The Dy. CIT, Gandhinagar Circle, Gandhinagar V. M/s. Shanti Super Buildcon, Gandhinagar

ITA 2765/AHD/2017

AI Insights

The case involves appeals by the Revenue against the orders of the Commissioner of Income-Tax (Appeals), which had deleted the additions made by the Assessing Officer under section 41(1) of the Income Tax Act, 1961. The additions pertained to an outstanding credit balance and alleged bogus payments to M/s. Paper Star Marketing in the assessment years 2013-14 and 2014-15. The Tribunal examined whether the liabilities had ceased to exist and whether the transactions were genuine. The Tribunal found that the transactions were genuine based on the assessments of the preceding years and the payments made did not constitute a cessation of liability.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133642 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-11-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 07-12-2017
• Other Referred Cases: CIT Vs. Bhogilal Ramjibhai Atara, CIT Vs. Nitin S. Garg, Dattatray Poultry Breeding Farm P.ltd. Vs. CIT, Suresh Kumar T. Jain Vs. ITO, Glen Williams Vs. ACI, GT Vs. Shri Vardhman Overseas Ltd, M/s. Dy CIT Vs. Amod Petrochem Pvt Ltd, CIT-III Vs. BhogilalRamjibhaiAtara, Manojkumar Saraf V/s ITO, E. UmmerBava V/s CIT, Sunil Thomas V/s ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Additional evidence; Condonation of delay; TDS; Set aside
• Section: 68; 69; 133(6); 208; 22

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘D’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.2764 and 2765/Ahd/2017 Assessment Year :2013-14 and 2014-15 DCIT, Gandhinagar Circle Gandhinagar. Vs M/s.Shanti Super Buildcon B/108, Swagat Rain Forest-1 Kudasan, Gandhinagar 382 001. PAN : ABWFS 4143 H (Applicant) (Responent) Assesseeby : Shri Mohit Balani, CA Revenue by : Shri Sanjay Fungaliya, CIT स ु नवाई क तार ख/D a t e o f H e a r i n g : 2 9 / 1 1 / 2 0 2 2 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 2 2 / 0 2 / 2 0 2 3 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The present appeals have been filed by the Revenue against separate orders passed by the Ld.Commissioner of Income- Tax(Appeals), Gandhinagar, Ahmedabad (hereinafter referred to as “ld.CIT(A)”) dated 21.8.2017 and 31.8.2017 under section 250(6) of the Income Tax Act, 1961 ("the Act" for short) pertaining to Assessment Year 2013-14 and 2014-15 respectively. 2. Registry has noted that both the appeals of the Revenue are barred by limitation by 31 days. Revenue has filed an application for condonation of delay of even dated 6.12.2017. The reasons for ITA No.2764 & 2765/Ahd/2017 2 delay in filing appeals before the Tribunal are identically worded. For brevity, we reproduce contents of the same as under: “Date : 06.12.2017 To The Deputy/Asstt.registrar Income tax Appellate Tribunal, Ahmedabad. Sir, Sub: Request for condonation of delay for filing appeal in the case of M/s.Shanti Super Buildcon against the order of CIT(A) Gandhinagar,Ahmedabad, in order No.CIT(A)/GNR/209/2016-17 dated 31,08.2017 for A.Y.2014-15 – Reg. Kindly refer to above, 2. The AO namely DCIT, Gandhinagar Circle, Gandhinagar, the applicant has preferred the above Appeal under section 253 of the Income Tax Act,1961. The applicant craves leaves to refer to and rely upon the grounds stated in the appeal memo. 3. It is humbly submitted that the said appeal was required to be filed on or before 07.11.2017. However, this appeal could not be filed in time due to the fact that the Pr.CiT-3, Ahmedabad is holding the additional charge of PCIT Gandhinagar and that there was tremendous time barring workload in each of these charges compelled with the fact that many of these appeals were of very high tax impact, which required very thorough and diligent study of the decisions of the facts on records. Further, the movement of case records from Gandhinagar to Ahmedabad and vice -versa also took some time. 4. In view of the above, it is humbly prayed that the Hon'ble ITAT may please condone the delay of 30 days. Yours faithfully, Sd/- (PRITA MENO) ITO (TECH) For Pr.Commissioner of Income-tax Gandhinagar.” 3. On perusal of the contents of the above application, we are satisfied that the Department was prevented by sufficient reasons justifying delay of 31 days in filing the appeals before the Tribunal, and therefore, we are inclined to condone the delay and proceed to take up both the appeals for adjudication on merit. 4. It was pointed out that the issue arising in both the appeals was inter-linked, relating to disallowance made on account of ITA No.2764 & 2765/Ahd/2017 3 cessation of liability as per provisions of section 41(1) of the Act with respect to outstanding balance of one creditor in the books of the assessee i.e. M/s.Paper Star Marketing (“PSM” for short) in the Asst.Year 2013-14 and identical addition made under section 41(1) of the Act on account of alleged bogus payment found to have been made by the assessee to the same party in Asst.Year 2014-15. It was also pointed out that this issue of addition made by invoking provision of section 41(1) of the Act in both the years was in relation to transaction of the assessee with a particular party, and therefore, the issues were inter-linked. He pointed out that though in Asst.Year 2014-15, there arose another issue also, of addition made by the AO under section 69 of the Act of outstanding credit balance in the books of the assessee, but since one particular issue was inter-linked and inter-related, both the appeals needed to be heard together. 5. Ld.DR fairly agreed with this proposition, and both the appeals therefore were taken up together for hearing and adjudication thereof. 6. We shall first be dealing with the Department’s appeal pertaining to Asst.Year 2013-14 in ITA No.2764/Ahd/2017. The solitary ground raised by the Department is as under: “1. Whether on the facts & circumstances of the case, the ld.CIT(A) was justified in deleting the addition of Rs.8,21,50,309/- under section 41(1) of the Act.” 7. The facts relating to the case are that during the assessment proceedings, the AO found that the assessee had failed to prove genuineness of the outstanding credit balance pertaining to one Shri JatinPriyankant Shah, proprietor of Paper Star Marketing, A-28, ITA No.2764 & 2765/Ahd/2017 4 Navkar Apartment, Vejalpur, Ahmedabad amounting to Rs.8,21,50,309/-. He noted that the said party had vide letter submitted during the assessment proceedings categorically denied to entering into any transaction with the assessee. He further noted that even the bank statement of the said party revealed no transaction undertaken with the assessee. Accordingly, the assessee was show caused as to why the impugned sum relating to the said party outstanding as on 31.3.2013 i.e. at the end of the impugned year be not added to the income of the assessee asper the provisions of section 41(1) of the Act. The assessee filed a reply stating that the outstanding balance of the said party pertained to the transaction undertaken by the assessee with the said party in the preceding year i.e.Asst.Year 2012-13 which had been completely scrutinized in the assessment proceedings, and not found tobe bogus by the AO. He further contended that genuineness of the outstanding balance is further proved by the fact that the assessee had made payment of Rs.45 lakhs to the said party in the impugned year by cheque. Copy of the bank statement of the assessee was filed as evidence. The assessee further contended that no addition in any case could be made under section 41(1) of the Act since the assessee had not written off any outstanding liability in its books, and provisions of section 41(1) are attracted only when there was cessation or remission of any liability which was not the case. The assessee further relied on the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Bhogilal Ramjibhai Atara, Tax Appeal No.588 of 2013 dated 4.2.2014 for the proposition that non-confirmation of balance outstanding by a party would not tantamount to remission or cessation of the liability so as to invoke provision of section 41(1) of the Act. The AO after considering the submissions of the assessee held that the assessee had failed to prove genuineness of the ITA No.2764 & 2765/Ahd/2017 5 transaction undertaken with the impugned party i.e. PSM. He further noted that even the fact of payment of Rs.45 lakhs to the said party did not appear to be correct, since the said transaction is not reflected in the bank account of the said party. He further noted that the proprietor of the said concern had categorically denied any transaction with the assessee, and the assessee had also failed to produce any agreement regarding contract entered with the said party. Noting of the above facts, the AO held that the impugned creditor was a bogus creditor, and therefore, he proceeded to add the outstanding balance reflected in the accounts of the said party by the assessee amounting to Rs.8,21,50,309/- by invoking provisions of section 41(1) of the Act holding that liability had ceased to exist. 8. The ld.CIT(A) however deleted the addition noting that in the preceding assessment year i.e.Asst.Year 2012-13 when the assessee had undertaken the transactions with the said party leading to the impugned outstanding credit balance, the transactions had been found to be genuine by the AO. The ld.CIT(A) further noted that the assessee had paid the impugned party Rs.45 lakhs in the impugned year and had verified the said facts from the bank account of the said party by calling upon bank statement from the bank by issuing notice under section 133(6) of the Act. Accordingly, the ld.CIT(A) held that the party being genuine and the assessee having made transaction with the said party during the year, there can be no case of cessation of any liability relating to the said party so as to invoke section 41(1) of the Act. He therefore deleted the disallowance made by the AO. The relevant finding of the ld.CIT(A) at para 4.3 to 4.5 of the order are as under: ITA No.2764 & 2765/Ahd/2017 6 ITA No.2764 & 2765/Ahd/2017 7 ITA No.2764 & 2765/Ahd/2017 8 ITA No.2764 & 2765/Ahd/2017 9 9. Before us, the contentions of the ld.DR was that section 41(1) of the Act had been rightly invoked by the AO because the assessee was found to have incorrectly claimed expenses in relation to the purchases made from the party in the preceding assessment year i.e. Asst.Year 2012-13 through scrutiny proceedings in the impugned year, since the party had denied any liability outstanding with the assessee, there was clear cessation of liability ; that two limbs for invoking section 41(1) of the Act on expenses having been claimed earlier by the assessee, and liability arisen on accounts of the same expenditure having ceased to exist have arisen in the impugned case, the provisions of section 41(1) had been rightly invoked. He heavily relied on the order of the AO in this regard. The ld.DR relied on the decision of the ITAT, Bangalore Bench in the case of Suresh Kumar T. Jain Vs. ITO, (2011) 128 ITD 74 (Bang) in support of his contentions. He further distinguished the case laws relied upon by the ld.CIT(A) while deleting the addition. In the case of Bhogilal Ramjibhai Atara (supra), he pointed out that the Hon’ble High Court had categorically held that for invoking section 41(1) of the Act,cessation or remission has to be during previous year relating to the Asst.Year under consideration, and finding this element missing, had deleted the addition made in the said case. The ld.DR pointed out that in the present case inquiry conducted by the AO, finding the outstanding balance to be non-existent had demonstrated ITA No.2764 & 2765/Ahd/2017 10 sufficiently the cessation of liability relating to the impugned party, and therefore, the decision in the case of Bhogilal Ramjibhai Atara (supra) does not apply to the facts of the present case.Referring the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Nitin S. Garg, (2012) 22 taxmann.com 59 (Guj), the ld.DR stated that in the said case, there was no inquiry found to have been made by the AO to lead to a finding of the cessation of liability, and therefore, the decision of Hon’ble Gujarat High Court in the said case rendered in favour of the assessee was not applicable in the facts of the present case. 10. The ld.counsel on the other hand relied on the order of the ld.CIT(A). He emphasized the fact that in Asst.Year 2012-13 the transactions of the assessee with the said party leading to the outstanding balance in the current year of the said party was found to be genuine by the AO. He drew our attention to the finding of the ld.CIT(A) in this regard in this decision as noted above. He also pointed out that even the ld.DR had conceded this fact. He stated that the transaction having been found to be genuine in the preceding year, it could not be said to have ceased to exist, finding it ingenuine in the impugned year; that this finding of the AO was contrary to the finding of the preceding year when the transaction of the assessee was thoroughly examined in the assessment proceedings. He further pointed out that the fact noted by the ld.CIT(A) that the liability could not be said to have ceased to exist in the light of the fact that the assessee had made payment of Rs.45 lakhs to the said party in the impugned year, which he confirmed by filing both copy of his bank statements and also bank statement of the said party. To this, the ld.DR countered by saying that the ld.CIT(A) had appreciated the additional evidence filed by the assessee in the form of copy of bank statement of the said party ITA No.2764 & 2765/Ahd/2017 11 reflecting the transaction of Rs.45 lakhs payment made by the assessee to the party during the impugned year in total disregard to the provisions of section and requirement of Rule 46A of the Income Tax Rules, 1962 without confronting the same to the AO, and therefore, the same could not be considered for the purpose of adjudicating the issue. The ld.counsel summed up by relying on the order of the ld.CIT(A) and decision of Hon’ble jurisdictional High Court in the case of Bhogilal Ramjibhai Atara(supra) and, Dattatray Poultry Breeding Farm P.ltd. Vs. CIT, 104 taxmann.com 366 (Guj) and CIT Vs. Nitin S. Garg (supra). Copies of the case laws are filed before us. 11. We have carefully considered submissions of both the parties have also gone through orders of the authorities below, as also decisions cited before us. 12. The issue to be adjudicated is with respect to the addition made by invoking provisions of section 41(1) of the Act as per which any expenses claimed by the assessee in earlier years, the liability of which ceased to exist or remitted, will be liable to be added to the income of the assessee on cessation or remission of the said liability. Before proceeding to adjudicate the issue, we first bring out relevant facts of the case. Section 41(1) has been invoked with respect to the outstanding liability in the books of the assessee as at the end of the impugned year relating to one party, M/s.Paper Star Marketing (PSM) amounting to Rs.8,21,50,309/-. The transaction leading to the impugned outstanding balance were undertaken by the assessee with the said party in the preceding year i.e.Asst.Year 2012-13 when it was examined by the AO who had held that the purchases from ITA No.2764 & 2765/Ahd/2017 12 PSM could not be held as non-genuine. Copy of the order of the AO for the said year i.e. Asst.Year 2012-13 was placed before us giving this finding, and this has been noted by the ld.CIT(A) also in para 4.3 of his order which the ld.DR has accepted and admitted to also before us. 13. Having stated the facts as above, it is relevant to point out that in the preceding year i.e.Asst.Year 2012-13, the AO had examined this transaction with the impugned party for its genuineness, for the reason that the said party had denied having any transaction with the assessee, and had stated that even his bank accounts did not reflect any transaction of the assessee. This fact comes out clearly from the assessment order for Asst.Year 2012-13 which was placed before us in PB Page No.27 to 44. At PB Page No.31 it is noted by the AO that sundry creditors “PSM” had not confirmed the transaction with the assessee at Rs.8,21,50,309/- and had stated that he had not made any transaction with the assessee and was also not known to the assessee; that on further scrutiny of the bank account of the said party, it was noticed that the said party had issued bogus bills and was working as entry operator. Copy of the assessment order is placed in PB page no.31. The AO however went on to hold the transaction as genuine at para 6 of the order for the preceding year as under: “6. The assessee’s reply has been carefully considered. The assessee has submitted that assessee has sub-contracted the work to M/s.Paper Star Marketing to the tune of Rs.8,29,80,110/- and the assessee has maintained proper stock records sales and purchases. The assessee also made statutory deduction of TDS and deposited the same to the government as required under the Income Tax Act and has submitted the TDS certificate. Further, assessee submitted that assessee has maintained the paper stock records and TDS have been deducted as per the provisions of the Act. There is no foul ITA No.2764 & 2765/Ahd/2017 13 play on the part of the assessee. Assessee hasmade proper purchase from M/s.Paper Star Marketing cannot be held bogus. Assessee also submitted numerical calculation stating that there is no sense taking bogus bills as the assessee is incurring more tax burden in accepting bogus bills.” 14. In the impugned order before us this sundry credit balance has again not been found to be genuine for the very same reason that the said party has not entered any transaction with the assessee, and there was no transaction reflected in the bank account of the said party with the assessee. 15. When this adverse material relating to the PSM was found to be of no relevance to its transaction undertaken with the assessee in Asst.Year 2012-13 which was examined by the AO and found to be genuine, we fail to understand how on the basis of this very same adverse material, the outstanding balance pertaining to the said transaction can now be stated to be ingenuine. Since the AO in the preceding year, had after conducting inquiry found that these adverse materials did not lead to the conclusion that the transactions of the assessee with the said party was ingenuine, thesame adverse material cannot now form the basis of holding the outstanding balance pertaining to the said party in relation to very same transaction to be ingenuine. . For this reason alone, we hold that the ld.CIT(A) has rightly deleted the addition made by the AO amounting to Rs.8,21,50,309/- by invoking section 41(1) of the Act. 16. We therefore do not find any infirmity in the order of the ld.CIT(A) deleting the addition made under section41(1) of the Act. This ground of appeal of the Revenue is dismissed. 17. In the result, the appeal of the Revenue is dismissed. ITA No.2764 & 2765/Ahd/2017 14 18. We now take up the Department’s appeal in ITA No.2765/Ahd/2017 for Asst.Year 2014-15. The grounds raised in the appeal are as under: “1. Whether on the facts &.circumstances of the case, the Ld CIT(A) was justified in deleting the addition of Rs.45,00,000/- u/s 41(1) of Act. 2. Whether oh the facts & circumstances of the case, the Ld CIT(A) was justified in deleting the addition of Rs.4,36,54,001/- u/s 69 of Act. 3. It is, therefore prayed that the order of the Ld.Commissioner of Income- tax(Appeals) may be set aside and that of the Assessing Officer be restored. 19. In the impugned year the AO noted that the assessee had made payment of Rs.45 lakhs to the same party i.e. PSM whose balance outstanding was found to be not genuine in the preceding year. He also found that payment was not reflected in the bank account of the said party. He therefore added a sum of Rs.45 lakhs to the total income of the assessee u/s 41(1) of the Act. The ld.CIT(A) deleted the addition by appreciating the evidence filed by the assessee, being bank statement of the said party reflecting receipt of impugned amount of Rs.45 lakhs from the assessee. His findings at para 4.5 of the order is as under: “4.5 Appellant also contended in its submission that the ledger a/c M/s. Paper Star Marketing is a live account as the payment has been made on 02.04.2013 (AY 2014r'i5), there cannot be a cessation of liability so addition u/s 41(1) of the Act cannot be made. Further there is no declaration by the appellant that it does not intend to honor its liability nor is there any discharge of the debt and no event had taken place in the year under consideration to indicate remission or cessation of the liability in question. Further the trading result of the appellant has been accepted in the assessment of current assessment year as well as previous assessment years 2012-13 and 2013-14. In the cases relied upon by the appellant in the judgment of Hon'ble Gujarat High Court in the case of CIT-III Vs. BhogilalRamjibhaiAtara [2014] tax appeal no 588 of 2013 has decided the issue against the revenue holding that it does not amounts to remission or cessation of liability merely because where many of the creditors were not found at the given address and some of them stated that they had no dealing with the appellant and merely on these grounds the outstanding liability amount cannot be added as deemed income u/s 41(1). The appellant has not written off the impugned liability shown in the accounts. ITA No.2764 & 2765/Ahd/2017 15 The AO has not brought sufficient material on record to establish as to how the ingredients of section 41(1) are satisfied. The judgment of the Hon'ble jurisdictional High Court cited supra is squarely applicable. The same view has been taken by the Hon’ble Gujarat High Court in the case of CIT Vs. Nitin Garg [2012] 208 taxman 16 and held that it has not been established that the appellant has written off the outstanding liabilities in the books of accounts and the appellant has continued to show the admitted amount as liabilities in its balance sheet so the same cannot be treated as said liability have seized to exist. Further in the case of OT V. G.K. Patel & Co [2013] 212 Taxman 384, the Hon’ble Gujarat High Court has held as under: "To the extent the said decision holds that a unilateral act on the part of the debtor cannot bring about a cessation of his liability, the same would not be applicable to the facts of the present case, in view ofthe insertion of Explanation 1. However, at the cost of repetition it may be stated that in this case there is no unilateral act on the part of the debtor so as to bring about a cessation of its liability. Therefore, the other part of the decision would still apply to the facts of the present case, namely that the cessation of liability has to be either by reason of operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor, or a contract between the parties, or by discharge of the debt - the debtor making payment thereof to his creditor. In the present case, admittedly there in no declaration by the assessee that it does not intend to honour its liabilities nor is there any discharge of the debt. In the aforesaid premises, as no event had taken place in the year under consideration to indicate remission or cessation of the liabilities in question, the provisions of section 41(1) of the Act could not have been invoked. The reasoning adopted by the Tribunal while holding that section 41(1) would not be applicable to the facts of the present case is in line with the principles enunciated in the above decision. The Tribunal, therefore, committed no legal error so as to give rise to any question of law Warranting interference by this court." The decisions relied upon by the appellant are squarely applicable in present case. The AO while passing assessment order for A.Y. 2012-13, himself has accepted purchase transaction from same party i.e. Paper Star Marketing as genuine transaction and proceeded to make Gross Profit addition. When purchases are not doubted as non genuine in. year in which it is claimed as expenses, outstanding balance remaining in creditor account cannot be taxed U/s.41(1) of the Act merely on the ground that other person has denied transaction and even appellant has not shown such liability as ceased to exist. Hon'ble Gujarat High court in the case of CIT VS BhogilalRamjibhai Patel referred supra and relied upon by appellant on identical facts held that provisions of section 41(1) cannot be applied. Even court has stated that "this is one of the strange cases where even if the debit itself is found to be non genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it....." Even if any action is required to be taken considering the fact that said person has denied transaction, it has to be made in A.Y. 2012-13 and even in said year, the AO has concluded that purchases cannot be held to be bogus even if counter ITA No.2764 & 2765/Ahd/2017 16 party has denied such transactions and only Gross Profit is required to be added. 4.6 Considering the facts of the case and provision of section 41(1) of the Act and aforesaid decision, it has been established that no addition can be made u/s 41(1) of the Act Therefore, the addition made by the AO is directed to be deleted and ground no 1 of appeal raised by the appellant is allowed.” 20. We have heard both the parties and gone throughthe facts of the present case. We find that there is no reason to invokesection41(1) of the Act in the present case on a payment made by the assessee to another party. Section 41(1) is invoked, as clarified above in the Department’s appeal for Asst.Year 2013-14, only when a liability is found to cease to exist in respect of an expense claimed by the assessee. In the present case, the Department has invoked section 41(1) on an alleged payment made by the assessee to a party whose balance outstanding was found to be ingenuine. The case of the Revenue,as is derived from para 3.3 of the assessment order is that the transaction of the assessee with PSM relating to work sub contracted to it was bogus, the payment of Rs. 45 lacs in the impugned year on account of the said transactions was bogus. para 3.3 of Assessment order is reproduced hereunder: “3.3 The submission of the assessee is considered and perused carefully but found not tenable for the following reasons: a) The assessee has claimed that he had allotted subcontract to M/s.Paper Star Marketing during the FY 2011-12. However, the assessee failed to produce any documentary evidences in support of the sub-contract work carried out by M/s.Paper Star Marketing in FY 2011-12. b) The assessee has claimed to have made payment of Rs.45,00,000/- on 02.04.2013 which reflects in its bank account. However, the same amount doesn't appear in the bank accounts of M/s. Paper Star Marketing furnished u/s. 133(6) by the Central Bank of India. ITA No.2764 & 2765/Ahd/2017 17 c) Shri JatinPriyakant Shah, Proprietor of M/s. Paper Star Marketing, has vide his letter dated 06.08.2016 categorically denied to have transaction with the assessee firm. d) The assessee failed to produce copy of any agreement regarding contracts entered with M/s. Paper Star Marketing. e) The assessee has argued that the addition on this account has already been made in the AY 2012-13 vide order dated 25.03.2015. However, the assessee has failed to revise its return of income for the AY 2013-14 and A.Y.2014-15 giving effect of the assessment order of AY 2012-13 against which the assessee has not filed an appeal before any of the authority.” 21. When the case of the Revenue clearly is that no cheque payment of Rs.45 lacs was made by the assessee, how does the same call for any addition at all to be made in the hands of the assessee, we are unable to fathom, leave alone addition made on account of cessation of liability u/s 41(1) of the Act. 22. Further the basis of making the impugned addition,we have noted, is identical to the basis for addition made of outstanding balance of the said party,PSM, in the preceding year, A.Y 2013-14,of Rs.8.2 Crs finding it to be bogus. This basis has been found by us in A.Y 2013-14,to be contrary to the finding of the AO in respect of the very same transaction when undertaken in A.Y 2012-13 when it was found genuine and addition therefore made of the outstanding balance of Rs.8.2 Crs has been held by us to be rightly deleted by the Ld.CIT(A) in our order above for the preceding year,A.Y 2013-14. Since the basis for making addition of Rs.45lacs has been found to be incorrect , the addition therefore is not sustainable. ITA No.2764 & 2765/Ahd/2017 18 The order of the ld.CIT(A) deleting the addition made of Rs.45 lakhs under section 41(1) is therefore upheld. Ground of appeal no.1 is dismissed. 23. Ground no.2 reads asunder: “2. Whether on the facts & circumstances of the case, the ld.CIT(A) was justified in deleting the addition of Rs.4,36,54,001/- u/s.69 of the Act.” 24. Facts are that the assessee during the assessment proceedings was unable to prove genuineness of the balance pertaining to the sundry creditors and unsecured loans as under: Sundry ^Creditors Sr No Name Amount outstanding Remarks 01 Shri.Bharatkumar V Rajgor Rs. 20.430/- Return back with remarks "NOT KNOWN" from postal authority 02 Arihant Enterprise Rs. 1,08,86,065/- Return back with remarks "NOT KNOWN" from postal authority 03 Jolly Enterprise Rs. 1,46,19,865/- No reply received till date from party 04 Simmons Enterprise Rs. 28,09,739/- Return back with remarks "LEFT" from postal authority 05 Angana Corporation Rs.1,35,01,122/- Return back with remarks "LEFT" from postal authority 06 Kalpesh K Vithlani Rs. 10,00,0007- Return back with remarks "NOT KNOWN" from postal authority Unsecured Loan Sr No Name Amount outstanding Remarks ITA No.2764 & 2765/Ahd/2017 19 01 Amee Construction Rs. 7,00,000/- No reply received till date from party 02 GirijanAgro Rs. 1,00,000/- No reply received till date from party Advances Sr No Name Amount outstanding Remarks 01 Radhe Furniture Gandhinagar Rs. 16,780/- No reply received till date from assessee in respect of the differences (Rs.19,66,440 - Rs.19,49,660/-) 25. The ld.AO invoked section 69 of the Act and made addition amounting in all to Rs.4,36,54,001/-. The ld.CIT(A) noted that with respect to the outstanding credit balance, there was no case for invocation of section 69 and at best section 68 ofthe Act could be invoked. He further noted that section 68 in any case could be invoked only in those cases where the transactions pertaining to the credit balance outstanding were undertaken during the impugned year. Having held so, he deleted the addition made with respect to the outstanding balance which he noted were brought forward balances of the preceding year pertaining to parties at S.No.2-5 of the list of Sundry Creditors amounting in all to Rs.4,18,16791/-. With respect to the balance of Rs.20,430/- pertaining to Bharatbhai Rajgor, the Ld.CIT(A) noted that the balance pertained to a small portion of purchases made from the said party which purchases had been accepted in full by the AO. He therefore deleted the said addition also. Similarly he found no anomaly in the outstanding balance of Rs.16,780/- pertaining to Radhe Developers noting the same to be the opening balance carried forward. With respect to the balances outstanding pertaining to Unsecured loans of Rs.8 lacs and Rs.10 lacs pertaining ITA No.2764 & 2765/Ahd/2017 20 to balance of one Sh.Kalpesh Vithani, he found that the assessee was unable to discharge its onus of proving the genuineness of the same and accordingly upheld addition to the extent of Rs.18 lacs. His findings at para 5.3 to 5.7 of the order is as under: “5.3 I have considered the facts or the case, assessment order, submission made by the appellant and the case laws relied upon. During the course of the scrutiny, appellant has submitted the copies of ledger account and duly stamped and signed confirmation of ledger balance to the AO vide its letter dated 01.08.20016. On perusal of the same it is found that in the ledger accounts of sundry creditors which is subjected to addition, no fresh credit entries are found and the ledger contains only opening balance and payment made against the same and closing balance, the ledger account of unsecured loan contains acceptance and repayment of deposit but the same are through account payee cheque only. The same has been summarised in following table. Sr.N o Name of party Opening Balance Credit Debit Closing Balance Observation 1 Arihant Enterprise 1488606 5 0 4000000 10886065 No fresh credit entry 2 Jolly Enterprise 2373098 8 0 9111123 14619865 No fresh credit entry 3 Simmons Enterprise 8171685 o 5362146 2809739 No fresh as credit entry * 4 Angana Corporation 1350112 2 0 0 13501122 No fresh* credit entry 5 Radhey Furniture 1966440 0 0 1966440 No fresh credit entry 6 Kalpesh K. Vithlani 0 1000000 0 1000000 Unsecured loan taken by account payee cheque. 7 Amee Construction 0 700000 0 700000 Unsecured loan taken by account payee cheque 8 GirijanAgro 0 3900000 4000000 100000 Unsecured loan taken by account payee ITA No.2764 & 2765/Ahd/2017 21 cheque 9 Ganesha Projects 0 10714286 10714286 0 Sales transaction also confirmed by Form26AS 10 Bharatkumar V Rajgor 0 3657000 3636570 20430 Subcontract work. IDS made from payable amount. AO has made addition of closing balances of above referred persons u/s.69 of the Act considering the same as no explanation has been offered by the appellant and appellant has failed to prove the identity, credit worthiness and genuineness of the transactions. The AO has not made any addition with respect to sales transaction made with Ganesh Project. Section 69 of the Act provides that- "Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of accounts, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year." Here, AO has not revealed any investment which has not been recorded by appellant in its books of accounts. Therefore the provision of section 69 of the Act is not applicable in this case. AO in his order stated that appellant has failed to prove the identity, credit worthiness and genuineness of transactions, means the AO intended to make the addition u/s 68 of the Act and not section 69 but wrongly applied the provision of section 69 of the Act. 5.4 On perusal of the assessment order and submission made by appellant, it is found that the ledger A/c of Arihant Enterprise, Jolly enterprise, Simmons Enterprise and Angana Corporation contains no fresh credit entries are shown during the year. Further, it is seen that in the above cases, payment against outstanding liability was made by the appellant. Further the appellant has furnished the assessment order of AYs 2012-13 and 2013-14 where in it is clearly stated that all the parties appearing in the balance sheet of appellant has confirmed the balances except one M/s. Paper Star Marketing. Even though provisions of section 69 are not applicable in present case, even as per provisions of section 68 of the Act, no addition can be made for outstanding balances in above four parties as there is no fresh credit during the year. In the cases relied upon by the appellant, Glen Williams Vs. ACI ITA No.1078/Bang/2014 where in it has been held that the section 68 of Income Tax Act,1961, will not apply to the opening balances of creditors which did not arise out of any transaction during the previous year. Similar view has been taken by the ITA No.2764 & 2765/Ahd/2017 22 Hon'ble Delhi high court in the case of GT Vs. Shri Vardhman Overseas Ltd ITA No 774/2009 dated 23-12-2011 343 UR 408, Hon'ble Gujarat High Court also had given a judgment in favour of appellant in the case of M/s. Dy CIT Vs. Amod Petrochem Pvt Ltd [2008] UA No: 122 of 1999 and held that there has to be credit of any sum in the books of appellant maintained for any previous year only then sum so credited can be brought to tax as income of the appellant therefore liability to pay tax in respect of unexplained deposit u/s 68 did not arise in respect of old opening balances. Considering the aforesaid decision and on the facts of the case and interpretation of section 68 and 41(1) of the Act, addition made by the AO in respect of closing balance of Arihant Enterprise Rs.1,08,86,065/-, Jolly Enterprise Rs.1,46,19,865/-, Simmons Enterprise Rs.28,09,739/- and Anaga Corporation Rs.1,35,01,122/- is deleted. The AO is directed to take appropriate action u/s 68 of the Act in the year of receipt, in case AO is not satisfied with genuineness and creditworthiness of transaction. 5.5 On perusal of the submission made by appellant, it is found that the ledger A/c of M/s. Radhey Furniture, there is no movement in the ledger and opening balance of Rs.19,66,440/- is carried forward as closing balance of Rs.19,49,660/- . Appellant also submitted confirmation submitted by party on 12.08.2016 to the AO in response to notice u/s 133(6) of the act. The first lines of that forwarding clearly acknowledge and confirm the balance as reflected in the ledger of the appellant. Further, the duly stamped and signed confirmations submitted by appellant to AO on 01.08.2016 also confirm the same amount. Considering the same on factual basis, AO is hereby directed to delete the addition of Rs.16,780/- made on account of difference in ledger A/c of both the parties. 5.6 So far as addition of Rs.20,430/- pertaining to Bharatbhai V. Rajgor is concerned, Appellant has made purchases of Rs.36,57,000/- as against which payment along with TDS for Rs.36,36,570/- is made and remaining amount of Rs.20,430 is shown as outstanding balance as on 31st March, 2014 and same las been claimed as bad debt in subsequent Assessment Year. The AO has not doubted the nature of sub-contract expenses of Rs.36,57,000 and same has been allowed as genuine expenditure hence'there is no reason for adding closing balance of Rs.20,430 as unexplained investment under Section 69 of the Act. Thus, addition of Rs.20,430 is deleted. 5.7 So far as loans of Rs.7,00,000 received from Amee Construction Rs. 10,00,000 from Kalpesh K. Vithlaniand Rs.1,00,000 from GirijanAgro are concerned, the Appellant vide its letter dated 1st August, 2016 has submitted confirmation of the parties along with PAN and argued that all the receipts are through RTGS/account payee cheques. During the course of Assessment Proceedings Appellant has not submitted copies of Return of Income filed by such depositors nor bank statements were submitted. During the course of Assessment Proceedings AO has issued notices under Section 133(6) of the Act and same were returned stating that party "not known" for Kalpesh Vithlani and for other two parties it has been stated that "no reply is received". Thus, Appellant has failed to prove creditworthiness and genuineness of the transactions. The Appellant has submitted copy of Return of Income for GrijanAgro, Prop: Nisha Goswami along with bank statement and similar document for Kalpesh Vithlani. ITA No.2764 & 2765/Ahd/2017 23 However, these documents were not submitted before AO and no additional evidence application has been submitted under Rule 46A hence such additional evidences submitted by Appellant are rejected. The provision of Section 68 of the Act requires Assessee to prove identity, genuineness and creditworthiness of the transactions and in present Appellant has failed to prove such creditworthiness and genuineness of the transaction. It is observed that Hon'ble Delhi High Court in the case of CIT V/s Ultramodern Exports Pvt. Limited 40 taxman 458 has held that "whether in order to ascertain genuineness of Assessee's claim relating to receipt of share application money, AO sent notices to share applicants which were returned unserved, however, Appellant still managed to secure documents such as their income tax returns as well as bank account particulars, and in such circumstances, AO was justified in drawing adverse inference and making addition of such amount to the Appellant's income." The Hon'ble Gujarat High Court in the case of Manojkumar Saraf V/s ITO 45 taxmann.com 63 has held that "where even though Appellant took unsecured loan through cheque, yet he doubt not establish identity and creditworthiness of lenders, amount of loan was rightly added to Appellant' taxable income under Section 68. Similar view is also held by Hon'ble Delhi High Court in the case of Ridhi Promoters Pvt Ltd V/s CIT 58 taxmann.com 367, Hon'ble Supreme Court in case of E. UmmerBava V/s CIT 77 taxmann.com 1, Hon'ble Kerala High Court in the case of Sunil Thomas V/s ITO 80 taxmann.com 61. Relying upon these decisions, addition made by AO for Rs.18,00,000 with respect to above three parties is confirmed. Thus, this ground of appeal is partly allowed. ' 26. The ld.DR relied on the order of the AO. The ld.counsel for the assessee, on the other hand, supported the order of the ld.CIT(A). We have gone orders of the authorities below. 27. We see no reason to interfere in the order of the ld.CIT(A). The Revenue was unable to controvert the factual findings of the ld.CIT(A) that the majority addition deleted of Rs.4,18,16,791/- pertained to outstanding credit balance of parties relating to preceding years. The proposition of law that no addition could be made u/s 68 of the Act on account of opening credit balances of parties,also remained uncontroverted before us. In view of the same, we see no reason to interfere in the order of the ld.CIT(A) deleting the addition made of Rs.4,18,16,791/- of opening credit balance of parties. As for the deletion of the balance outstanding of Rs.20,430/-,the factual finding of the Ld.CIT(A) that the same ITA No.2764 & 2765/Ahd/2017 24 pertains to purchases made during the year from the said party, Bharat Bhai Rajgor, which purchases genuineness has not been doubted by the AO, has also remained uncontroverted before us. So also his findings with respect to outstanding balance of Rs.16,780/- which was found to pertain to opening balance. We see no infirmity in the order of the Ld.CIT(A) deleting the aforestated two outstanding balances also in the light of the facts as noted by us. The Ld.CIT(A) has upheld the addition with respect to three parties outstanding balances amounting in all to Rs.18 lacs. There can be no grievance of the Revenue with respect to the same. Ground of appeal No.2 raised by the Revenue is dismissed. In effect appeal of the Revenue is dismissed. 29. In the result, both the appeals of the Revenue are dismissed. Order pronounced in the Court on 22 nd February, 2023 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 22/02/2023