Appeal Details
Counselvise Citation
[2017] 127 COUNSELVISE.COM (IT) 7876 (ITAT-AMRITSAR)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
7 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-08-2017
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
DB
Next Hearing Date
01-08-2017
Assessment Year
2012-2013
Appeal Filed On
19-12-2016
Judgement Text
THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER I.T.A NO.639/(ASR)/2016 ASSESSMENT YEAR: 2012-13 PAN: AAEFC7627D INCOME TAX OFFICER, WARD-1(5), SAMBA FIRST FLOOR, CHANDER COMPLEX, NATIONAL HIGHWAY, VIJAYPUR, SAMBA. VS. M/S CHOUDHARY CONSTRUCTION CO., H. NO. 70, WARD NO. 06, BARI BRAHMANA, SAMBA, (APPELLANT) (RESPONDENT) CROSS OBJECTION NO. 10/(ASR)/2017 (ARISING OUT OF ITA NO.639/(ASR)/2016) ASSESSMENT YEA R: 2012-13 M/S CHOUDHARY CONSTRUCTION CO., H. NO. 70, WARD NO. 06, BARI BRAHMANA, SAMBA, VS. INCOME TAX OFFICER, WARD-1(5), SAMBA FIRST FLOOR, CHANDER COMPLEX, NATIONAL HIGHWAY, VIJAYPUR, SAMBA. (CROSS OBJECTORS) (RESPONDENT) APPELLANT BY: SH. DHARAM SINGH (D. R.) RESPONDENT BY: SH. P. N. ARORA (ADV .) DATE OF HEARING: 25.07.2017 DATE OF PRONOUNCEMENT: 11.08.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A), J&K, JAMMU DATED 04.08.2016 FOR ASST. YEAR: 2012-13. 2. THE GROUNDS OF APPEAL TAKEN BY REVENUE ARE REPRO DUCED BELOW: ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 2 1. WHETHER THE LD. CIT(A) WAS RIGHT IN LAW AND FACT IN DELETING THE ADDITION AMOUNTING TO RS. 1,53,45/- KEEPING I N VIEW THE FACT THAT THE AMOUNT WHICH WAS SHOWN PAYABLE TO M/S SHRE E INFRASTRUCTURE & FINANCE SINCE 2008-09 HAS REMAINED STATIC TILL THE DATE OF THE ASSESSMENT ORDER WITH NO FURTHER REPAYM ENT OF PRINCIPLE OR FURTHER CHARGING OR REPAYMENT OF INTEREST THEREU PON AND THAT THE LD CIT(A) HAD ADMITTED ADDITIONAL EVIDENCE FILED BY THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS IN THE S HAPE OF LETTER DATED 14.11.2015 WITHOUT REMANDING THE MATTER TO TH E AO OR MAKING ANY ENQUIRIES ON HIS OWN. 2. WHETHER THE LD. CIT(A) WAS RIGHT IN LAW AND FAC T IN DELETING THE ADDITION AMOUNTING TO RS. 2,75,000/- ON ACCOUNT OF ADDITION OF ASSETS (CAR) WITHOUT APPRECIATING THE FINDING OF TH E ASSESSING OFFICER THAT THE ASSESSEE HAS FAILED TO EXPLAIN THE SOURCE AND MODE OF THE PAYMENT MADE FOR PURCHASE OF THE SAID CAR. 3. WHETHER THE LD. CIT(A) WAS CORRECT IN LAW AN D FACT IN ALLOWING RELIEF AMOUNTING TO RS. 20,44,961/- OUT OF TOTAL AD DITION OF RS. 38,66,917/- ON ACCOUNT OF NON-PAYMENT OF WORK CONTR ACT TAX (WCT) DESPITE THE FACT THAT THE ASSESSEE HAD NOT DISPUTED THE LIABILITY TO THE EXTENT OF RS.85,16,917/- ON ACCOUNT OF WCT WHIC H IS ALSO SUPPORTED WITH THE FIGURE AS REFLECTED IN THE BALAN CE SHEET DULY AUDITED. 4. WHETHER THE LD. CIT(A) WAS CORRECT IN LAW &FACT IN DELETING THE ADDITION AMOUNTING TO RS. 2,14,000/- FOR TH E PURCHASE OF CONSTRUCTION MATERIAL FROM M/S RAIZADA BRICK KILN D ESPITE THE FACT THAT THE SAID PARTY HAD CONFIRMED TO THE AO THAT NO SUCH SALES WERE MADE BY IT TO THE ASSESSEE. ALSO, IT IS CLEAR THAT THE ASSESSEE WAS IN THE HABIT OF BOOKING WRONG AMOUNTS ON THE BASIS OF FORGED BILLS AS PROVED IN THE CASE OF M/S AGGARWAL STEEL ROLLING MI LLS WHERE SIMILARLY, ON ENQUIRY, IT WAS CONFIRMED BY THE SAID PARTY THAT NO SUCH BILLS WERE ISSUED BY IT TO THE ASSESSEE AND TH E ADDITION ON ACCOUNT OF THE SAME WAS DULY UPHELD BY THE LD. CIT( A). 5. WHETHER THE LD. CIT(A) WAS CORRECT IN LAW & FACT IN DELETING THE ADDITION AMOUNTING TO RS. 26,60,270/- ON ACCOUN T OF STATIC CREDITORS BY HOLDING THAT IS THE ABSENCE OF ANY EXA MINATION OF THE CREDITORS TO THE EFFECT THAT THEY HAVE WAIVED THE LIABILITY OR THE LIMITATION PERIOD HAS EXPIRED UNDER THE LIMITATION ACT, THE CREDITORS SHOWN IN THE BALANCE SHEET CANNOT BE TREATED TO HAV E BEEN REMITTED U/S 41(1) OF THE I.T. ACT DESPITE THE FACT THAT THE CREDITORS WERE STATIC CREDITORS SINCE MORE THAN PRECEDING THREE YE ARS WITHOUT ANY CHANGE AS THERE HAS NOT BEEN ANY SINGLE TRANSACTION DURING THE LAST THREE YEARS WITH THEM. FURTHER, IN RESPONSE TO QUER Y MADE BY THE ASSESSING OFFICER, IT WAS CONFIRMED BY M/S MONTAGE ENTERPRISES THAT NO AMOUNT IS DUE TO HIM FROM THE ASSESSEE AND ANOTHER CONCERN NAMELY M/S HATTIM COPPER HAD CLOSED ITS UNI T SINCE LONG AND NO CONFIRMATION WAS FILED BY THE SAID CONCERN. ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 3 6. WHETHER THE LD. CIT(A) WAS RIGHT IN LAW & FACT I N DELETING THE ADDITION AMOUNTING TO RS. 1,51,68,987/- WHICH WAS P AID TO CONTRACTORS WITHOUT DEDUCTING ANY TDS WHICH IS CONT RARY TO THE SPIRIT OF THE LAW AS ENVISAGED UNDER THE PROVISIONS OF SECTION 194C OF THE INCOME TAX ACT, 1961 AND AS HELD BY THE HONB LE SUPREME COURT IN THE CASE OF ASSOCIATED CEMENT CO. LTD. V. CIT 201 ITR 435 (SC) WHEREIN IT HAS BEEN HELD THAT SECTION 194C(1) HAD A WIDE IMPORT AND COVERED ANY WORK WHICH COULD BE GOT CA RRIED OUT THROUGH A CONTRACTOR UNDER A CONTRACT INCLUDING THE OBTAINING OF SUPPLY OF LABOUR UNDER A CONTRACT WITH A CONTRACTOR FOR CARRYING OUT ANY WORK. THE SECTION WAS NOT CONFINED OR RESTRICTE D IN ITS APPLICATION TO WORKS CONTRACTS. 7. WHETHER THE LD. CIT(A) WAS CORRECT IN LAW & FACT IN DELETING THE ADDITION AMOUNTING TO RS. 3,66,317/- ON ACCOUNT OF INTEREST ON CAPITAL TO THE PARTNERS DESPITE THE FACT THAT IN TH E ORIGINAL PARTNERSHIP DEED WHICH WAS REGISTERED IN COURT, THE RE IS NO PROVISION OF INTEREST ON CAPITAL TO THE PARTNERS AN D THE SUPPLEMENTARY DEED (WHICH HAS SUCH A PROVISION) WAS GOT ATTESTED BY THE NOTARY AFTER TOTALLY IGNORING THE FACT THAT THE ORIGINAL DEED WHICH WAS REGISTERED IN THE COURT OF LAW CANNOT BE OVERRULED BY A NOTARY. 8. WHETHER THE LD. CIT(A) WAS CORRECT IN LAW & FACT IN DELETING THE ADDITION OF RS.3,42,166/- DESPITE THE FACT THAT M/S RUCHI INFOTECH HAS ADMITTED THAT NOTHING OUTSTANDING IS R ECEIVABLE FROM THE ASSESSEE. 3. THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS TO THE APPEAL FILED BY REVENUE WHICH ARE SUPPORTIVE OF LD. CIT(A) ORDER. 4. THE BRIEF FACTS OF THE CASE ARE THAT ASSESS EE FILED A RETURN OF INCOME DECLARING NET INCOME OF RS.16,89,468/- FROM THE BUS INESS ACTIVITY OF CIVIL CONSTRUCTION. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICE R MADE FOLLOWING ADDITIONS. (I) ADDITION OF ACCOUNT OF UNSECURED LOAN OF RS.1,5 3,458/-. (II) ADDITION ON ACCOUNT OF FIXED ASSETS (CAR) RS .2,75,000/- (III) ADDITION ON ACCOUNT OF WORK CONTRACT PAYMENTS TO RS.38,66,917/- (IV) ADDITION ON ACCOUNT OF BILLS RS.8,42,192/-, ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 4 (V) ADDITION ON ACCOUNT OF STATIC CREDITORS TO RS.2 6,60,270/- (VI) ADDITION ON ACCOUNT OF DISALLOWANCE OF EXPENDI TURE U/S 40A(I)(IA) FOR NON DEDUCTION OF TAX AT SOURCE OF RS.1,51,68,987/- (VII) ADDITION ON ACCOUNT NO PROVISION FOR INTEREST CLAIMED U/S 40(B)(V) OF THE ACT TO RS.3,66,317/- (VII) ADDITION U/S 68 OF THE ACT RS.3,66,317/- 5. AGGRIEVED WITH THE ADDITIONS THE ASSESSEE FILED APPEAL BEFORE LD. CIT(A) AND SUBMITTED VARIOUS SUBMISSIONS. THE LD. C IT(A) AFTER GOING THROUGH THE SUBMISSIONS FILED BY THE ASSESSEE ALLOW ED THE APPEAL BY HOLDING AS UNDER: ADDITION ON ACCOUNT OF UNSECURED LOAN:- DURING THE ASSESSMENT PROCEEDINGS, WHILE PERUSING T HE BALANCE SHEET FOR THE FINANCIAL YEAR 2011-12, THE AO NOTICE D THAT THE UNSECURED LOAN FROM M/S. SREI INFRASTRUCTURE AND FINANCE AMOU NTING TO RS. 1,53,458/- WAS SHOWN AS OUTSTANDING. THE AO ALSO FO UND THAT THIS AMOUNT WAS OUTSTANDING SINCE 2008- 09 AND NO INTERE ST WAS BEING PAID ON THIS LOAN. THE ASSESSEE WAS ALSO UNABLE TO PROVI DE THE DETAILS OF M/S. SREI INFRASTRUCTURE AND FINANCE SUCH AS PAN, ADDRES S, I.T. PARTICULARS ETC. WHEN THE ASSESSEE WAS ASKED TO SHOW CAUSE BY THE AO THAT WHY THE UNSECURED LOAN SHOWN AS OUTSTANDING AMOUNTING TO RS . 1,53,458/- SHOULD NOT BE ADDED BACK TO THE TOTAL INCOME OF THE ASSESS EE, THE ASSESSEE SUBMITTED ITS REPLY AS UNDER:- 'THE ASSESSEE RECEIVED LOAN FROM M/S. SHREE INFRAST RUCTURE AND FINANCE & KOLKATA BASED FIRM, FOR PURCHASE OF JCB IN THE EARL IER YEARS. THIS LOAN WAS REPAID BY THE ASSESSEE YEAR ON YEAR. REGARDING OUTS TANDING BALANCE OF RS. 1,53,458/- IT IS SUBMITTED THAT THIS PERTAINS T O INTEREST CHARGED BY THE COMPANY WHICH THE ASSESSEE HAS DISPUTED. 4S SOON AS THE DISPUTE WITH THE SAID COMPANY IS SETTLED, THE ASSESSEE SHALL PAS S APPROPRIATE ENTRIES IN ITS BOOKS OF ACCOUNTS AND BOOK GAINS/LOSSES ARE REQ UIRED.' NOT CONVINCE WITH THE ABOVE REPLY OF THE ASSESSEE, THE AO ADDED BACK THE AMOUNT OF RS. 1,53,458/- BEING UNEXPLAINED CREDITS IN THE BOOKS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE COULD NOT ESTABLISH BY PROVIDING CONCRETE EVIDENCE SUCH AS TRANSACTION DETAILS, INTE REST OR INSTALLMENT DETAILS, LEDGER ACCOUNT EXCEPT IDENTICAL OPENING AN D CLOSING BALANCES, CONFIRMATION FROM THE SAID PARTY REGARDING OUTSTAND ING AMOUNT, CORRESPONDENCE W.R.T. TO RECOVERY OR PAYMENT OF OUTSTANDING AMOUNT. THE OUTSTANDING DEMAND RAISED IN 2008-09 HAS BEEN STATI C TILL DATE AND NO FURTHER REPAYMENT OF PRINCIPLE OR INTEREST HAS BEEN MADE. ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 5 DURING THE APPELLATE PROCEEDINGS, THE APPELLANT SUB MITTED AS UNDER:- 'THE APPELLANT SUBMITS THAT IT RECEIVED LOAN FOR PU RCHASE OF JCB 3DX EXCAVATOR FROM M/S SREI EQUIPMENT FINANCE LIMIT ED, KOLKATA. THE FINANCIER CHARGED ADDITIONAL INTEREST/OVERDUE CHARG ES OVER AND ABOVE THE LOAN AMOUNT. THIS LED TO A DISPUTE BETWEEN THE PART IES AND THE APPELLANT STOPPED CREDITING INTEREST/OVERDUE CHARGES TO THE A CCOUNT OF THE FINANCIER IN ITS BOOKS OF ACCOUNT AND NEITHER CLAIMED EXPENSE S ON THAT ACCOUNT. THE LOAN IS STILL PAYABLE BY THE APPELLANT AND FINANCIE R IS STILL DEMANDING HIS DUES. COPY OF A RECENT LETTER DATED 14.11.2015 RECE IVED FROM THE FINANCIER DEMANDING AN AMOUNT OF 879505.45 IS ENCLOSED FOR YO UR PERUSAL (PAGE 1). THIS PROVES THAT THE DEBT IS NOT UNEXPLAINED AS ALL EGED BY THE LD. AO AND IS STILL PAYABLE BY THE APPELLANT. AS SOON AS THE P ARTIES REACH A SETTLEMENT, THE OUTSTANDING BALANCE INCLUDING ADDITIONAL CHARGE S IF ANY SHALL BE REPAID. THE APPELLANT THEREFORE REQUESTS YOUR GOOD SELF TO DELETE THE ADDITION OF RS. 153458.' I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBM ISSIONS MADE BY THE APPELLANT STATED AS ABOVE. THE AO HAS MADE T HE ADDITION ON THE GROUND THAT THE ASSESSEE HAS FAILED TO ESTABLISH TH E GENUINENESS OF THE BALANCE SHOWN AS OUTSTANDING IN THE BALANCE SHEET O F THE ASSESSMENT YEAR UNDER CONSIDERATION. THE APPELLANT, ON THE OTH ER HAND HAS STATED THAT THE AMOUNT SHOWN AS OUTSTANDING HAS BEEN DEMANDED B Y THE CREDITOR M/S SREI INFRASTRUCTURE AND FINANCE AS ADDITIONAL I NTEREST OVER AND ABOVE THE AMOUNT ALREADY PAID. THE ASSESSEE HAS DISPUTED THIS PAYMENT AND WAS IN TOUCH WITH THE CREDITOR TO SETTLE THE DISPUT E. THE APPELLANT HAS ALSO ENCLOSED A LETTER FROM SREI EQUIPMENT FINANCE LIMIT ED DATED 14.11.2015 IN SUPPORT OF HIS CLAIM. AFTER CONSIDERING THE ENTIRE FACTS, I FIND THAT THE ADDITION MADE BY THE AO WAS UNWARRANTED AS NEITHER THE PURCHASE OF JCB FROM M/S SREI EQUIPMENT FINANCE LIMITED HAS BEE N DOUBTED IN ANY OF THE EARLIER ASSESSMENT YEARS, NOR THE CREDITOR HAS BEEN TREATED AS BOGUS. THUS, THE AMOUNT SHOWN AS OUTSTANDING IN THE BALANC E SHEET CANNOT BE TREATED AS BOGUS. SINCE THE AMOUNT IN QUESTION HAS ARISEN OUT OF DISPUTE BETWEEN THE FINANCIER AND THE APPELLANT AND HAS NOT BEEN SETTLED AS YET, NEITHER THE ASSESSEE NOR THE AO CAN WRITE IT OFF AS A LIABILITY IN THE BALANCE SHEET. THIS IS THE FUNDAMENTAL OF ACCOUNTING. THUS, THE ADDITION MADE BY THE AO ON THIS COUNT IS DELETED AND THE APPELLANT G ETS A RELIEF OF RS.L,53,458/- ADDITION ON ACCOUNT OF PURCHASE OF CAR:- DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED IN THE BALANCE SHEET THAT THE ASSESSEE HAS MADE ADDITION OF ASSETS IN THE SHAPE OF CAR TO THE VALUE OF RS.2.75 LACS BUT NO EVIDENCE, SUCH AS, PURCHASE DOCUMENT /DEED INVOICE/PURCHASE DEED OR ANY OTHER DOCUMENT I N SUPPORT OF SUCH CLAIM HAS BEEN GIVEN. WHEN THE AO CONFRONTED THE AS SESSEE WITH THE PROPOSED ADDITION ASSESSEE PRODUCED THE COPY OF SAL E AGREEMENT BEFORE THE AO. THE AO REJECTED THE COPY OF SALE AGREEMENT FURNISHE D BY THE ASSESSEE ON THE GROUND THAT THE AFFIDAVIT PRODUCED BY THE ASSES SEE WAS ATTESTED BY A ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 6 NOTARY. 'THIS IS SELF SERVING DOCUMENT PRODUCED BY THE ASSESSEE WHICH FAILED TO PASS THE LITMUS TEST AS NO OTHER EVIDENCE AS A PROOF EVIDENCING SUCH TRANSACTION/DEAL WAS FURNISHED.' SINCE THE ASS ESSEE COULD NOT SHOW ANY SUCH TRANSACTION IN THE CASH BOOK/JOURNAL WITH RESPECT TO THE PURCHASE OF CAR, THE EVIDENCE GIVEN BY THE ASSESSEE CANNOT BE ACCEPTED AND AS SUCH A SUM OF RS. 2,75,000/- WAS ADDED TO TH E TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF PURCHASE OF CAR. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT HAS SUBMITTED AS UNDER:- 'THE APPELLANT SUBMITS THAT IT PURCHASED A SECOND H AND TATA INDIGO CAR FROM ONE SH. YAKOOB KHAN FOR A CONSIDERATION OF RS. 275000/-. THE LD. AO ALLEGED THAT THE ENTRY FOR PURCHASE OF CAR WAS NOT SHOWN IN THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT. IT IS SUBMITTE D THAT THE ENTRY FOR PURCHASE OF CAR WAS DULY REFLECTED IN THE BOOKS OF ACCOUNT AND THE BALANCE SHEET OF THE APPELLANT WHICH WAS PRODUCED BEFORE TH E LD. AO AT THE TIME OF ASSESSMENT. COPY OF SALE AGREEMENT ENTERED WITH THE SELLER WAS ALSO FURNISHED TO THE LD. AO WHICH HE ACKNOWLEDGED IN LA ST PARA OF PAGE 5 OF THE ASSESSMENT ORDER. COPY OF THE SAME IS ALSO ENCL OSED FOR YOUR PERUSAL. (PAGE 2-3). NOW SINCE THE ENTRY FOR PURCHASE OF CAR IS DULY SUPPORTED WITH AN AFFIDAVIT AND DULY ENTERED IN THE BOOKS OF ACCOU NT, IT IS PRAYED THAT THE ADDITION OF RS. 275000/- BE DELETED.' I HAVE CONSIDERED THE ABOVE ADDITION MADE BY THE AO . I HAVE ALSO CONSIDERED THE SUBMISSIONS MADE BY THE APPELLA NT. THE AO HAS STATED IN THE ASSESSMENT ORDER THAT NO EVIDENCE WAS GIVEN IN SUPPORT OF ADDITION OF CAR AMOUNTING TO RS. 2.75 LA CS IN THE FIXED ASSETS SCHEDULE AND THE SALE DEED PRODUCED BY THE A SSESSEE AND DULY NOTARIZED BY A NOTARY IS A SELF SERVING DOCUME NT AND THUS, CANNOT BE RELIED UPON. THE MODE OF PAYMENT HAS ALSO NOT BEEN GIVEN AND ALSO THIS TRANSACTION WAS NOT FOUND TO HAVE BEE N ENTERED INTO THE CASH BOOK/JOURNAL. THUS, THE SALE AGREEMENT PRO DUCED AS EVIDENCE CANNOT BE ACCEPTED. THE APPELLANT, ON THE OTHER HAND, HAS STATED THAT I T HAS PURCHASED A SECOND HAND CAR FROM ONE MR. YAKOOB KHA N AND HAD SUBMITTED THE COPY OF SALE AGREEMENT WHICH HAS DULY BEEN ACKNOWLEDGED BY THE AO IN THE LAST PARA OF PAGE NO. 5 OF THE ASSESSMENT ORDER. THE AO HAS CONSIDERED THE SALE AG REEMENT THOUGH, DID NOT ACCEPT IT AS SUBSTANTIAL EVIDENCE. THUS, IT IS WRONG ON THE PART OF THE AO TO STATE THAT THE APPELLANT H AS NOT PRODUCED ANY EVIDENCE. THE APPELLANT HAS ALSO SUBMITTED THAT THE SAID TRANSACTION HAS DULY BEEN REFLECTED IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. I HAVE CONSIDERED THE RIVAL ARGUMENTS. IT IS FOUND THAT THE APPELLANT HAD PRODUCED THE 'SALE AGREEMENT' AS AN E VIDENCE WHERE EVERY DETAILS SUCH AS NAME OF THE PARTY, ADDRESSES, DETAILS OF TRANSACTION HAVE BEEN GIVEN. THE SALE AGREEMENT HAS ALSO BEEN D ULY NOTARIZED ON A NON-JUDICIAL STAMP OF RSLO/- IN A PURCHASE OF SECON D HAND CAR, WHAT MARE EVIDENCE CAN BE PRODUCED? THE AO CANNOT QUESTION A DOCUMENT WHICH IS ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 7 DULY NOTARIZED AND WHICH IS ACCEPTED AS EVIDENCE EV EN IN A COURT OF LAW. THE APPELLANT HAS CLAIMED THAT THE SAID TRANSACTION HAS BEEN DULY REFLECTED IN THE CASH BOOK AND LEDGER AND AS ALSO P RODUCED THE COPY OF LEDGER. IT IS FOUND FROM THE ASSESSMENT ORDER THAT THE APPELLANT HAD PRODUCED THE BOOKS OF ACCOUNT BEFORE THE AO AND THE AO HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNT. THUS, I FIN D THAT THE APPELLANT HAS PRODUCED ALL RELEVANT DOCUMENTS IN SUPPORT OF THE A DDITION TO FIXED ASSETS. THUS, THE ADDITION MAD BY THE AO IS DELETED AND THE APPELLANT GETS A RELIEF OF RS.2.75 LACS. ADDITION OF RS.38,66,917/- ON ACCOUNT OF WORK CONTR ACT TAX PAYMENT:- THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOT ICED THAT THE ASSESSEE FIRM HAD RECEIVED PAYMENT OF RS.85,16, 917/- FROM M/S. UFLEX WITH THE CONDITION THAT SAME WAS TO BE DEPOSI TED BY THE ASSESSEE TO THE GOVT, ACCOUNT AS A WORK CONTRACT TAX (WCT). HOW EVER, THE ASSESSEE HAD DEPOSITED A SUM OF RS.46,50,000/- ONLY TILL 30/ 09/2012 AND THE REMAINING AMOUNT WAS SHOWN AS OUTSTANDING. WHEN THE AO CONFRONTED THE ASSESSEE THAT WHY DID THE ASSESSEE PAY THIS AMO UNT WHEN IT WAS THE LIABILITY OF U FLEX, THE ASSESSEE REPLIED THAT THER E WAS UNDERSTANDING BETWEEN THE ASSESSEE AND THE U FLEX THAT THIS LIABI LITY WILL BE DISCHARGED BY THE ASSESSEE OUT OF PAYMENT RECEIVED FROM M/S. U FLEX. SINCE, M/S. U FLEX PAID ONLY A SUM OF RS.46,5 0,000/- TO THE ASSESSEE, THE SAME WAS DEPOSITED IN THE GOVT, ACCOU NT ON ACCOUNT OF WCT. NOT CONVINCED WITH THE REPLY FILED BY THE A SSESSEE, THE AO, ALLOWED ONLY RS.46,50,000/- AND ADDED BACK THE REMA INING AMOUNT OF RS.38,66,917/- ON ACCOUNT OF UNPAID WORK CONTRAC T TAX( WCT) UNDER SECTION 43B OF THE INCOME TAX ACT. DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAS SUBMITTED AS UNDER:- 'THE APPELLANT SUBMITS THAT IT ENTERED INTO WORKS C ONTRACT WITH M/S U FLEX. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT WAS TO RECEIVE AN AMOUNT OF RS. 8516917/- FROM M/S U FLEX ON ACCOUNT OF WORKS CONTRACT TAX (WCT) IN ADDITION TO THE CONTRACT RECEIPTS. THI S WCT WAS TO BE DEPOSITED TO THE ACCOUNT OF THE GOVT, BY THE APPELL ANT. BUT OUT OF THE TOTAL WCT AMOUNT OF RS. 8516917/- THE APPELLANT WAS ABLE TO DEPOSIT RS. 4650000/- ONLY. THE SHORTFALL IN DEPOSITING WCT WAS DUE THE FACT THAT THE APPELLANT DID NOT RECEIVE THE FULL PAYMENT FROM M/S U FLEX. IT CAN BE SEEN FROM THE BALANCE SHEET AS ON 31.03.2012; THAT THE A PPELLANT HAD AN OUTSTANDING BALANCE OF RS. 8539875.91 RECOVERABLE F ROM M/S U FLEX WHICH INCLUDES AMOUNT DUE TOWARDS WCT LIABILITY. THE BALA NCE OF RS. 3866917/- ON ACCOUNT OF WCT PAYABLE COULD NOT BE PAID AS M/S U FLEX DID NOT MAKE FULL PAYMENT TO THE APPELLANT AND RS. 3866917/- IS NOT A SMALL AMOUNT WHICH THE APPELLANT COULD HAVE PAID FROM ITS OWN SO URCES. COPY OF BALANCE SHEET AND ACCOUNT OF M/S U FLEX IS ENCLOSED (PAGE 4 -19). THIS IS A REASONABLE CAUSE WHICH PREVENTED THE APPELLANT FROM MAKING THE PAYMENT OF WCT BEFORE THE DUE DATE. ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 8 IT IS SUBMITTED THAT SECTION 43B DOES NOT CONTEMPLA TE LIABILITY TO PAY THE WCT BEFORE ACTUAL RECEIPT OF THE FUNDS IN THE ACCOU NT OF THE APPELLANT. THE LIABILITY TO PAY WCT INTO THE TREASURY WILL ARISE O NLY UPON THE APPELLANT RECEIVING THE FUNDS AND NOT OTHERWISE. ACCORDINGLY, WHEN SERVICES ARE RENDERED, THE LIABILITY TO PAY WCT IN RESPECT OF TH E CONSIDERATION PAYABLE WILL ARISE ONLY UPON THE RECEIPT OF SUCH CONSIDERAT ION AND NOT OTHERWISE. IN A CASE PERTAINING TO PAYMENT OF SERVICE TAX, THI S VIEW WAS TAKEN BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. OV IRA LOGISTICS P LTD. 377 ITR 129 (PAGE 20-23). SIMILAR VIEW WAS TAKEN BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. NOBLE & HEWITT (I) (P) LTD. 305 ITR 324 (PAGE 24-26).' I HAVE CONSIDERED THE ADDITION MADE BY THE AO AND T HE SUBMISSIONS MADE BY THE APPELLANT STATED AS ABOVE. IT IS FOUND FROM THE LEDGER OF M/S UFLEX LTD. FURNISHED BY THE APPELLANT DURING THE APPELLATE PROCEEDINGS THAT THE ASSESSEE HAD DONE JOB WORK FOR M/S UFLEX LTD AND HAD RAISED A TOTAL BILL OF RS.7,66,49,5167-''UUFOF THE BILLS RAISED, THE ASSESSEE HAS ALREADY RECEIVED A PAYMENT OF RS.6,81, 09,641/- WHICH INCLUDED WORK CONTRACT TAX (WCT), A STATUTORY LIABI LITY TO BE PAID IN THE GOVT, ACCOUNT. LIABILITY TO PAY WCT WAS OF M/S U FL EX, THOUGH, THE SAME WAS DISCHARGED BY THE ASSESSEE ON BEHALF OF M/S UFL EX AS PER THE UNDERSTANDING BETWEEN THE TWO. I DO NOT FIND ANY IN FIRMITY ON THAT ASPECT. HOWEVER, IT IS FOUND FROM THE ASSESSMENT ORDER THAT THE APPELLANT COULD PAY A SUM OF RS.46,50,000 ONLY OUT OF A TOTAL LIABI LITY OF RS.85,16,917/- AND SHOWN THE REMAINING AMOUNT OF RS.38,66,917/- AS A LIABILITY IN THE BALANCE SHEET ON ACCOUNT_OF_UNPAID WORK CONTRACT TA X. THE APPELLANT IN HIS SUBMISSION, MADE DURING THE APPELLATE PROCEEDIN GS, HAS NOT DISPUTED THE AMOUNT ACTUALLY PAID BUT HAS CLAIMED THAT THE S ECTION 43 B OF THE ACT WILL NOT APPLY IN HIS CASE AND CITED THE HON'BLE BO MBAY HIGH COURT DECISION IN THE CASE OF CIT VS. OVIRA LOGISTICS P L TD. 377 ITR 129 AND HON'BLE DELHI HIGH COURT DECISION IN THE CASE OF CI T VSTTJOBLE & HEWITT (I) (P) LTD. 305 ITR 324 IN SUPPORT OF HIS CLAIM. I HAVE GONE THROUGH BOTH THE DECISIONS CITED BY THE APPELLANT. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. NOB LE & HEWITT (I) (P) LTD. 305 ITR 324 HAS HELD THAT 'WHEN THE ASSESSEE IS FOL LOWING MERCANTILE SYSTEM OF ACCOUNTING AND IS NOT PAYING TO GOVERNMEN T PART OF SERVICE TAX AND HAS NOT DEBITED THE AMOUNT TO THE P & L A/C AS AN EXPENDITURE NOR DID THE ASSESSEE CLAIM ANY DEDUCTION IN RESPECT OF THE AMOUNT, THE QUESTION OF DISALLOWING THE DEDUCTION NOT CLAIMED WOULD NOT ARI SE. SIMILARLY, HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. OVIRA LOGISTICS P LTD. 377 ITR 129 HAS HELD AS UNDER:- 'HAVING PERUSED THE AFORESAID DECISIONS, WE ARE OF THE VIEW THAT SECTION 43B DOES NOT CONTEMPLATE LIABILITY TO PAY T HE SERVICE TAX BEFORE ACTUAL RECEIPT OF THE FUNDS IN THE ACCOUNT OF THE A SSESSEE. IN OUR VIEW, LIABILITY TO PAY SERVICE TAX INTO THE TREASURY WILL ARISE ONLY UPON THE ASSESSEE RECEIVING THE FUNDS AND NOT OTHERWISE. ACC ORDINGLY, WHEN SERVICES ARE RENDERED, THE LIABILITY TO PAY SERVICE TAX IN RESPECT OF THE ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 9 CONSIDERATION PAYABLE WILL ARISE ONLY UPON THE RECE IPT OF SUCH CONSIDERATION AND NOT OTHERWISE.' NOW COMING TO THE PRESENT CASE AND APPLICABILITY OF THE RATIOS OF THE TWO DECISIONS CITED AS ABOVE, I FIND THAT THE FACTS OF THE TWO CASES ARE NOT SIMILAR TO THAT OF THE APPELLANT. IN BOTH THE DECIS IONS, CITED AS ABOVE, IT IS FOUND THAT THE LIABILITY TO PAY THE TAX INTO THE TR EASURY WILL ARISE ONLY UPON THE ASSESSEE RECEIVING THE FUNDS AND NOT OTHERWISE. HERE, IN THE CASE OF THE APPELLANT, THE AMOUNT ON A/C OF WCT HAS ALREADY BEEN RECEIVED BY THE ASSESSEE FROM M/S UFLEX BUT HAS NOT BEEN PAID. THUS , THE APPELLANT'S CASE IS DIFFERENT FROM THE TWO DECISIONS AS QUOTED BY THE APPELLANT. WHEN THE APPELLANT'S COUNSEL WAS CONFRONTED WITH TH IS FACT, HE ADMITTED THAT A SUM OF RS.46,50,000/- ONLY WAS PAID ON ACCOUNT OF WCT BUT DENIED THAT THE TOTAL LIABILITY ON A/C OF WCT W AS AT RS.85,16,917/- THE APPELLANT'S COUNSEL HAS GIVEN THE WORKING OF UN PAID AMOUNT OF WCT AS UNDER:- 1. TOTAL BILLS RAISED AGAINST UFLEX (INCLUDIN G WCT) RS.7,66,49,517/- 2. AMOUNT RECEIVED FROM UFLEX RS.6,16,37,685/- 3. WCT @10.50% ON (2) RS.64,71,956/- 4. TOTAL AMOUNT RECEIVED DURING THE YEAR (2+3) INCLUDING WCT RS.6,81,09,641/- 5. WCT RECEIVED DURING THE YEAR RS.64,71,956/- 6. LESS: WCT DEPOSITED INTO GOVT.A/C RS.46,50,000/- 7. WCT REMAINING UNPAID (5-6) RS.18,21,95 6/- THUS, ACCORDING TO THE APPELLANT'S COUNSEL THE WCT WHICH REMAINED UNPAID WAS NOT RS.38,66,917/- BUT RS.18,21,956/- I HAVE CONSIDERED THE ABOVE WORKING GIVEN BY THE AP PELLANT'S COUNSEL DURING APPELLATE PROCEEDINGS AND I AGREE WITH THAT. THUS, THE ADDITION MADE ON ACCOUNT OF UNPAID WCT IS RESTRICTED TO RS. 18,21,956/- THE APPELLANT GETS A RELIEF OF RS.20,44,961/- ADDITION OF RS.8,42,192/- ON ACCOUNT OF NO BILL OR WRONGLY BOOKED BILL:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THERE WAS A BILL DATED 13/01/2012 AMOUNTING TO RS.2 ,14,000/- FOR THE PURCHASE OF CONSTRUCTION-MATERIAL FROM M/S. RAIZADA BRICK KILN. SINCE THIS EXPENDITURE DID NOT PERTAIN TO THE ASSESSEE'S BUSIN ESS, THE AO DISALLOWED THE SAME BEING WRONGLY CLAIMED. FURTHER, THE AO, FO UND THAT THE ASSESSEE HAS FAILED TO PRODUCE BILLS ALLEGEDLY ISSUED BY M/S . AGGARWAL STEEL ROLLING MILLS REPRESENTING PURCHASE OF CONSTRUCTION MATERIA L WHICH WERE RECORDED IN THE BOOKS OF ACCOUNT ON 13/08/2011 AND 06/09/201 1 AMOUNTING TO RS. ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 10 3,28,725/- AND RS. 2,99,467/- RESPECTIVELY. WHEN TH E AO, ISSUED THE NOTICE U/S. 133(6) TO THE SAID FIRMS, THEY DENIED T O HAVE ISSUED ANY SUCH BILLS OR SOLD ANY SUCH MATERIAL TO THE ASSESSEE FIR M. THE AO, THEREFORE, DISALLOWED A SUM OF RS. 2,14,000/-, 3,28 ,725/- AND RS. 2,99,467/- TOTALING TO RS. 8,42,192/- AND ADDED TO THE INCOME OF THE ASSESSEE. THE APPELLANT, ON THE OTHER HAND, HAS CLAIMED THAT IT HAD PURCHASED CONSTRUCTION MATERIAL FROM M/S. RAIZADA B RICK KLIN FOR A CONSIDERATION OF RS. 2,14,000/- FOR ITS CONSTRUCTIO N BUSINESS. HOWEVER, INADVERTENTLY, THE SELLER ISSUED THE BILL IN THE NAME OF CH. WALI MOHD WHO IS ONE OF THE PARTNERS OF THE ASSESSE E FIRM. SH. CH. WALI MOHD. HAS ALREADY GIVEN UNDERTAKING THAT HE HA S NOT CLAIMED THIS EXPENDITURE IN HIS BOOKS OF ACCOUNTS AND HAS A LSO NOT CLAIMED ANY DEDUCTION OF THIS AMOUNT AND THUS, THE SAME SHO ULD BE ALLOWED IN THE HANDS OF THE ASSESSEE. I HAVE CONSIDERED THE APPELLANT'S SUBMISSION. IN A BUSINESS LIKE THIS WHEN A GROSS CONTRACT RECEIPT AT RS.11,17 ,42,214/- HAS BEEN SHOWN, IT IS VERY MUCH POSSIBLE THAT ONE OF TH E BILLS MIGHT HAVE BEEN ISSUED IN THE NAME OF THE PARTNERS. SINCE, THE PARTNER HAS GIVEN THE UNDERTAKING THAT HE HAS NOT CLAIMED THIS AMOUNT IN HIS P & L A/C; THE SAME DESERVES TO BE ALLOWED. REGARDING THE REMAINING TWO ADDITIONS OF RS. 3,28,725/- AND 2,99,467/- MADE BY THE AO, THE APPELLANT HAS NOT FURNISHED ANY EXPLANATION AND AS SUCH THE AO HAS RIGHTLY DISALLOWED THE SAME. THUS, THE ADDITION OF RS.2,14,000/- IS DELETED AND THE ADDITIONS OF RS. 3 ,28,725/- AND 2,99,467/- ARE CONFIRMED. GROUND OF APPEAL NO. 7: DURING THE ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO, THAT THE ASSESSEE HAS SHOWN IN H IS BOOKS OF ACCOUNT THAT FOLLOWING AMOUNTS WERE PAYABLE TO EIGHT PARTIE S MENTIONED IN THE FOLLOWING TABLE AMOUNTING TO RS. 26,26,270/ S. NO. NAME OF THE PARTY TOTAL AMOUNT 1. HATTIM COPPER 4,00,000 CLOSED 2. KARITKE BUILD CON 1,80,000 NOT REPLIED 3. MONTAGE ENTERPRISES 68,687 DENIED 4. SARVESHWAR RICE MILLS, BARI BRHAMANA 3,14,508 NOT REPLIED 5 SATYA METALS, LANE 3 BARI BRAHMANA 6,66,809 NOT REPLIED 6 SPERRY PLAST, BARI BRAHMANA 1,00,000 NOT REPLIED 7 STAR INDUSTRIES 6,17,684 NOT REPLIED 8 VS INDUSTRIES 3,12,582 NOT REPLIED TOTAL 26,60,270 ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 11 THE AO, ON VERIFICATION OF LEDGER ACCOUNTS IN THE P RECEDING TWO YEARS NOTICED THAT THE ABOVE STATED CREDITORS ARE S TATIC CREDITOR SINCE OUTSTANDING BALANCE ARE BEING SHOWN BY THE ASSESSEE FOR MORE THAN THREE YEARS. THERE WAS NO SINGLE TRANSACTION BETWEEN THE ASSESSEE AND CREDITORS DURING LAST THREE YEARS NEITHER ANY INTER EST HAS BEEN PAID. THE CREDITORS HAVE ALSO NOT DEMANDED THE OUTSTANDING PA YMENTS. THE AO, THEREFORE, CONCLUDED THAT THE ABOVE CREDITORS MIGHT HAVE SQUARED OFF OR WRITTEN OFF THE IMPUGNED DEMANDS/BALANCES AND AS SU CH THERE IS A REMISSION OR CESSATION OF ASSESSEE'S LIABILITY. THE AO HAS ALSO STATED THAT IN THE CASE OF M/S MONTAGE ENTERPRISES, IT WAS DENI ED THAT ANY AMOUNT IS RECEIVABLE FROM THE ASSESSEE. IN THE CASE OF M/S HA TIM COPPER, THE UNIT HAS BEEN CLOSED SINCE LONG AND NO CONFIRMATION COUL D BE MADE. THE AO, THEREFORE, ASKED THE ASSESSEE TO SUBMIT ITS REPLY O N THE PROPOSED ADDITION. IN RESPONSE TO THAT THE ASSESSEE SUBMITTED THAT THE AMOUNTS SHOWN IN THE ABOVE TABLE 'AS PAYABLE' AGAINST THE CREDITORS ARE NOT STATIC AND ARE ACTUALLY PAYABLE. THERE IS NO CESSATION OR REMISSIO N OF LIABILITY SHOWN AGAINST THEM. THE ASSESSEE FURTHER SUBMITTED THAT I T IS A FACT THAT THE ASSESSEE FIRM IS NOT DEALING WITH THESE PARTIES AND HAS WITHHELD THE PAYMENTS BECAUSE OF WORKING CAPITAL CRUNCH AT THAT TIME. THE REPLIES NOT RECEIVED FROM THESE PARTIES DO NOT MEAN THAT THE LI ABILITY HAS CEASED TO EXIST OR HAS BEEN REMITTED. THE AO, HOWEVER, WAS NO T CONVINCED WITH THE REPLY OF THE ASSESSEE AND ADDED BACK THE ENTIRE AMO UNT OF RS.26,60,270/- TO THE TOTAL INCOME OF THE ASSESSEE U/S. 41(1) OF T HE INCOME TAX ACT. THE APPELLANT, ON THE OTHER HAND, IN HIS SUBMISSION MADE DURING THE APPELLATE PROCEEDINGS HAS STATED AS UNDER:- 'THE APPELLANT SUBMITS AS UNDER: - THE LD. AO HAS MADE ADDITIONS OF RS. 2660270/- U/S 41(1) ON ACCOUNT OF STATIC CREDITORS. SECTION 41(1) OF THE INCOME TAX A CT, 1961 READS AS UNDER: PROFITS CHARGEABLE TO TAX. 41 .[ (L) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MAD E IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO A S 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 S UCH 60 LOSS OR EXPENDITURE 60 OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILI TY 60 BY WAY OF REMISSION OR CESSATION THEREOF 60 , THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEME D TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABL E TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE I S IN EXISTENCE IN THAT YEAR OR NOT; OR (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED 60 , WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF WHICH LOSS OR ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 12 EXPENDITURE WAS INCURRED BY THE FIRST-MENTIONED PER SON OR SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY REFERRED TO IN CLA USE (A) BY WAY OF REMISSION OR CESSATION THEREOF 60 , THE AMOUNT OBTAINED 60 BY THE SUCCESSOR IN BUSINESS OR THE VALUE OF BENEFIT ACCRUING TO THE SUCCESSOR I N BUSINESS SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS OR P ROFESSION, AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR. [EXPLANATION L.FOR THE PURPOSES OF THIS SUB-SECTIO N, THE EXPRESSION 'LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SU CH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF' SHALL INCLUD E THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILATERAL ACT BY T HE 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 IS ACCOUNTS.] FORM THE ABOVE IT IS CLEAR THAT TO ATTRACT SECTION 41(1) FOLLOWING CONDITIONS MUST BE SATISFIED:- A) IN THE ASSESSMENT OF AN ASSESSEE, AN ALLOWANCE OR D EDUCTION HAS BEEN MADE IN RESPECT OF ANY LOSS, EXPENDITURE OR TR ADING LIABILITY INCURRED BY HIM B) (I) ANY AMOUNT IS OBTAINED IN RESPECT OF SUCH LOSS OR EXPENDITURE, OR (II) ANY BENEFIT IS OBTAINED IN RESPECT OF SUCH TRA DING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF C) SUCH AMOUNT OR BENEFIT IS OBTAINED BY THE ASSESSEE; AND D) SUCH AMOUNT OR BENEFIT IS OBTAINED IN A SUBSEQUENT YEAR. ONLY IF ALL THESE CONDITIONS ARE FULFILLED SECTION 41(1) GETS ATTRACTED. MOREOVER THE AMOUNTS ARE ADDED TO THE INCOME OF THE PREVIOUS YEAR IN WHICH THE LIABILITY CEASES OR REMITS OR THE BENEFIT IS RECEIVED BY THE APPELLANT. IN THE PRESENT CASE; NEITHER THE LIABILITY HAS CEAS ED TO EXIST NOR HAS THE APPELLANT WRITTEN OFF THESE AMOUNTS IN ITS BOOKS OF ACCOUNT AS PROVIDED BY EXPLANATION-1 ABOVE. ALL THE BALANCES ARE SHOWN AS PAYABLE IN THE BOOKS OF ACCOUNT. COPIES OF ACCOUNT OF ALL THESE CREDITOR S SHOWING THAT THERE WERE NO TRANSACTIONS DURING THE YEAR ARE ENCLOSED (PAGE 28-29). MOREOVER, THE LD. AO HAD NOT BROUGHT ANYTHING ON RE CORD TO PROVE THAT ANY AMOUNT OR BENEFIT HAD BEEN OBTAINED BY THE APPELLAN T DURING THE YEAR UNDER CONSIDERATION AGAINST LIABILITIES WHICH IS AL LEGEDLY CEASED TO EXIST. IT IS ALSO AN ESTABLISHED PROPOSITION OF LAW THAT ONUS IS ON THE AO TO ESTABLISH THAT ANY BENEFIT HAS ACCRUED TO THE APPEL LANT AGAINST ALLEGED LIABILITIES DURING THE YEAR UNDER CONSIDERATION. SI NCE THE LD. AO HAS FAILED TO PROVE HIS CASE, THE ADDITIONS ARE PRAYED TO BE D ELETED. CASE LAWS IN SUPPORT OF APPELLANT'S CONTENTION ARE GIVEN BELOW: - 1. ITO VS. SH. JAGMOHANSINGH G DHIMAN ITA NO. 1959/AH D/2012 - A.Y. 2009-10 ITAT AHMEDABAD (PAGE 30-34) ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 13 2. CIT VS. SHRI VARDHMAN OVERSEAS LTD. ITA NO. 774/20 09 DEL HC (PAGE 35-50) 3. CIT V. SUGAULI SUGAR WORKS (P) LTD. (1999), 236 ITR 518 SC (PAGE 51-54) 4. CIT V. KESARIA TEA CO. LTD. (2002) 254 ITR 434 SC ( PAGE 55-58) I HAVE CONSIDERED THE RIVAL CONTENTIONS AND IT IS F OUND THAT THOUGH THE PAYMENTS HAVE NOT BEEN MADE TO THESE CREDITORS AND SHOWN AS THE LIABILITY AND ALSO THAT THERE WAS NO TRANSACTION IN LAST THREE YEARS WITH ALL THESE CREDITORS AND NO CONFIRMATION WAS RECEIVED, Y ET IT CANNOT BE SAID THAT LIABILITIES HAVE CEASED TO EXIST. COMING TO TH E CASE LAWS CITED BY THE APPELLANT IN SUPPORT OF ITS CLAIM THAT THERE WAS NO CESSATION OR REMISSION OF THIS LIABILITY AS DEFINED U/S. 41(1) OF THE INCO ME TAX ACT, I HAVE PERUSED THE ABOVE DECISIONS AND IT IS FOUND THAT IN THE CAS E OF CIT VS. SUGAULI SUGAR WOKS (P) LTD ( 1999) 236 ITR 518 SC IT HAS BE EN HELD THAT THE QUESTION WHETHER THE LIABILITY IS ACTUALLY BARRED B Y LIMITATION IS NOT A MATTER WHICH CAN BE DECIDED BY CONSIDERING THE ASSE SSEE'S CASE ALONE BUT IT IS A MATTER WHICH HAS TO BE DECIDED ONLY IF THE CREDITOR HAS STATED THAT THE LIABILITY HAS CEASED TO EXIST BECAUSE THE CREDI TOR MAY ENFORCE THE DEBT OR LIABILITY AFTER EXPIRY OF SOMETIME THEN IT WOULD NOT BE POSSIBLE FOR THE ASSESSEE TO PAY BACK THE OUTSTANDING BALANCE. THE H ON'BLE COURTS HAVE THEREFORE, HELD THAT THE LIABILITY TO MAKE PAYMENT CEASED TO EXIST ONLY AFTER EXPIRY OF THE NORMAL PORTION OF LIMITATION AS PROVI DED UNDER THE LIMITATION ACT. THE OTHER DECISIONS ALSO CITED BY THE APPELLAN TS SUPPORT THE CASE OF THE APPELLANT. I, THEREFORE, HOLD THAT IN THE ABSENCE OF ANY EXAMI NATION OF THE CREDITORS TO THE EFFECT THAT THEY HAVE WAIVED THE LIABILITY O R THE LIMITATION PERIOD HAS EXPIRED UNDER THE LIMITATION ACT, THE CREDITORS SHO WN IN THE BALANCE SHEET CANNOT BE TREATED TO HAVE BEEN REMITTED U/S. 41(1) OF THE INCOME TAX ACT. THUS, THE ADDITION MADE BY THE AO ON THIS GROUND IS DELETED AND APPELLANT GETS A RELIEF OF RS.26,60,270/- ADDITION ON ACCOUNT OF NON DEDUCTION OF TAX:- DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED T HAT PAYMENTS AMOUNTING TO RS.1,51,68,9877- HAVE BEEN MADE TO PET TY CONTRACTORS BUT NO TDS HAS BEEN DEDUCTED AS REQUIRED UNDER THE PROVISI ONS OF SECTION 194C OF THE INCOME TAX ACT. THE AO, THEREFORE, PROP OSED TO MAKE ADDITION U/S. 40(A)(IA) OF THE INCOME TAX ACT AND A SKED THE ASSESSEE TO EXPLAIN THE REASONS FOR NON-DEDUCTION. THE ASSES SEE IN HIS REPLY STATED AS UNDER:- 'THE ASSESSEE HAS MADE PAYMENTS TO CERTAIN PERSONS WHO HAVE BEEN MENTIONED AS P/C (PETTY CONTRACTORS) IN THE BOOKS O F ACCOUNTS. THESE PERSONS ARE NOT SUB-CONTRACTORS AND THE PAYMENTS WE RE MADE ON ACCOUNT OF LABOUR CHARGES. THE ASSESSEE HIRED SEVERAL HUNDR EDS OF LABOURERS FOR EXECUTING CONTRACT WORKS AND THE PERSONS NAMED HERE IN WERE RESPONSIBLE FOR DISBURSAL OF PAYMENTS TO THEM AND FOR LOOKING A FTER THESE PERSONS. THE ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 14 ASSESSEE DID NOT ENTER INTO ANY SUB-CONTRACT WITH A NY PERSON AND ALL THE WORKERS WERE DIRECTLY EMPLOYED BY THE ASSESSEE. SIN CE THERE WAS NO SUB- CONTRACT AND THE PAYMENTS WERE MADE ON ACCOUNT OF L ABOUR, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE AND THE EXP ENDITURE IS PRAYED TO BE ALLOWED.' THE AO WAS NOT CONVINCED WITH THE ABOVE REPLY AND A DDED THIS SUM OF RS.1,51,68,987/- U/S 40 (A) (IA) OF THE ACT ON THE GROUND THAT THE PERUSAL OF PETTY CONTRACTOR BILLS WERE EXA MINED ON RANDOM BASIS WHICH SHOW THAT THE PAYMENTS HAVE BEEN MADE T O THESE PETTY CONTRACTORS ON ACCOUNT OF SUPPLY OF LABOUR/MASON/CARPENTER/PLUMBER. IN SOME CASES THE B ILLS HAVE BEEN RAISED ON ACCOUNT OF FIXING OF TILES/MARBLE/WO OD WORK AT A PARTICULAR FIXED RATE PER SPECIFIED AREA. THESE BIL LS WHEN CHECKED ON RANDOM BASIS WERE FOUND TO HAVE BEEN IN BIG AMOUNTS SUBMITTED BY EACH PETTY CONTRACTOR TO THE ASSESSEE. EACH BILL ISSUED BY THESE PETTY CONTRACTORS RUNS INTO LACS OF RUPEES AND MOREOVER N ONE OF THESE PAYMENTS WERE MADE BY CHEQUES. DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAS SUBMITTED AS UNDER:- 'THE APPELLANT SUBMITS THAT IT IS ENGAGED IN THE BU SINESS OF EXECUTING WORKS CONTRACT. FOR THIS PURPOSE IT HAS E MPLOYED SEVERAL LABOURERS, MASONS, CARPENTERS ETC. THE APPELLANT AL SO EMPLOYED MATES FOR LOOKING AFTER THE WORKS EXECUTED BY THESE LABOURERS AND TO DEAL WITH THEM ON DAY TO DAY BASIS. THESE MATES HAVE BEEN REFERRED TO AS THE SUB- CONTRACTORS BY THE LD. AO WHILE APPLYING THE PROVIS IONS OF SECTION 40(A)(IA). IT IS SUBMITTED THAT THE APPELLANT NEVER ENTERED IN TO ANY SUB-CONTRACT WITH ANY PERSON AND ALL THE CONTRACTS WERE EXECUTED DIRE CTLY THROUGH ITS OWN EMPLOYEES WHO WERE BEING SUPERVISED BY MATES. THE J OB OF DISBURSING THE WAGES WAS ALSO DONE THROUGH THESE MATES AS THEY WER E RESPONSIBLE FOR MAINTAINING DAILY MUSTER ROLLS AND ALL DETAILS PERT AINING TO THE LABOUR. THESE MATES PREPARED ALL THE DETAILS RELATING TO TH E WORKS BEING EXECUTED INCLUDING BUT NOT LIMITED TO THE PROGRESS OF THE CO NTRACT, MATERIAL CONSUMED/PURCHASED, PREPARATION OF THE BILLS ETC. E ACH MATE PREPARED THE DETAILS OF WORK ALLOCATED TO HIM IN THE FORM OF A B ILL AS A WORK DIARY IS MAINTAINED IN GOVT, DEPARTMENTS. IT WAS ALSO EXPLAI NED TO THE LD. AO THAT THESE PERSONS ARE NOT SUBCONTRACTORS BUT MATES. IF THE LD. AO HAD ANY DOUBT ABOUT THEIR STATUS HE SHOULD HAVE SUMMONED TH EM AND RECORDED THEIR STATEMENTS, WHICH HE CHOSE NOT TO. MUSTER ROL LS SHOWING THE DETAILS OF WAGES/LABOUR PAID BY THE APPELLANT FIRM DURING T HE YEAR UNDER CONSIDERATION ARE PRODUCED FOR YOUR PERUSAL. FORM THE ABOVE IT IS CLEAR THAT THE APPELLANT DID N OT MAKE ANY PAYMENT TO ANY SUB-CONTRACTOR AND THE PAYMENTS MADE WERE ON AC COUNT OF LABOUR/WAGES, THOUGH THE PAYMENTS WERE DISBURSED TH ROUGH RESPECTIVE MATES. IN VIEW OF THE ABOVE, IT IS PRAYED THAT THE DISALLOWANCE MADE U/S 40(A)(IA) BE DELETED.' I HAVE CONSIDERED THE REASONS GIVEN BY THE AO FOR T HE SAID ADDITION AND ALSO THE SUBMISSION MADE BY THE APPELLANT. AFTE R CONSIDERING ALL ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 15 ASPECTS INVOLVED IN THIS CASE, THE EXPLANATIONS GIV EN BY THE APPELLANT APPEAR TO BE CORRECT. IT IS A WELL KNOWN FACT THAT IN A CIVIL CONTRACT BUSINESS PAYMENTS TO LABOURERS ARE MADE THROUGH 'LABOUR MATE S' WHO MAINTAINS AND KEEPS THE MUSTER ROLLS AND DISBURSE THE PAYMENT ON THE BASIS OF THE WORK ACTUALLY EXECUTED BY THEM EITHER ON DAILY OR W EEKLY BASIS. THIS SYSTEM IS WIDELY FOLLOWED ACROSS THE COUNTRY. REGAR DING THE CASH PAYMENT, THE PAYMENTS ARE ALWAYS MADE TO THE LABOUR ERS IN CASH AS IT IS NOT POSSIBLE FOR THE DAILY WAGERS TO ACCEPT PAYMENT S BY CHEQUES. WHAT HAPPENS ON THE GROUND LEVEL THAT 'LABOUR MATE' GETS THE MONEY FROM THE CONTRACTOR AND DISBURSE THE SAME TO THE LABOURERS O N WORK SITES. SECTION 194C (1) OF THE INCOME TAX ACT PROVIDES THA T ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY CONTRA CTOR FOR CARRYING OUT ANT WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYI NG OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR A ND A SPECIFIED PERSON SHALL AT THE TIME OF CREDIT OF SUCH SUM TO T HE ACCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CAS H OR BY CHEQUE, DEDUCT AN AMOUNT EQUAL TO ONE PER CENT OR TWO PER C ENT DEPENDING ON THE STATUS OF THAT PERSON. THUS, SECTION 194C IS ATTRACTED ONLY WHEN THERE IS A CONTRACT BETWEEN THE CONTRACTOR AND THE PERSON RESPONSIBLE FOR EXECUTING THE WORK. HERE, IN THE CA SE OF THE APPELLANT, THERE WAS NO CONTRACT BETWEEN THE CONTRA CTOR AND THE PETTY CONTRACTORS (LABOUR MATES) AND AS SUCH THERE IS NO QUESTION OF DEDUCTION OF TDS. IT IS FOUND FROM THE ASSESSMENT ORDER THAT THE BOOK S OF ACCOUNT WERE PRODUCED BY THE APPELLANT DURING THE C OURSE OF ASSESSMENT PROCEEDINGS AND THE AO DID NOT FIND ANY DISCREPANCY ON THE PAYMENT ASPECT. OTHERWISE ALSO, BEFORE MAKING A DDITION ON THIS GROUND, THE AO SHOULD HAVE EXAMINED AT LEAST SOME O F THE PETTY CONTRACTORS ON TEST CHECK BASIS AND BROUGHT IT ON R ECORD ANY ADVERSE FINDINGS. IN THE ABSENCE OF THAT THE ADDITION MADE ON SURMISE AND CONJECTURE CANNOT BE SUSTAINED. THUS, THE ADDITION MADE BY THE AO IS DELETED AND THE APPELLANT GETS A RELIEF OF RS. 1,51 ,68,987/-. ADDITION ON ACCOUNT OF INTEREST OF CAPITAL:- DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED T HAT THE ASSESSEE HAD CLAIMED INTEREST ON CAPITAL TO PARTNER S TO THE OF RS.3,66,317/- WHEN THE ASSESSEE WAS ASKED BY THE AO AS TO WHY THIS AMOUNT SHOULD NOT BE ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE BEING NOT ADMISSIBLE, THE ASSESSEE SUBMITTED THAT THE PRO VISIONS FOR PAYMENT OF INTEREST ON CAPITAL TO PARTNERS HAS BEEN PROVIDED I N THE PARTNERSHIP DEED. THE ASSESSEE HAD ENTERED INTO SUPPLEMENTARY DEED FO R PAYMENT OF INTEREST TO THE PARTNERS ON 01/04/2008. THE COPY OF PARTNERS HIP DEED WAS ALSO ENCLOSED. THE AO CONSIDERED THE REPLY OF THE ASSESS EE BUT DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND ADDED THIS SUM O F RS.3,66,317/- U/S. 40(B)(IV) OF THE INCOME TAX ACT, 1961 BEING INTERES T ON CAPITAL OF THE TWO PARTNERS ON THE GROUND THAT THE ORIGINAL PARTNERSHI P DEED DID NOT CONTAIN THE PAYMENT OF INTEREST PART AND WAS CONFIRMED BY T HE AUDITOR IN ITS REPORT IN FORM 3CD FURNISHED U/S. 44AB OF THE INCOME TAX A CT. THE ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 16 SUPPLEMENTARY PARTNERSHIP DEED AS SUBMITTED BY THE ASSESSEE WAS NOT FOUND RELIABLE BY THE AO AS IT WAS NOTARIZED BY THE ASSESSEE'S ADVOCATE WHILE THE ORIGINAL PARTNERSHIP DEED WAS DULY REGIST ERED IN THE COURT OF LAW. DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAS SUBMITTED AS UNDER:- 'THE APPELLANT PARTNERSHIP FIRM HAD ENTERED INTO SU PPLEMENTARY PARTNERSHIP DEED DATED 01/04/2007 (MENTIONED AS 01/ 04/2008 IN THE ASSESSMENT ORDER) (PAGE 59) WHICH PROVIDED FOR PAYM ENT OF INTEREST ON CAPITAL TO PARTNERS AS PER THE PROVISIONS OF SECTIO N 40(B)(V) OF THE INCOME TAX , 1961. THIS DEED WAS NOTARISED BY SH. MOHINDER GUPTA WHO WAS THE COUNSEL OF THE APPELLANT DURING ASSESSMENT PROCEEDI NGS. THE LD. AO OBSERVED THAT THE COUNSEL OF THE ASSESSEE HIMSELF N OTARISED THE DEED. IT IS SUBMITTED THAT SH. MOHINDER GUPTA BEING AN ADVOCATE NOTARY WAS DULY LICENSED TO NOTARISE THE DEED AND THERE IS NOTHING ILLEGAL IN HIS DOING SO. THE LD. AO ALSO POINTED OUT THAT THE EARLIER DEED W AS DULY REGISTERED IN COURT OF LAW WHEREAS THE SUPPLEMENTARY DEED WAS NOT ARISED ONLY. IT IS PERTINENT TO MENTION HERE THAT SECTION 40(B) NOWHER E MANDATES THAT THE PARTNERSHIP DEED HAS TO BE REGISTERED IN A COURT OF LAW. IT ONLY PRESCRIBES THAT THE PARTNERSHIP DEED SHOULD BE A WRITTEN DOCUM ENT. MOREOVER WHEN THE APPELLANT SUBMITTED BEFORE THE LD. AO THAT THER E HAS BEEN NO CHANGE IN CONSTITUTION OF THE FIRM> IT MEANT THAT THERE WA S NO CHANGE IN THE PARTNERS AND DID NOT REFER TO SUCH CHANGES AS PROVI SION OF INTEREST ON CAPITAL. THE LD. AO WITHOUT BRINGING ANY MATERIAL O N RECORD PROCEEDED TO DISALLOW THE EXPENDITURE ON ACCOUNT OF INTEREST PAI D TO PARTNERS. WITHOUT PREJUDICE TO ABOVE, IT IS SUBMITTED THAT TH E LD. AO HAS DISALLOWED THE INTEREST ON CAPITAL U/S 40(B)(V); WHICH RELATES TO ALLOWANCE OF REMUNERATION TO WORKING PARTNERS AND NOT INTEREST O N CAPITAL. THE ADDITION MADE UNDER THE WRONG PROVISO IS LIABLE TO BE DELETE D. IN VIEW OF THE ABOVE, IT IS PRAYED THAT THE EXPENDI TURE OF RS. 366317/- BE ALLOWED.' I HAVE CONSIDERED BOTH THE ASSESSMENT ORDER AND SUB MISSIONS MADE BY THE APPELLANT STATED AS ABOVE. THE ONLY DIS PUTE ARISES IN THIS CASE IS WHETHER 'SUPPLEMENTARY PARTNERSHIP DEED' FI LED BY THE APPELLANT SUBSEQUENTLY COULD BE RELIED UPON? THE AO HAS REJEC TED THIS ON THE GROUND THAT THIS PARTNERSHIP DEED WAS NOT DULY REGISTERED IN THE COURT OF LAW AND HAS ONLY BEEN NOTARIZED BY AN ADVOCATE WHO HAPPENS TO BE ASSESSEE'S OWN ADVOCATE. I DO NOT FIND ANY REASON TO DISBELIEV E THE SUPPLEMENTARY PARTNERSHIP DEED ON THIS VERY GROUND THAT IT WAS NO TARIZED BY THE ASSESSEE'S OWN COUNSEL. IF THE ADVOCATE WAS COMPETE NT TO NOTARIZE THE DOCUMENT, IT IS IMMATERIAL WHETHER HE IS ASSESSE'S OWN COUNSEL. THE ADDITION MADE BY THE AO IS, THEREFORE, DELETED AND THE APPELLANT GETS A RELIEF OF RS.3,66,317/- ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 17 ADDITION ON ACCOUNT OF SUNDRY CREDITORS:- THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS , NOTICED THAT THE ASSESSEE IN ITS BALANCE SHEET HAS SHOWN LIABILI TY AS CREDITOR IN THE NAME OF M/S. RUCHI INFOTECH SYSTEMS WITH BALANCE PA YABLE AT RS. 3,42,166/-. THE AO, ISSUED NOTICE U/S. 133(6) OF TH E INCOME TAX ACT TO M/S. RUCHI INFOTECH BUT IT WAS INFORMED BY M/S. RUCHI IN FOTECH SYSTEMS THAT NO AMOUNT REMAINED PAYABLE/RECEIVABLE IN THE BOOKS OF ACCOUNTS OF M/S. RUCHI INFOTECH SYSTEMS. HOWEVER, IT WAS CONFIRMED B Y M/S. RUCHI INFOTECH SYSTEMS THAT THE ASSESSEE HAD CONSTRUCTED THEIR FACTORY PREMISES AND ALL THE PAYMENTS HAS BEEN CLEARED IN THE YEAR 2 008. THE COPY OF THE LEDGER ACCOUNT IN RESPECT OF THE ASSESSEE FROM THE YEAR 2004 WAS ALSO PROVIDED BY M/S. RUCHI INFOTECH SYSTEMS. ON PERUSAL BY THE SAID LEDGER A/C, THE AO FOUND THAT THE FIRST TRANSACTION APPEARING IN THE SAID ACCOUNT WAS RECORDED ON 20/12/2004 REFLECTING ISSUI NG OF CHEQUE TO THE ASSESSEE FOR RS.49,954/-. THE LAST AND FINAL ENTRY RESULTING TO 'NIL' BALANCE OUTSTANDING IS FOR RS.14,956/- BEING CASH P AYMENT WHICH WAS RECORDED ON 22/12/2008. THUS, ACCORDING TO THE AO, THE ASSESSEE HAS NOT DONE ANY TRANSACTION AFTER 22/12/2008 AS CONFIRMED BY M/S. RUCHI INFOTECH SYSTEMS AND, THEREFORE, HE ADDED A SUM OF RS.3,42,166/- TO THE TOTAL INCOME OF THE ASSESSEE U/S. 68 OF THE INCOME TAX ACT. DURING THE APPELLATE PROCEEDINGS THE APPELLANT SUBM ITTED AS UNDER:- 'IT IS SUBMITTED THAT THE APPELLANT HAS SHOWN A SUM OF RS. 342166/- AS PAYABLE TO M/S RUCHI INFOTECH SYSTEMS. THE LD. AO ISSUED NOTICE U/S 133(6) TO M/S RUCHI INFOTECH SYSTEMS. TH E LD. AO NOTED IN HIS ASSESSMENT ORDER THAT THE SAID PARTY HAS INFORMED T HAT THERE WAS NOTHING OUTSTANDING BEING RECEIVABLE FROM THE APPELLANT. ON THIS BASIS, THE LD. AO ADDED THE AMOUNT STANDING TO THE CREDIT OF M/S RUCH I INFOTECH SYSTEMS AS UNEXPLAINED CREDITS U/S 68. IT IS SUBMITTED THAT TH E LD. AO DID NOT PROVIDE THE APPELLANT ANY OPPORTUNITY TO CROSS-EXAMINE THE PARTY ON WHOSE STATEMENT HE RELIED ON TO MAKE THE ADDITION. THIS I S AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND THE ADDITIONS MADE ON THIS B ASIS ARE LIABLE TO BE QUASHED BEING UNJUSTIFIED AND ILLEGAL. THIS HAS BEEN HELD BY HON'BLE DELHI HIGH COURT IN T HE CASE OF VIJAY KUMAR AHUJA VS. ACIT IT A NO. 5856/DEL/2012 (PAGE 60-67). THE APPELLANT ALSO RELIES ON CASE LAWS SUBMITTED AT S. NO. 5 ABOVE. WITHOUT PREJUDICE, IT IS FURTHER SUBMITTED THAT THE LD. AO HAS OBSERVED THAT THE APPELLANT HAS NOT ENTERED INTO ANY TRANSACTION WITH THIS PARTY AFTER 22.12.2008, WHICH MEANS THAT THESE CREDITS REPRESEN T THE CREDIT FOR EARLIER YEARS. IF THAT BE THE CASE, NO ADDITION CAN BE MADE IN THIS YEAR UNDER SECTION 68 OF THE ACT. IF IT IS SAID THAT THESE CRE DITS REPRESENT THE EXPENSES/PURCHASES FOR WHICH PAYMENTS HAVE BEEN MAD E BY THE ASSESSEE DURING THE YEAR ITSELF, THE ONUS WILL BE O N THE DEPARTMENT TO ESTABLISH THAT APPELLANT HAS MADE PAYMENT TO THESE CREDITORS. THIS IS NOT ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 18 EVEN THE ALLEGATION OF THE ASSESSING OFFICER, MUCH LESS HIS CASE AGAINST THE APPELLANT. IN VIEW OF THE OVERALL FACTS OF THE CASE , AS DWELT UPON, NO ADDITION U/S 68 OF THE ACT IS CALLED FOR. THIS HAS BEEN HELD BY HON'BLE DELHI HIGH COURT IN T HE CASE OF VIJAY KUMAR AHUJA VS. ACIT ITA NO. 5856/DEL/2012 (PAGE GO-67). HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. PRAMESHWAR BOHRA 301 ITR 404 HELD THAT AMOUNT WHICH WAS CREDITED IN BOOKS OF ACCOUNT OF THE ASSESSEE IN THE PRECEDING YEAR CANNOT BE TREATE D AS UNEXPLAINED CASH CREDIT U/S 68 IN THE RELEVANT ASSESSMENT YEAR (PAGE 68-70). SIMILAR VIEW WAS TAKEN BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. USHA STUD AGRICULTURAL FARMS LTD. 301 ITR 384 (PAGE 71-73). THE APPELLANT'S CASE IS SQUARELY COVERED BY THESE D ECISIONS AS THERE WAS NO TRANSACTION IN THE ACCOUNT OF M/S RUCHI INFOTEK SYSTEMS DURING THE YEAR UNDER CONSIDERATION. THE LD. AO HIMSELF OBSERVED IN LAST PARA ON PAGE 20 OF THE ASSESSMENT ORDER THAT THE APPELLANT HAS NOT DONE ANY TRANSACTION AFTER 22.12.2008 WHICH WAS CONFIRMED BY THE CREDITO R ALSO. IN VIEW OF THE ABOVE IT IS PRAYED THAT THE ADDITION OF RS.342166/- BE DELETED.' I HAVE CONSIDERED THE FACTS OF THE CASE AS ELABORAT ED IN THE ASSESSMENT ORDER AND ALSO THE SUBMISSIONS MADE BY T HE APPELLANT. IT WAS SUBMITTED BY THE APPELLANT THAT HE WAS NOT G IVEN ANY OPPORTUNITY TO CROSS EXAMINE M/S. RUCHI INFOTECH SY STEMS AND RELIED SOLELY ON THEIR STATEMENT WHICH IS AGAINST THE PRIN CIPAL OF NATURAL JUSTICE AS HAS BEEN HELD BY HON'BLE DELHI HIGH COURT IN THE CASE OF VIJAY KUMAR AHUJA VS. ACIT ITA NO. 5856/DEL/2012. THE APPELLANT HAS ALSO SUBMITTED THAT ALTERNATIVELY, IF THE SAME IS TO BE ADDED, IT CAN'T BE ADDED U/S. 68 OF THE INCOME TAX ACT IF THESE CREDITORS ARE COMING FR OM EARLIER YEARS. I HAVE CONSIDERED THE DECISIONS OF THE HON'BLE HIGH COURTS AS QUOTED BY THE APPELLANT IN SUPPORT OF HIS CASE. THE ADDITION MADE BY THE AO ONLY ON THE BASIS OF THE STATEMENT GIVEN BY M/S INFOTECH CANNOT BE SUSTAINED AS IT GOES AGAINST THE PRINCIPLE OF NATUR AL JUSTICE BECAUSE THE APPELLANT WAS NOT PROVIDED THE OPPORTUNITY TO CROSS -EXAMINE M/S RUCHI INFOTECH. OTHERWISE ALSO, HON'BLE COURTS HAVE ALREA DY HELD (SUPRA.) THAT THE QUESTION WHETHER THE LIABILITY IS ACTUALLY BARR ED BY LIMITATION IS NOT A MATTER WHICH CAN BE DECIDED BY CONSIDERING THE ASSE SSEE'S CASE ALONE BUT IT IS A MATTER WHICH HAS TO BE DECIDED ONLY IF THE CREDITOR HAS STATED THAT THE LIABILITY HAS CEASED TO EXIST BECAUSE THE CREDI TOR MAY ENFORCE THE DEBT OR LIABILITY AFTER EXPIRY OF SOMETIME THEN IT WOULD NOT BE POSSIBLE FOR THE ASSESSEE TO PAY BACK THE OUTSTANDING BALANCE. THOUG H, M/S RUCHI INFOTECH HAS STATED THAT ALL THE PAYMENTS HAVE BEEN SQUARED UP, THE APPELLANT SHOULD HAVE BEEN PROVIDED THE OPPORTUNITY TO CROSS EXAMINE M/S RUCHI INFOTECH. IN THE ABSENCE OF THAT THE ADDITION OF RS.342,166/- CANNOT BE SUSTAINED AND HENCE, DELETED. THE APPELLANT GETS A RELIEF OF RS.3,42,166/-. ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 19 6. AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE R EVENUE IS IN APPEAL BEFORE US. 7. AT THE OUTSET, THE LD. DR INVITED OUR ATTENTIO N TO FIRST ADDITION OF RS.1,53,458/- AND SUBMITTED THAT THE LD. CIT(A) HAS DELETED THIS ADDITION ON THE BASIS OF LETTER DATED 14.11.2015 WH ICH IS IN FACT WAS AN ADDITIONAL EVIDENCE AND WHICH HAS NOT BEEN CONFRONT ED TO ASSESSING OFFICER AND THEREFORE, IT WAS PRAYED THAT THE SAME MAY BE SET ASIDE TO THE ASSESSING OFFICER. AS REGARDS ADDITION ON ACCOUNT OF PURCHASE OF CAR, THE LD. DR SUBMITTED THAT THE LD. CIT(A) ONLY ON THE BASIS OF A NOTARIZED DOCUMENT ACCEPTED THE CONTENTION OF ASSESSEE THAT HE HAD PU RCHASED SECOND HAND CAR. HE SUBMITTED THAT THE COPY OF SALE AGREEMENT F URNISHED BY ASSESSEE WAS SELF SERVING DOCUMENT AND THEREFORE, ASSESSING OFFICER HAD RIGHTLY REJECTED THE SAME. AS REGARDS THE ADDITION ON ACCOUNT WORK CONTRACT TA X PAYMENT, THE LD. DR SUBMITTED THAT THE LD. CIT(A) REDUCED THE WC T LIABILITY FROM RS. 38,66,917/- TO RS.18,21,956/- AND SUBMITTED THAT TH E WORKING OF ASSESSING OFFICER BE UPHELD, AS THE ASSESSEE HAD NO T DEPOSITED THE ENTIRE WORK CONTRACT TAX. AS REGARDS ADDITION OF RS.2,99,467/-, THE LD. DR SU BMITTED THAT BILL FROM M/S AGGARWAL STEEL ROLLING MILLS WAS NOT IN THE NAME OF ASSESSEE AND IN VIEW OF NOTICE U/S 133(6) THE SAID FIRM HAD DENIED THE ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 20 ISSUANCE OF SUCH BILL AND THEREFORE, THE ASSESSING OFFICER HAD RIGHTLY MADE THE ADDITION. AS REGARDS THE ADDITION ON ACCOUNT OF STATIC CREDIT ORS, THE LD. DR SUBMITTED THAT THERE WERE OLD OUTSTANDING CREDIT BA LANCES AND ASSESSING OFFICER HAD OBSERVED THAT FOR THE LAST THREE YEARS THE SAME BALANCES WERE BEING CARRIED FORWARD AND THEREFORE, THE ASSESSING OFFICER HAD RIGHTLY HELD THAT THE LIABILITIES HAD CEASED AND THEREFORE, HAD RIGHTLY MADE THE ADDITION U/S 41(1) OF THE ACT. AS REGARDS THE ADDITION ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE, LD. DR SUBMITTED THAT ASSESSEE HAD MADE HUG E PAYMENTS TO VARIOUS PERSONS ON WHICH TAX WAS REQUIRED TO BE DED UCTED AND ASSESSEE HAD NOT DEDUCTED TDS AND THEREFORE, THE ASSESSING O FFICER HAD RIGHTLY MADE THE ADDITION U/S 40A(IA) OF THE ACT. THE LD. DR SUBMITTED THAT EACH BILL ISSUED BY THESE PETTY CONTRACTORS EXCEEDE D RUPEES IN LACS AND THEREFORE, ASSESSEE WAS REQUIRED TO DEDUCT TAX AT S OURCE. IT WAS SUBMITTED THAT THE LD. CIT(A) HAS WRONGLY ALLOWED T HE RELIEF BY HOLDING THAT THE PAYMENTS WERE MADE THROUGH LABOUR MATES WH O MAINTAINED THE MUSTER ROLLS AND DISTRIBUTED WAGES TO VARIOUS WORKE RS. AS REGARDS ADDITION ON ACCOUNT OF INTEREST ON CAPIT AL THE LD. DR SUBMITTED THAT PARTNERSHIP DEED DID NOT CONTAIN ANY PROVISION FOR PAYMENT OF INTEREST TO PARTNERS ON THIER CAPITAL AN D THE ALLEGED SUPPLEMENTARY PARTNERSHIP DEED WAS ATTESTED BY THE ADVOCATE OF THE ASSESSEE HIMSELF. HE SUBMITTED THAT ORIGINAL PARTNE RSHIP DEED WAS ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 21 REGISTERED IN COURT OF LAW WHEREAS THE SUPPLEMENTAR Y DEED WAS NOTARIZED ONLY. HE SUBMITTED THAT THE LD. CIT(A) HA S ALLOWED RELIEF ON THE BASIS THAT ADVOCATE WAS COMPETENT TO NOTARIZE A DOC UMENT AND HAS OVERLOOKED THE FACTS THAT THE SUPPLEMENTARY DEED WA S NOT SIGHED OF BY ALL THE PARTIES. AS REGARDS THE ADDITION ON ACCOUNT OF RUCHI INFOTEC SYSTEM, THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS HAD OBSERVED THAT FIRST TRANSACTION WAS RECORDED ON 20.12.20104 AND ASSESSEE HAD NOT DONE ANY TRANSACTI ON AFTER 2.12.2008 AS WAS CONFIRMED BY M/S RUCHI CONTRACT INFOTECH SYS TEM AND THEREFORE, ASSESSING OFFICER HAD RIGHTLY MADE THE ADDITION U/S 68 OF THE ACT. HE SUBMITTED THAT THE LD. CIT(A) HAS DELETED THE ADDIT ION BY HOLDING THAT THESE CREDITS RELATED TO EARLIER YEARS AND THEREFOR E, HE ARGUED THAT THE ADDITION MADE BY ASSESSING OFFICER BE CONFIRMED. THE LD. AR IN THIS RESPECT REPLIED TO ARGUMENTS OF LD. DR WITH RESPECT TO EACH ADDITION. AS REGARDS FIRST ADDITION OF RS.1,53,458/- THE LD. AR SUBMITTED THAT ASSESSEE HAD GOT FINANCED AN EQUIPMENT FROM M/ S SRIE EQUIPMENT FINANCE LIMITED AND THE SAID COMPANY HAD CHARGED UN DUE INTEREST AND CHARGES AND THE AMOUNT HAD BECOME DISPUTED AND THER EFORE, IT WAS NOT BEING PAID AND ONLY DUE TO THIS FACT IT CANNOT BE S AID THAT THE AMOUNT WAS UNEXPLAINED. ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 22 AS REGARDS THE OBJECTION OF LD. DR THAT THE LETTER DATED 14.11.2015, FROM THE COMPANY WAS A AFRESH EVIDENCE, THE LD. AR SUBMITTED THAT IT WAS IN CONTINUATION OF EARLIER EV IDENCE ON RECORD THAT THE AMOUNT REPRESENTED THE DISPUTED AMOUNT PAYABLE TO ASSESSEE AND THEREFORE, IT WAS NOT UNEXPLAINED UNSECURED LOAN AN D HAS BEEN RIGHTLY DELETED BY LD. CIT(A). AS REGARDS DELETION OF ADDITION OF RS.2,75,000/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN PURCHASE OF CAR, THE LD. AR SUBMITTED THAT THE CAR WAS PURCHASED FROM YAKUB KHAN FOR A CONSIDE RATION OF RS.2,75,000/- AND SAME WAS DULY REFLECTED IN THE BA LANCE SHEET AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO PB-49 WHE RE A COPY OF SCHEDULE OF FIXED ASSETS WAS PLACED AND IN WHICH THE FACT OF PURCHASE OF CAR FOR RS.2,75,000/- WAS MENTIONED. THEREFORE, IT WAS SUBM ITTED THAT THE LD. CIT(A) HAS RIGHTLY ALLOWED THE RELIEF. AS REGARDS THE RELIEF GIVEN BY LD. CIT(A) IN RESPEC T OF UNPAID WORK CONTRACT THAT THE LD. AR SUBMITTED THAT ASSESSEE HA D NOT RECEIVED THE FULL AMOUNT FROM U FLEX LIMITED AND AS ON 31.03.201 2 AN AMOUNT OF RS.85,16,917/- WAS RECOVERABLE FROM U FLEX LTD. TH E LD. AR SUBMITTED THAT THE LIABILITY TO PAY WCT COMES INTO PLAY ONLY WHEN THE FUNDS FOR SERVICES ARE RECEIVED. THE LD. AR SUBMITTED THAT A T THE LD. CIT(A) HAS MADE A COMPLETE CALCULATION OF THE LIABILITY OF ASS ESSEE WHICH THE ASSESSEE WAS REQUIRED TO PAY ON ACCOUNT OF ACTUAL R ECEIPTS AND HAD ALLOWED PART RELIEF WHICH IS IN ACCORDANCE WITH FAC TS. ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 23 AS REGARDS THE ADDITION ON ACCOUNT OF CONSTRUCTION MATERIAL THE LD. AR SUBMITTED THAT BY MISTAKE THE BILLS WAS RAISED I N THE NAME OF PARTNER AND PARTNER HAD SUBMITTED AN UNDERTAKING THAT HE HA D NOT CLAIMED THE EXPENSES AND THEREFORE, THE LD. CIT(A) HAS ALLOWED THE RELIEF. AS REGARDS DELETION OF ADDITION OF RS.26,60,270/- O N ACCOUNT OF STATIC CREDITORS BY INVOKING THE PROVISIONS OF SECT ION 41(1) OF THE I.T. ACT, THE LD. AR SUBMITTED THAT THE ONUS WAS ON THE ASSES SING OFFICER TO ESTABLISH THAT ANY BENEFIT HAD ACCRUED TO THE APPEL LANT AGAINST THESE LIABILITIES AND MOREOVER IT WAS SUBMITTED THAT ASSE SSEE HAD NOT WRITTEN OFF OF THE CREDITORS. RELIANCE IN THIS RESPECT WAS PLACED IN A NUMBER OF CASE LAWS AS DISCUSSED BY LD. CIT(A) AND THEREFORE, IT WAS PRAYED THAT THE ORDER OF LD. CIT(A) IN THIS THIS RESPECT BE UPH ELD. AS REGARDS DELETION OF ADDITION FOR NON DEDUCTION O F TAX, THE LD. AR SUBMITTED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF EXECUTING WORKS CONTRACT WHICH REQUIRES ENGAGEMENT OF LABOURERS. LA BOUR MATES ARE APPOINTED WHO KEEPS A RECORD OF THE WORK DONE BY EA CH LABOURERS AND THE PAYMENTS ARE MADE TO VARIOUS LABOURERS EMPLOYED AT VARIOUS SITES THROUGH THESE MATES. IT WAS SUBMITTED THAT IT IS A REGULAR PRACTICE IN THE BUSINESS OF CIVIL CONSTRUCTION. IT WAS SUBMITTED TH AT ASSESSEE NEVER EMPLOYED ANY CONTRACTOR. IT WAS SUBMITTED THAT EACH MATE PREPARED THE DETAILS OF WORK ALLOCATED TO HIM. IT WAS SUBMITTED THAT ASSESSING OFFICER DID NOT RECORD THE STATEMENTS OF ANY SUCH ALLEGED C ONTRACTORS AND THEREFORE, ALSO THE LD. CIT(A) HAS DELETED THE ADDI TION CORRECTLY. ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 24 AS REGARDS INTEREST ON CAPITAL TO PARTNERS THE LD. AR SUBMITTED THAT ASSESSEE ENTERED INTO SUPPLEMENTARY PARTNERSHI P DEED DATED 1.4.2007 WHICH PROVIDED FOR PAYMENT OF INTEREST ON CAPITAL AS PER THE PROVISIONS OF SECTION 40B(V) OF INCOME TAX ACT. TH E LD. AR SUBMITTED THAT COPY OF PARTNERSHIP DEED WAS PLACED AT PAGE 8 OF PAPER BOOK AND THEREFORE, THE LD. CIT(A) HAS RIGHTLY DELETED THE A DDITION. AS REGARDS THE DELETION OF ADDITION OF RS.3,42,166/ - ON ACCOUNT OF UNEXPLAINED CREDITS, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER MADE THE ADDITION U/S 68 OF THE ACT ON THE BASIS OF A NOTICE U/S 133(6) TO M/S RUCHI INFOTEC SYSTEM TO WHICH M/S RUCHI INFOTEC SYSTMEN HAD DENIED OF ANY OUTSTANDING AMOUNT FROM THE COMPANY. THE LD. AR SUBMITTED THAT ASSESSING OFFICER HAD MADE THIS ADDI TION WITHOUT CONFRONTING THE STATEMENT TAKEN AT THE BACK OF THE ASSESSEE. WITHOUT PREJUDICE, IT WAS SUBMITTED THAT THE LAST T RANSACTION ENTERED INTO WITH THIS PARTY WAS 22.12.2008 AND THE REFORE, THIS CREDIT WAS NOT INTRODUCED IN THE YEAR UNDER CONSIDERATION AS IT RELATED TO THE EARLIER YEARS. IT WAS SUBMITTED THAT IN VARIOUS CAS E LAWS RELIED BEFORE THE LD. CIT(A), IT HAS BEEN HELD THAT AMOUNT CREDITED I N THE EARLIER YEARS CANNOT BE ADDED BACK AS UNEXPLAINED CASH CREDIT IN THE YEAR UNDER CONSIDERATION AND LD. CIT(A) HAS DELETED THE ADDITI ON BY RELYING ON THESE JUDGMENTS. ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 25 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. THE ISSUE WISE DECISION ON VARIOUS ADDITIONS MADE BY ASSESSING OFFICER AND DELETED BY LD. CIT(A) IS AS SUNDER: ADDITION ON ACCOUNT OF UNSECURED LOAN IT IS A FACT THAT ASSESSEE HAD GOT FINANCED A JCB I N EARLIER YEARS FROM M/S SREI INFRASTRUCTURE AND FINANCE COMPANY LTD. AG AINST WHICH AN AMOUNT OF RS.1,53,458/- WAS OUTSTANDING. THE FACT OF SECURED LOAN OUTSTANDING TO THE TUNE OF RS.1,53,458.22 IS APPARENT FROM COPY OF BAL ANCE SHEET PLACED AT PAPER BOOK-44. THE ASSESSING OFFICER HIMSELF HAD STATED I N HIS ASSESSMENT ORDER THAT AMOUNT WAS OUTSTANDING SINCE 2008-09 AND NO IN TEREST WAS BEING PAID ON THIS LOAN. HE MERELY MADE THE ADDITION AS THE ACCOU NTANT OF FIRM WAS UNABLE TO PROVIDED INFORMATION LIKE PAN AND IT PARTICULARS. W HILE MAKING ADDITION THE ASSESSING OFFICER OVERLOOKED THE FACT THAT THE ASSE SSEE HAD NOT OBTAINED LOAN DURING THE YEAR UNDER CONSIDERATION BUT IT WAS OUTS TANDING FROM THE EARLIER YEARS WHICH REMAINED PAYABLE DUE TO A DISPUTE BETWE EN THE PARTIES. THE LD. CIT(A) HAS TAKEN A CORRECT VIEW AND HAS RIGHTLY DEL ETED THE ADDITION. THE OBJECTION OF LD. DR THAT LD. CIT(A) ACCEPTED TH E FRESH EVIDENCE IN THE FORM OF LETTER DATED 14.11.2015, WE FIND THAT T HIS ARGUMENT HAS NO FORCE AS THE AMOUNT WAS ALREADY REFLECTED IN THE BALANCE SHE ET WHICH ITSELF PROVES THE EXISTENCE OF LIABILITY. THEREFORE, WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF LD. CIT(A) AND THEREFORE, GROUND NO.1 IS DISMISSED. ADDITION OF ACCOUNT OF THE PURCHASE OF SECOND HAN D CAR. THE ASSESSEE HAD PURCHASED A SECOND HAND CAR FOR A SUM OF AMOUNT OF RS.2,75,000/- WHICH IT HAD REFLECTED IN I TS BALANCE SHEET AND ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 26 FOR WHICH HE MADE ENTRIES IN THE BOOKS OF ACCOUNTS. THE COPY OF LEDGER ACCOUNT OF CAR IS PLACED AT PAPER BOOK-4. THE ASSES SEE HAD CLAIMED AN AMOUNT OF RS.20,625/- AS DEPRECIATION AND WAS AL LOWED DEPRECATION ON THIS AMOUNT. MOREOVER, WE FIND THAT ASSESSEE IN ITS BALANCE SHEET IN THE SCHEDULE TO FIXED ASSETS HAD DECLARED THE PURCH ASE OF CAR UNDER THE HEADING CAR FOR PURCHASE OF SECOND HAND CAR. THE SA LE AGREEMENT PLACED AT PAPER BOOK-2 IS A SUFFICIENT DOCUMENT WHICH ALON G WITH OTHER EVIDENCES IN THE FORM OF ENTRIES IN THE BOOKS OF AC COUNTS AND BALANCE SHEET PROVES THAT ASSESSEE DID PURCHASE THE CAR, TH EREFORE, LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION, THEREFORE, GROUND NO. 2 IS ALSO DISMISSED. ADDITION ON ACCOUNT OF WORK CONTRACT TAX PAYMENT. IN THIS RESPECT, WE FIND THAT THE ASSESSEE HAD ENTE RED INTO A WORK CONTRACT M/S U FLEX LTD. DURING THE YEAR UNDER CONS IDERATION THE APPELLANT WAS TO RECEIVE AN AMOUNT OF RS.85,16,917/ - ON ACCOUNT OF WORK CONTRACT TAX (WCT). THIS WCT WAS TO BE DEPOSIT ED TO THE ACCOUNT OF GOVT. BUT THE ASSESSEE WAS ABLE TO DEPOSIT ONLY RS.46,50,000/-. THE SHORT FALL IN DEPOSITING WCT WAS ON ACCOUNT OF THE FACT THAT ASSESSEE HAD NOT RECEIVED THE FULL PAYMENTS AND AS ON 31.3.2012 AN AMOUNT 85,39,875.91 WAS RECOVERABLE FROM M/S U FLEX INDUST RIES. THE LIST OF SUNDRY DEBTORS PLACED AT PAPER BOOK-5 CLEARLY SHOWS THAT ASSESSEE WAS TO RECEIVE THIS AMOUNT FROM THE COMPANY. THE AS SESSEE HAD NEITHER DEBITED OR CREDITED THE WCT RECEIVED FROM THE M/S U FLEX INDUSTRIES. THE FINDING OF THE ASSESSING OFFICER THAT THE M/S U FLE X HAD PAID THE AMOUNT OF WCT TO ASSESSEE AND WHICH HE WAS SUPPOSED TO DEP OSIT IN THE GOVT. ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 27 ACCOUNTS IS NOT CORRECT AS THE FACTS RECORDED IN TH E BOOKS OF ACCOUNT AND BALANCE SHEET CLEARLY SHOWS THAT ASSESSEE WAS TO RE CEIVE AN AMOUNT OF MORE THAN RS.85 LACS WHICH IS MORE THAN THE AMOUNT OF WCT PAYABLE. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THE C OMPLETE CALCULATION OF BILLS RAISED AGAINST U FLEX AND ALSO MADE THE DETAI LS OF AMOUNT RECEIVED AND ACCORDINGLY ON THE BASIS OF AMOUNT RECEIVED THE LIABILITY OF WCT WAS WORKED OUT TO BE RS.64,71,956/- OUT OF WHICH THERE IS NO DISPUTE ABOUT DEPOSIT OF RS.46,50,000/- AND IN VIEW OF THESE CALC ULATION THE LIABILITY OF THE ASSESSEE WAS WORKED OUT TO BE RS.18,21,956/- AN D THEREFORE, THE LD. CIT(A) HAS RIGHTLY RESTRICTED THE ADDITION ON ACCOU NT OF WCT REMAINING UNPAID TO THE EXTENT TO RS.18,21,956/- THEREFORE, W E DO NOT SEE ANY INFIRMITY IN THE ORDER OF LD. CIT(A) TO THIS EXTENT AND THEREFORE, GROUND NO.3 IS DISMISSED. ADDITION ON ACCOUNT OF PURCHASE OF CONSTRUCTION MAT ERIAL FROM M/S RAIZADA BRICK KILN IN THIS RESPECT, WE FIND THAT THAT THIS ADDITION W AS DELETED BY LD. CIT(A) AS THE PARTNER OF THE ASSESSEE HAD SUBMITTED AN AFFIDAVIT CLAIMING THEREIN THAT THE BILL RAISED BY RAIZADA BRICK KILN TO THE EXTENT OF RS.2,14,000/- WAS NOT CLAIMED BY HIM IN HIS INDIVI DUAL BOOKS OF ACCOUNTS. THE PARTNER OF THE ASSESSEE FIRM WAS ALSO ENGAGED IN THE CONSTRUCTION BUSINESS AND THE SELLER ISSUED THE BIL L IN THE NAME OF PARTNER. IN FACT THIS BILL BELONGED TO THE ASSESSEE FIRM AS THE PAYMENT WAS ALSO MADE FROM THE BOOKS OF ACCOUNTS OF ASSESSE E AND IT WAS NOT CLAIMED AS EXPENDITURE IN THE PROPRIETORSHIP BUSINE SS OF THE PARTNER AND ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 28 THEREFORE, THE LD. CIT(A) HAS RIGHTLY DELETED THE A DDITION. IN VIEW OF THE ABOVE GROUND NO.4 IS DISMISSED. ADDITION ON ACCOUNT OF STATIC CREDITORS. AS REGARDS DELETION OF ADDITION ON ACCOUNT OF STATI C CREDITORS, WE FIND THAT THE ASSESSING OFFICER DURING ASSESSMENT P ROCEEDINGS NOTED THAT THERE WERE CERTAIN CREDITORS THE BALANCE OF WHICH W AS OUTSTANDING FOR LAST MORE THAN THREE YEARS AND THERE WAS NO TRANSACTION BETWEEN THE ASSESSEE AND CREDITORS AND NEITHER ANY INTEREST HAS BEEN PAID AND CREDITORS HAD ALSO NOT DEMANDED THE OUTSTANDING PAY MENTS AND THEREFORE, ASSESSING OFFICER ARRIVED AT THE CONCLUS ION THAT THE ABOVE CREDITORS MIGHT HAVE SECURED/WRITTEN OFF THE BALANC ES AND THEREFORE, THERE WAS REMISSION OF LIABILITY AND THEREFORE, HE MADE THE ADDITION U/S 41(1) OF THE ACT. BEFORE THE LD. CIT(A) DETAILED SUBMISSIONS WERE MA DE AND ASSESSEE RELIED ON VARIOUS CASE LAWS AS NOTED BY LD . CIT(A) IN HIS ORDER AT PAGE 40. THE CASE LAWS RELIED ON BY THE ASSESSEE HELD THAT THE ASSESSEE CANNOT BE FASTENED WITH THE LIABILITY U/S 41(1) UNLESS THE CREDITORS HAD STATED THAT LIABILITIES HAD SEIZED TO EXISTENCE. THE HON'BLEBLE DELHI HIGH COURT IN THE CASE OF CIT VS JAIN EXPORTS 217 TAXMAN 0054 AFTER RELYING ON THE DECISION OF SUPRE ME COURT IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS (P) LTD., UNDER SIMI LAR FACTS AND CIRCUMSTANCES HAS DECIDED THE ISSUE IN FAVOUR OF TH E ASSESSEE BY HOLDING AS UNDER: ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 29 SECTION 41(1) OF THE ACT IS RELEVANT AND IS QUOTED BELOW;- '41. PROFITS CHARGEABLE TO TAX -(1) WHERE AN ALLOWA NCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXP ENDITURE 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 RE SPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY B Y WAY OF (EMISSION 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 PROF ESSION AND ACCORDINGLY CHARGEABLE TO INCOME TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHE THER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEE N MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR (B THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETHE R IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF WHICH LOSS OR EXPENDITURE WAS INCURRED BY THE FIRST-MENTIONED PERSON OR SOME BENEFIT IN RESPECT O F THE TRADING LIABILITY REFERRED TO IN CLAUSE (A) BY WAY OF REMISSION OF CESSATION THEREO F, THE AMOUNT OBTAINED BY THE SUCCESSOR IN BUSINESS OR THE VALUE OF BENEFIT ACCR UING TO THE SUCCESSOR IN BUSINESS SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS O R PROFESSION, AND ACCORDINGLY CHARGEABLE TO INCOME TAX AS THE INCOME OF THAT PREV IOUS YEAR. EXPLANATION 1. - FOR THE PURPOSES OF THIS SUB-SECTI ON, THE EXPRESSION 'LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIAB ILITY BY WAY OF REMISSION OR CESSATION THEREOF SHALL INCLUDE THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILATERAL ACT BY THE FIRST MENTIONED PERSON UNDER CLAUSE (A) OR THE SUCC ESSOR IN BUSINESS UNDER CLAUSE (B) OF THAT SUB-SECTION BY WAY OF WRITING OFF SUCH LIABILI TY IN HIS ACCOUNTS.' 15. INDISPUTABLY, EXPLANATION 1 TO SECTION 41(1) OF THE ACT, WHICH WAS INSERTED, W.E.F 01.04.1997 IS NOT APPLICABLE, AS THE ASSESSEE HAS N OT WRITTEN OFF THE LIABILITY TO PAY M/S ELEPHANTA OIL & VANASPATI LTD. IN ITS BOOKS OF ACCO UNT. 16. THE SUPREME COURT IN THE CASE OF CIT V. SUGAULI SUGAR WORKS (P). LTD. (1999) 236 ITR 5L8/102 TAXMAN 713 HAS HELD THAT SECTION 41(1) CONT EMPLATES OBTAINING BY THE ASSESSEE AN AMOUNT EITHER IN CASH OR ANY OTHER MANNER OR ANY BENEFIT BY WAY OF CESSATION OR REMISSION OF LIABILITY. IN ORDER TO COME WITHIN THE SWEEP OF SECTION 41(1) IT IS NECESSARY THAT THE BENEFIT DERIVED BY AN ASSESSEE RESULTS FRO M CESSATION OR REMISSION OF A TRADING LIABILITY. THE RELEVANT EXTRACT FROM THE DECISION O F THE SUPREME COURT IN THE CASE OF SUGAULI SUGAR WORKS (P.) LTD. (SUPRA) IS QUOTED BEL OW: 3. IT WILL BE SEEN THAT THE FOLLOWING WORDS IN THE SECTION ARE IMPORTANT, THE ASSESSEE HAS OBTAINED, WHETHER IN. CASH OR IN ANY OTHER MANNER W HATSOEVER ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OF SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY HIM'. THUS, THE SECTION CONTEMPLATES OBTAINING BY THE ASSESSEE OF AN AMOUNT EITHER IN CASH OR IN -ANY OTHER MANNER WHATSOEVER OR ~ BENEFIT BY WAY OF REMISSION OR CESSATION AND IT SHOULD BE OF A PARTICULAR AMOUNT OBTAINED BY HIM. THUS, THE OBTAIN ING BY THE ASSESSEE OF A BENEFIT BY VIRTUE OF REMISSION OR CESSATION' IS SINE QUA NON FOR APPLICATION OF THIS SECTION.' ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 30 17. THE ONLY ISSUE THAT NEEDS TO BE CONSIDERED IS WHETHER THE LIABILITY TOWARDS M/S ELEPHANTA OIL & VANASPATI LTD. HAS CEASED ON ACCOUN T OF EFFLUX OF TIME. 18. THE SUPREME COURT IN THE CASE OF ' BOMBAY DYEI NG & MFG. CO. LTD. V. STATE OF BOMBAY AIR 1958 SC 328 HAS CLEARLY HELD THAT EVEN I N CASES WHERE THE REMEDY OF A CREDITOR IS BARRED BY LIMITATION THE DEBT ITSELF IS NOT EXTINGUISHED BUT MERELY BECOMES UNENFORCEABLE. THE COURT OBSERVED AS UNDER:- ' THE POSITION THEN IS THAT, UNDER THE LAW, A DEBT SUBSISTS NOTWITHSTANDING THAT ITS RECOVERY IS BARRED BY LIMITATION. 19. THIS VIEW HAS ALSO BEEN TAKEN BY THE SUPREME CO URT IN THE CASE OF SUGAULI SUGAR WORKS P. LTD., (SUPRA). IN THE SAID CASE, IT WAS C ONTENDED ON BEHALF OF THE REVENUE THAT THE LIABILITY HAS COME TO AN END AS THE CREDITORS I N THE SAID CASE HAD NOT TAKEN ANY ACTION TO RECOVER THE AMOUNTS DUE TO THEM FOR TWENTY YEARS . THE HON'BLE SUPREME COURT AFFIRMED THE DECISION OF THE BOMBAY HIGH COURT IN T HE CSE OF J. K. CHEMICALS LTD. VS CIT (1996) 62 ITR 34 WHEREIN THE WORDS CESSATION OR RE MISSION HAD BEEN INTERPRETED. THE SUPREME COURT QUOTED THE FOLLOWING PASSAGE FROM THE JUDGEMENT OF THE BOMBAY HIGH COURT IN THE SAID CASE OF J.K. CHEMICALS LTD. (SUPR A). 'THE QUESTION TO BE CONSIDERED IS WHETHER THE TRANS FER OF THESE ENTRIES BRINGS ABOUT A REMISSION OR CESSATION OF ITS LIABILITY. THE TRANSF ER OF AN ENTRY IS A UNILATERAL ACT OF THE ASSESSEE, WHO IS A DEBTOR TO ITS EMPLOYEES. WE FAIL TO SEE HOW A DEBTOR, BY HIS OWN UNILATERAL ACT, CAN BRING ABOUT THE CESSATION OR RE MISSION OF HIS LIABILITY. REMISSION HAS TO BE GRANTED BY THE CREDITOR. IT IS NOT IN DISPUTE, A ND IT INDEED CANNOT BE DISPUTED, THAT IT IS NOT A CASE OF REMISSION OF LIABILITY. SIMILARLY, A UNILATERAL ACT ON THE PART OF THE DEBTOR CANNOT BRING ABOUT A CESSATION OF HIS LIABILITY. TH E CESSATION OF THE LIABILITY MAY OCCUR EITHER BY REASON OF THE OPERATION OF LAW, I.E., ON THE LIABILITY BECOMING UNENFORCEABLE AT LAW BY THE CREDITOR AND THE DEBTOR DECLARING UNEQUI VOCALLY HIS INTENTION NOT TO HONOUR HIS LIABILITY WHEN PAYMENT IS DEMANDED BY THE CREDI TOR, OR A CONTRACT BETWEEN THE PARTIES, OR BY DISCHARGE OF THE DEBT-THE DEBTOR MAK ING PAYMENT THEREOF TO HIS CREDITOR. TRANSFER OF AN ENTRY IS NEITHER AN AGREEMENT BETWEE N THE PARTIES NOR PAYMENT OF THE LIABILITY. WE HAVE ALREADY HELD IN KOHINOOR MILLS' CASE [1963)49 ITR 578(BOM) THAT THE MERE FACT OF THE EXPIRY OF THE PERIOD OF LIMITATION TO ENFORCE IT, DOES NOT BY ITSELF CONSTITUTE CESSATION OF THE LIABILITY. IN THE INSTA NT CASE, THE LIABILITY BEING ONE RELATING TO WAGES, SALARIES AND BONUS DUE BY AN EMPLOYER TO HIS EMPLOYEES IN AN INDUSTRY, THE PROVISIONS OF THE INDUSTRIAL DISPUTES ACT ALSO ARE ATTRACTED AND FOR THE RECOVERY OF THE DUES FROM THE EMPLOYER, UNDER SECTION 33C(2) OF THE INDUSTRIAL DISPUTES ACT, NO BAR OF LIMITATION COMES IN THE WAY OF THE EMPLOYEES. AFTER QUOTING THE ABOVE PASSAGE, THE SUPREME COURT HELD AS UNDER:- 'THIS JUDGMENT HAS BEEN QUOTED BY THE HIGH COURT IN THE PRESENT CASE AND FOLLOWED. WE HAVE NO HESITATION TO SAY' THAT THE REASONING IS CO RRECT AND WE, AGREE WITH THE SAME. 20. IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 4 1(1) OF THE ACT, IT IS NECESSARY THAT THERE SHOULD HAVE BEEN A CESSATION OR REMISSION OF LIABIL ITY. AS HELD BY THE BOMBAY HIGH COURT, IN THE CASE OF J.K. CHEMICALS LTD. (SUPRA) I CESSAT ION OF LIABILITY MAY OCCUR EITHER BY THE REASON OF THE LIABILITY BECOMING UNENFORCEABLE IN L AW BY THE CREDITOR COUPLED WITH DEBTOR DECLARING HIS INTENTION NOT TO HONOUR HIS LIABILITY , OR BY A CON T R AC T BETWEEN PARTIES OR BY DISCHARGE OF THE DEBT. IN THE PRESENT CASE, THE ASSESSEE IS ACKNOWLEDGING THE DEBT ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 31 PAYABLE TO M/S. ELEPHENTA VANASPATI LTD. AND THERE IS MATERIAL TO INDICATE THAT THE PARTIES HAVE CONTRACTED TO EXISTING LIABILITY. THU S, IN OUR VIEW IT CANNOT BE CONCLUDED THAT THE DEBT OWED BY THE ASSESSEE TO M/S ELEPHENTA OILS & VANASPATI LTD. STOOD EXTINGUISHED. 21. ALTHOUGH, ENFORCEMENT OF A DEBT BEING BARRED BY LIMITATION DOES NOT IPSO FACTO LEAD TO THE CONCLUSION THAT THERE IS CESSATION OR R EMISSION OF LIABILITY, IN THE FACTS OF THE PRESENT CASE, IT IS ALSO NOT POSSIBLE TO CONCLUDE T HAT THE DEBT HAS BECOME UNENFORCEABLE. IT IS WELL SETTLED THAT REFLECTING AN AMOUNT AS OUT STANDING IN THE BALANCE SHEET BY A COMPANY AMOUNTS TO THE COMPANY ACKNOWLEDGING THE DE BT FOR THE PURPOSES OF SECTION 1(3 OF THE LIMITATION ACT, 1963 AND, THUS, THE CLAI M BY M/S ELEPHANTA OIL & VANASPATI LTD. CAN ALSO NOT BE CONSIDERED AS TIME BARRED AS T HE PERIOD OF LIMITATION WOULD STAND EXTENDED. EVEN, OTHERWISE, IT CANNOT BE STATED THAT . M/S ELEPHANTA OIL & VANASPATI LTD. WOULD BE UNABLE TO CLAIM A SET ON ACCOUNT OF THE AM OUNT REFLECTED AS PAYABLE TO IT BY THE ASSESSEE. ADMITTEDLY, WINDING UP PROCEEDINGS AG AINST M/S ELEPHANTA OIL & VANASPATI LTD. ARE PENDING AND THERE IS NO CERTAINT Y THAT ANY CLAIM THAT MAY BE MADE BY THE ASSESSEE WITH REGARD TO THE AMOUNTS RECEIVABLE FROM M/S ELEPHANTA OIL & VANASPATI LTD. WOULD BE PAID WITHOUT THE LIQUIDATOR CLAIMING THE CREDIT FOR THE AMOUNTS RECEIVABLE FROM THE ASSESSEE COMPANY. IT IS WELL SETTLED THAT IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 41(1) OF THE ACT, THERE SHOULD HAVE BEEN AN IRREVOCABLE CESSION OF LIABILITY WITHOUT ANY POSSIBILITY OF THE SAME BEING REVIVED. THE ASSESSEE-COMPANY HAVING ACKNOWLEDGED ITS LIABILITY SUCCESSIVELY OVER THE YE ARS WOULD NOT BE IN A POSITION TO DEFEND ANY CLAIM THAT MAY BE MADE ON BEHALF OF THE LIQUIDATOR FOR CREDIT OF THE SAID AMOUNT REFLECTED BY THE ASSESSEE AS PAYABLE TO M/S ELEPHANTA OIL & VANASPATI LTD. 22. WE MAY ALSO ADD THAT, ADMITTEDLY, NO CREDIT ENT RY HAS BEEN MADE IN THE BOOKS OF THE ASSESSEE IN THE PREVIOUS YEAR RELEVANT TO THE ASSES SMENT YEAR 2008-2009. THE OUTSTANDING BALANCES REFLECTED AS PAYABLE TO M/S EL EPHANTA OIL & VANASPATI LTD. ARE THE OPENING BALANCES WHICH ARE BEING CARRIED FORWARD FO R SEVERAL YEARS. THE ISSUE AS TO THE GENUINENESS OF A CREDIT ENTRY, THUS DOES NOT ARISE IN THE CURRENT YEAR AND THIS ISSUE COULD ONLY BE EXAMINED IN THE YEAR WHEN THE LIABILITY WAS RECORDED AS HAVING ARISEN, THAT IS, IN THE YEAR 1984-1985. THE DEPARTMENT HAVING ACCEPTED THE BALANCES OUTSTANDING OVER SEVERAL YEARS, IT WAS NOT OPEN FOR THE CIT (APPEALS ) TO CONFIRM THE ADDITION OF THE AMOUNT OF RS.1,53,48,850/- ON THE GROUND THAT THE A SSESSEE COULD NOT PRODUCE SUFFICIENT EVIDENCE TO PROVE THE GENUINENESS OF THE TRANSACTIO NS WHICH WERE UNDERTAKEN IN THE YEAR 1984-85. 23. THE PRESENT APPEAL DOES NOT DISCLOSE ANY SUBSTA NTIAL QUESTION OF LAW FOR OUR CONSIDERATION AND IS, ACCORDING, DISMISSED. *IN FAVOUR OF ASSESSEE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AND J UDICIAL PRECEDENTS, WE DO NOT SEE ANY INFIRMITY IN THE ORDE R OF LD. CIT(A) AND THEREFORE, GROUND NO. 5 IS DISMISSED. ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 32 ADDITION ON ACCOUNT OF NON DEDUCTION OF TAX (TDS) AS REGARDS THE ADDITION ON ACCOUNT OF NON DEDUCTIO N OF TAX AT SOURCE (TDS), WE FIND THAT THE ASSESSING OFFICER MA DE THE ADDITION ON ACCOUNT OF NON DEDUCTION OF TAX ON PAYMENTS MADE TO VARIOUS PERSONS WHO WERE EMPLOYED BY ASSESSEE AS LABOUR MATES AND A SSESSING OFFICER HELD THAT THESE WERE CONTRACTORS AND THEREFORE, ASS ESSEE WAS REQUIRED TO DEDUCT TDS FROM THESE PAYMENTS. THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS SUBMITTED TO ASSESSING OFFICER THAT ASS ESSEE DID NOT ENTER INTO ANY CONTRACT WITH ANY PERSON AND ALL THE WORKE RS WERE DIRECTLY EMPLOYED BY ASSESSEE. HOWEVER, THE ASSESSING OFFICE R DID NOT AGREE WITH THE CONTENTION OF ASSESSEE AND MADE THE ADDITION. T HE LD. CIT(A) HAS HOWEVER ACCEPTED THE EXPLANATION GIVEN BY APPELLANT . HE HELD THAT IN CIVIL CONTRACT BUSINESS PAYMENTS TO LABOURERS ARE M ADE THROUGH LABOUR MATES WHO KEEP THE MUSTER ROLLS AND DISBURSE THE PA YMENTS ON THE BASIS OF WORK EXECUTED BY THEM EITHER ON DAILY OR W EEKLY BASIS. HE HELD THAT SEC.194C IS ATTRACTED ONLY WHEN THERE IS A CON TRACT BETWEEN CONTRACTOR AND THE PERSON RESPONSIBLE OF EXECUTING THE WORK AND HE HAS HELD THAT IN THE CASE OF APPELLANT THERE WAS NO CON TRACT BETWEEN THE ASSESSEE AND THE ALLEGED PETTY CONTRACTORS. THE ASS ESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS DID NOT FIND ANY DISCREP ANCIES IN THE PAYMENTS AND BEFORE MAKING ANY ADDITION ON ACCOUNT OF NON DEDUCTION OF TAX, THE ASSESSING OFFICER SHOULD HAVE EXAMINED SOME OF THE SO CALLED PETTY CONTRACTORS. THE ASSESSEE HAD ALSO PRODUCED M USTER ROLLS SHOWING THE DETAIL OF WAGES /LABOUR PAID BY ASSESSEE AND TH EREFORE, THE LD. CIT(A) ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 33 HAS TAKEN A CORRECT VIEW AND HAS RIGHTLY HELD THAT ASSESSEE WAS NOT LIABLE TO DEDUCT THE TDS AS THERE WAS NO CONTRACT OR SUB-C ONTRACT. IN VIEW OF THE ABOVE, GROUND NO.6 IS DISMISSED. ADDITION ON ACCOUNT OF INTEREST ON CAPITAL. AS REGARDS THE INTEREST ON CAPITAL, WE FIND THAT AS PER PARTNERSHIP DEED PLACED AT 9 TO 13 THERE IS NO CLAUSE FOR MAKIN G ANY INTEREST TO BE PAID TO PARTNERS. HOWEVER, BEFORE THE LD. CIT(A) TH E ASSESSEE FURNISHED AN AFFIDAVIT THAT THE CAPITAL OF THE PARTNERS SHALL CARRY INTEREST @ 12% WITH EFFECT FROM 1.4.2007. HOWEVER, WE FIND THAT IT IS NOT A SUPPLEMENTARY PARTNERSHIP DEED AS IT HAS NOT BEEN S IGNED BY ALL PARTNERS AND HAS BEEN SIGNED ONLY BY ONE PARTNER AND THAT TO O IN THE FORM OF AN AFFIDAVIT. AS PER PROVISIONS OF SEC. 40(B)(V) THE P ARTNERS ARE ENTITLED TO RECEIVE INTEREST ON THEIR CAPITAL WHICH IS IN ACCOR DANCE WITH TERMS OF PARTNERSHIP DEED AND RELATES TO ANY PERIOD FOLLOWIN G AFTER DATE OF SUCH PARTNERSHIP DEED. SINCE IN THE ORIGINAL PARTNERSHIP DEED THERE IS NO PROVISION FOR MAKING PAYMENT OF INTEREST TO PARTNER S CAPITAL THE ASSESSEE DID NOT ENTER INTO ANY SUPPLEMENTARY PARTNERSHIP DE ED SIGNED BY ALL THE PARTNERS, THE PAYMENT OF INTEREST TO PARTNERS WAS N OT PERMITTED AS THE PAYMENT OF INTEREST WAS NOT IN ACCORDANCE WITH THE SAID PROVISIONS. THE LD. CIT(A) HAS OVERLOOKED THIS FACT THAT SUPPLEMENT ARY PARTNERSHIP DEED PLACED AT PB-8 WAS IN FACT NO PARTNERSHIP DEED BUT WAS AN AFFIDAVIT ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 34 SIGNED BY ONE PARTNER, THEREFORE, THE ORDER OF LD. CIT(A) IN THIS RESPECT IS REVERSE AND THEREFORE, GROUND NO.7 IS ALLOWED. ADDITION ON ACCOUNT OF SEC.68 OF THE ACT. AS REGARDS THE ADDITION OF AN AMOUNT OF RS.3,42,166 /- ON ACCOUNT OF RUCHI INFOTEC SYSTEM, WE FIND THAT ASSESSING OFF ICER MADE THE ADDITION AFTER EXAMINING M/S RUCHI INFOTEC SYSTEM, BY ISSUIN G NOTICE U/S 133(6) OF THE ACT . THE ASSESSING OFFICER OBSERVED THAT THE LAST TRANSA CTION WAS RECORDED ON 22.12.2008. THE ASSESSING OFFICER HELD THE SAME TO BE UNEXPLAINED CREDIT U/S 68 AND DID NOT ALLOW THE OPP ORTUNITY TO ASSESSEE TO CROSS EXAMINE THE STATEMENTS OF RUCH INFOTEC SYS TEM LTD. WE FURTHER FIND THAT APPELLANT HAD NOT ENTERED INTO ANY TRANSA CTION WITH THIS PARTY AFTER 27.12.2008 WHICH MEANS THAT THIS CREDIT REPRE SENTS THE CREDIT FOR EARLIER YEAR AND THEREFORE, NO ADDITION CAN BE MADE IN THIS YEAR U/S 68 OF THE ACT. THE HON'BLE RAJSTHAN HIGH COURT IN THE CAS E OF CIT VS. PRAMESHWAR BOHRA 301 ITR 404 HELD THAT AMOUNT WHICH WAS CREDITED IN BOOKS OF ACCOUNTS OF THE ASSESSEE IN THE PRECEDING YEAR CANNOT BE TREATED AS UNEXPLAINED CASH CREDIT U/S 68 IN THE RELEVANT A SSESSMENT YEAR. THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION AFTER T AKING INTO ACCOUNT A NUMBER OF CASE LAWS DECIDED BY HON'BLE DELHI HIGH COURT AS MENTIONED IN HIS ORDER AT PAGE 51. IN VIEW OF THE ABOVE, WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AND THEREFORE, GROUND NO . 8 OF THE APPEAL IS DISMISSED. ITA NO. 639(ASR)/2016 C.O NO.10(ASR)/2017 ASSESSMENT YEAR: 2012-2013 35 9. THE CROSS OBJECTIONS FILED BY ASSESSEE ARE ONLY SUPPORTIVE OF LD. CIT(A)S ORDER AND THEREFORE, THESE ARE DISMISSED A S INFRUCTUOUS. 10. IN NUTSHELL, THE APPEAL FILED BY THE REVENU E IS PARTLY ALLOWED WHEREAS THE CROSS OBJECTIONS FILED BY ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.08.2017. SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:11.08.2017. /GP/SR. PS & P.K. PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER
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