M/s Shri Balaji Builders, 1/43, RHB Colony, Bhiwadi, Alwar V. ACIT, Circle-1, Alwar

ITA 192/JPR/2023

AI Insights

The case revolves around the addition of Rs. 10,96,237 to the income of M/s Shri Balaji Builders for the assessment year 2013-14, which was treated as cessation of liability under Section 41(1) of the Income Tax Act. The addition was initially made by the Assessing Officer (AO) based on a discrepancy between the creditor's account statement and the assessee's books. The CIT(A) upheld this addition, noting the assessee's failure to reconcile the difference despite multiple opportunities. However, the Tribunal, after considering the submissions and evidence presented, including ledger accounts and payment receipts, concluded that the liability had not ceased and thus reversed the CIT(A)'s decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132435 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-05-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 28-03-2023
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P.C. PARWAL C.A; OBSERVING AT PARA
• Keywords: Set aside
• Section: 68; 143(3); 142(1); 133A; 13

Judgement Text

vk;djvihyh; vf/kdj.k] t;iqjU;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Mk0 ,l- lhrky{eh]U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;djvihy la-@ITA No. 192/JPR/2023 fu/kZkj.ko"kZ@AssessmentYear : 2013-14 M/s Shri Balaji Builders 1/43, RHB Colony, Bhiwadi, Alwar. cuke Vs. ACIT, Circle-1, Alwar. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABHFS 5311 G vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby : Shri P.C. Parwal (C.A) jktLo dh vksjls@Revenue by: Shri A.S. Nehara (Addl.CIT) lquokbZ dh rkjh[k@Date of Hearing :09/05/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 12 /07/2023 vkns'k@ORDER PER: DR. S. SEETHALAKSHMI, J.M. This appeal filed by the assessee is directed against order of the ld. CIT(A) dated 27-02-2023, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2013-14 wherein the assessee has raised the following grounds of appeal “ 1. The ld. CIT(A), NFAC has erred on facts and in law in confirming the addition of Rs. 10,96,237/- u/s 41(1) of the Act by treating the outstanding creditor in name of M/s Purulia Metal casting Pvt. Ltd. as cessation of liability by:- 2 ITA No. 192/JPR/2023 M/S Shri Balaji Builders vs. ACIT (ii) not calling the confirmation from the creditor as directed by Hon’ble ITAT by holding that since the assessee did not produce any fresh material or reconciliation during set aside proceedings, AO has no reason to call for fresh confirmation from the creditor which was already available on record as part of original assessment proceedings. (ii) not accepting the contention of assessee that even if the amount of assessee as per books of M/s Purulia Metal Casting Pvt. Ltd. is considered to be correct, it would mean that the liability ceased to exists on 31.03.2012 relevant to AY 2012-13 in as much as the difference of Rs. 10,96,237/- (11,62,831-66,594) is existing on 31.03.2012.’’ 2.1. The brief facts of the case are that the assessee is engaged in the business of civil construction work. The assessee filed its return of income on 28.09.2013 declaring total income of Rs. 2,83,88,458. Thereafter, the case has been selected for scrutiny and it has been completed u/s 143(3) of the Act on 23.12.2015. It is also noted that a survey was conducted u/s 133A of the Act on the business premises of assessee 28.08.2012. In the original assessment proceedings, the AO on the basis of information received from M/s Purulia Metal Casting Pvt. Ltd. observed that as per the account statement submitted by it, the assessee has a debit balance of Rs.66,594/- whereas assessee has claimed liability of Rs.11,62,831/- and no explanation or reconciliation was furnished in this regard. Thus, excess liability of Rs.10,96,237/- is claimed by the 3 ITA No. 192/JPR/2023 M/S Shri Balaji Builders vs. ACIT assessee which is added u/s 68 of the Act. The concluding para No. 6.1 of AO’s order at page 6 is reproduced as under:- ‘’6.1 In view of the above facts and circumstances of the case, the amounting difference in the said creditor’s account is clearly covered under the terms of section 41(1) of the Act as cessation of such liability to the tune of Rs.10,96,237/- and the same is hereby added to its total taxable income for the year under consideration.’’ 2.2. Aggrieved, from the said order of assessment, the assessee filed an appeal before the ld. CIT(A)who in view of the contention of the assessee dismissed the appeal of the assessee by observing as under:- “7.3 I have carefully considered the submissions furnished by the appellant and the assessment order. On perusal of the assessment order, it is observed that during the course of assessment proceedings u/s.143(3) r.w.s 254 of the Act, the AO has issued notices u/s.142(1) of the Act dated 06.03.2020, 08.03.2021, 23.06.2021 & 15.09.2021. However, despite the directions of Hon'ble ITAT, the appellant in his submissions during assessment proceedings did not reconcile the said difference of Rs.10,96,237/- with the confirmed credit balance of Rs. 66,594/- in the books of the Creditor, instead it merely submitted that the difference in accounting balance of Creditor was in opening balance and it could not be taxed u/s.68 of the Act. Since, the appellant did not produce any fresh material or reconciliation during the set aside proceedings, it is considered that the AO found no reason to call for fresh confirmation from the Creditor which was already available on record as part of original assessment proceedings. 7.4 Thereafter, during the course of current appeal proceedings, the appellant submitted ledger accounts. On perusal, the ledger for FY 4 ITA No. 192/JPR/2023 M/S Shri Balaji Builders vs. ACIT 2013-14 submitted by appellant claiming repayment of liability in cash cannot be accepted as there is no corroborating evidence in support of the claim like a confirmation letter from the Creditor. Further, the ledger account seems to be fabricated keeping the payment limit of Rs.20,000/- in mind. Be that as it may, the appellant could have submitted these ledger accounts during the set aside proceedings if this was indeed the fact that repayment actually occurred in FY 2013-14. However, for reasons best known to it, the appellant produced this ledger for the first time during the current appellate proceedings. Furthermore, in the instant case, the issue is the difference between the factual amount of Sundry Creditor and the Sundry Creditors claimed by the appellant to balance his books for the year under consideration. In view of the above facts and circumstances, I am of the considered opinion that the appellant merely reflected the liability in his books of accounts which no longer existed during the year under consideration with respect to the Creditor and I hold that the same would amount to cessation of liability. Therefore, the action of AO is hereby upheld. Accordingly, all the grounds of appeal are hereby dismissed.” 2.3. To support various grounds so raised by the assessee, the ld. AR of the assessee filed the following written submission:- 1. The assessee is engaged in the business of civil construction work. It filed its return declaring income of Rs.2,83,88,458/- on 28.09.2013. A survey was conducted u/s 133A on the business premises of assessee on 28.08.2012. 2. In original assessment proceedings, AO on the basis of information received from M/s Purulia Metal Casting Pvt. Ltd. observed that as per the account statement submitted by it, the assessee has a debit balance of Rs.66,594/- whereas assessee has claimed liability of Rs.11,62,831/-. No explanation or reconciliation was furnished in this regard. Thus, excess liability of Rs.10,96,237/- is claimed by the assessee which is added u/s 68 of the Act. 5 ITA No. 192/JPR/2023 M/S Shri Balaji Builders vs. ACIT 3. Before Ld. CIT(A) assessee explained that M/s Purulia Metal Casting Pvt. Ltd. has a credit balance of Rs.11,62,831/- as on 31.03.2012. No transactions were carried out in the year under consideration. Thereafter, the amount was paid in FY 2013-14. The Ld. CIT(A) considering these facts observed that assessee has business dealing with M/s Purulia Metal Casting Pvt. Ltd. during past years. There is no issue of genuineness of business transaction involved. No transaction is carried out during the year and therefore, he deleted the addition made u/s 68 with an observation that addition, if any, could have been made u/s 41 in the subsequent years when such a situation arises. 4. The Hon’ble ITAT vide order dt.24.07.2019 in ITA No.378/JP/2018restored the issue back to AO by giving the following findings at Para 13 of the order(PB 17-18):- 13. We have considered the rival contentions and found that the ld. CIT(A) has deleted the addition without controverting the findings of the A.O. to the effect that the assessee was unable to reconcile the balance in the creditors account, which was directly called for the A.O. from the creditors. We also observe that neither the ld. CIT(A) has called any comments from the A.O. nor any remand report was sought in respect of mismatch of account and merely by observing that there was no transaction during the year he has deleted the addition. In all fairness, we restore this issue back to the file of the A.O. for deciding afresh after calling a reconciliation from the assessee and also confirmation from the creditors. We direct accordingly. 5. In the set aside proceedings, AO at Para 6, Pg 5 & 6 of the order observed that the assessee did not reconcile the difference during original assessment proceedings as well as in the set aside assessment proceedings. Thus, the difference in the liability of Rs.10,96,237/- has ceased to exists and the same is taxable u/s 41(1) of the Act. 6. The Ld. CIT(A) at Para 7.3 and 7.4 of the order observed that despite direction of Hon’ble ITAT assessee did not reconcile the difference. The assessee claimed that outstanding amount was paid in FY 2013-14 but same cannot be accepted in the absence of the confirmation letter from the creditor. The ledger filed for first time during the appeal proceedings seems to be fabricated as amount is paid in various sums of Rs. 20,000/- each. Thus, the liability is reflected in the books which infact do not exist and therefore it is cessation of liability. Accordingly, the order of the AO is upheld. Submission:- 1. At the outset it is submitted that Hon’ble ITAT has directed the AO to call for reconciliation from the assessee and also confirmation from the creditor. The assessee in order to reconcile the outstanding credit balance in its books of accounts in the account of M/s Purulia Metal 6 ITA No. 192/JPR/2023 M/S Shri Balaji Builders vs. ACIT Casting Pvt. Ltd. of Rs. 11,62,831/- as on 31.03.2012(PB 21)has explained that it has not carried out any transactions in the year under consideration(PB 22). Thereafter, the outstanding amount was paid in FY 2013-14(PB 23-24). As against this as per information received from M/s Purulia Metal Casting Pvt. Ltd. in the original assessment proceedings,it has a debit balance as on 31.03.2012 of Rs.66,594/- in the name of the assessee(PB 20). It is explained that from the copy of ledger account of M/s Purulia Metal Casting Pvt. Ltd. for FY 2011-12 in the books of assessee it can be noted that assessee purchased building material of Rs.33,94,215/- against which payment of Rs.22,31,384/- was made in that year leaving a balance of Rs.11,62,831/- as on 31.03.2012. Thereafter no transaction was carried out during the year under consideration and the closing balance as on 31.03.2013 remains the same. In the FY 2013-14 the amount has been paid in cash between 02.05.2013 to 30.09.2013. Thus, assessee has provided the reconciliation but AO has not sought any clarification/confirmation from the creditor. The Ld. CIT(A) thus incorrectly held that assessee did not reconcile the difference. Hence, addition confirmed without following the direction of Hon’ble ITAT is bad in law. 2. It may be pointed out that even if the account of assessee as per books ofM/s Purulia Metal Casting Pvt. Ltd. is considered to be correct, it would mean that the liability ceased to exists on 31.03.2012 relevant to AY 2012-13 in as much as the difference of Rs.10,96,237/- (11,62,831-66,594) is existing on 31.03.2012. Thus, there is no occasion to presume that the liability has ceased to exist in the year under consideration. Therefore, such difference cannot be otherwise added u/s 41(1) in the year under consideration. 3. The Ld. CIT(A) has held that the ledger account for FY 2013-14 has been produced for the first time during the appellate proceedings. However, he ignored the fact that in first round of appeal the assessee has specifically mentioned that outstanding amount was paid in FY 2013-14. Further, in the year under consideration, as per the directions of Hon’ble ITAT, AO made trading addition of Rs. 17,45,664/-, which is much more than addition of Rs. 10,96,237/- made u/s 41(1) of the Act. Hence, the same should be set off against the trading addition made. In view of above, addition made by the AO and confirmed by CIT(A) be directed to be deleted.” 2.4. Per contra, the ld. DR relied upon the orders of the lower authorities and the ld. DR submitted written submissions as under:- 7 ITA No. 192/JPR/2023 M/S Shri Balaji Builders vs. ACIT “Hon’ble ITAT vide order dated 24.07.2019 restored the issue back to AO by giving following findings. “We have considered the rival contentions and found that the ld. CIT(A) has deleted the addition without controverting the findings of the A.O. to the effect that the assessee was unable to reconcile the balance in the creditors account, which was directly called for the A.O. from the creditors............................. In all fairness, we restore this issue back to the file of the A.O. for deciding afresh after calling a reconciliation from the assessee and also confirmation from the creditors. -In set aside proceedings, AO in his order observed that assessee did not reconcile the difference during original asset. as well as in set aside asst. Thus difference in liability of 10,96,237/- has ceased to exists and same is taxable u/s 41(1). -CIT(A) observed that despite direction of ITAT assessee did not reconcile the difference. The assessee claimed that outstanding amount was paid in A.Y. 2014-15 but same cannot be accepted in absence of confirmation letter from creditor. Ledger filed for first time during appeal proceedings seems to be fabricated as amount is paid in various sums of Rs. 20,000/- each. Thus liability is reflected in the books which infact do not exist & therefore it is cessation of liability. According AO’s order is upheld. -My submission beside confirmation of creditor for A.Y. 2014-15. Assessee also failed to produce 60 transaction of 20,000/-cash payment receipts from creditor in proof of his claim. So his claim in CIT(A)’s proceedings for the first time is bogus. -Assessee’s claim before ITAT Now –Assessee has provided the reconciliation but AO has not sought any clarification/ confirmation from creditor. Hence Ld. CIT(A) incorrectly held that assessee did not reconcile the difference.- This claim is for from truth. Crector’s 8 ITA No. 192/JPR/2023 M/S Shri Balaji Builders vs. ACIT A/c in assessee’s books for A.Y. 2014-15 showing 60 transaction of Rs. 20,000/- each cannot be called as reconciliation. -What is reconciliation statement as per accounting books can- RS is a document that begins with a comparing’s own record of A/c balance of additional columns, and then uses these adjournments to arrive at the record of the same A/s held by a third party. CIT(A) order ITAT observation in its order dated 24.07.2019 (para 11 on page 6 of CIT(A) order- DR argued that the confirmation filed by creditor, difference of Rs. 11,62,831/- was found but same could not be reconciled by the assessee even after giving various opportunities by AO to para 6 on page 8 of CIT(A) order- AO’s observation- assessee’s submissions that such difference is in opening balance and it could not be taxed u/s 68. It is observed that assessee has remitted or ceased the said liability. Hence, provisions of sec. 41(1)(a) are clearly applicable. Sec. reproduced in order. -CIT(A) on para 7.3 on page 16 held- AO issued notices u/s 142(1) on 06.03.2020, 08.03.202123.06.2021 & 15.09.2021. However, despite the directions of ITAT the assessee did not reconcile difference of Rs. 10,96,237/- with the confirmed credit balance of Rs. 66,594/- in the books of the creditor, since assessee did not produced any fresh material or reconciliation, AO found no reason to call for fresh confirmation from the creditor which was already available on record as part of original assessment proceedings. -Appellant merely reflected liability in his body which no longer existed during the year with respect to creditor & I hold the same would amount to cessation of liability+ Indian Evidence Act Sec. 101 “whoever desires the court to give judgment as to any legal right or liability deponent on the existence of facts, which he asserts must prove that those fact exist.” 9 ITA No. 192/JPR/2023 M/S Shri Balaji Builders vs. ACIT 2.5. We have heard the rival contention and perused material available on record. Brief facts of the case are that the assessee firm had filed its return of income on 28-09-2013 declaring total income of Rs.2,83,88,360/- for the year under consideration. In this case the AO made addition of Rs.10,96.237/- in the hands of the assessee by observing at para 6 and 6.1 of his order as under:- ‘’6. With reference to the setting aside directions of the Hon’ble ITAT with regard to the addition on account of difference in accounting balance of sundry creditors namely M/s/ Purlia Metal Casting Private Ltd. came to notice during the original assessment proceedings as well as this afresh (set aside) assessment proceedings. This difference in such creditors account remained as it is. The assessee firm has submitted that such difference is in opening balance and it could not be taxed u/s 68 of the Act. On perusal of information and documents regarding the issue, it has transpired that the assessee firm has remitted or ceased the said liability. Hence, the provision of Section 41(1)(a) of the Act is clearly applicable in the case of the assessee firm, it reads below:- Profit chargeable to tax 41(1) Where an allowance or deduction has been made in assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee 10 ITA No. 192/JPR/2023 M/S Shri Balaji Builders vs. ACIT (hereinafter referred to as the first-mentioned person) and subsequently during any previous year:- 1. The first mentioned person has obtained whether in cash or in any other manner whatsoever, any amount in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; 6.1 In view of the above facts and circumstances of the case, the amounting difference in the said creditor’s account is clearly covered under the terms of section 41(1) of the Act as cessation of such liability to the tune of Rs.10,96,237/- and the same is hereby added to its total taxable income for the year under consideration.’’ In first appeal, the ld. CIT(A) upheld the action of the AOs which is mentioned at para 7.3 & 7.4 of his order (supra). It is noted from the available records wherein the ITAT had directed the AO to call for reconciliation for the assessee as well as confirmation from the creditor. 11 ITA No. 192/JPR/2023 M/S Shri Balaji Builders vs. ACIT From written submission of the assessee, it is also noted that the assessee in order to reconcile the outstanding credit balance in its books of account in the account of M/s. Purlia Metal Casting (P) Ltd. of Rs.11,62,831/-as on 31-03-2012 (PBP 12) has explained that it has not carried out any transaction in the year under consideration (PBP 13). We also noted that as against this and as per information received from M/s. Purlia Metal Casting (P) Ltd in the original assessment proceedings, there is a debit balance as on 31-03-2012 of Rs.66,594/- in the name of the assessee (PBP 20).It is also revealed from the copy of ledger account of M/s. Purlia Metal Casting (P) Ltd for the F.Y. 2011-12 in the books of the assessee wherein it is noted that the assessee purchased building material of Rs.33,94,215/- against which payment of Rs.22,31,284/- was made in that year leaving a balance of Rs.11,62,831/- as on 31-12-2012. It is also noted that thereafter no transaction was carried out during the year under consideration and the closing balance as on 31-03-2013 remained the same. In the Financial year 2013-14 the amount had been paid in cash between 02-05-2013 to 30-09- 2013 which shows that the assesee had provided the reconciliation but the AO had not sought any clarification/confirmation from the creditor and it is not justified on the part of the ld. CIT(A) to observe that the assessee did not reconcile the difference and thus addition confirmed by the ld. 12 ITA No. 192/JPR/2023 M/S Shri Balaji Builders vs. ACIT CIT(A) without following the direction of ITAT is bad in law. It is also noted from the submission of the ld. AR of the assessee wherein he asserted that even if the account of the assesee as per books of M/s. Purlia Metal Casting (P) Ltd is considered to be correct which indicates that the liability ceased to exists on 31-03-2012 relevant to AY 2012-13 inasmuch as the difference of Rs.10,96,237/- (Rs.11,62,831 minus Rs.66,594/-) is exisiting on 31-03-2012. Thus there is no occasion to presume that the liability has ceased to exist in the year under consideration and such difference cannot be otherwise added u/s 41(1) in the year under consideration. It is also noted from the submissions of the ld. AR of the assessee wherein he submitted that the ld. CIT(A) had held that the ledger account for F.Y. 2013-14 had been produced for the first time during the appellate proceedings but it appears that he ignored the fact that in first round of appeal the assessee had specifically mentioned that outstanding amount was paid in F.Y. 2013-14. It is also noted that in the year under consideration and as per direction of the ITAT, the AO made trading addition of Rs.17,45,664/- which is much more than the addition of Rs.10,96,237/- made u/s 41 (1) of the Act and thus it should be set off against the trade addition made. In view of the above deliberation and circumstances of the facts of case, the Bench does not concur with the 13 ITA No. 192/JPR/2023 M/S Shri Balaji Builders vs. ACIT findings of the ld. CIT(A) on the issue in question (supra) and thus the appeal of the assessee is allowed. 3.0 In the result, the appeal of the assessee is allowed Order pronounced in the open court on 12/07/2023. Sd/- Sd/- ¼jkBksM deys'k t;UrHkkbZ ½ ¼MkWa-,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;dlnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 12 /07/2023 *Mishra vkns'k dh izfrfyfivxzsf’kr@Copy of the order forwarded to: 1. The Appellant- M/s Shri Balaji Builders, Alwar. 2. izR;FkhZ@ The Respondent- ACIT, Circle-1, Alwar. 3. vk;djvk;qDr@ The ld CIT 4. foHkkxh; izfrfuf/k] vk;djvihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 5. xkMZQkbZy@ Guard File (ITA No. 192/JPR/2023) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asstt. Registrar