M/s Safari Fine Clothing Pvt. Ltd., Gandhidham. V. Asstt. Commr. of Income Tax, Gandhidham Circle, Gandhidham., Gandhidham

ITA 30/RJT/2018

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 3941 (ITAT-RAJKOT)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 31-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: CHETAN L AGARWAL
• Keywords: Unexplained cash credit; Business expenditure; Additional evidence
• Section: 69C; 133(6); 37(1); 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT OLHE VGEN] YS[KK LNL; OLHE VGEN] YS[KK LNL; OLHE VGEN] YS[KK LNL; OLHE VGEN] YS[KK LNL; , ! BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 30/RJT/2018 ( / ASSESSMENT YEAR : 2011-12) M/S. SAFARI FINE CLOTHING PVT. LTD., SHED NO.280/281, A TYPE, SECTOR NO.3, KA SEZ, GANDHINAGAR- KUTCH VS. ACIT, GANDHIDHAM CIRCLE GANDHIDHAM. ITA NO. 85/RJT/2018 ( / ASSESSMENT YEARS : 2011-12) ITO, WARD-2, GANDHIDHAM VS. M/S. SAFARI FINE CLOTHING PVT. LTD., ' # ./ $ ./PAN/GIR NO. : AAJCS 0565 Q / (APPELLANT) ( %&'' / RESPONDENT ) ASSESSEE BY : SHRI CHETAN L. AGARWAL, A R. REVENUE BY : S SHRI PRAVEEN VERMA, SR. D.R. / DATE OF HEARING : 01/08/2018 / DATE OF PRONOUNCEMENT : 03/10/2018 ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 2 - ( / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THESE CROSS-APPEALS BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX ( APPEALS)-2, AHMEDABAD, DATED 21-12-2017 FOR ASSESSMENT YEAR 201 1-12. 2. FIRST, WE TAKE UP ASSESSEES APPEAL IN ITA NO.30 /RJT/2018 FOR ASST. YEAR 2011-12. ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. LD. CIT(A) HAD ERRED IN LAW AS WELL AS ON FACT IN CONFIRMING ADDITION OF RS. 1,90,56,757/- MADE BY LD. AO BEING COMMISSION EXPENSES INCURRED AND DEBITED TO PROFIT AND LOSS AC COUNT, DULY SUPPORTED BY EVIDENCES OF SERVICES OBTAINED. 2. LD. CIT(A) HAD ERRED IN LAW AS WELL AS ON FACT IN CONFIRMING ADDITION OF RS. 5,00,000/- BEING MADE U/S. 68 AND D ISALLOWANCE OF RS.43,764 BEING INTEREST PAID ON IMPUGNED LOAN. 3. LD. CIT(A) HAD ERRED IN LAW AS WELL AS ON FACT IN CONFIRMING ADDITION OF RS. 6,48,772/- BEING MADE U/S. 41(1) OF THE ACT. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT L D CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,90,56,757/- ON ACCOUNT OF COMMISSION EXPENSES. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF IMPORT, EXPO RT, AND TRADING OF USED GARMENTS. ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 3 - 4.1 THE ASSESSEE DURING THE YEAR HAS CLAIMED AN EXP ENSE OF RS 1,90,56,757/-ON ACCOUNT OF A SALES COMMISSION PAID TO 35 PARTIES. THE DETAILS OF THE PARTIES ALONG WITH THE AMOUNT OF COM MISSION AND THEIR ADDRESS ARE PLACED ON PAGES 5 TO 7 OF THE AO ORDER. 4.2 THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERV ED THAT ALL THE PARTIES TO WHOM THE COMMISSION WAS PAID ARE BASED I N NEW DELHI, SHRI GANGANAGAR ONLY. SOME OF THE COMMISSION AGENTS WERE RELATED PARTIES TO THE ASSESSEE. THE AO ALSO OBSERVED THAT NO COMMISSI ON ON ACCOUNT OF SALE WAS PAID IN THE EARLIER ASSESSMENT YEARS. IN VIEW OF THE ABOVE, THE AO ISSUED THE SHOW-CAUSE NOTICE TO THE ASSESSEE VIDE LETTER DATED 21 ST MARCH 2014 FOR JUSTIFICATION OF THE COMMISSION EXPENSES. IN COMPLIANCE WITH IT, THE ASSESSEE SUBMITTED THAT THE COMMISSION WAS PAID IN ORDER TO INCREASE THE SALES. AS A RESULT TH E SALE OF THE ASSESSEE WAS INCREASED BY 150% IN COMPARISON OF THE LAST YEAR. 4.3 THE ASSESSEE ALSO SUBMITTED THAT THE COMMISSION AGENTS REFERRED THE CUSTOMERS TO IT FOR THE SALES. ACCORDINGLY, THE COMMISSION WAS PAID TO THE COMMISSION AGENTS FOR REFERRING THE CUSTOMER S. ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 4 - 4.4 ALL THE COMMISSION AGENTS HAVE ACCOUNTED FOR CO MMISSION INCOME IN THEIR BOOKS OF ACCOUNTS AND THE SAME HAS BEEN OF FERED TO TAX. 4.5 THE PARTIES TO WHOM THE SALE WAS MADE BY THE AS SESSEE AT THE INSTANCE OF THE COMMISSION AGENT WERE BASED ON DIFF ERENT GEOGRAPHICAL AREA SUCH AS PANIPAT, AHMEDABAD, GANDHIDHAM, MORADA BAD (UP) & KOLKATA ETC. 4.6 THE AO TO VERIFY THE VERACITY OF THE COMMISSION AGENT ISSUED NOTICES U/S 133(6) OF THE ACT FOR SEEKING THE NECES SARY DETAILS. THE NOTICE U/S 133(6) WAS ISSUED TO ALL THE COMMISSION AGENTS. BUT ONLY SIX PARTIES REPLIED IN RESPONSE TO THE NOTICE ISSUED U/S 133(6) OF THE ACT. THE AO FROM THE REPLIES MADE BY THESE PARTIES OBSERVED CER TAIN FACTS AS DETAILED UNDER: I. THE REPLY FROM ALL THE PARTIES WAS VERBATIM. II. THE REPLY OF ALL THE PARTIES WAS THE SAME AND CONTA INED SAME SPELLING MISTAKE IN THEIR REPLIES. III. SOME OF THE COMMISSION AGENTS BASED IN DELHI WERE H AVING COMMON ADDRESSES. IV. SOME OF THE COMMISSION AGENTS WERE RELATED PARTIES TO THE ASSESSEE. V. THESE COMMISSION AGENTS HAVE NOT MADE SALES TO ANY OTHER PARTY IN THE LAST THREE YEARS. VI. ALMOST ALL THE COMMISSION AGENTS RAISED THEIR BILLS TO THE ASSESSEE AT THE END OF THE FINANCIAL YEAR, I.E. 31- 03-2011, WHEREAS, THE SALES WERE MADE THROUGHOUT THE YEAR. ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 5 - 4.7 IN VIEW OF ABOVE, THE AO WAS OF THE VIEW THAT T HE AMOUNT OF COMMISSION EXPENSES IS NOTHING BUT AN ARRANGEMENT B ETWEEN THE ASSESSEE AND COMMISSION AGENT TO REDUCE THE PROFIT. THEREFOR E THE AO DISALLOWED THE SAME U/S 69C OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD CI T(A). THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED THAT THE CO MMISSION WAS PAID AGAINST THE SALES GENERATED WITH THE ASSISTANCE OF THE COMMISSION AGENTS. ALL THE COMMISSION AGENTS RAISED THE BILL TO THE AS SESSEE SPECIFYING THE QUANTITY OF SALES MADE THROUGH THEM, AMOUNT OF COMM ISSION CHARGED FROM THE ASSESSEE ETC. 5.1 THE COMMISSION WAS PAID AFTER DEDUCTING THE TDS U/S 194H OF THE ACT AND THROUGH BANKING CHANNEL. THEREFORE, THE IDE NTITY AND GENUINENESS OF THE COMMISSION EXPENSES CANNOT BE DO UBTED. THE NON- RESPONSE FROM THE COMMISSION AGENT U/S 133(6) OF TH E ACT CANNOT BE A GROUND FOR MAKING THE DISALLOWANCE OF THE COMMISSIO N EXPENSES. THE ASSESSEE FILED THE INCOME TAX RETURN, COPIES OF THE BILLS, PAN AND CONFIRMATION OF THE COMMISSION AGENTS AS ADDITIONAL EVIDENCES UNDER RULE 46A OF INCOME TAX RULE. 5.2 HOWEVER, THE LD CIT(A) DISREGARDED THE CONTENTI ON OF THE ASSESSEE AND CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER: ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 6 - IN MY CONSIDERED OPINION THE CONTENTIONS OF ASSESS EE ARE NOT TENABLE. AS CAN BE SEEN WHILE THE SALES OF ASSESSEE HAVE BEE N MADE TO PARTIES OF PANIPAT, AHMEDABAD, GANDHIDHAM, MORADABAD AND KOLKA TA THE COMMISSIONS HAVE BEEN CLAIMED TO HAVE BEEN PAID TO PARTIES OF NEW DELHI AND SRI GANGANAGAR. THERE IS NO PLAUSIBLE REA SON AS TO WHY THE ASSESSEE BASED AT GANDHIDHAM WOULD PAY COMMISSION T O PARTIES OF GANGANAGAR & DELHI FOR SALES MADE TO PARTIES WHO AR E LOCATED AT GANDHIDHAM AND AHEMDABAD. THE ASSESSEE AND THE CONC ERNED PARTIES HAVE NOT ADDUCED ANY EVIDENCE AS TO WHAT KIND OF SE RVICE THESE PARTIES OFFERED FOR THE ASSESSEE, WHAT QUANTUM OF SALES THE SE PARTIES OBTAINED FOR ASSESSEE, WHAT WAS THE RATE OF COMMISSION, HOW THESE PARTIES CONTACTED THE PURCHASERS AND WHO WERE THOSE PURCHAS ERS ETC. THUS, ON THE FACE ITSELF THE WHOLE STORY IS NOTHING BUT CONC OCTED ONE. THIS IS MADE CLEAR FURTHER BY THE FACT THAT THE ASSESSING ORDER HAD RAISED VERY SPECIFIC QUERIES TO THESE PARTIES IN HIS NOTICES 13 3(6) TO GIVE DETAILS OF THE PURCHASERS LIKE NAME, ADDRESS, CONTACT PERSON, CONTACT NUMBER, E- MAIL ADDRESS ETC AND THE PERSON WHO WERE IN TOUCH W ITH THE SAID COMMISSION RECEIVING PARTIES. THE ASSESSING OFFICER HAD ALSO SPECIFICALLY ASKED THESE PARTIES AS TO HOW THEY CAM E IN CONTACT WITH THE PURCHASING PARTIES AND WHETHER THEY HAD TRAVELED TO COUNTRIES OUTSIDE INDIA. IF THE CONTACTS WERE MADE THROUGH TELEPHONE THEY WERE ASKED TO GIVE COPY OF CALL DETAILS AND IF CONTACT WERE MADE THROUGH E-MAIL, THEN TO GIVE E-MAIL ADDRESS. THEY WERE ASKED TO GIVE DET AILS LIKE TOTAL AMOUNT OF SALES, FACILITATED NAMES OF PURCHASERS, A MOUNT OF COMMISSION, RATE OF COMMISSION, NATURE OF SERVICES PROVIDED BY THEM ALONGWITH COPIES OF THE BILLS RAISED FOR COMMISSION . OF THE 35 PARTIES, THE A.O. RECEIVED REPLY ONLY IN 6 CASES. THE OTHER 29 PARTIES DID NOT RESPOND. ANALYSING THE REPLY RECEIVED FROM THE SAID 6 PARTIES. THE A.O. HAS BROUGHT THAT REPLY RECEIVED FROM 4 DIFFERENT PL ACES -IN DELHI ARE IDENTICAL IN THEIR REPLY WITH IDENTICAL GRAMMATICAL MISTAKE. THE REPLY IS WORTH REPRODUCING HERE UNDER:- WE ARE REALATEDE BUSINESS IN USED CLOTH FROM MANY YEARS SO WE MEET VERBLY WITH THE PARTY,' THE A.O. HAS ALSO BROUGHT OUT THAT 3 PARTIES NAMELY UDIT MAHAJAN, ANKUR MAHAJAN HUF AND ASHOK MAHAJAN SHARED COMMON A DDRESS AND THE REPLY RECEIVED FROM THEM IS IDENTICAL WITH IDEN TICAL .GRAMMATICAL ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 7 - MISTAKES. APART FROM THE REPLY REPRODUCED ABOVE ANO THER REPLY RECEIVED FROM THESE PARTIES BEING IDENTICAL AND HAVING COMMO N MISTAKE IS AS UNDER:- 'WE WERE NOT PROVIDE SAME SALES MADE TO ANY OTHER COMPANY/PERSON/FIRM IN THE FY 2008-09, 2009-10 AND 2010-11' THE OTHER NOTEWORTHY FACT BROUGHT OUT BY ASSESSING OFFICER IS THAT WHILE SALES HAVE BEEN MADE BY THE ASSESSEE CONTINUOUSLY T HROUGHOUT THE YEAR, THE BILLS OF SALES COMMISSION IN MAJORITY OF THE CA SES HAVE BEEN RAISED AT END YEAR ON 31/03/2011. FURTHER THE ASSESSEE DID NOT COME OUT WITH ANY EXPLANATION OR DETAILS AS TO HOW HE CAME INTO C ONTACT WITH THESE PARTIES AND WHETHER ANY OF THESE PARTIES WERE RELAT ED TO DIRECTORS OR EMPLOYEE OF THE COMPANY. THE ASSESSING OFFICER HOWE VER OBSERVED THAT ASHOK MAHAJAN WHOM THE COMMISSION HAS BEEN CLAIMED TO HAVE BEEN PAID IS A SHARE HOLDER. SIMILARLY ANKUR MAHAJAN, KA RTA OF HUF IS SON OF SHRI ASHOK MAHAJAN, A SHARE HOLDER AND HARISH MA HAJAN, KARTA OF HARISH KUMAR MAHAJAN HUF IS BROTHER OF SHARE HOLDER SHRI ASHOK MAHAJAN, SINCE THE ASSESSEE DID NOT COME OUT CLEAN WITH THE FULL FACTS. IT CAN BE REASONABLY INFERRED FROM THE OVERALL FACT S OF THE CASE AS DISCUSSED ABOVE THAT THE CLAIM OF SALES COMMISSION PAYMENT IS NOTHING J-BUT SELF SERVING BOGUS ARRANGEMENT WITH RELATIV ES OR FRIENDS OF THE PERSONS RELATED TO THE COMPANY TO CLAIM THE BOGUS E XPENSES. I FIND NO MERIT IN CONTENTION OF THE ASSESSEE IN VI EW OF ABOVE DISCUSSION AND HAVE NO HESITATION N HOLDING HAT THE ASSESSEE H AS FAILED TO ESTABLISH THE REASONABLENESS OF THESE EXPENSES AS WELL AS THE IR GENUINENESS AND THEREFORE THE ACTION OF ASSESSING OFFICER CALLS FOR NO INTERFERENCE. HOWEVER, I FIND THE IMPUGNED DISALLOWANCE IS TO BE MADE U/S 37(1) AS IT IS NOT PROVED TO BE A GENUINE BUSINESS EXPENDITURE ACTUALLY INCURRED AND NOT U/S 69C. TO THIS EXTENT THE ORDER OF A.O IS MODIFIED AND THE DISALLOWANCE IS SUSTAINED. THE GROUND OF APPEAL IS REJECTED. 5.3 BEING AGGRIEVED BY THE ORDER OF LD CIT(A) ASSES SEE IS IN THE SECOND APPEAL BEFORE US. ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 8 - 6. THE LD AR BEFORE US FILED TWO PAPER BOOKS RUNNIN G FROM PAGES 1 TO 393 AND SUBMITTED THAT THE TURNOVER OF THE ASSES SEE HAS INCREASED TO RS.71.69 CRORES FROM RS. 48.34 CRORES. THIS INCREAS E IN THE TURNOVER WAS POSSIBLE ONLY WITH THE ASSISTANCE OF COMMISSION AGE NTS. 6.1 THE LD. AR FURTHER SUBMITTED THAT ALL THE DETAI LS ABOUT COMMISSION EXPENSES SUCH AS COPIES OF THE INVOICES, THE RATE O F COMMISSION, AMOUNT OF COMMISSION, NAME, ADDRESS, PAN WERE DULY FILED T O THE AO DURING THE ASSESSMENT PROCEEDINGS WHICH ARE PLACED ON PAGES 24 6 TO 248 OF THE PAPER BOOK. 6.2 THE LD. AR ALSO FILED THE DETAILS OF THE SALES EFFECTED THROUGH COMMISSION AGENTS, WHICH IS PLACED ON PAGES 249 TO 268 OF THE PAPER BOOK. 6.3 THE LD. AR ALSO SUBMITTED THAT THE COMMISSION W AS PAID IN THE SUBSEQUENT YEARS AND THE SAME WAS ACCEPTED WITHOUT ANY DISALLOWANCE. THE DETAIL OF THE COMMISSION PAID BY THE ASSESSEE I N THE SUBSEQUENT YEARS IS PLACED ON PAGES 387 TO 391 OF THE PAPER BOOK. 6.4 THE LD. AR ALSO SUBMITTED THAT THE PROVISION OF SECTION 69C CANNOT BE INVOKED IN THE CASE IN HAND. IT IS BECAUS E THE ASSESSEE HAS EXPLAINED THE NATURE OF THE EXPENSES AND THE SOURCE OF THE SAME HAS NOT ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 9 - BEEN DOUBTED. ALL THE EXPENSES WERE DULY DISCLOSED IN THE FINANCIAL STATEMENT AND RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 6.5 ON THE OTHER HAND, THE LD DR SUBMITTED THAT IN RESPECT OF MANY COMMISSION AGENTS THERE IS A COMMON ADDRESS GIVEN B Y THE ASSESSEE. 6.6 THERE WAS NO COMMISSION EXPENSE INCURRED BY THE ASSESSEE IN THE EARLIER YEAR, THOUGH, THERE IS NO CHANGE IN THE NAT URE OF THE BUSINESS OF THE ASSESSEE. 6.7 THE REPLY GIVEN BY SIX PARTIES IN RESPONSE TO T HE NOTICE ISSUED TO THEM U/S 133(6) OF THE ACT IS VERBATIM. THUS, THE R EPLY FURNISHED BY SIX COMMISSION AGENTS CANNOT BE RELIED UPON. 6.8 THE LD. AR IN HIS REJOINDER SUBMITTED THAT THE TURNOVER IN THE YEAR UNDER CONSIDERATION HAS BEEN INCREASED FROM 48.34 C RORES TO 71.69 CRORES AND THIS WAS THE SECOND YEAR OF THE BUSINESS. 6.9 THE LD. AR ALSO SUBMITTED THAT IN THE SUBSEQUEN T YEAR THE COMMISSION WAS PAID TO THE SAME PARTIES BUT NO DISA LLOWANCE WAS MADE BY THE REVENUE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE COMMI SSION EXPENSES WERE ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 10 - DISALLOWED BY THE AO BY TREATING THEM AS BOGUS EXPE NDITURE U/S 69C OF THE ACT. THE AO ALLEGED THAT IN MANY CASES THE ADDR ESSES OF THE COMMISSION AGENTS WERE COMMON. 7.1 THERE WAS NO RESPONSE FROM ALL THE COMMISSION A GENTS IN RESPONSE TO THE NOTICE ISSUED U/S 133(6) OF THE ACT. 7.2 THE SALE WAS MADE BY THE ASSESSEE THROUGHOUT TH E YEAR, BUT THE BILLS FOR THE COMMISSION EXPENSES WERE RAISED AT TH E END OF THE YEAR. 7.3 ALL THE COMMISSION AGENTS DID NOT MAKE ANY SALE ON BEHALF OF OTHER PARTIES OTHER THAN THE ASSESSEE IN THE LAST T HREE YEARS. 7.4 ON PERUSAL OF THE ABOVE FACTS, THERE COMES A DO UBT/SUSPICION REGARDING THE COMMISSION EXPENSES CLAIMED BY THE AS SESSEE, BUT OTHER FACTS CANNOT BE JUST BRUSHED ASIDE. THE OTHER FACTS INCLUDE THAT THE TURNOVER OF THE ASSESSEE HAS GONE HIGH FROM 48.34 C RORES TO 71.69 CRORES. THE ASSESSEE SOLD GOODS THROUGHOUT IN INDIA WHICH I S NOT POSSIBLE WITHOUT HAVING A SALES NETWORK. THUS, COMMISSION AG ENTS ENSURED GROWTH IN PROVIDING THE NETWORK FOR SOURCING THE CLIENTS. THE ASSESSEE HAS DULY FURNISHED THE DETAILS OF THE PARTIES WHICH WERE REF ERRED BY THE COMMISSION AGENTS FOR THE SALE. BUT THE AO HAS NOT EXERCISED HIS POWER BY ISSUING THE NOTICE TO THESE PARTIES TO ASCERTAIN THE INVOLVEMENT OF THE COMMISSION AGENTS. ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 11 - 7.5 THE ASSESSEE BEING THE CORPORATE BODY CAN MAKE THE PAYMENT TO THE DIRECTORS /SHAREHOLDERS OF THE COMPANY FOR THE SERVICES RECEIVED FROM THEM. THERE IS NO PROHIBITION UNDER THE ACT FOR THE EXPENSES/ PAYMENT MADE TO THE RELATED PARTIES UNTIL AND UNLESS IT IS PROVED THAT THE EXPENSES WERE NOT INCURRED IN CONNECTION WITH THE BUSINESS. IN THE INSTANT CASE, THE AO HAS JUST REMARKED THAT THE COMMISSION HAS BEEN P AID TO THE RELATED PARTIES WITHOUT MENTIONING THE REASON FOR MAKING TH E DISALLOWANCE. THE PROVISION OF SECTION 40A(2)(B) REQUIRES THE AO TO M AKE THE DISALLOWANCE, IF THE EXPENSES PAID TO THE RELATED P ARTIES ARE UNREASONABLE AND EXCESSIVE IN COMPARISON TO THE MARKET RATE. BUT THE AO HAS NOT BROUGHT ANYTHING ON RECORD SUGGESTING THAT THE ASSE SSEE HAS INCURRED UNREASONABLE EXPENSES IN RELATION TO RELATED PARTIE S. THE ASSESSEE HAS FURNISHED THE CONFIRMATION, DETAILS OF THE BILLS, A ND THE BASIS OF QUANTIFICATION OF THE COMMISSION WHICH ARE AVAILABL E IN THE PAPER BOOK. IT IS ALSO UNDISPUTED FACT THAT THE COMMISSION WAS PAID TO THE SAME PARTIES IN THE SUBSEQUENT YEAR AS WELL AND THE AO M ADE NO DISALLOWANCE. THE ASSESSEE DURING THE PROCEEDINGS HAS FILED SEVER AL DETAILS WHICH HAVE BEEN DISCUSSED IN THE PRECEDING PARAGRAPH TO JUSTIF Y THE COMMISSION EXPENSES BUT NO INFIRMITY/DEFECT WAS POINTED OUT BY THE AO IN THE SUBMISSION OF THE ASSESSEE. 7.6 IT IS A FACT ON RECORD THAT THE ASSESSEE HAS NO T INCURRED ANY COMMISSION EXPENSES IN THE IMMEDIATELY PRECEDING YE AR, BUT THAT DOES ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 12 - NOT MEAN THAT COMMISSION EXPENSES WILL NOT BE INCUR RED IN THE SUBSEQUENT YEARS. 7.7 AFTER CONSIDERING THE FACTS IN TOTALITY, WE NOT E THAT THE ASSESSEE HAS DISCHARGED HIS ONUS BY SUBMITTING THE DETAILS TO TH E AO DURING THE ASSESSMENT PROCEEDINGS IN THE FORM OF PAN, CONFIRMA TION, DETAILS OF SALES ETC. THUS, NO DISALLOWANCE ON ACCOUNT OF COMM ISSION EXPENSES CAN BE MADE. IN THIS REGARD, WE FIND SUPPORT AND GUIDAN CE FROM THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE CIT VS. INBUILT MERCHANT PRIVATE LTD . IN ITAT NO. 225 OF 2013, G.A. NO. 3825 OF 2013 VI DE ORDER DATED 14 TH MARCH 2014 WHEREIN IT WAS HELD AS UNDER:- WITH THE ADVANCEMENT OF TECHNOLOGY, IT HAS BEC OME POSSIBLE TO SELL GOODS THROUGHOUT THE COUNTRY THROUGH THE INTER NET. FOR THAT PURPOSE, AGENT ARE REQUIRED THROUGHOUT THE COUNTRY. THE MECHANISM IN THAT REGARD HAS BEEN DISCLOSED BY THE ASSESSEE AND HAS BEEN RECORDED IN THE ORDER OF THE CIT(APPEALS). FOR THE PURPOSE OF C ARRYING ON ITS BUSINESS, THE ASSESSEE HAS TO RECRUIT THE AGENTS. I T MAY NOT BE POSSIBLE FOR THE ASSESSEE TO KNOW THEM PERSONALLY. WHATEVER ADDRESS WAS FURNISHED TO THE ASSESSEE, HAS BEEN DISCLOSED TO TH E INCOME-TAX DEPARTMENT. PAYMENTS WERE ADMITTEDLY MADE BY CHEQUE AFTER DEDUCTION OF TAX. THE TAX DEDUCTED AS SOURCE HAS DULY BEEN DE POSITED. THE JUDGMENT IN THE CASE OF CIT VS. PRECISION FINANCE P VT. LTD. REPORTED IN 208 ITR 465 RELIED UPON B MR. BHOWMICK DOES NOT REA LLY ASSIST HIM. THE AFORESAID JUDGMENT IS AN AUTHORITY FOR THE PROP OSITION THAT MERE PAYMENT BY ACCOUNT PAYEE CHEQUE CANNOT ESTABLISH TH AT THE TRANSACTIONS WAS GENUINE, BUT IN THE CASE BEFORE US, BESIDES THE FACT THAT PAYMENT WAS MADE BY CHEQUE, THERE ARE OTHER PIECES OF EVIDE NCE AVAILABLE WHICH ARE AS FOLLOWS: A) BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS B) DEDUCTION ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 13 - WE ARE, AS SUCH OF THE OPINION THAT THE VIEW EXPRES SED BY THE LEARNED TRIBUNAL ARE UNEXCEPTIONABLE. WE, THEREFORE REFUSE TO ADMIT THE APPEAL. THE APPEAL IS THUS DISMISSED. 7.8 WE ALSO DRAW SUPPORT FROM THE JUDGMENT OF CALCU TTA HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN DEVELOPMENT CORPORATION LIMITED REPORTED IN 101 TAXMAN 146 INVOLVING SIMILAR FACTS & CIRCUMSTANCES WHEREIN IT WAS HELD AS UNDER:- GENUINENESS OF THE AGREEMENT HAD NOT BEEN DISPUTED . THE ASSESSEE AND ISC AGREED THAT THE SALE WOULD BE THROUGH ISC A ND THE COMMISSION ON SALES AT A PARTICULAR RATE WOULD BE PAID BY THE ASSESSEE. ALL PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES. STATEM ENTS OF PARTNERS OF ISC WERE RECORDED BY THE ITO AT THE BACK OF THE ASSESSEE. NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO CROSS-EXAM INE THEM, NOT EVEN COPIES OF THOSE STATEMENTS WERE SUPPLIED TO THE ASS ESSEE AT THE TIME OF ASSESSMENT, AND THESE STATEMENTS WERE USED AGAINST THE ASSESSEE. WHEN THE ITO HAD NOT ALLOWED TO SUBMIT COPIES OF THE EVI DENCES WHICH WERE RELEVANT TO FIND OUT WHETHER ISC HAD RENDERED ANY S ERVICE, THESE VERY EVIDENCES, THEREAFTER, WERE SUBMITTED IN APPEAL BEF ORE THE COMMISSIONER (APPEALS) WHO AS A MATTER OF FACT FOUN D THAT SERVICES WERE RENDERED AND COMMISSION HAD BEEN PAID FOR THE SERVICES RENDERED BY ISC. WHETHER ANY SERVICES HAD BEEN RENDERED BY ISC WAS B ASICALLY A QUESTION OF FACT. NO SATISFACTORY ANSWER HAD BEEN G IVEN BY THE DEPARTMENT TO THE QUERY OF THE BENCH AS TO WHAT TYP E OF EVIDENCE IN SUCH CASES WAS REQUIRED. IN CASES OF SALES PROMOTION, SA LES COULD BE PROCURED EVEN ON TELEPHONE IF THE PURCHASER WAS PER SUADED BY THE AGENT. THERE WAS A CONCURRENT FINDING OF THE COMMISSIONER (APPEALS) AS WELL AS OF THE TRIBUNAL THAT SERVICES HAD BEEN RENDERED BY ISC AND THAT COMMISSION HAD BEEN PAID FOR THAT SERVICE. MERELY, IF SOME SATISFACTORY ANSWER HAD NOT BEEN GIVEN BY EITHER OF THE PARTNERS OF ISC TO THE ITO, THAT DID NOT MEAN THAT NO SERVICES WERE RENDERED OR TO DISBELIEVE THE GENUINENESS OF THE AGREEMENT FOR SERVICES OR SALES, AS WELL AS OF THE PAYMENT. EVEN PAYMENT HAD NOT BEEN DENIED. THEREFOR E, IN SUCH CASES IT ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 14 - COULD NOT BE SAID THAT THE FINDING OF FACT WAS PERV ERSE. WHEN THE FINDING OF FACT REGARDING RENDERING OF SERVICE WAS NOT PERV ERSE, THE PAYMENT OF COMMISSION COULD NOT BE DISALLOWED. NO INTERFERENCE WAS, THEREFORE, CALLED FOR IN THE ORDER OF THE TRIBUNAL. 7.9 IN VIEW OF ABOVE, WE HOLD THAT THE COMMISSION E XPENSES HAVE BEEN INCURRED BY THE ASSESSEE EXCLUSIVELY IN CONNECTION WITH THE BUSINESS AND THEREFORE THE SAME ARE ELIGIBLE FOR DEDUCTION U/S 3 7(1) OF THE ACT. HENCE, WE REVERSE THE ORDERS OF AUTHORITIES BELOW AND DIRE CT THE AO TO DELETE THE ADDITION ON ACCOUNT OF COMMISSION EXPENSES. THUS, T HE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED . 8. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT LD CIT(A) ERRED IN CONFIRMING THE ADDITION RS.5,00,000/- ON ACCOUNT OF UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT AND DISALLOWANCE OF CORRES PONDING INTEREST OF RS.43,764/- ONLY. 9. THE ASSESSEE DURING THE YEAR HAS TAKEN THE LOAN FROM 11 PARTIES AMOUNTING TO RS. 89,70,000/- AND INCURRED INTEREST EXPENSES ON SUCH LOAN FOR RS.11,89,871/- ONLY. THE AO TO VERIFY THE GENUI NENESS OF THE LOAN ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE VIDE LET TER DATED 21-03-2014 AND REQUIRED FROM IT TO FILE THE CONFIRMATION, CRED ITWORTHINESS, GENUINENESS OF THE PARTIES. ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 15 - 9.1 IN COMPLIANCE TO IT, THE ASSESSEE SUBMITTED THA T ALL THE LOANS WERE TAKEN THROUGH BANKING CHANNEL AND ALSO SUBMITTED TH AT THE NOTICES ISSUED U/S 133(6) OF THE ACT HAVE ALREADY BEEN SERVED TO T HE PARTIES. 9.2 THE ASSESSEE ALSO SUBMITTED THAT ITS FINANCIAL POSITION IS VERY WEEK AND THEREFORE IT IS NOT POSSIBLE TO REPAY THE LOAN TAKEN FROM THE PARTIES. THEREFORE, THESE LOAN PARTIES WERE NOT COOPERATING WITH THE INCOME TAX DEPARTMENT. 9.3 HOWEVER, THE AO DISREGARDED THE CONTENTION OF T HE ASSESSEE AND DISALLOWED THE AMOUNT OF LOAN TAKEN BY THE ASSESSEE DURING THE YEAR FOR RS.89,70,000/- AND CORRESPONDING INTEREST OF RS.11, 89,871/- AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 10. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD C IT(A). THE ASSESSEE BEFORE THE LD CIT(A) FILED THE ADDITIONAL EVIDENCES SUCH AS NAME, ADDRESSES, PAN, CONFIRMATION AND COPIES OF AC COUNTS TO PROVE THE GENUINENESS OF THE LOAN TRANSACTION. 10.1 THE LD CIT(A) CALLED FOR THE REMAND REPORT FRO M THE AO. THE AO IN HIS REMAND REPORT DATED 17-04-2017 HAS ACCEPTED THAT THE LOAN FROM THE FOUR PARTIES IS GENUINE AS THESE FOUR PARTIES H AVE FILED NECESSARY DETAILS INCLUDING CONFIRMATION. THE NAME OF THE FOU R PARTIES STANDS AS UNDER: ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 16 - I. HOTEL CITY PLAZA II. MADHAV ENTERPRISES III. MADHU GUPTA IV. PRAVEEN KUMAR GUPTA (HUF) 10.2 THE AO IN HIS ASSESSMENT REPORT FURTHER SUBMIT TED THAT THERE WAS NO CONFIRMATION/RESPONSE IN RESPECT OF THE 7 PARTIE S AS DETAILED UNDER: I. ARCHANA RAMAVTAR BANSAL II. HIMANSHU K. GUPTA III. KAMAL K. GUPTA (HUF) IV. LAXMIKANT GUPTA V. RAKESH TRADING CO. VI. RITU GUPTA VII. SATISH B GUPTA 10.3 THE AO ALSO SUBMITTED THAT THE BREAKUP OF THE LOAN WAS NOT FURNISHED IN THEIR BALANCE SHEET. 10.4 THE AO IN RESPECT OF ONE CREDITOR NAMELY ARCHA NA RAMAVTAR BANSAL SUBMITTED THAT SHE WAS NOT TRACEABLE. THEREF ORE, THE LOAN TAKEN BY THE ASSESSEE FROM SUCH PERSON CANNOT BE RELIED UPON . 10.5 THE ASSESSEE IN RESPONSE TO THE REMAND REPORT SUBMITTED THAT THERE ARE SIX PARTIES WHO HAVE FILED RECOVERY PETITION BE FORE THE HONBLE GUJARAT HIGH COURT. THE ASSESSEE FURNISHED THE NECE SSARY DETAILS OF THE ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 17 - PETITIONS WHICH WERE FILED BEFORE THE HONBLE GUJAR AT HIGH COURT BY THE PARTIES AS DETAILED UNDER: SR.NO NAME OF THE PETITIONER PETITION NO. 1 HIMANSHU K GUPTA COMPANY PETITION NO.160 OF 2015 2 HIMANSHU K GUPTA HUF COMPANY PETITION NO.161 OF 2015 3 LAXMIKANT GUPTA COMPANY PETITION NO, 156 OF 2015 4 RAKESH TRADING CO. COMPANY PETITION NO.125 OF 2015 5 RITU LAXMIKANT GUPTA COMPANY PETITION NO. 154 OF 2015 6 SATISH BALLA GUPTA COMPANY PETITION NO.159 OF 2015 10.6 THE LD CIT(A) AFTER CONSIDERED THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION IN PART MADE BY THE AO BY OBSE RVING AS UNDER: HAVING GONE THROUGH SAID RECOVERY PETITION AS OBTA INED BY THE ASSESSING OFFICER FROM THE REGISTRAR, HONORABLE HIG H COURT, I FIND THAT THE SAID PETITIONERS HAVE CLAIMED FOLLOWING AMOUNT OF LOANS TO ASSESSEE AND INTEREST THEREOF RECOVERABLE FROM THE ASSESSEE: - SR. NO. NAME OF THE PETITIONER AMOUNT OF CREDIT AMOUNT OF INTEREST TOTAL AMOUNT RECOVERABLE 1. HIMANSHU K GUPTA COMPANY RS3,00,000/- RS 86,467 /- RS.3,86,467/- 2 KAMAL KISHOR K GUPTA HUF COMPANY RS 12,50,000/- RS 4,73,787 /- RS.17.23.787/- 3 LAXMIKANT GUPTA COMPANY RS 10,00,000/- RS3 , 84,367/- RS 13,84,367 /- 4 RAKESH TRADING CO. COMPANY RS 13,50,000 /- RS 3,91,935/- RS 17,41,935/- 5 RITU LAXMIKANT GUPTA COMPANY RS.5,00,000/- RS 1,44,951/- RS 6,44,951/- 6 SATISH BALLA GUPTA COMPANY RS.19,99,323/- RS.4,49,323/- RS 15,50,000/- ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 18 - HAVING CONSIDERED THE ABOVE FACTS AND. CIRCUMSTANCE S, I FIND THAT THE FACT THAT ASSESSEE RECEIVED IMPUGNED CREDITS FROM 1 0 OF SAID CREDITORS IS AMPLY PROVED BY THE REMAND REPORT OF ASSESSING OFFI CER AND THE RECOVERY PETITIONS FILED BY THE CREDITORS BEFORE TH E HONOURABLE HIGH COURT. ADDITION U/S 68 IN RESPECT OF LOANS FROM THE SE CREDITORS IS NOT SUSTAINABLE. HOWEVER, IN CASE OF ARCHANA GUPTA NEIT HER THERE IS RECOVERY PETITION NOR ASSESSEE HAS FILED ANY CONFIR MATION NOR COULD SHE BE TRACED DURING REMAND PROCEEDINGS. ACCORDINGLY, I N MY CONSIDERED OPINION, THE CREDIT OF RS 5 LACS AND INTEREST THERE OF OF RS 43,764/- IN NAME OF ARCHANA GUPTA IS NOT PROVED TO BE GENUINE A S IDENTITY OF THE CREDITOR, HER CREDITWORTHINESS AND GENUINENESS OF C REDIT IS NOT ESTABLISHED. THEREFORE, ADDITION OF RS 5,43,764/- I S CONFIRMED. BALANCE ADDITION OF RS 96,16,107/- (RS 1,01,59,871 - RS 5,4 3,764/- = RS 9,616,107/-) IS DIRECTED TO BE DELETED. ASSESSEE SU CCEEDED PARTLY ON THIS GROUND. 10.7 BEING AGGRIEVED BY THE ORDER OF LD CIT(A) BOTH ASSESSEE AND REVENUE ARE BEFORE US. THE ASSESSEE IS IN APPEAL BE FORE US FOR THE CONFIRMATION OF DISALLOWANCE OF RS.5 LACS AND CORRE SPONDING INTEREST OF RS.43,764/- WHEREAS, THE REVENUE IS IN APPEAL BEFOR E US AGAINST THE DELETION MADE BY THE LD CIT(A) FOR RS.84,70,000/- A ND CORRESPONDING INTEREST OF RS.11,46,107/- ONLY. 11. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. THE LD CIT(A) HAS ERRED ON FACTS AND LAW IN RES TRICTING THE ADDITION OF RS.1,01,59,871/- U/S 68 OF THE ACT MADE BY THE AO TO RS.5,43,764/-. 2. IT IS THEREFORE PRAYED THAT THE ADDITION OF RS.1 ,01,59,871/- MADE BY THE AO U/S 68 OF THE ACT AS HELD IN THE ASSESSME NT ORDER BE RESTORED. ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 19 - 12. THE LD. AR BEFORE US SUBMITTED THAT THE DETAILS OF THE PARTIES FROM WHOM THE LOAN WAS TAKEN WERE FURNISHED TO THE AO DU RING THE REMAND PROCEEDINGS. SUCH DETAILS CONTAINED THE NAME, ADDRE SSES, PAN, AMOUNT AND THE CONFIRMATION FROM THE PARTIES. SUCH DETAILS ARE PLACED ON PAGE 7 TO 36 OF THE PAPER BOOK. 12.1 THE LD. AR ALSO SUBMITTED THAT THE AO HIMSELF HAS DELETED THE ADDITION IN RESPECT OF FOUR PARTIES AS DISCUSSED AB OVE IN HIS REMAND REPORT. THEREFORE, THE SAME CANNOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 12.2 THE LD. AR IN RESPECT OF HIS CLAIM DREW OUR AT TENTION ON THE REMAND REPORT OF THE AO WHICH IS PLACED ON PAGES 37 TO 47 OF THE PAPER BOOK. 12.3 THE LD. AR BEFORE US ALSO FILED THE DETAILS OF THE RECOVERY PETITIONS PENDING BEFORE THE HONBLE GUJARAT HIGH C OURT WHICH WERE FILED BY THE LENDERS. SUCH DETAILS ARE PLACED ON PA GES 48-245 OF THE PAPER BOOK. 12.4 THE LD. AR BEFORE US FILED THE COPY OF THE LOA N, CONFIRMATION FROM ARCHANA RAMAVTAR BANSAL ALONG WITH THE BANK DETAILS , WHICH IS AVAILABLE ON RECORD. ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 20 - 12.5 ON THE OTHER HAND, LD. DR SUBMITTED THAT THE C REDITWORTHINESS OF THE LOAN PARTIES WAS NOT SUBSTANTIATED BY THE ASSES SEE. BOTH THE LD. AR & DR BEFORE US RELIED ON THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSES SEE HAS TAKEN LOAN DURING THE YEAR FROM VARIOUS PARTIES ON WHICH THE INTEREST EXPENSES WAS ALSO INCURRED. HOWEVER, THE AO DISALLOWED THE SAME ON TH E GROUND THAT THE GENUINENESS/CREDITWORTHINESS/IDENTITY OF THE PARTIE S WERE NOT ESTABLISHED BY THE ASSESSEE. 13.1 HOWEVER, WE NOTE THAT THE AO IN RESPECT OF FOU R PARTIES AS DISCUSSED IN THE PRECEDING PARAGRAPH HAS ACCEPTED T HE GENUINENESS, IDENTITY AND CREDITWORTHINESS. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDING OF THE LD CIT(A) IN RESPEC T OF SUCH FOUR PARTIES. 13.2 IN RESPECT OF ANOTHER SIX PARTIES, WE NOTE THA T RECOVERY PETITIONS PENDING BEFORE THE HONBLE GUJARAT HIGH COURT. THER EFORE WE ARE OF THE VIEW THAT THAT THE IDENTITY, CREDITWORTHINESS AND G ENUINENESS OF THE TRANSACTION CANNOT BE DOUBTED IN RESPECT OF SUCH PA RTIES. THEREFORE WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDING OF LD CIT(A). ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 21 - 13.3 IN RESPECT OF LAST PARTY SMT. ARCHANA RAMAVTAR BANSAL, WE NOTE THAT THE ASSESSEE HAS REPAID THE LOAN OF RS.5 LACS TO SMT. ARCHANA RAMAVTAR BANSAL. AS SUCH, THE ASSESSEE HAS SHOWN LI ABILITY IN THE NAME OF ARCHANA RAMAVTAR BANSAL FOR RS.7,00,718/- AS OPE NING BALANCE, WHICH WAS REDUCED DURING THE YEAR TO RS.2,00,718. THUS, I T IS CLEAR THAT THE ASSESSEE HAS MADE THE PAYMENT FOR RS.5,00,000/- DUR ING THE YEAR. THEREFORE WE NOTE THAT THERE WAS NO FRESH LOAN TAKE N FROM SMT. ARCHANA RAMAVTAR BANSAL DURING THE YEAR. ACCORDINGLY, NO DI SALLOWANCE CAN BE MADE FOR THE SAME. HENCE, GROUND OF APPEAL OF THE A SSESSEE IS ALLOWED AND GROUND OF APPEAL OF THE REVENUE IS DISMISSED . 14. THE LAST ISSUE RAISED BY THE ASSESSEE IN THIS A PPEAL IS THAT LD CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.6,48, 772/- UNDER THE PROVISION OF SECTION 41(1) OF THE ACT. 15. THE ASSESSEE IN ITS BALANCE SHEET HAS SHOWN OUT STANDING CREDITOR NAMELY ARZEE RAGS WHICH WAS OUTSTANDING FOR MORE TH AN 3 YEARS. 15.1 THE AO TO VERIFY THE GENUINENESS OF THE CREDIT ORS REQUESTED THE ASSESSEE TO PROVIDE THE CONFIRMATION FROM THE PARTY BUT THE ASSESSEE FAILED TO DO SO. THEREFORE, THE AO TREATED THE OUTS TANDING LIABILITY AS NOT PAYABLE AND HAS CEASED TO EXIST IN THE BOOKS OF ACC OUNTS. THEREFORE THE SAME WAS DISALLOWED UNDER THE PROVISIONS OF SEC 41( 1) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 22 - 16. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A). THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED THAT THE PR OVISIONS OF SECTION 41(1) OF THE ACT IS NOT APPLICABLE DUE TO THE FACT THAT THE LIABILITY IS VERY MUCH REFLECTING IN THE BOOKS OF ACCOUNTS AND IT HAS NOT CEASED TO EXIST. THEREFORE, THE SAME CANNOT BE DISALLOWED. HOWEVER, THE AO DISREGARDED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE OR DER OF AO BY OBSERVING AS UNDER: HAVING CONSIDERED FACTS AND CIRCUMSTANCES OF THE CASE AND RIVAL CONTENTIONS, I FIND IT AN UNCONTROVERTED FACT THA T ASSESSEE DID NOT ADDUCE ANY EVIDENCE TO PROVE THAT THE SAID LIABILITY WAS STILL OUTSTANDING. NO CONTRA ACCOUNT CONFIRMED BY T HE SAID PARTY WAS FILED BEFORE A.O. OR DURING APPELLATE PROCEEDIN GS. IN THESE FACTS THE / CONTENTION OF ASSESSEE ARE NOT TENABLE. WH EN THE ASSESSEE DESPITE F AMPLE OPPORTUNITY AND DESPITE A SPECIFIC QUERY HA S FAILED TO ESTABLISH / THAT THE IMPUGNED LIABILITY STILL EXISTS IN MY CONS IDERED OPINION, THE A.O. IS FULLY JUSTIFIED IN HOLDING THAT LIABILITY H AS CEASED TO EXIST. THE ACTION OF ASSESSING OFFICER CALLS FOR NO INTERFEREN CE. THE GROUND OF APPEAL IS REJECTED. 16.1 BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) ASS ESSEE IS IN APPEAL BEFORE US. 17. THE LD. AR BEFORE US FILED THE LEDGER COPY OF T HE CREDITORS AND DEMONSTRATED THAT THE AMOUNT OF LIABILITY WAS CARRI ED FORWARD FROM THE EARLIER YEARS AND SAME IS STILL OUTSTANDING AND REC ORDED IN THE BOOKS OF ACCOUNT. THE COPIES OF THE LEDGER ARE PLACED ON PAG ES 292-293. ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 23 - 18. ON THE OTHER HAND LD. DR VEHEMENTLY SUPPORTED T HE ORDER OF LOWER AUTHORITIES BELOW. 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT THE LIABILITY SHOWN BY THE ASSESSEE HAS NOT CEASED TO EXIST IN IT S BOOKS OF ACCOUNT AND THE SAME IS VERY MUCH REFLECTED IN ITS BALANCE SHEE T. THEREFORE, IN OUR CONSIDERED VIEW, THE SAME CANNOT BE ADDED TO THE TO TAL INCOME OF THE ASSESSEE U/S 41(1) OF THE ACT UNTIL AND UNLESS IT I S NOT WRITTEN OFF IN THE BOOK OF ACCOUNTS. IN THIS REGARD, WE FIND SUPPORT A ND GUIDANCE FROM THE ORDER OF HONBLE ITAT IN THE CASE OF OPTO AUDIO ELECTRONICS PRODUCTS PVT. LTD . (SUPRA) AND TARUN KR. DEY (SUPRA) IN ITA NO.592/KOL/2008 FOR THE A.Y 2002-03 VIDE ORDER DATED 25.05.2012 WHE REIN IT WAS HELD AS UNDER: 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSEE HA S DISCLOSED SUNDRY CREDITORS TO THE EXTENT OF RS.15,34,818/- AS ON 31. 03.2002. THE AO REQUIRED ASSESSEE TO FILE COMPLETE NAME AND ADDRESS ES AND ON THE GIVEN ADDRESS NOTICE ISSUED BY AO U/S 133(6) OF THE ACT R ETURNED UNSERVED. ACCORDING TO AO, AS ASSESSEE IS UNABLE TO PROVE THE LIABILITY HE ADDED A SUM OF RS.2,78,261/- AS BOGUS LIABILITY ON ACCOUNT OF CESSATION OF LIABILITY WITHOUT MENTIONING PROVISION OF SECTION 4 1(1) OF THE ACT. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. WE FIND THAT IT IS NOT THE CASE OF REVENUE THAT IT IS A CASE OF EXISTING LIABILITY AND ASSESSEE HAS NOT MADE ANY WRITE OFF O F ALL LIABILITIES IN ITS BOOKS OF ACCOUNTS AND IT IS A FACT THAT THE SUNDRY CREDITORS ARE CARRIED FORWARD FROM EARLIER YEARS AND NOT ARISING OR ACCRU ED DURING THE RELEVANT ASSESSMENT YEAR. IN SUCH CIRCUMSTANCES WHE THER AO CAN MAKE ADDITION ON ACCOUNT OF CESSATION OF LIABILITY WHETH ER THE SAME EXISTS OR ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 24 - NOT AS PER THE BOOKS OF ACCOUNTS OF ACCOUNTS THE LI ABILITY EXISTS AND HE HAS NOT MADE ANY WRITE OFF OF THE SAME. ONCE THE LI ABILITY EXISTS IN THE BOOKS OF ASSESSEE AND THE CREDITOR HAS RIGHT TO CLA IM OVER THE SAME AS PER LAW, AO COULD NOT MAKE ADDITION ON ACCOUNT OF C ESSATION OF LIABILITY BY INVOKING PROVISION OF SECTION 41(1) OF THE ACT. THIS ISSUE HAS BEEN SETTLED BY THE HON'BLE APEX COURT IN THE CASE OF CCIT VS. KESARIA TEA CO. LTD. (2002) 254 ITR 434 (SC), WHEREIN IT IS HELD THAT P ROVISION MADE TOWARDS PURCHASE TAX LIABILITY WAS ALLOWED IN EARLIER YEARS AND SUCH PROVISION WAS WRITTEN BACK IN A SUBSEQUENT YEA R UNDER THE IMPRESSION THAT THE DISPUTE AS TO PURCHASE TAX LIAB ILITY WAS FINALLY SETTLED WITH THE DISMISSAL OF THE SPECIAL LEAVE PETITION IN SOME OTHER CASE, EVEN THOUGH OTHER ISSUES BEARING ON THE ELIGIBILITY OF P URCHASE TAX STILL REMAINED. ON THESE FACTS, IT HAS BEEN HELD THAT THE UNILATERAL ACT ON THE PART OF THE ASSESSEE BY WAY OF WRITING OFF THE LIAB ILITY IN ITS ACCOUNTS DID NOT NECESSARILY MEAN THAT THE LIABILITY CEASED IN T HE EYE OF LAW. HENCE, THE PROVISIONS OF SECTION 41(1) WERE NOT ATTRACTED. HENCE, RESPECTFULLY FOLLOWING THE JUDGMENT OF HON'BLE APEX COURT AND GO ING THROUGH THE FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT ONCE THE ASSESSEE HAS NOT MADE ANY WRITE OFF OF CREDITORS IN ITS BOOKS OF ACCOUNTS, THE AMOUNTS CANNOT BE TREATED AS CESSATION OF LIABILITY U/S.41( L) OF THE ACT. HENCE, WE ALLOW THIS ISSUE OF ASSESSEE'S APPEAL. 5. SIMILAR ARE THE CIRCUMSTANCES IN THE CASE OF CES SATION OF LIABILITY OF M/S. ARC INFOTECH PRIVATE LIMITED AMOUNTING TO RS.9 5,610/-. AS THE ASSESSEE COULD NOT SUBSTANTIATE THE SUNDRY CREDITOR ARC INFOTECH PRIVATE LIMITED WHICH WAS OUTSTANDING AS ON 31.03.2 002 THE AO MADE THE ADDITION BUT ASSESSEE HAS NEVER MADE ANY WRITE OFF OF THIS LIABILITY IN ITS BOOKS OF ACCOUNT. SIMILAR ARE THE FACTS IN THE PRESENT ISSUE AS IN THE ABOVE ISSUE OF SUNDRY CREDITORS, HENCE TAKING A CON SISTENT VIEW WE DELETE THIS ADDITION. 6. AS REGARDS TO THE LIABILITY OF RS.54,918/- ON AC COUNT OF COMMISSION PAYABLE TO SHRI NARENDRA KUMAR DUGGAR, IT IS ALSO A FACT THAT THIS LIABILITY IS OUTSTANDING AND IT PERTAINS TO FINANCI AL YEAR 1997-98 RELEVANT TO A.Y.1998-99 AND THIS LIABILITY DOES NOT PERTAIN TO THE RELEVANT ASSESSMENT YEAR 2002-03. THE FACTS ARE EXACTLY IDEN TICAL TO THE FACTS OF THE FIRST ISSUE OF SUNDRY CREDITORS. HENCE TAKING A CONSISTENT VIEW, WE DELETE THIS ADDITION. ITA NOS.30 & 85/RJT/2018 SAFARI FINE CLOTHING PVT. LTD.(CROSS APPEALS) A.Y 2011-12 - 25 - IN VIEW OF ABOVE, WE HOLD THAT THERE CANNOT BE ANY INCOME ON ACCOUNT OF LIABILITY WHICH HAS NOT BEEN WRITTEN BACK BY THE AS SESSEE IN ITS BOOKS OF ACCOUNTS. THUS WE REVERSE THE ORDER OF AUTHORITIES BELOW. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AND APPEAL BY THE REVENUE IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 03/10/2018 SD/- SD/- JKTIKY ;KNO JKTIKY ;KNO JKTIKY ;KNO JKTIKY ;KNO OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; YKS [KK LNL; U;KF;D LNL; YKS [KK LNL; U;KF;D LNL; YKS [KK LNL; U;KF;D LNL; YKS [KK LNL; (RAJPAL YADAV) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 03/10/2018 PRITI YADAV, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. '' / THE APPELLANT 2. %&'' / THE RESPONDENT. 3. * + , -+ / CONCERNED CIT 4. , -+ ( ) / THE CIT(A)- 2, AHMEDABAD. 5. ./ 0 %+1 , , /DR,ITAT, RAJKOT 6. 0 2 3 4 / GUARD FILE. / BY ORDER, & .+ %+ //TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, RAJKOT