M/s. Royal Builders, Surat V. The ACIT.,Circle-3, Surat

ITA 2744/AHD/2009

• Counselvise Citation: 274420514 RSA 2009
• Duration Of Justice: 2 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAMESH MALLPANI
• Keywords: Unexplained cash credit; Recovery proceedings
• Section: 143(3); 234B; 133(6); 194C; 37; 28; 11

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI D.K.TYAGI, JM AND A. MOHAN ALANKAMON Y, AM. ITA NO.2744/AHD/2009 ASST. YEAR:2006-07 M/S ROYAL BUILDERS, 40, PRATISHTHA AWAS SOCIETY, SARELAWADI, GHOD DOD ROAD, SURAT. VS. ASSTT. CIT, CIRCLE-3, SURAT. (APPELLANT) .. (RESPONDENT) AND ITA NO.2899/AHD/2009 ASST. YEAR:2006-07 ASSTT. CIT, CIRCLE-3, SURAT. VS. M/S ROYAL BUILDERS, 40, PRATISHTHA AWAS SOCIETY, SARELAWADI, GHOD DOD ROAD, SURAT. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI RAMESH MALLPANI, AR REVENUE BY:- SHRI VINOD TANWANI, SR.DR DATE OF HEARING :22/12/2011 DATE OF PRONOUNCEMENT : 29/12/2011. ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 2 O R D E R PER D. K. TYAGI, JUDICIAL MEMBER . THESE TWO APPEALS ARE CROSS APPEALS ONE FILED BY THE ASSESSEE AND THE OTHER BY THE REVENUE AGAINST THE ORDER OF LD. C IT(A) DATED 31/07/2009. ITA NO.2744/AHD/2009 ASST. YEAR 2006-07 (ASSESSEES APPEAL) 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL :- (1) THAT THE HONBLE CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS.1,74,44,764/- U/S 40(A)(IA) OF T HE ACT. THE ADDITION SO SUSTAINED BY HONBLE CIT(A) IS WRONG, U NJUSTIFIED AND BEYOND THE PROVISIONS OF LAW. (2) WITHOUT PREJUDICE TO ABOVE GROUND OF APPEAL, THE AP PELLANT PRAYS THAT IF ANY PORTION OF ABOVE DISALLOWANCE U/S 40(A)(IA) IS SUSTAINED THEN THE SAME MUST BE ALLOWED AS DEDUCTIO N IN NEXT YEAR I.E. ASST. YEAR 2007-08 AS PER PROVISO BELOW S AID SUB- CLAUSE (IA) OF CLAUSE (A) OF SECTION 40 OF THE ACT. (3) THAT HONBLE CIT(A) HAS ERRED IN SUSTAINING CHARGIN G OF INTEREST U/S 234B IN RESPECT OF ABOVE ADDITION/DISA LLOWANCE. ITA NO.2899/AHD/2009 ASST. YEAR 2006-07 (REVENUES APPEAL): 3. THE REVENUE HAS RAISED FOLLOWING GROUND IN ITS A PPEAL :- (1) ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY A O OF RS.1,07,27,834/- ON ACCOUNT OF IN GENUINE AND UNEXP LAINED CREDITS IN THE NAMES OF SO CALLED 11 SUB-CONTRACTOR S. 4. THE EFFECTIVE GROUND OF ASSESSEES APPEAL RELATE S TO DISALLOWANCE OF RS.1,74,44,764/- UNDER THE PROVISIONS OF SECTION 40 (A)(IA) OF THE IT ACT, ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 3 1961. THE FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF CONSTRUCTION OF ROADS AS PER CONTRACT RECEIVED F ROM VARIOUS GOVERNMENT AUTHORITIES. DURING THE YEAR UNDER CONSI DERATION THE ASSESSEE FILED RETURN OF INCOME OF RS.6,64,733/-. THE AO NOT ED THAT THE ASSESSEE HAD DEDUCTED TAX FROM EXPENSES TOTALING RS.1,77,32, 164/- BUT THE TAX DEDUCTED AT SOURCE FROM SUCH PAYMENTS WAS PAID INTO THE GOVT. ACCOUNT ONLY ON 30.5.2006 WHICH WAS BEYOND THE DUE DATE SIN CE ALL SUCH PAYMENTS WERE MADE PRIOR TO FEBRUARY, 2006. THE AO THEREFORE ISSUED A SHOW CAUSE NOTICE ASKING THE ASSESSEE TO EXPLAIN WH Y SUCH EXPENSES SHOULD NOT BE DISALLOWED UNDER THE PROVISIONS OF SE C.40(A)(IA) R.W.S. 194C OF THE IT ACT. THE ASSESSEE SUBMITTED THAT OUT OF T HE PAYMENTS TO 24 PARTIES AS LISTED IN PARA 4.2, THE TAX DEDUCTED AT SOURCE ON PAYMENTS MADE TO 15 PARTIES HAD BEEN DEPOSITED ON OR BEFORE 31.3. 2006 WHILE IN SOME OF THE CASES, WHERE THERE WAS A SHORTFALL, THE BALANCE SUM WAS PAID AFTER THE SAID DATE. THE ASSESSEE PROVIDED A DETAILED CHART S HOWING THE NAMES OF THE PARTIES, THE AMOUNTS AND DETAILS WHEN THE TDS H AD BEEN DEPOSITED INTO THE GOVT. ACCOUNT. CASES WERE ALSO SHOWN WHERE NO TAX WAS DEDUCTIBLE. THIS CHART HAS BEEN REPRODUCED BY THE A O ON PAGES 3-6 OF THE ASSESSMENT ORDER. IT WAS ARGUED THAT THE PROVISIONS OF SEC.40(A)(IA) WERE NOT APPLICABLE TO THE PAYMENTS MADE TO THE SAID 15 PARTIES. WITH REGARD TO THE REMAINING PAYMENTS, IT WAS ARGUED THAT THEY WER E PAID LATE BECAUSE IN THE ASSESSEES LINE OF BUSINESS, THE BILLS ARE RECE IVED AFTER A GAP OF 2-3 ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 4 MONTHS, EVEN THOUGH THE WORK IS COMPLETED MUCH EARL IER. AS A RESULT, THE TAX TO BE DEDUCTED AT SOURCE COULD NOT BE WORKED OU T CORRECTLY AND PAID INTO THE GOVERNMENT ACCOUNT ON TIME. HOWEVER, TAX H AD BEEN DEDUCTED AT SOURCE FROM SUCH PAYMENTS WHICH WERE LEGITIMATE BEC AUSE EXPENSES. IT WAS FURTHER CONTENDED THAT IN ALL CASES, TDS HAD BE EN DEPOSITED EITHER BEFORE 31.3.2006 OR IN THE NEXT FINANCIAL YEAR. IF ANY SUM IS DISALLOWED DURING THE YEAR UNDER CONSIDERATION THEN IT WOULD H AVE TO BE ALLOWED IN THE NEXT FINANCIAL YEAR IN WHICH THE TDS HAD BEEN D EPOSITED INTO THE GOVERNMENT ACCOUNT. THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE AND COMPLETED THE ASSESSMENT U/S 143(3) DETERMINING TOTAL INCOME AT RS.2,88,37,331/- BY MAKING FOLLOWING ADDITIONS: -DISALLOWANCE OF EXPENSES U/S 40(A)(IA) RS.1,74,44 ,764/- -ADDITION ON ACCOUNT OF IN-GENUINE LIABILITY RS.1, 07,27,834/- 5. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) WHEREIN VIDE WRITTEN SUBMISSIONS IT WAS SUBMITTED T HAT SEC.40 IS NON- OBSTANTE TO SECTIONS 30 TO 38, BUT NOT TO SEC.28, W HICH MEANS THAT THE PROVISIONS OF SEC.40 DO NOT OVERRIDE THE PROVISIONS OF SEC.28 OF THE IT ACT, WHICH IS THE CHARGING SECTION OF INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE PAYMENTS WERE MADE TO SUB-CONTRACTORS, AND THE ASSESSEE BEING A CONTRACTOR, SUCH PAYMENTS WERE DIRECTLY DEDUCTIBLE U/S 28 OF THE ACT. THEREFORE, THE PAYMENTS COVERED BY SEC.28 COULD NOT BE ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 5 DISALLOWED U/S 40(A)(IA) OF THE ACT. THE TDS WHICH WAS DEPOSITED INTO THE GOVT. ACCOUNT ON 30.5.2006 HAD BEEN DEDUCTED ON 31.3.2006. IT WAS SUBMITTED THAT IN THE ASSESSEES LINE OF BUSINESS, THE BILLS FROM THE SUB- CONTRACTORS WERE RECEIVED VERY LATE AND THE FINAL A MOUNT WAS PAID WHEN ALL THE BILLS WERE RECEIVED AND FINALIZED, WHICH WA S MAINLY IN THE MONTH OF MARCH. AS A RESULT, TAX BECAME DEDUCTIBLE AT SOU RCE ONLY IN THE MONTH OF MARCH. THE AO WAS NOT JUSTIFIED IN STATING THAT SUCH TAX WAS DEDUCTIBLE IN EARLIER MONTHS. EVEN THE SHORTFALL IN THE DEDUCTION WAS MADE UP IN THE MONTH OF MARCH. IT WAS THUS SUBMITTE D THAT IT WAS THE TAX DEDUCTED AT SOURCE ON 31.3.2006 WHICH HAD BEEN DEPO SITED ON 30.5.2006 AND ALL OTHER DEDUCTIONS WERE PAID INTO THE GOVERNM ENT ACCOUNT IN TIME, DURING THE YEAR ITSELF. IT WAS ALSO SUBMITTED THAT AS PER AMENDED PROVISIONS IF THE TDS IS PAID BEFORE THE DUE DATE O F FILING OF THE RETURN NO DISALLOWANCE COULD BE MADE. OUT OF TOTAL DISALLOWAN CE OF RS.1,74,44,764/- AND SUM OF RS.15,46,203/- WAS PAID TO SHRI DHANSUKHBHAI BHAGAT AGAINST THE PURCHASE OF GOODS A ND NOT FOR ANY CONTRACT WORK. THE ASSESSEE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE ( P) LTD. VS. CIT (2007) 293 ITR 226 TO STATE THAT WHERE THE PAYEE HA S ALREADY PAID TAX ON THE INCOME ON WHICH THERE IS A SHORT DEDUCTION OF T AX AT SOURCE, RECOVERY OF TAX CANNOT BE MADE ONCE AGAIN FROM THE TAX DEDUC TOR. ALTERNATIVELY IT WAS SUBMITTED THAT THE SUM OF RS.1,74,44,764/- DISA LLOWED U/S 40(A)(IA) ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 6 DURING THE YEAR UNDER CONSIDERATION WOULD HAVE TO B E ALLOWED IN THE SUBSEQUENT FINANCIAL YEAR WHEN THE TAX DEDUCTED AT SOURCE FROM SUCH PAYMENTS HAD BEEN DEPOSITED INTO THE GOVT. ACCOUNT. 6. THE LD. CIT(A) CONSIDERED THE VIEW TAKEN BY THE AO AND THE SUBMISSIONS OF THE ASSESSEE AND AFTER DISCUSSING TH E ISSUE IN DETAIL FROM PAGES 4 TO 8 OF HIS ORDER CONFIRMED THE ACTION OF T HE AO. AGAINST THIS ORDER OF THE LD. CIT(A) THE ASSESSEE I S IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. COUNSEL OF THE ASSESSEE OPPOSING THE ORD ERS OF LOWER AUTHORITIES SUBMITTED THAT THE ISSUE IS NOW COVERED IN FAVOUR OF ASSESSEE BY VARIOUS DECISIONS OF THE TRIBUNAL. HE HAS FILED COPIES OF SOME OF THE DECISIONS WHICH ARE AS UNDER :- 1) H. S. MOHINDRA TRADERS VS. ITO (2010) 132 TTJ (D EL) 701. 2) BAPUSHEB NANASAHEB DHUMAL VS. ACIT (2010) 132 TT J (MUM) 694. 3) AYUSHAKTI AYURVED (P) LTD. VS. ACIT (2010) 37 SO T 313 (MUM) 4) DCIT VS. M/S CHANDABHOY & JASSOBHOY ITA NO.20/MU M/2010 5) DCIT VS. M/S S. K. TEKRIWAL ITA NO.1135/KOL/2010 THEREFORE, HE SUBMITTED THAT THE ISSUE MAY KINDLY B E DECIDED IN FAVOUR OF THE ASSESSEE IN ACCORDANCE WITH THE ABOVE DECISIONS . 8. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDE RS OF LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS LAID DOWN IN THE PROVISIONS OF SECTION 194C(2) AND SEC.40(A)(IA). ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 7 THEREFORE, THE AO WAS JUSTIFIED IN MAKING THE DISAL LOWANCE AND THE LD. CIT(A) HAS RIGHTLY SUSTAINED THE SAME. THE ORDER OF LD. CIT(A) MAY KINDLY BE UPHELD. 9. HEARD BOTH THE PARTIES AND PERUSED THE RECORD. W E FIND THAT THE AO HAS MADE AN ADDITION OF RS.1,74,44,764/- BY INVOKIN G THE PROVISIONS OF SECTION 40(A)(IA) R.W.S. 194C ON THE GROUND THAT TH OUGH THESE EXPENSES WERE INCURRED FROM APRIL TO FEBRUARY BUT TAX WAS DE DUCTED ON 31 ST MARCH,2006 AND THE SAME WAS DEPOSITED ON 30.5.2006 WHICH WAS BEYOND THE DUE DATE SINCE ALL SUCH PAYMENTS WERE MADE PRIO R TO FEBRUARY, 2006. THE ASSESSEES CASE, HOWEVER, IS THAT IN VIEW OF TH E AMENDED PROVISIONS OF SECTION 40(A)(IA), IF THE TAX HAS BEEN DEDUCTED IN THE MONTH OF MARCH AND THE SAME IS DEPOSITED BEFORE DUE DATE OF FILING OF RETURN WHICH HAS BEEN DONE IN THIS CASE, NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA). WE FURTHER FIND THAT ON SIMILAR FACTS, THE TRIBUNAL, D ELHI BENCH IN THE CASE OF IN THE CASE OF H.S.MOHINDRA TRADERS VS. ITO (2010) 132 TTJ (DEL) 701 RELIEF WAS GIVEN TO THE ASSESSEE. IN THAT CASE ASSE SSEE WAS REQUIRED TO DEDUCT TAX ON THE EXPENDITURE IN THE MONTH OF FEBRU ARY, 2007 BUT THE ASSESSEE DEDUCTED TAX ONLY IN THE MONTH OF MARCH, 2 007 AND TAX SO DEDUCTED WAS PAID ON 9 TH APRIL, 2007 AND 12 TH JUNE, 2007. THE AO RELYING ON THE PROVISIONS OF SECTION 40(A)(IA) WAS OF THE O PINION THAT SINCE THE TAX WAS NOT DEDUCTED AND DEPOSITED WITHIN THE STIPULATE D TIME, THE ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 8 EXPENDITURE COULD NOT BE ALLOWED DURING THE YEAR UN DER APPEAL. HE, THEREFORE, DISALLOWED THE EXPENDITURE. THIS ACTION OF THE AO WAS ALSO CONFIRMED BY THE LD. CIT(A). HOWEVER, THE TRIBUNAL DECIDED THE ISSUE BY OBSERVING AS UNDER :- 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE UNDISPUTED FACTS ARE THAT THE TAX IN RESPECT OF ABOVE MENTIONED EXPENDITURE WAS DEDUCTED BY THE ASSESSEE IN THE MONTH OF MARCH, 2007 AND THE TDS SO DEDUCTED WA S PAID MUCH BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCO ME AS PRESCRIBED IN SEC.139(1) OF THE IT ACT, 1961 WHICH, IN THE PRESEN T CASE, IS 30 TH SEPT., 2007. 7. SEC.40(A)(IA) DESCRIBES THE CIRCUMSTANCES UNDER WHICH IN CASE THE ASSESSEE FAILS TO DEDUCT AND DEPOSIT THE TAX, THE A MOUNT CAN BE DISALLOWED. FOR PROPER APPRECIATION OF THE STATE OF AFFAIRS, IT IS NECESSARY TO REPRODUCE THE RELEVANT PART OF S.40(A)(IA) WHICH READS AS UNDER : SEC.40(A)(IA): ANY INTEREST, COMMISSION OR BROKERA GE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR F OR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID. 8. ACCORDING TO THE AFOREMENTIONED SECTION, IF A PA RTICULAR ASSESSEE IN CASE OF PAYMENT OF INTEREST, COMMISSION, BROKERAGE, RENT OR ROYALTY, FEE FOR PROFESSIONAL SERVICES OR FEE FOR TECHNICAL SERV ICES PAYABLE TO A RESIDENT, OR AMOUNT PAYABLE TO A CONTRACTOR OR SUB- CONTRACTOR BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED O R, AFTER DEDUCTION, HAS NOT BEEN PAID IN FOLLOWING CONDITIONS : (I) IN A CASE WHERE THE TAX WAS DEDUCTIBLE AND WAS SO D EDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR, ON OR B EFORE THE DUE DATE SPECIFIED IN SUB-S.(1) OF S.139, OR ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 9 (II) IN ANY OTHER CASE, ON OR BEFORE THE LAST DAY OF THE PREVIOUS YEAR. 9. THE READING OF THE ABOVE CLAUSE SHOWS THAT IF TH E TAX IS DEDUCTIBLE UNDER CHAPTER XVII-B AND THE SAID TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION IT HAS NOT BEEN PAID, THEN, IF THE TAX IS DEDUCTED DURING THE LAST MONTH OF PREVIOUS YEAR, THEN, THE LIABILITY OF THE ASSESSEE IS TO PAY THE SAME FOR THE ALLOWABILITY OF THE SAID EXPENDITURE ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-S.(1) OF S.139. SUB-S.(1) OF S.139 REGULATES THE DUE DATES OF FILING THE RETURN OF INCOME IN NORMAL CASE S. THE DUE DATE OF FILING THE RETURN IN THE PRESENT CASE IS 30 TH SEPTEMBER, 2007. THE ASSESSEE IN THE PRESENT CASE HAS DEDUCTED TAX IN THE MONTH OF MARCH , 2007 AND IT HAS PAID THE SAID TDS BEFORE THE DUE DATE OF FILING THE RETURN. THEREFORE, THE DISALLOWANCE CANNOT BE MADE U/S 40(A)(IA) AS THERE IS NO DEFAULT ON THE PART OF THE ASSESSEE OF NON-DEDUCTION OR NON-PAYMEN T OF TDS IN ACCORDANCE WITH THE SAID PROVISION. THE DISALLOWANC E HAS WRONGLY BEEN UPHELD BY THE CIT(A) AND THE SAME DESERVES TO BE DE LETED. ACCORDINGLY THE DISALLOWANCE IS DELETED. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPIN ION THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION AND TH E SAME IS HEREBY DELETED. THIS GROUND OF ASSESSEE IS ALLOWED. 10. THE OTHER GROUND IS REGARDING CHARGING OF INTER EST U/S 234B WHICH IS CONSEQUENTIAL AND NO ADJUDICATION IS REQUIRED. 11. THE GROUND RAISED BY THE REVENUE RELATES TO DEL ETION OF ADDITION OF RS.1,07,27,834/- MADE BY AO ON ACCOUNT OF IN-GENUIN E AND UNEXPLAINED CREDITS. DURING THE COURSE OF ASSESSMENT PROCEEDING S THE AO NOTED THAT THE ASSESSEE HAD SHOWN OUTSTANDING CREDITORS OF RS. 4,42,38,809/-. THE AO ISSUED NOTICES U/S 133(6) AT RANDOM TO SOME OF T HE CREDITORS. NOTICES ISSUED TO 11 CREDITORS AT THE GIVEN ADDRESSES WERE RETURNED UNSERVED. THE AO ALSO HAD LOCAL ENQUIRIES CONDUCTED BY THE INSPEC TOR OF INCOME-TAX ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 10 WHO REPORTED THAT 6 OF THE 11 CREDITORS DID NOT LIV E AT THE GIVEN ADDRESSES. TWO OF THE ADDRESSEES WERE NOT FOUND WHILE 3 CREDIT ORS DID NOT FURNISH ANY REPLY. THE AO THEREFORE, ISSUED A SHOW CAUSE NO TICE ASKING THE ASSESSEE TO EXPLAIN WHY THE TOTAL CREDITS OF RS.1,0 7,27,834/- STANDING IN THE NAMES OF THE SAID PERSONS SHOULD NOT BE TREATED AS UNVERIFIABLE AND HENCE, NOT GENUINE. THE ASSESSEE FURNISHED A DETAIL ED REPLY WHICH THE AO REPRODUCED IN PARA 5.2 PAGES 11 -14 OF THE ASSESSME NT ORDER. IT WAS SUBMITTED BY THE ASSESSEE THAT THE AMOUNTS SHOWN OU TSTANDING INCLUDED OPENING BALANCES IN SOME CASES I.E. THE AMOUNTS OUT STANDING SINCE THE PRECEDING YEAR. DETAILED EXPLANATION WAS FURNISHED WITH REGARD TO EACH CREDITOR LISTED BY THE AO. IT WAS ALSO SUBMITTED TH AT PAYMENTS TO ALL THE PARTIES WERE MADE BY ACCOUNT-PAYEE CHEQUES. WHILE S OME OF THE PAYMENTS WERE MADE DURING THE CURRENT YEAR, SOME WE RE PAID IN THE SUBSEQUENT YEAR. THE ASSESSEE FURNISHED A COPY OF I TS BANK STATEMENT SHOWING SUCH PAYMENTS. IT WAS CONTENDED THAT THE BA NK STATEMENT MAY BE VERIFIED TO CONFIRM THE FACT THAT THE CHEQUES ISSUE D BY THE ASSESSEE HAD BEEN CREDITED TO THE BANK ACCOUNT OF THE SAID CREDI TORS. THE ASSESSEE WAS NOT IN A POSITION TO PRODUCE THE CREDITORS PERSONAL LY SINCE, IT HAD NO CONTROL OVER THEM. THE ASSESSEE HAD CEASED TO DEAL WITH SOME OF THE CREDITORS. LEDGER ACCOUNTS OF ALL THE CREDITORS AND PAYMENT DETAILS WERE FURNISHED. THE AO, HOWEVER, REJECTED THE SUBMISSION S OF ASSESSEE AND ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 11 DISALLOWED THE SAID SUM BY TREATING THE SAME AS UNE XPLAINED AND UNVERIFIABLE AND ADDED THE SAME TO THE INCOME OF TH E ASSESSEE. 12. THE ASSESSEE WENT IN APPEAL BEFORE LD. CIT(A) W HEREIN VIDE WRITTEN SUBMISSION IT WAS CONTENDED THAT THE BOOKS OF ACCOU NT ALONG WITH THE BILLS AND VOUCHERS PERTAINING TO THE SAID CREDITORS WERE FURNISHED BEFORE THE AO, WHO HAD VERIFIED THE SAME. NO DEFECT WAS FO UND IN THE BOOKS AND THE BOOK RESULTS HAD BEEN ACCEPTED. ALL THE PAYMENT S WERE MADE BY ACCOUNT PAYEE CHEQUES. THE AO HAD VERIFIED THE PAYM ENTS FROM THE LEDGER ACCOUNTS AS ALSO THE BANK STATEMENTS. AN ADV ERSE VIEW COULD BE TAKEN BECAUSE THE CREDITORS HAD THEIR BANK ACCOUNTS IN THE SAME BANK. THE CREDITORS WERE IN RESPECT OF PURCHASES OF GOODS AND SERVICES, THE GENUINENESS OF WHICH WAS NOT CHALLENGED BY THE AO. WHEREVER APPLICABLE, TAX WAS DEDUCTED AT SOURCE AND CERTIFIC ATES FURNISHED ALONG WITH PAN OF THE CREDITORS WHICH WERE AVAILABLE WITH THE AO. IN SUPPORT OF HIS CONTENTION THE LD. AR PLACED RELIANCE ON THE DECISIONS OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS. ROHINI B UILDERS (2002) 256 360 (GUJ) AND IN THE CASE OF CIT VS. MK BROTHERS (1 987) 163 ITR 249 (GUJ). IT WAS FURTHER SUBMITTED THAT THE NP RATIO D ISCLOSED DURING THE YEAR WAS 2.47% AS AGAINST 1.70% IN THE IMMEDIATELY PRECE DING YEAR. THE ADDITION MADE BY THE AO OF THE SUM OF RS.1,07,27,83 4/- HAD ENHANCED NP RATIO TO 12.09%, WHICH WAS VERY UNREASONABLE. NO ME NTION WAS MADE BY ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 12 THE AO IN THE FINAL SHOW CAUSE NOTICE OF THE UNVERI FIABILITY OF SUCH CREDITORS. HE MADE THE ADDITION WITHOUT GIVING AN O PPORTUNITY TO THE ASSESSEE TO FURTHER EXPLAIN ITS CASE. 13. AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) DISCUSSED THE ISSUE IN DETAIL AT PAGES 1 1 TO 15 OF HIS ORDER AND DELETED THE ADDITION MADE BY THE AO. AGAINST THIS ORDER OF THE LD. CIT(A), REVENUE IS IN APPEAL. 14. THE LD. DR SUPPORTED THE ORDER OF ASSESSING OFF ICER WHEREAS THE LD. COUNSEL OF THE ASSESSEE RELIED ON THE ORDER OF LD. CIT(A). 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD. WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO I NFIRMITY IN THE ORDER OF LD. CIT(A). THE OBSERVATION OF LD. CIT(A) THAT PAYMENTS HAD BEEN MADE BY ACCOUNT-PAYEE CHEQUES AND THE SAME PAYMENTS HAD FLOWN INTO BANK ACCOUNTS OF THE CREDITORS, THOUGH MAINTAINED IN THE SAME BANK, PROVED THAT THE CREDITORS EXISTENCE. INSTEAD OF STOPPING HIS ENQUIRIES AT THIS POINT, THE AO COULD HAVE VERIFIED THEIR BANK ACCOUN TS TO ASCERTAIN AS TO WHETHER OR NOT THE FUNDS FROM THE SAID BANK ACCOUNT S HAD FLOWN BACK TO THE ASSESSEE. GIVEN SUCH FACTS AND CIRCUMSTANCES OF THE CASE, IT IS CLEAR THAT THE BASIS FOR TREATING THE LIABILITIES TOTALIN G TO RS.1,07,27,834/- AS INGENUINE OR BOGUS WAS NOT WELL FOUNDED AND NOT PRO PERLY GROUNDED ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 13 COULD NOT BE CONTROVERTED BY THE LD. DR. THE ONLY P ROVISION IN THE INCOME-TAX ACT IS U/S 41(1) WHICH PROVIDES FOR TREA TING THE CESSATION OF LIABILITIES AS THE ASSESSEES INCOME. IN THIS PARTI CULAR CASE, NO ATTEMPT WAS MADE TO PROVE OR TO SHOW THAT THE LIABILITIES TOTAL ING TO RS.1,07,27,834/- HAD CEASED TO EXIST AND THAT THE PROVISIONS OF SECT ION 41(1) WAS APPLICABLE. IN OUR OPINION, THE LD. CIT(A) HAS RIGH TLY DIRECTED THE AO TO DELETE THE ADDITION OF RS.1,07,27,834/-. WE UPHOLD THE SAME. THE GROUND RAISED BY THE REVENUE IS DISMISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED WHEREAS THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 29.12.2011. SD/- SD/- (A. MOHAN ALANKAMONY) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD, MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NO.2744 & 2899/AHD/2009 ASST. YEAR 2006-07 14 1.DATE OF DICTATION 22/12/2011. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 23/12/2011 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. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..