The Assistant Commissioner of Income Tax, Circle-1, Kakinada V. M/s. S.V.S.N.Reddy Poultry Complex, Anakapalle

ITA 469/VIZ/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8514 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-04-2020
• Assessment Year: 2015-2016
• Appeal Filed On: 04-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Keywords: Business income; Tangible material; Onus to prove; Condonation of delay; Set aside; Bogus
• Section: 10; 143(3); 133A; 37(1); 13; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM (THROUGH WEB - BASED VIDEO CONFERENCING PLATFORM) , . . , BEFORE SHRI N.K.CHOUDHRY, HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HONBLE ACCOUNTANT MEMBER ./ I.T. A.NO. 469 /VIZ/20 19 ( / A SSESSMENT Y EAR : 20 1 5 - 16 ) ASST. COMMISSIONER OF INCOME TAX CIRCLE - 1 KAKINADA VS. M/S S.V.S.N.REDDY POULTRY COMPLEX NTR STADIUM GROUNDS ROAD SAMPATHIPURAM ANAKAPALLE [PAN : AASFS1209H] ( / APPELLANT) ( / RESPONDENT) CROSS OBJECTION NO.01/VIZ/2021 (ARISING OUT OF I.T. A.NO. 469/VIZ/2019) ( / A SSESSMENT Y EAR : 2015 - 16) M/S S.V.S.N.REDDY POULTRY COMPLEX NTR STADIUM GROUNDS ROAD SAMPATHIPURAM ANAKAPALLE [PAN : AASFS1209H] VS. ASST. COMMISSIONER OF INCOME TAX CIRCLE - 1 KAKINADA ( / APPELLANT) ( / RESPONDENT) /REVENUE BY : SMT.SUMAN MALIK, DR / ASSESSEE BY : SHRI G.V.N.HARI, AR / DATE OF HEARING : 24.06.2021 / DATE OF PRONOUNCEMENT : 18 .0 8 .2021 2 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE / O R D E R P ER D.S.SUNDER SINGH, ACCOUNTANT MEMBER : CONDONATION OF DELAY : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] - 11, HYDERABAD IN APPEAL NO.031/18 - 19/DCIT CC - 1/KKD/CIT(A) - 3, VSKP/2018 - 19DATED 25.01.2019 FOR THE ASSESSMENT YEAR (A.Y.) 2015 - 16 WITH THE DELAY OF 34 DAYS. THE REVENUE FILED CONDONATION PETITION, GIVING ADMINISTRATIVE REASONS. AFTER HEARING BOTH THE SIDES, THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED. CROSS OBJE CTIONS ARE FILED BY THE ASSESSEE IN SUPPORT OF THE ORDER OF THE LD.CIT(A). 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE ADDITION OF RS.1,94,31,358/ - RELATING TO SUNDRY CREDITORS DELETED BY THE LD.CIT(A) . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF POULTRY FARMING. A SURVEY U/S 133A WAS CONDUCTED IN THIS CASE ON 30.11.2015 AND THE ASSESSEE HAD ADMITTED THE ADDITIONAL INCOME OF RS.2,93,76,209/ - IN THE SURVEY PROCEEDINGS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASS ESSING OFFICER (AO) FOUND THAT THE ASSESSEE HAD ENTERED INTO AGREEMENT FOR SALE OF POULTRY COMPLEX ON 16.12.2014 WITH MRS TUMMALA PRATYUSHA. THE AO FURTHER OBSERVED THAT THERE WERE 3 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE OUTSTANDING CREDITORS OF RS.3,33,88,175/ - AS ON 31.03.2015. OUT OF THE A BOVE SUM OF RS.3.34 CRORES, THE ASSESSEE HAD ADMITTED THE SUM OF RS.1,39,56,817/ - AS ADDITIONAL INCOME DURING THE COURSE OF SURVEY CONDUCTED U/S 133A ON 30.11.2015. SINCE THE BUSINESS WAS CLOSED AND THE ASSESSEE WAS UNABLE TO FURNISH THE DETAILS OF PAYMEN TS RELATING TO OUTSTANDING SUNDRY CREDITORS AMOUNTING TO RS.1,94,31,358/ - , THE AO MADE THE ADDITION AS UNPROVED CREDITORS. THUS, ADDITION WAS MADE REPRESENTING THE OUTSTANDING SUNDRY CREDITORS OF RS.1,94,31,358/ - . 3. AGAINST THE ORDER OF THE AO, THE ASSES SEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) FOUND THAT THE ASSESSMENT FOR THE YEAR ENDING 31.03..2014, I.E. A.Y.2014 - 15 WAS MADE UNDER SCRUTINY AND THE AO HAD ACCEPTED THE SUNDRY CREDITORS IN THE ASSESSMENT PROCEEDINGS OF THE EARLIER YEAR. THU S, VIEWED THAT THERE IS NO REASON TO SUSPECT THE GENUINENESS OF THE SUNDRY CREDITORS, SINCE, THE SAME WAS ESTABLISHED IN THE SCRUTINY PROCEEDINGS OF IMMEDIATELY PRECEDING A.Y. 2014 - 15. THE LD.CIT(A) FURTHE R OBSERVED THAT THE ASSESSEE HAD ADMITTED ADDITI ONAL INCOME AS DECLARED IN SURVEY PROCEEDINGS, INCLUSIVE OF THE OUTSTANDING SUNDRY CREDITORS, FOR WHICH, THE ASSESSEE WAS UNABLE TO FURNISH THE DETAILS AND HENCE VIEWED THAT REMAINING OUTSTANDING CREDITORS WERE GENUINE AND THE SAME WAS ESTABLISHED IN ASSES SMENT PROCEEDINGS EARLIER YEAR AND ALSO PAID 4 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE SUBSEQUENTLY. THE LD.CIT(A) ALSO OBSERVED THAT T HE AO DID NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT THE OPENING SUNDRY CREDITORS WE RE NOT GENUINE OR OTHERWISE. THEREFORE, THE LD.CIT(A) HELD THAT NO ADDITION IS W ARRANTED AND A CCORDINGLY, ALLOWED THE APPEAL OF THE ASSESSEE. 4. AGAINST THE ORDER OF THE LD.CIT(A), THE DEPARTMENT IS IN APPEAL BEFORE US . DURING THE APPEAL HEARING, THE LD.DR VEHEMENTLY SUPPORTED THE ORDER OF THE AO AND ARGUED THAT THE ASSESSEE WAS UNAB LE TO DISCHARGE ITS LIABILITY DURING THE COURSE OF SURVEY AND SURRENDERED CERTAIN OUTSTANDING CREDITORS AS ADDITIONAL INCOME. THE LD.CIT(A) WITHOUT VERIFYING THE GENUINENESS AND CREDIT WORTHINESS OF THE SUNDRY CREDITORS DELETED THE ADDITION WHICH WAS INC ORRECT. THE LD.DR FURTHER ARGUED THAT THE ASSESSEE COULD NOT EXPLAIN BEFORE THE LD.CIT(A) ALSO OR FURNISHED THE DETAILS. THEREFORE, ARGUED THAT THE LD.CIT(A) ERRONEOUSLY DELETED THE ADDITION, HENCE, REQUESTED TO SET ASIDE THE ORDER OF THE LD.CIT(A) AND A LLOW THE APPEAL OF THE REVENUE. 5. PER CONTRA, THE LD.AR SUBMITTED THAT THE SUNDRY CREDITORS WERE NOT THE LOAN CREDITORS AND THEY WERE TRADE CREDITORS FOR PURCHASES MADE BY THE ASSESSEE. THE CREDITORS WERE OUTSTANDING AS AT THE END OF THE EARLIER YEAR I.E . YEAR ENDING 31.03.2014 AND THE ASSESSMENT OF 2014 - 15 WAS COMPLETED UNDER SCRUTINY MANNER AFTER VERIFYING THE BOOKS OF ACCOUNTS AND ACCEPTED THE GENUINENESS OF THE CREDITORS AS WELL AS PURCHASES . IN SUPPORT OF HIS 5 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE SUBMISSION, THE LD.AR PLACED THE COPY OF ASSESSMENT ORDER DATED 22.11.2016 FOR THE A.Y.2014 - 15 IN PAGE NO.10 AND 11 OF THE PAPER BOOK. THE ASSESSEE ALSO TAKEN OUR ATTENTION TO PAGE NO.3 OF THE PAPER BOOK I.E. BALANCE SHEET AS AT THE END OF 31.03.2014 AND DEMONSTRATED THAT THE CREDITO RS WERE OUTSTANDING AT RS.2,82,68,840 AS PER THE LIST ENCLOSED ALONG WITH THE BALANCE SHEET. THUS, THE LD.A.R DEMONSTRATED THAT THE OUTSTANDING CREDITORS WERE OPENING CREDITORS, WHICH WERE BROUGHT FORWARDED FROM THE EARLIER YEAR. THE LD.AR FURTHER SUBMI TTED THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT FOR SALE OF POULTRY COMPLEX IN DECEMBER 2014 AND RECEIVED PARTIAL CONSIDERATION OF RS.30 LAKHS AS ON THE DATE OF ENTERING INTO AGREEMENT, HENCE, THE SUNDRY CREDITORS COULD NOT BE PAID DUE TO CASH CRUNCH. SUBSEQUENTLY, THE ASSESSEE HAD RECEIVED THE FULL CONSIDERATION AND REPAID THE CREDITORS. THEREFORE, SUBMITTED THAT THE AO MADE THE ADDITION OF OPENING SUNDRY CREDITORS ON ASSUMPTION THAT, ONCE THE POULTRY COMPLEX IS IN THE PROCESS OF SALE, THERE CANNOT BE ANY OUTSTANDING SUNDRY CREDITORS WHICH IS PURELY ON ASSUMPTION AND PRESUMPTION AND THE ADDITION WAS MADE ON GUESS WORK OF THE AO, WHICH THE LD.CIT(A) RIGHTLY DELETED THE ADDITION. HENCE, SUBMITTED NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD.CI T(A) . 6 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE SUNDRY CREDITORS SHOWN AS OUTSTANDING WERE OPENING CREDITORS FOR PURCHASES WHICH WERE BROUGHT FORWARD FROM THE E ARLIER YEAR AND THE ASSESSEE HAD DEMONSTRAT ED THIS FACT BY TAKING OUR ATTENTION TO THE BALANCE SHEET FILED IN THE PAPER BOOK AS DISCUSSED EARLIER. THE AO ALSO DID NOT BRING ANY EVIDENCE TO SHOW THAT EITHER THE SUNDRY CREDITORS WERE CROPPED UP DURING THE YEAR OR CASH CREDITS WERE INTRODUCED IN THE YEAR UNDER CO NSIDERATION . THOUGH THE ADDITION WAS MADE, THE AO DID NOT INVOKE ANY SECTION S OF IT A CT FOR MAKING SUCH ADDITION. IN THIS REGARD, IT IS FOUND THAT THE A.O HAD ACCEPTED THE BOOKS OF ACCOUNTS IN THE EARLIER YEAR, AS WELL AS IN THE YEAR UNDER CONSIDERATI ON. THE SUNDRY CREDITORS REPRESENT THE EXPENDITURE INCURRED FOR PURCHASES AND TO MAKE THE DISALLOWANCE OF EXPENDITURE THE ISSUE IS BE DEALT WITH U/S 37(1) IN THE YEAR IN WHICH IT WAS INCURRED, BUT NOT TO BE ADDED IN THE SUBSEQUENT YEAR. THE AO DID NOT M AKE ANY ENQUIRIES TO DISPROVE THE GENUINENESS OF OUTSTANDING CREDITORS TO INVOKE THE SECTION 41(1) OF THE ACT. IT WAS ALSO ACCEPTED FACT THAT IN THE EARLIER YEAR, ASSESSMENT WAS COMPLETED U/S 143(3) AND ACCEPTED THE GENUINENESS OF PURCHASES OR AS WELL AS THE OUTSTANDING CREDITORS. THUS, HAVING ACCEPTED THE GENUINENESS OF THE SUNDRY CREDITORS IN THE EARLIER YEAR MERELY BECAUSE THE ASSESSEE COULD NOT FURNISH SOME DETAILS, THE AO CANNOT 7 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE MAKE ADDITION OF OPENING SUNDRY CREDITORS. IT WAS ALSO STATED IN THE A SSESSMENT ORDER THAT DUE TO HUDHUD CYCLONE, THE BUSINESS WAS BADLY EFFECTED. MERELY BECAUSE, THE ASSESSEE HAD ENTERED INTO AGREEMENT FOR SALE, THE AO CANNOT PRESUME THAT THE SUNDRY CREDITORS SHOULD NOT CONTINUE UNLESS TANGIBLE EVIDENCE IS BROUGHT ON RECORD TO DISPROVE THE GENUINENESS OF THE OUTSTANDING SUNDRY CREDITORS. IN THIS REGARD, THE ASSESSEE HAD ALREADY SUBMITTED THE BALANCE SHEET . T HE ASSESSEE EXPLAINED THAT IT DID NOT RECEIVE THE SALE CONSIDERATION BY THE TIME THE SURVEY WAS CONDUCTED AND THE SU NDRY CREDITORS WERE NOT PAID BY THAT TIME, THUS THE TRANSACTION STANDS EXPLAINED . SIMILAR ISSUE WAS CONSIDERED BY THE COORDINATE BENCH OF ITAT, KOLKATA IN TUM NATH SHAW. V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 2, BURDWAN , 2019] 102 TAXMANN.COM 56 (KOLKATA - TRIB.) AND DECIDED THE ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. FOR THE SAKE CLARITY AND CONVENIENCE WE, EXTRACT THE RELEVANT PARA OF THE ORDER OF THE COORDINATE BENCH OF ITAT(SUPRA) AS UNDER: 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT ASSESSEE'S BOOKS OF ACCOUNTS WERE AUDITED. THE BOOKS OF ACCOUNTS WERE NOT REJECTE D BY THE ASSESSING OFFICER. THE LD COUNSEL ALSO POINTED OUT THAT SOME OF THE CREDITORS WERE PAID BY ASSESSEE IN SUBSEQUENT YEARS THEREFORE IT CANNOT BE SAID THAT CREDITORS ARE BOGUS. ON THE OTHER HAND, LD DR FOR THE REVENUE SUBMITTED BEFORE US THAT THE ASS ESSEE HAS NOT EXPLAINED THE DIFFERENCE IN CREDITORS THEREFORE, THE DIFFERENCE WORKED OUT BY THE ASSESSING OFFICER SHOULD BE SUSTAINED. WE NOTE THAT ASSESSEE HAS PARTICIPATED IN THE ASSESSMENT PROCEEDINGS AND SUBMITTED THE DETAILS AND DOCUMENTS REQUIRED BY ASSESSING OFFICER. THE ASSESSEE ALSO EXPLAINED THE DIFFERENCE BETWEEN CREDITORS RECORDED IN 8 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE HIS BOOKS VIS - - VIS BALANCE IN THE BOOKS OF CREDITORS, STATING THAT SAID DIFFERENCE WAS DUE TO GOODS IN TRANSIT OR PAYMENT IN TRANSIT. THE ASSESSING OFFICER REJECTE D THE EXPLANATION OF THE ASSESSEE WITHOUT PROVIDING ANY VALID REASONS. BESIDES, THE ASSESSING OFFICER FAILED TO ADDUCE ANY EVIDENCE ON RECORD TO PROVE THAT THE DIFFERENCE IN CREDITORS IS A BOGUS AND OUT OF UNACCOUNTED MONEY. JUST TO WORK OUT THE DIFFERENCE IN SUNDRY CREDITORS IS NOT SUFFICIENT, THE AO OUGHT TO ADDUCE ANY TANGIBLE MATERIAL ON RECORD TO PROVE THAT THE SAID DIFFERENCE BELONGS TO UNACCOUNTED MONEY OF THE ASSESSEE. WE NOTE THAT ASSESSEE'S PURCHASES HAD NOT BEEN DOUBTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER ALSO DID NOT DOUBT THE SALES MADE BY THE ASSESSEE THEREFORE, SO FAR THE ACCOUNTING PRINCIPLES ARE CONCERNED, IF THE TOTAL SALES AND TOTAL PURCHASES ARE NOT DOUBTED THEN BALANCE OF CREDITORS ARE GOING TO BE GENUINE, IF IT IS NOT OTHERW ISE PROVED BY THE ASSESSING OFFICER. 12. WE NOTE THAT THE DIFFERENCE BETWEEN CREDITORS RECORDED IN HIS BOOKS VIS - - VIS BALANCE IN THE BOOKS OF CREDITORS, SHOULD NOT BE TREATED AS CESSATION OF LIABILITY. AT THIS JUNCTURE IT IS APPROPRIATE TO GO THROUGH THE RELEVANT PROVISIONS OF SECTION 41(1) OF THE ACT, THE RELEVANT EXTRACTS OF WHICH IS REPRODUCED BELOW: 'SECTION 41(1):WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO AS THE FIRST - MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, (A) THE FIRST - MENTIONED PERSON HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPE NDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDIN GLY CHARGEABLE TO INCOME - FAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR (B) THE SUCCESSOR IN BUSINESS . . . . EXPLANATION 1. - FOR THE PURPOSES OF THIS SUB - SECTION, THE EXPRESSION 'LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF' SHALL INCLUDE THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNIL ATERAL ACT BY THE FIRST MENTIONED PERSON UNDER CLAUSE (A) OR THE SUCCESSOR IN BUSINESS UNDER CLAUSE (B) OF THAT SUB - SECTION BY WAY OF WRITING OFF SUCH LIABILITY IN HIS ACCOUNTS.' ON PERUSAL OF THE AFORESAID PROVISION IT COULD BE SEEN THAT THE FOLLOWING TWO CONDITIONS NEED TO BE FULFILLED IN ORDER TO TREAT CESSATION OF LIABILITY AS INCOME UNDER SECTION 41(1) OF THE ACT IN THE YEAR OF CESSATION OF LIABILITY: (A) ASSESSEE HAS TO AVAIL AN ALLOWANCE OR DEDUCTION IN ANY EARLIER YEAR IN RESPECT OF LOSS, EXPENDITU RE OR TRADING LIABILITY AND 9 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE (B) IN SUBSEQUENT YEAR THE ASSESSEE HAS OBTAINED CASH OR ANY OTHER BENEFIT IN RESPECT OF SUCH LOSS, EXPENDITURE AND TRADING LIABILITY BY WAV OF REMISSION OR CESSATION OF LIABILITY. IN OTHER WORDS, IF AN ASSESSEE INCURRED ANY LOSS, EXPENDITURE OR TRADING LIABILITY IN RESPECT OF ANY YEAR AND SUBSEQUENTLY HAS OBTAINED CASH OR ANY OTHER BENEFIT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THEN , THE AMOUNT OF CASH/BENEFIT SO RECEIVED SHALL BE TREATED AS INCOME IN THE YEAR OF RECEIPT OR CESSATION OF LIABILITY. WE NOTE THAT IN THE ASSESSEE`S CASE UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN THE CLOSING BALANCE OF SUNDRY CREDITORS AS ON 31 - 03 - 2000 I N ITS BALANCE SHEET AND THE SAID CLOSING BALANCE HAS BEEN CONTINUED AND CARRIED FORWARD AS OPENING BALANCE IN THE SUBSEQUENT YEAR I.E. AS ON 01 - 04 - 2000. HENCE, IT IS CLEAR THAT THE ASSESSEE HAD NOT WRITTEN BACK THE SAME TO ITS PROFIT &LOSS ACCOUNT DURING T HE RELEVANT YEAR. AS SUCH, IT CANNOT BE SAID THAT THE ASSESSEE HAD AVAILED ANY BENEFIT, AS SPECIFIED IN (B) ABOVE, DURING THE RELEVANT YEAR. HENCE, THE CONDITION PRESCRIBED IN SECTION 41(1) OF THE ACT HAS NOT BEEN FULFILLED IN INSTANT CASE. BESIDES ,THE E XPLANATION 1 TO SECTION 41(1) OF THE ACT IS ALSO NOT APPLICABLE IN INSTANT CASE SINCE THE ASSESSEE HAS NOT CREDITED THE SAME TO ITS PROFIT &LOSS ACCOUNT FOR THE RELEVANT YEAR. IN SUCH A SITUATION, IT CANNOT BE CONTENDED THAT THE LIABILITY OF DIFFERENT ASSE SSMENT YEARS, AS MENTIONED IN THE GROUNDS OF APPEAL HAD CEASED TO EXIST. FURTHERMORE, THE ABOVE LIABILITIES HAS BEEN CONTINUED FROM EARLIER YEARS. HENCE, THE ADDITION ON ACCOUNT OF BOGUS CREDITORS IS WHOLLY UNJUSTIFIED. 13. IN THIS REGARD IT IS ALSO PERTI NENT TO NOTE THAT THE AO HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO JUSTIFY THAT THE AFORESAID LIABILITIES HAD ACTUALLY CEASED TO EXIST DURING THE RELEVANT YEAR. IN SUCH A SITUATION THE QUESTION OF ADDITION DOES NOT ARISE. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION IN THE CASE OF CIT V. SUGAULI SUGAR WORKS (P). LTD. [1999] 236 ITR 518/102 TAXMAN 713 (SC) WHEREIN, AFFIRMING THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT, THE HON'BLE APEX COURT HELD AS FOLLOWS: 'IT WILL BE SEEN THAT THE FOLLOWING WORDS IN THE SECTION ARE IMPORTANT; THE ASSESSEE HAD OBTAINED WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY HIM'. THUS, THE SECTION CONTEMPLATES THE OBTAINING BY THE ASSESSEE OF AN AMOUNT MANNER, WHATSOEVER, OR A BENEFIT BY WAV OF REMISSION OR CESSATION AND IT SHOULD BE OF A PARTICULAR AMOUNT OBTAINED BY HI M. THUS, THE OBTAINING BY THE ASSESSEE OF A BENEFIT BY VIRTUE OF REMISSION OR CESSATION IS SINE QUA NON FOR THE APPLICATION OF THIS SECTION'. 10 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE IN THE INSTANT CASE, THE ASSESSEE HAS SHOWN SUNDRY CREDITORS IN THE BOOKS OF ACCOUNTS AND AS SUCH, APPLYING THE R ATIO OF THE ABOVE DECISION, IT CANNOT BE SAID THAT THE ASSESSEE HAS RECEIVED CASH OR OTHER BENEFIT IN RESPECT OF SUCH CREDITORS OR THERE HAS BEEN CESSATION/REMISSION OF LIABILITIES DURING THE RELEVANT RESPECT YEAR SO AS TO JUSTIFY ADDITION UNDER SECTION 41 (1) OF THE ACT. FURTHER, IN THE CASE OF CHIEF CIT V. KESARIA TEA CO. LTD. [2002] 254 ITR 434/122 TAXMAN 91 (SC) THE HON'BLE APEX COURT HELD AS FOLLOWS: 'IN ORDER TO APPLY SECTION 41(1) IN THE CONTEXT OF THE FACTS OF THE PRESENT CASE, THE FOLLOWING POINTS ARE TO BE KEPT IN VIEW (1) IN THE COURSE OF THE ASSESSMENT FOR AN EARLIER YEAR, ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF TRADING LIABILITY INCURRED BY THE ASSESSEE; (2) SUBSEQUENTLY, A BENEFIT IS OBTAINED IN RES PECT OF SUCH TRADING LIABILITY BY WAV OF REMISSION OR CESSATION THEREOF DURING THE YEAR IN WHICH SUCH EVENT OCCURRED; (3) IN THAT SITUATION THE VALUE OF BENEFIT ACCRUING TO THE ASSESSEE IS DEEMED TO BE THE PROFIT AND GAINS OF BUSINESS WHICH OTHERWISE WOULD NOT BE HIS INCOME; AND (4) SUCH VALUE OF BENEFIT IS MADE CHARGEABLE TO INCOME - TAX AS THE INCOME OF THE PREVIOUS YEAR WHEREIN SUCH BENEFIT WAS OBTAINED. THE HIGH COURT, AGREEING WITH THE TRIBUNAL, RIGHTLY HELD THAT THE RESORT TO SECTION 41(1) COULD ARISE O NLY IF THE LIABILITY OF THE ASSESSEE CAN BE SAID TO HAVE CEASED FINALLY WITHOUT THE POSSIBILITY OF REVIVING IT. ON THE FACTS FOUND BY THE TRIBUNAL, THE TRIBUNAL AS WELL AS THE HIGH COURT WERE WELL - JUSTIFIED IN COMING TO THE CONCLUSION THAT THE PURCHASE TAX LIABILITY OF THE ASSESSEE HAD NOT CEASED FINALLY DURING THE YEAR IN QUESTION' IN THE ASSESSEE`S CASE UNDER CONSIDERATION, THE ASSESSEE HAS NOT RECEIVED ANY BENEFIT BY WAY OF REMISSION OR CESSATION OF LIABILITIES DURING THE RELEVANT YEAR TOWARDS BALANCE OF SUNDRY CREDITORS AND AS SUCH, IT CAN BE STATED THAT IT HAS NOT FULFILLED THE CONDITIONS AS SPECIFIED BY THE HON'BLE APEX COURT IN THE ABOVE REFERRED DECISION. THUS, APPLYING THE RATIO OF THE HON'BLE APEX COURT, IT CAN BE STATED THAT THE AFORESAID LIABILIT IES CANNOT BE ADDED BACK UNDER SECTION 41(1) OF THE ACT FOR THE RELEVANT RESPECTIVE ASSESSMENT YEAR. HONBLE ITAT, DELHI ALSO CONSIDERED THE SIMILAR ISSUE AND HELD THAT ADDITION ON ACCOUNT OF OUTSTANDING SUNDRY CREDITORS IS NOT PERMISSIBLE UNLESS THE AO DISPROVES GENUINENESS. WE EXTRACT THE RELEVANT PARTS OF THE ORDER OF COORDINATE BENCH OF ITAT, DELHI IN SMT. SUDHA LOYALKA. V. INCOME 11 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE TAX OFFICER, WARD 35 (2), NEW DELH[2018] 97 TAXMANN.COM 303 (DELHI - TRIB.) WHICH READS AS UNDER: 6.1 THERE IS NO EVIDENCE THAT THE LIABILITY HAS CEASED TO EXIST AND THAT TOO IN THE YEAR UNDER APPEAL. THE VERY FACT THESE AMOUNTS ARE BEING SHOWN AS PAYABLE IN THE BALANCE SHEET OF THE ASSESSEE GO TO ESTABLISH THAT THERE WAS NO CESSATION OF THE LIABILITY AS HELD IN THE F OLLOWING JUDICIAL DECISIONS: - 6.2 IMPUGNED LIABILITIES ARE VERY MUCH PAYABLE BY THE ASSESSEE AS AND WHEN DEMANDED AND UNLESS IT IS DEMANDED, THESE ARE BOUND TO BE SHOWN AS OUTSTANDING. THE VERY FACT THAT THESE LIABILITIES ARE APPEARING IN THE BALANCE SHEE T IS A STRONG ACKNOWLEDGEMENT OF THE DEBTS PAYABLE BY THE ASSESSEE AS HAS RECENTLY BEEN HELD IN THE CASE OF CIT V. TAMILNADU WAREHOUSING CORPRN. [2007] 292 ITR 310/[2008] 170 TAXMAN 123(MAD) . IT HAS ALSO BEEN HELD IN THE C ASE OF AMBICA MILLS LTD V. CIT [1964] 54 ITR 167 (GUJ) THAT LIABILITY SHOWN IN THE BALANCE SHEET IS A CLEAR CASE OF ACKNOWLEDGING THE LIABILITY AND SUCH LIABILITY CANNOT BE TREATED TO HAVE CEASED SO AS TO ATTRACT SECTION 41(1). THAT BEING SO, WHERE IS THE QUESTION OF HOLDING THE SAID LIABILITIES AS CEASED TO EXIST, MORE SO WHEN ASSESSEE HERSELF IS ACKNOWLEDGING THE LIABILITIES TO BE PAID? HOW CAN A THIRD PARTY THAT TOO A QUASI - JUDICIAL AUTHORITY HOLD IN THE ABSENCE OF AN Y MATERIAL THAT THE LIABILITY IS NOT PAYABLE BY THE ASSESSEE? THEREFORE, THE ADDITION MADE ON THE BASIS OF THE PRESUMPTION DOES NOT HAVE EITHER FACTUAL OR LEGAL LE GS TO STAND. RELIANCE IS ALSO PLACED ON THE DECISION OF CIT V. SITA DEVI JUNEJA [2010] 325 ITR 593/187 TAXMNAN 96 (PUNJ. & HAR.) . 6.3 IT IS SETTLED LAW BY UMPTEEN NUMBER OF DECISIONS INCLUDING THE DECISION OF THE APEX COURT IN THE CASE OF SUGAULI SUGAR WORKS V. CIT [1999] 236 ITR 518/102 TAXMAN 713 (SC) THAT THE CESSATION OF THE LIABILITY CAN BE DONE NOT BY THE UNILATERAL ACT BUT IT CAN CERTAINLY BE SO BY THE BILATERAL ACT. SO LONG AS THE APPELLANT IS RECOGNIZING HER LIABILITY TO PAY TO THESE CREDITORS, WHERE IS THE QUESTION OF A Q UASI JUDICIAL AUTHORITY TO INTERVENE & TO SAY ON BEHALF OF SUNDRY CREDITORS OR ON BEHALF OF THE APPELLANT THAT AMOUNT IS NOT PAYABLE BY THE ASSESSEE? HERE THERE IS NOT EVEN UNILATERAL ACT, LET ALONE THE BILATERAL ACT, THEREFORE ALSO, ACTION OF AO IN HOLDIN G THE LIABILITIES CEASED TO EXIST MAY PLEASE BE REVERSED. 6.4 EVEN IN LAW, THE ADDITION IS NOT SUSTAINABLE FOR MORE THAN ONE REASON. SECTION 41(1) OF THE ACT IS A DEEMING FICTION ACCORDING TO WHICH AN AMOUNT WHICH DOES NOT HAVE ANY TRACE OF INCOME IS TREAT ED AS INCOME LIABLE TO SUFFER THE BRUNT OF TAX. THEREFORE, AS PER THE ESTABLISHED CANONS OF LAW, THE BURDEN TO PROVE THAT A PARTICULAR AMOUNT FALLS WITHIN THE FOUR CORNERS OF SECTION 41(1) IS ON THE SHOULDER OF THE ASSESSING OFFICER WITHOUT WHICH THE ADDIT ION CANNOT BE MADE AND IF MADE IS LIABLE TO BE DELETED. 6.5 THE FIRST PRE - REQUISITE FOR THE APPLICABILITY OF SECTION 41(1) IS THERE MUST BE A TRADING LIABILITY IN RESPECT OF WHICH THE DEDUCTION HAS BEEN CLAIMED AND ALLOWED AND BURDEN TO PROVE THE TWIN COND ITIONS TO THE EFFECT OF THE ABOVE FACTS, IT GOES WITHOUT SAYING, IS ON REVENUE. THERE IS NOT EVEN AN IOTA OF WHISPER AS TO 12 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE WHETHER THE IMPUGNED CREDITORS WERE IN RESPECT OF TRADING LIABILITY FOR WHICH ANY DEDUCTION WAS EVER CLAIMED AND ALLOWED AND IF ALLOW ED, IN WHICH YEAR WAS IT ALLOWED SO ON SO FORTH. THIS IS EVIDENT FROM A PLAIN READING OF THE ASSESSMENT ORDER. THEREFORE, LD. A.O. MISERABLY FAILED TO DISCHARGE THE SAID BURDEN IN VIEW OF THE FOLLOWING DECISIONS AND THEREFORE THIS ADDITION IS LIABLE TO BE DELETED ON THIS SHORT GROUND ALONE. THERE COULD VERY WELL BE THE POSSIBILITY OF THE LOAN CREDITORS OR ADVANCES FROM THE BUSINESS CONSTITUENTS UNDER THE HEAD OF SUNDRY CREDITORS FOR WHICH THERE COULD NEVER BE ANY CLAIM OF DEDUCTION HAVING BEEN ALLOWED. 6.6 THE A.O. HAS NOT ESTABLISHED WITH EVIDENCE THAT THE LIABILITY IN RESPECT OF THE ABOVE OUTSTANDING BALANCES HAS CEASED TO EXIST. AO HAS GONE ON PRESUMPTION AND THAT TOO BY PLACING THE BURDEN WRONGLY ON THE SHOULDERS OF THE ASSESSEE. SECTION 41(1) DOES NOT E NVISAGE ANY SUCH PRESUMPTION OF CESSATION AND FIX THE INCIDENCE OF TAX THEREON. 6.7 IN THE ABSENCE OF ANY MATERIAL HAVING BEEN BROUGHT ON RECORD TO ESTABLISH THAT THE DEDUCTION WAS CLAIMED OR CREDIT BALANCE HAS BEEN REMITTED, ADDITION CANNOT BE MADE U/S 41 (1) IN VIEW OF THE FOLLOWING DECISIONS: STEEL AND GENERAL MILLS CO. LTD V. CIT [1974] 96 ITR 438(DELHI) CIT V. NATHABHAI DESHA BHAI [1981] 130 ITR 238/5 TAXMAN 214 (MP) LIQUIDATOR, MYSORE AGENCIES P LTD V. CIT [1978] 114 ITR 853(KARN) K.V. MOOSAKOYA& CO V. CIT [1989]175 ITR 120 (KER) CIT V. PRANLAL P DOSHI [1993]201 ITR 756/66 TAXMAN 630. (GUJ) 6.8 THE THIRD BURDEN WHICH WAS ON A.O. WAS TO ESTABLISH THAT CESSATION IF AT ALL HAS HAPPENED, HAS HAPPENED IN THE YEAR UNDER APPEAL. AFTER ALL, LIABILITY TO TAX CAN BE FIXED IN THE YEAR TO WHICH IT PERTAINS AND TO NO OTHER YEAR. LIABILITY TO TAX ANY CEASED LIABILITY IN A PARTICULAR YEAR DOES NOT DEPEND ON THE ACTION OF A.O. IN SELECTING A CASE IN SCRUTINY OF THAT YEAR. MERELY BECAUSE A.O. CHOSE TO ENQUIRE ABOUT THE CREDITORS IN THIS YEAR AND IF ASSESSEE FAILS TO EST ABLISH THE EXISTENCE OF THE LIABILITY IN THIS YEAR (EVEN IF IT IS SO ASSUMED) THEN ALSO IT CANNOT BE SAID THAT THE LIABILITY CEASED TO EXIST ONLY IN THIS YEAR AND NOT BEFORE. NOBODY CAN BE PERMITTED TO FIX THE YEAR OF TAXABILITY BY A CONSCIOUS DESIGN OR OM ISSION, BE HE AN ASSESSEE OR AN ASSESSING OFFICER. THEREFORE, VIEWED FROM ANY ANGLE, THE ADDITION MADE BY A.O. IS LIABLE TO BE DELETED. THERE IS NO DISPUTE THAT THE AO DID NOT MAKE ANY ENQUIRIES OR BRING ANY EVIDENCE TO PROVE THAT THE OUTSTANDING CREDITORS ARE BOGUS OR THE ASSESSEE HAS MADE THE PAYMENTS OUTSIDE THE BOOKS OF ACCOUNTS IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE HAS SHOWN THE LIABILITY 13 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE IN THE BALANCE SHEET AND STATED TO HAVE PAID THE CREDITORS SUBSEQUENTLY. THEREFORE, IN THE ABSENCE OF ANY EVIDENCE TO DISPROVE THE GENUINENESS OF THE OUTSTANDING CREDITORS OR TO CONTROVERT THE SUBMISSION OF THE ASSESSEE, THERE IS NO REASON TO MAKE THE ADDITION, HENCE, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 7. THE ASSESSEE FILED CROSS OBJECTIONS SUPPORTING THE ORDER OF THE LD.CIT(A). SINCE THE APPEAL OF THE REVENUE IS DISMISSED, THE CROSS OBJEC TIONS BECOME INFRUCTUOUS, HENCE DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE AS WELL AS THE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH AUGUST , 2021. SD/ - SD/ - ( ) ( . . ) (N.K.CHOUDHRY) (D.S.SUNDER SINGH) / JUDICIAL MEMBER / ACCOUNTANT MEMBER DATED : 18 .0 8 .2021 L.RAMA, SPS 14 ITA NO. 469 /VIZ/20 19 AND CO NO.01/VIZ/2021 , A.Y.20 1 5 - 16 M/S S.V.S.N.REDDY POULTRY COMPLEX, ANAKAPALLE / COPY OF THE ORDER FORWARDED TO : - 1 . / THE REVENUE - ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1, KAKINADA 2 . / THE ASSESSEE - M/S S.V.S.N.REDDY POULTRY COMPLEX, NTR STADIUM GROUNDS ROAD, SAMPATHIPURAM, ANAKAPALLE 3. THE PR.COMMISSIONER OF INCOME TAX (CENTRAL), VISAKHAPATNAM 4. THE COMMISSIONER OF INCOME TAX (APPEALS) - 11, HYDERABAD 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM