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Assessee Lawyers: LALIT KUMAR; NEHA
• Keywords: Business income; Difference of opinion; Assessment record; Bogus
• Section: 143(3); 263; 68; 6; 133A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER, AND SHRI SUDHIR PAREEK, JUDICIAL MEMBER ITA NO. 2506/Del/2024 A.YR. : 2019-20 ECR BUILDERS, MAIN ROAD CHOPANKI NEAR POWER HOUSE VILLAGE BILAHERI BHIWAI, ALWAR, RAJASTHAN-301019 (PAN: AACFE2602G) VS. PCIT (CENTRAL), DELHI-3, DELHI (APPELLANT) (RESPONDENT) Appellant by : Shri Lalit Kumar, CA & Ms. Neha Gupta, CA Respondent by : Ms. Pooja Swaroop, CIT(DR) Date of hearing : 06.05.2025 Date of pronouncement : 06.05.2025 ORDER PER SHAMIM YAHYA, AM : The Assessee has filed the instant Appeal against the Order of the Ld. PCIT (Central), Delhi-3 dated 26.03.2024 passed u/s. 263 of the Act, relating to assessment year 2019-20. 2. The assessee in this case engaged in the business of construction and development of commercial of factory buildings. In this case Survey u/s 133A of the Act was conducted on 19.02.2019 wherein, assessee offered an additional income of Rs. 1.03 crore on account of sundry creditors 2 | P a g e written off. The assessment was framed by the AO u/s. 143(3) of the Act on 15.9.2021 by accepting the said income u/s. 41(1) of the Act. Ld. PCIT examined the issue and was of the following opinion: “Since, bogus sundry creditors was reflecting in the trial balance, which was surrendered by the assessee firm during the course of survey action and declared in ITR filed for the AY 2019-20 as undisclosed income, therefore, tax was to be charged at special rates under the provisions of section 115BBE of the Income Tax Act, as such surrendered undisclosed amount represent unexplained income of the assessee in terms of section 68 of the Income Tax Act, 1961. As such, the order passed by the AO is erroneous and prejudicial to the interest of revenue. The examination of the assessment records clearly shows that AO has failed to examine the issues thoroughly and framed the assessment order without examining the facts and nature of addition made in this case. Hence, the assessment order passed by the AO is not only erroneous but also prejudicial to the interest of revenue.” 3. Accordingly, notice u/s. 263 was issued on 7.3.2024, but Ld. PCIT was not convinced with the assessee’s reply, he held that amount was to be added u/s.68 of the Act and further taxation was to be taxed under section 115BBE of the Act. The relevant findings of the Ld. PCIT in this regard, reads as under:- “3.3 On perusal of the reply of the assessee, it is observed that the Assessee'S Submission revolves around two main points: the treatment of income under section 41(1) of the Income Tax Act, 1961, and the non applicability of section 68. The assessee has also quoted various case laws in support of the submission. After considering the facts, it is found that the 3 | P a g e reply filed by the assessee is not found tenable due to the following reasons:- (i) The contention of the assessee that the surrendered amount of Rs. 1,02,90,370 represents ceased liabilities under section 41(1) is not correct. During the survey proceedings, Sh. Imran Khan, Partner of the Assessee firm, in his statement clearly accepted that the sundry creditors of Rs. 1,02,90,370/- was standing in the books against non-existing liability which was already paid. Consequently, the assessee surrendered the corresponding amount of Rs. 1,02,90,370/- for income during survey proceedings as undisclosed income arising from bogus sundry creditors which falls under section 68 of the Income-tax Act, 1961. ii) The contention of the assessee that the amounts written off were genuine trade payables is not acceptable. The sundry creditors reflecting in the trial balance in the name of (i) Sh. Banna Lal Bairwa Rs. 44,39, 135/-, (ii) Sh. Indrajeet Singh Rs. 32,62,029/- and (iii) Sh. Rashid Khan Rs. 25,89,206/- (Total Rs. 1,02,33,974/-) were in the nature of bogus and non- existent as on the date of survey as the liability was already paid off by the assessee. During the survey proceedings, the partner of the firm accepted the same and surrendered the corresponding income for taxation during the year under consideration. The statement of Sh. Imran Khan, recorded during survey proceedings, 4 | P a g e clearly establishthe fact that the surrendered amount represents undisclosed income attributable to bogus sundry creditors. Therefore, the applicability of section 68 and subsequent taxation under section 115BBE of the income-tax Act, 1961 is required, as the surrendered amount represent unexplained income of the Assessee. (iii) The contention of the assessee that the issue was examined during the assessment proceedings is not valid. The AO was in possession of the information/evidence gathered during the course of search action. However, the AO simply relied upon the submission of the assessee without examining the nature and taxation of the income surrendered by the assessee without calling for further explanation. It is evident from the statement of Sh. Imran Khan that the surrendered income was in the nature of unexplained income which was not thoroughly examined by the AO. As the surrendered amount was deemed undisclosed income under section 68 of the IT Act, the failure of the AO to adequately scrutinize the issue renders the assessment order erroneous and prejudicial to the interest of revenue, as such, provisions of section 263 of the Income-tax Act, 1961 is squarely applicable in this case. (iv) The judicial precedents cited by the assessee are not squarely applicable in this case each case is unique and must be evaluated based on its specific facts and circumstances. In this instance, the statement of Sh. 5 | P a g e Imran Khan, Partner of the Assessee firm, serves as primary evidence indicating the nature of the surrendered income, which aligns with the provisions of section 68 and warrants taxation under section 115BBE of the Income-tax Act, 1961. 4. In view of the above discussed facts and admission made by the partner of the firm during survey proceedings regarding the nature of the surrendered income, as well as the applicable provisions of the Income Tax Act, 1961, it's evident that the addition of Rs. 1,02,90,370 should be taxed as per section 115BBE. As the surrendered undisclosed amount represented unexplained income of the assessee under section 68 of the IT Act, and since it was declared in the ITR for AY 2019-20 due to the search/survey action conducting upon the assessee, as such tax was to be levied at special rates under section 115BBE. Therefore, the AO's order, not charging tax at special rates, held to be erroneous and prejudicial to the revenue's interest which required to be rectified accordingly as per the provisions of section 263 of the Income-tax Act, 1961.” 4. Against the above order, the assessee is in appeal before us. 5. We have heard both the parties and perused the records. We find that assessee had surrendered additional income of Rs. 1,02,90,370/- u/s. 41(1) on account of sundry creditors written off which was duly reflected in the return of income and the AO has accepted the same. The Ld. PCIT was of the opinion that these were to be added 6 | P a g e u/s. 68 of the Act and the taxation u/s. 115BBE should be done. We find that this view of the Ld. PCIT is not sustainable. Firstly AO has examined the issue and taken a possible view as assessee has offered for taxation the income on account of creditors written off as business income in view of remission or cessation of trading liability under the provisions of section 41(1). As held by the Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83 (SC), that if AO has taken one view, the order cannot be revised on account of difference of opinion. Similar view was adopted in the case of CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC). Furthermore, Hon’ble Apex Court in CIT vs. Garbrial India Ltd. (1993) 203 ITR 108 (Bom), has been opined that CIT cannot revise order merely because he disagrees with the conclusion arrived at by the AO. In this view of the matter and in the background of the aforesaid discussions and respectfully following the aforesaid precedents, the order passed by the Ld. PCIT is not sustainable. 5.1 Furthermore, we note that ld. Counsel for the assessee brought to our notice the Paper Book vide Page no. 53 to 61 which shows that the sundry creditors write off were actually opening balance. When the impugned sundry creditors were opening balance and were continuing from previous years, they cannot be brought to tax u/s. 68. Because section 68 deals with the current year credits only. Hence, there is no question of invoking section 68 of the Act. Hon’ble Delhi High Court in the case of CIT vs. Shri Vardhman Overseas Ltd has held that applicability of section 68 was ruled out since no fresh amounts were credited in the accounts of the creditors under consideration during the relevant accounting year. Furthermore, Hon’ble Gujarat High Court in the case of DCIT vs. Amod petrochem (P) Ltd. held that as per section 68, there 7 | P a g e should be cash credits of previous year. Since as per the ledger account contained in paper book before us which was also certified to be before the authorities below, such balances were opening balance of sundry creditors and in view of the aforesaid facts and precedents, the same could not be added u/s. 68 of the Act in the assessment year under consideration. Hence, the very basis of PCIT’s order is based on wrong premises. In this view of the matter, and in the background of the aforesaid discussions and respectfully following the precedents, as aforesaid, we quash the order of the Ld. PCIT and decide the issue in favour of the assessee. 6. In the result, the appeal of the assessee is allowed. Order pronounced on 06.05.2025. Sd/- (SUDHIR PAREEK) Sd/- (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER SRBHATNAGAR Copy forwarded to:- 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT Assistant Registrar, ITAT, Delhi "