R. KANWAR ELECTRICALS,NEW DELHI V. ACIT CIRCLE 55(1), NEW DELHI

ITA 3954/DEL/2024

AI Insights

The case involves an appeal by R. Kanwar Electricals against the order of the National Faceless Appeal Centre, which confirmed the additions made by the Assessing Officer under section 41(1) of the Income Tax Act, 1961, for two sundry creditors. The Assessing Officer had added the outstanding balances of these creditors to the income of the assessee, treating them as ceased liabilities. The Tribunal found that the additions were not sustainable as the liabilities were not shown to have ceased and payments had been made in subsequent years. The Tribunal's decision was based on the non-genuineness of the creditors and the fact that the liabilities were settled through banking transactions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 31070 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2015-2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARPREET KAUR HANSRA
• Assessee Lawyers: RAJ KUMAR; SURAJ GUPTA
• Keywords: Set aside; Corroborative evidences; Onus to prove

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: ‘F’: NEW DELHI) BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SMT. MADHUMITA ROY, JUDICIAL MEMBER ITA No:- 3954/Del/2024 (Assessment Year- 2015-16) R. Kanwar Electricals, B- 260, Upper Ground Floor, Yojna Vihar, Delhi-110092. Vs. ACIT, Circle-55(1), Vikas Bhawan, New Delhi- 110002. PAN No: AABFR0505J APPELLANT RESPONDENT Assessee by : Sh. Rajkumar, CA & Sh. Suraj Gupta, Adv. Revenue by : Ms. Harpreet Kaur Hansra, Sr. DR Date of Hearing : 01.04.2025 Date of Pronouncement : 04.04.2025 ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: The present appeal has been filed by the assessee against order past by the National Faceless Appeal Centre, NFAC, Delhi dated 16.08.2024 in first appellate proceedings u/s 250(6) of the Income 2 Tax Act, 1961, (hereinafter referred to as “Act”) pertaining to Assessment Year 2015-16. 2. The grounds raised by the assessee read as under: “ 1. That the ACIT Circle-55 (1) New Delhi could not had assumed legally valid jurisdiction to frame the asstt. in the absence of proper order u/s.127 of the 1.T. Act and in the absence of service of such order, if any passed. 2. That under the facts and circumstances, the Ld. A.O. erred in law as well as on merits in making addition of Rs.60,58,538/- for sundry creditor M/s JMD Trading Comp. u/s.41(1)(a) treating the same as ceased liabilities, incorrectly, more so complete payment already stands made in subsequent periods through banking channel, which stands accepted in respective years. 3. That under the facts and circumstances, the Ld. A.O. erred in law as well as on merits in making addition of Rs. 1,68,66,294/- for sundry creditor M/s G.S. Traders respectively u/s.41(1)(a) treating the same as ceased liabilities, incorrectly, more so complete payment already stands made in subsequent periods through banking channel, which stands accepted in respective years. 4. That the alleged adverse material, if any collected and used, never confronted. hence could not have been used for taking any adverse view.” 3. During the course of hearing before us, Ld. Counsel for the assessee contented that he would first make arguments vis a vis the grounds raised on the merits of the case, i.e Ground No. 2 and Ground no. 3. 4. Referring to the same he pointed out that the solitary issue/ grievance of the assessee against the order of the Ld. CIT(A) was with 3 respect to confirming the addition made by the AO u/s 41(1) of the Act on account of alleged cessation of liability pertaining to two outstanding sundry creditors, being M/s JMD Trading Company whose outstanding balance of ₹60,58,538/- was added to the income of the assessee under section 41(1) of the Act ,while the other sundry creditor was M/s GS Traders whose outstanding balance of ₹1,68,66,294 /-was added to the income of the assessee u/s 41(1) of the Act. 5. The solitary contention of the Ld. counsel for the assessee against the addition made was that it was based on inquiry conducted by the AO which, as per the AO himself revealed that the said two parties were not genuine. Ld. Counsel for the assessee contended that non genuineness of a creditor impinges on the claim of expenses by the assessee incurred with respect to the said creditor of the entire amount booked. That it does not by any stretch result in cessation of liability of the creditor so as to add only the outstanding amount to the income of the assessee u/s 41(1) of the Act. 4 6. He pointed out that in both the cases the AO had conducted verification of the sundry creditors and found them not to exist at the said address. He also pointed out that the AO even recorded a finding that the liability shown in the books of the assessee with respect to these creditors was not genuine. Our attention in this regard was drawn to para 3.4 and 5 of the order of the AO wherein these findings of the AO with respect to both the parties not being genuine was recorded .He further contended that before the Ld. CIT(A) the assessee had demonstrated that the amounts outstanding for payment with respect to these parties had been paid off through banking channels in the subsequent years .That in the light of the same, Ld. Counsel for the assessee contended, there was no case with the Revenue of either the liabilities ceasing to exist for making addition of the same under section 41(1) of the Act or for that matter the case made out by the AO of the creditors being not genuine.He pointed out that the Ld. CIT(A) recorded the fact of complete payments having been made subsequently with respect to these parties at para 6.5 of his order as under: “ 6.5 I have gone through the grounds of appeal, assessment order and the submissions made by the appellant. Remand report and the rejoinder has also been perused. In the rejoinder the appellant held that the 5 complete payment already stands made in subsequent period in A.Y. 2018-19 and hence there is no question of cessation of liability. The same submission has been made before the AO and the AO held that JMD trading company was one of the sundry creditors of the appellant and there was no existence of M/s. JMD trading Company at that address. In the remand report it was submitted by the AO that the assessing officer had made all the additions after taking into account the documents furnished by the assessee during the assessment proceedings. The same documents are again submitted before the Id. CIT(A) which has already been rejected by the AO while passing the assessment order. The appellant had not filed any new facts on record. In the appellate proceedings, burden of proof lies on the assessee to prove that facts and findings of the AO are incorrect. The onus always lies on the appellant to prove the genuineness of the transactions. Since the appellant did not come forward with any new facts with supporting evidences/ information responding to the notices issued, I am not convinced with the contentions/ arguments of the appellant in this regard. Therefore, the additions made by the AO are confirmed under sec. 41(1) of the I T Act as the appellant failed to establish the genuineness of the transaction. Ground no. 3 and 4 are dismissed.” 7. The Ld. Counsel for the assessee demonstrated the said fact from the copy of ledger account of the said two parties reflecting payment of the outstanding amount by cheques and copy of the bank statement recording the fact of cheque issued in the name of said parties clearing their outstanding dues placed in paper Book filed before us at P.B 4-12 relating to JMD Trading Co.& P.B 14-28 relating to G S Traders. 6 8. Ld. DR, however relied on the order of the authorities below. 9. We have heard the rival contentions. We find merit in the contention of the Ld. counsel for the assessee that the addition made of the outstanding liability of the 2 creditors in the present case, i.e M/s JMD Trading Co. of.₹60,58,538 /-and M/s GS Traders of Rs 1,68,66,294/- by treating the liabilities to have ceased to exist in terms of section 41(1) of the Act is not sustainable for the reason that the authorities below have not made out a case of the liabilities ceasing to exist but on the contrary have made out a case of the liabilities or the sundry creditors not being genuine at all, and also for the reason that the assessee as a matter of fact has demonstrated the outstanding liabilities to have been paid off in the succeeding year by way of banking channels 10. As pointed out by the Ld. Counsel for the assessee the entire case of the AO/CIT(A) for treating the impugned outstanding liability in relation to the 2 creditors to have ceased to exist rests on his enquiry showing the said creditors to be not genuine. At para 3.4 of his order, we have noted the AO to record the verification of the sundry creditors and find the said two parties to be not existing at 7 the stated address, and based on this fact, the AO notes that the liabilities shown by the assessee in its books of accounts in relation to the said parties to be not genuine. There is clearly no case made out, as rightly pointed out by the Ld. Counsel for the assessee, of the liabilities ceasing to exist. The non genuineness of the sundry creditors shows that the transactions conducted with them were not true and therefore requires disallowance of expenses booked by the assessee in relation to such creditors. Cessation of liability implies genuineness of the transaction with creditors but involves certain outstanding liabilities relating to them as not being required to be paid /liabilities ceasing to exist for any reasons. The present, we find, is definitely not a case of cessation of liability. We may add that it is a fact on record that the balances of the said two creditors added back u/s 41(12) of the Act were in relation to expenses booked in preceding years and outstanding as opening balances during the impugned year. 11. Even otherwise, as pointed out by the Ld. Counsel for the assessee, the Ld. CIT(A) has noted the fact of the assessee having demonstrated the fact of having made payment to these creditors in 8 the succeeding years through banking channels. Having noted so there can be no case with the Revenue , we hold, for treating the outstanding liability of these sundry creditors to have ceased to exist during the impugned year. 12. The addition therefore made on account of cessation of liability of the impugned 2 sundry creditors, we hold, is therefore not sustainable in law. The order of the Ld. CIT(A) confirming the addition made by the AO under section 41(1) of the Act amounting to ₹60,50,538 and Rs 1,68,66,294 with respect to the two sundry creditors is therefore set aside. The AO is directed to delete the addition made. 13. Grounds of appeal number 2 & 3 raised by the assesse are allowed. 14. Since the appeal of the assessee has been allowed on merits neither any arguments were heard on the legal ground raised in Ground No.1 nor is the same therefore being dealt with by us. 9 15. Appeal of the assessee is allowed in above terms. Order pronounced in the open court on 04.04.2025 Sd/- Sd/- (MADHUMITA ROY) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 04.04.2025 Pooja, Sr. PS/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, Delhi 10 1. Date of dictaƟon of Tribunal order 2. Date on which the typed draŌ Tribunal Order is placed before the DictaƟng Member 3. Date on which the typed draŌ Tribunal order is placed before the other Member 4. Date on which the approved draŌ Tribunal order comes to the Sr. PS/PS 5. Date on which the fair Tribunal order is placed before the DictaƟng Member for pronouncement 6. Date on which the signed order comes back to the Sr.PS/PS 7. Date on which the final Tribunal order is uploaded by the Sr.PS/PS on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal order 9 Date of killing off the disposed of files on the judisis Portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial) 11. The date on which the file goes to the Assistant Registrar for endorsement of the order 12. Date of Despatch of the order "