ITA No. 635/JP/2012

SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM

For The Assessee : Shri Mahendra Gargieya (Adv)
For The Revenue :  Shri Rajendra Singh (JCIT)

ORDER

T.R. MEENA, A.M.-This is an appeal filed by the assessee against the order dated 19/03/2012 of the learned C.I.T.(A)-II, Jaipur for A.Y. 2008-09. The respective grounds of appeal are as under:-
“1. The impugned additions and disallowances made in the assessment order dated 28/12/2010 passed U/s 143(3) of the Act is bad in law and on facts of the case, for want of jurisdiction and for various other reasons. Hence, the same kindly be quashed.

2. Rs. 62,328/-:- The ld CIT(A) erred in law as well as on the facts of the case in confirming the addition on account of the alleged cash shortage resulting from the excess expenditure incurred probably from the alleged undisclosed income. The addition so made and confirmed by the ld CIT(A) is contrary to the provisions of law and facts of the case. Hence, the same kindly be deleted in full.

3. Rs. 32,725/-:- The ld CIT(A) erred in law as well as on the facts of the case in confirming the disallowances of Rs. 30,000/- on account of repair and maintenance of video camera and further erred in enhancing the disallowance to Rs. 2,7,25/-. The disallowance so confirmed and further enhanced by the ld CIT(A) is contrary to the provisions of law and facts of the case. Hence, the same kindly be deleted in full.

Alternatively and without prejudice to above, the ld CIT(A) erred in law as well as on the facts of the case in not even allowing depreciation despite holding the expenditure of capital nature. Hence, the depreciation @ 15% kindly be directed to be allowed.

4. Rs. 2,26,805/-:- The ld CIT(A) erred in law as well as on the facts of the case in partly confirming the disallowances made U/s 40A(3) of the Act of Rs. 2,88,000/-. The disallowance so made and partly allowed is totally contrary to the provisions of law and facts on the record and hence the same kindly be deleted in full.

5. Rs. 51,744/-:- The ld CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of the expenditure incurred on account of repair and maintenance treating the same as capital expenditure. The disallowance so made and confirmed by the ld CIT(A) is contrary to the provisions of law and facts of the case. Hence, the same kindly be deleted in full.

6. Rs. 31,06,354/-:- The ld CIT(A) erred in law as well as on the facts of the case in confirming the addition on account of cessation of liability U/s 41(1) of the Act as per details in the impugned order. The additions so made and confirmed by the ld. CIT(A) being contrary to the provisions of law and facts, kindly be deleted in full.

7. Rs. 1,519/-:- The ld CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of ESI contribution invoking Sec 36(1)(x) r/w 2(24) (10). The disallowance so made by the ld CIT(A) being contrary to the provisions of law and facts, kindly be deleted in full.

8. The ld A.O. further erred in law as well as on the facts of the case in charging interest U/s 234B and 234C of the Act. The appellant totally denies its liability of charging of any such interest. The interest so charged, being contrary to the provisions of law and facts, kindly be deleted in full.”

2. The ground No. 1 of the appeal is general in nature, which has not been pressed by the assessee. Therefore, the same is dismissed as not pressed.

3. The ground No. 2 of the assessee’s appeal is against confirming the addition by the ld CIT(A) at Rs. 62,328/- on account of cash shortage resulting from the excess expenditure incurred. The assessee is in the business of manufacturing pharmaceuticals. It filed its return on 30/9/2008 at loss income of Rs. 3,32,532/- and book profit of Rs. 1,25,388/-. The case was scrutinized U/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as the Act). The ld Assessing Officer observed that there was negative cash balance/shortage of cash amounting to Rs. 1,132.74 on 18/07/2007. Further shortage was noticed during the 07/09/2007 to 26/09/2007, peak of this shortage was Rs. 61,195.16. The Assessing Officer gave reasonable opportunity of being heard on this issue. The assessee’s reply submitted, which has been reproduced by the Assessing Officer at page NO. 1 and 2 of the assessment order. After considering the assessee’s reply, the ld Assessing Officer held that regarding entries dated 18/07/2007 the assessee failed to produce any evidence that the payments were made by the Directors later on it was reimbursed to them but entered in books on the date of payment. As far as negative balance on other days, the submission of assessee is not acceptable, since each and every narration was given in the entries in the cash book at the time of payment i.e. months for which paid, rate at which paid etc. Therefore, he held that shortage appearing in the cash book of assessee was on account of excess expenses in comparison to availability of cash. This shortage might be met by the assessee out of their undisclosed income. Thus he made addition of Rs. 62,327.90.

4. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that the ld Assessing Officer had examined the cash book during the course of assessment proceedings. He has confronted the shortage of cash with the assessee. Bill of Rs. 1754/- against the telephone expenses by the Director, which was reimbursed by the firm on 23/07/2008 and same was clerical mistake committed by the Accountant, who made entries in the cash book. Similarly, the cash shortage of Rs. 61,195/- was also clerical mistake as the Accountant had posted the vouchers of different dates i.e. 25/08/2007, 07/09/2007, 18/09/2007 and 28/09/2007 on a single day i.e. 07/09/2007. The assessee had not produced any evidence before the Assessing Officer as well as before him that these payments were made by the Directors and later on same had been reimbursed. He further relied on the decision of Hon’ble Ahmadabad Tribunal in the case of Rajesh P Soni Vs. ACIT 100 TTJ 892. In the present case, the appellant had given general explanation and had not filed any corroborative evidence. Therefore, he confirmed the addition.

5. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that payment of Rs. 1,754/- towards telephone bill, was initially made by the Director Shri Ramesh Taneja out of his own sources however, the reimbursement was made on 23/07/2007 was wrongly recorded in the books of 18/07/2007 and hence a shortage was noticed. With regard to cash shortage of Rs. 61,195/-, these were the payments made on account of salary and wages to the employees/workers for different months and to different persons on different dates. The appellant had made payment to these persons time to time but it was because of the wrong accounting made on one single day i.e. on 07/09/2007 only. This mistake was committed by the Accountant if these expenses might have posted on the respective dates, there could be no difference on account of cash. Thus, these expenses are fully allowable U/s 37 of the Act. The ld Assessing Officer also made disallowance U/s 40A(3) of the Act. Thus total taxation of the same income, which is not permitted under the law, therefore, he prayed to delete the addition.

6. At the outset, the ld DR has vehemently supported the order of the ld CIT(A) had argued that the cash shortage admittedly found in the cash book. The assessee had introduced undisclosed income in the cash book. Therefore, order of the ld CIT(A) may please be upheld.

7. We have heard the rival contentions of both the parties and perused the material available on the record. The ld Assessing Officer made specific defects in the cash book. The assessee could not be controverted the finding of the Assessing Officer and had not placed any evidence regarding shortage of cash before the lower authorities as well as before us. Therefore, we uphold the order of the ld CIT(A). Accordingly, this ground of assessee’s appeal is dismissed.

8. The 3rd ground of the assessee’s appeal is against confirming the disallowance of Rs. 30,000/- and enhancing the disallowance of Rs. 2,725/- on account of repair and maintenance. The ld Assessing Officer observed that the assessee had debited Rs. 15,000/- on 01/08/2007 and Rs. 15,000/- on 10/08/2007 under the head repair and maintenance of video camera. He further observed that the assessee did not own any camera, therefore, these expenses incurred on maintenance of camera owned by the Director. The ld Assessing Officer gave reasonable opportunity of being heard on this issue but the assessee did not furnish any reply before him. Thus, he made addition of Rs. 30,000/ in the income of the assessee.

9. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that on perusal of bill of Shubham Electronics dated 11/5/2007 for purchase of CCTV camera amounting to Rs. 40,500/- which was ultimately settled for Rs. 38,500/-. Out of this, the amounts of Rs. 30,000/- and Rs. 8,500/- were paid in cash. The Accountant of appellant company had charged these payments to the repairs account. The ld counsel for the appellant had admitted that purchase of CCTV camera constitutes capital expenditure and same may be disallowed but depreciation @ 15% may please be allowed. Accordingly, he held that this expenditure is capital in nature. After allowing deprecation of Rs. 5,575/-, the balance amount of Rs. 32,725/- had been disallowed by the ld CIT(A), accordingly he enhanced addition by Rs. 2,725/-.

10. Now the assessee is in appeal before us. The ld AR of the assessee has not pressed this issue, therefore, the same is dismissed.

11. The ground No. 4 of the assessee’s appeal is against confirming the disallowance U/s 40A(3) of the Act at Rs. 2,88,000/-. The ld Assessing Officer observed that on verification of the books of account, it was found that assessee had made payment of salary to its various employees in cash in violation of provisions of Section 40A(3) of the Ace. The details have been narrated by the Assessing Officer on page 2 and 3 of the assessment order, in total Rs. 2,88,000/-. The Assessing Officer gave reasonable opportunity of being heard, which was availed by the assessee vide letter dated 26/11/2010. The contents of the letter had been reproduced by the Assessing Officer on page 3 of the assessment order. After considering the assessee’s reply, the ld Assessing Officer held that the assessee had noted down every narration in their cash book and the entries so made were correct and the assessee had paid cash to these persons at a time in violation of provisions of Section 40A(3) of the Act. The claim of the assessee that these were made on various is found verifiable from the cash books. The assessee had shown these expenses only in the single voucher number was noted in the cash book, which means that the payment was made by single voucher on 07/09/2007. Therefore the ld Assessing Officer made addition of Rs. 2,88,000/-.

12. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition partly by observing as under:-

“5.1 I have duly considered the submissions of the appellant. The A.O. noticed on the examination of the cash book that the appellant had made payments of salary of Rs. 2,88,000/- to its seven employees on 07/09/2007 in violation of provisions of Section 40A(3) of the IT Act. When confronted, the appellant explained that no single payment in cash exceeding Rs. 20,000/- was made by it. The appellant submitted that payments were made on different dates however the accountant had inadvertently posted these entries on single day. The appellant also produced the vouchers of different dates but these were rejected by the A.O. as complete narration was available in the cash book itself. The narration of various entries in the cash book which are enumerated on page 3 of the assessment order showed that the entire payment of salary for four months was made on 07/09/2007. Further, only a single voucher bearing specific number was mentioned against each cash payment. This fact itself proved that the appellant had violated the provisions of Section 40A(3) of the IT Act. The subsequent vouchers were allegedly fabricated by the appellant. Hence these self made vouchers prepared afterwards are being rejected. The counsel of appellant has argued that addition of Rs. 61,195/- had already been made on account of shortage in cash balance. Therefore, the addition to this extent tantamounted to double addition. This contention of the appellant is found to be correct. I therefore direct the A.O. to restrict the addition to Rs. 2,26,805/- on account of disallowance U/s 40A(3) instead of Rs. 2,88,000/- made by him. This ground of appeal is partly allowed.”

13. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that a bare perusal of the narration given on page No. 3 of the assessment order shows that these were payments made on account of salary and wages to the employees/workers for different months and different persons on different dates. However, each such payment was admittedly below the limit of Rs. 20,000/- The appellant had made payments to these persons time to time i.e. on 25/08/2007, 70/09/2007, 18/09/2017 and 28/09/2007 but the Accountant had wrongly accounted on one single date i.e. 07/09/2007 only under the bonafide mistake committed by him, which is factually incorrect. The Accountant had made entries in the computer after the last payment made on 28/09/2007. However, he committed some mistakes while feeding the entries therein and with a view to correct the same, he made repeated attempts but ignorant of the fact that in the computer, all such entries stood recorded only on 07/09/2007. The Accountant Shri Gaur was not well, which generally resulted into pending work. He was also not an expert of computer, for which he filed an affidavit, the same is placed at page No. 123 of the paper book. The appellant had produced various vouchers, which shows individually payment made below the limit. The ld AR has drawn our attention on page No. 9 to 36 of the paper book therefore, he argued that payments were made at the relevant point of time below the limit of Rs. 20,000/-. The ld CIT(A) merely suspected that the subsequent vouchers were fabricated by the appellant without any basis and rather ignoring that the accounts were duly audited with no adverse remark on this aspect. The lower authorities completely ignored the duly sworn affidavit of the accountant filed before him, the contents of which remained completely uncontroverted. It is settled legal position is that in such a situation, the same are binding upon the revenue as held in the case of Mehta Pareek & Co. 30 ITR 181 (SC) which was followed by the Jaipur and Jodhpur Benches of ITAT in the cases of ITA Vs. Dr. Tejgopal Bhatnagar 20 TW 368 (JP) and Paras Cotton Company Vs. CIT (2003) 30 TW 168 (JD). There was no evidence that the assessee company was having cash crunch. He further relied on the decision in the case of Anupam Tele Services Vs. ITO (2014) 88 CCH 35 (Guj) wherein the Hon'ble High Court followed the decision in the case of Attar Singh Gurumukh Singh Vs. ITO (1991) 191 ITR 667 (SC) on business expediencies wherein it has been held that there were peculiar facts wherein the payee insisted upon cash payment only and following the decision in the case of Harshila Chordia Vs. ITO (2008) 298 ITR 349 (Raj.) wherein the Hon'ble High Court has held that the exceptions contained in rule 6DD are not exhaustive and that the said rule must be interpreted liberally. In the present case also, the payees insisted upon cash payment only being employees of the assessee firm, therefore, he prayed that no disallowance should be made.

14. At the outset, the ld DR has vehemently supported the order of the Assessing Officer.
15. We have heard the rival contentions of both the parties and perused the material available on the record. Prima facie it appears that the assessee has paid salary in excess to Rs. 20,000/- and violated the provisions of Section 40A(3) of the Act but it is also revealed that these payments were pertained to salary for the months of May to August. The genuineness of the payments has not been doubted. The employees were insisted upon cash payments only, therefore, to maintain the good relation with them, the company paid cash salary for various months. The Hon’ble Rajasthan High Court in the case of Harshila Chorida Vs. ITO (Supra) has held that exceptional condition mentioned in Rule 6DD are not exclusive. This was the business expediencies of the company to pay in cash, therefore, we do not find that these payments are covered U/s 40A(3) of the Act. Accordingly, the addition confirmed by the ld CIT(A) is deleted. Hence, this ground of assessee’s appeal is allowed.

16. The 5th ground of the assessee’s appeal is against confirming the addition of Rs. 51,744/- on account of expenditure incurred on repair and maintenance treating the same as capital expenditure. The ld Assessing Officer observed that the assessee had claimed Rs. 55,939/- on account of repairs and maintenance. ON verification it was found that the expense was in connection with installation of new cooler and duct. Since it was a capital expenditure, therefore, he gave reasonable opportunity of being on this issue, which was replied by the assessee. After considering the assessee’s reply, he capitalized these expenses and allowed the depreciation on it. Thus net addition of Rs. 51,744/- was made in the income of the assessee.

The ld CIT(A) confirmed the addition by observing that the assessee changed its stand of argument of number of time. One time he said that this was the purchase of CCTV, thereafter he replied that these expenses against the new cooler and duct but no vouchers were produced before the ld CIT(A). Therefore, he confirmed the addition.

17. Now the assessee is in appeal before us. It is submitted that the appellant had to take changes in its plant and machinery as per the requirements of the provisions of Drug & Cosmetic Act, 1940, Schedule M. It was not a case of the purchase and installation of new cooler or ducting but changes were made in the existing plant and machinery with a view to cover doors and machine with MS sheets as against the wooden coverage available earlier. He relied on the decision in the case of Udaipur Distillery Co. Ltd. (2004) 186 CTR 39 (Raj.) and argued that the assessee could not produce the purchase bills. Admittedly, the vouchers were produced before the ld Assessing Officer. He has drawn our attention on page No. 74 to 79 of the paper book. The appellant was having complete address of the fabricator however, the Assessing Officer never asked to produce him. It is clear from the vouchers that these expenses pertained to repair and maintenance, which is revenue in nature. Therefore, the same is to be allowed.

18. At the outset, the ld DR supported the order of the ld CIT(A).
19. We have heard the rival contentions of both the parties and perused the material available on the record. After examining page No. 74 to 79 of the paper book, it appears that the assessee has fabricated the evidence at the time of photo copying. Original vouchers were not produced before the ld CIT(A). The genuineness of the expenses has been doubted by the lower authority, therefore, we confirm the order of the ld CIT(A) on this ground. Accordingly, this ground of the assessee’s appeal is dismissed.

20. The 6th ground of the assessee’s appeal is against confirm the addition on account of cessation of liability U/s 41(1) of the Act at Rs. 31,06,354/-. The ld Assessing Officer observed that the assessee had shown number of outstanding since long, therefore, he asked to file the confirmation during the course of assessment proceedings. The ld Assessing Officer had provided 12 opportunities to the assessee to file the confirmation but finally the assessee on 26/11/2010 submitted as under:-

As regards to confirmation of various credit balances appearing in the books, we submit as under:
a) Confirmation of Shri Amit already submitted at the time of earlier hearing. We also enclosed confirmation of following as could obtained till date: Healman Pharmaceuticals, Jaipur. Vijaydeep Agencies, Jaipur.

b) The following credits appearing in the books are for unsecured loan obtained in earlier years outstanding as per grouping of balance sheet already submitted before your goodself. We submit details of year in which such loans were obtained as under:

We also submit copy of relevant ledger account and out bank account of relevant period when these loans received for your verification.
c) The following parties mentioned by your goodself are related to security deposit held since 1990-91.

These deposits have already covered in the scrutiny assessment of A.Y. 1996-97.
d) One party M/s Swastic Distributors having balance Rs. 100000/- on account of security deposit. We submit herewith a claim by the party for various payment alongwith this security deposit. A copy of such claim is enclosed for confirmation and your verification which include this security deposit also.
e) The following parties account which are old outstanding and were under dispute and finally written off in financial year 2008-09 (A.Y. 2009-10).

Copy of account of written off in year 2008-09 enclosed for verification.
As regards to other parties for whom confirmation required, we submit that these has to pay but due to financial crisis in the company, it could not paid however are paying later on. We are also trying to got confirmation and as soon as could be obtained, we shall submit before your goodself.”

After considering the assessee’s reply the ld Assessing Officer held that he issued notice U/s 133(6) of the Act to M/s Healmen Pharmaceuticals, which has been returned back with postal remark “Firm Closed hence returned”. Therefore, the claim of the assessee was not verifiable. The entries subsequently written off during F.Y. 2008-09 has been excluded. As far as other creditors are concerned the assessee had failed to submit confirmation from these persons, even their addresses were not provided by the assessee so that verification could be made by the Assessing Officer himself. To verify whether the amount was outstanding as on date or not. These parties had been shown creditors to the tune of Rs. 9,41,353.99. The amount changes its character when the amount becomes the assessee’s own money because of limitation or by any statutory or contractual right. When such a thing happens, commonsense demands that the amount should be treated as income of the assessee. The assessee had not paid above amounts which clearly indicate the cessation of above liability and thus provisions of Section 41(1) of the Act is clearly attracted in the case of assessee. The ld Assessing Officer reproduced Section 41(1)(a) on page 7 of the assessment order. Thereafter he relied upon the decision of Hon’ble Calcutta High Court in the case of Kesoram Ind. & Cotton Mills Ltd. Vs. CIT (1992) 196 ITR 845 (Cal.) wherein it has been held that the burden is on the assessee to provide that the liability subsists. He further held that outstanding liability already allowed in earlier year, therefore, in absence of any evidence/document/material/correspondence from the assessee’s side to prove that the claimed liabilities were still subsisting. Accordingly, he treated Rs. 9,41,353.99 as income of the assessee.

20.1. Ld Assessing Officer further observed that as far as issue of security deposit is concerned, he held that the assessee failed to submit copy of agreement with these persons, therefore, terms of security deposits were uncertainable. The assessee failed to furnish addresses of these persons. There is no detail of parties from whom the assessee got the security shown at Rs. 50,000/-. The assessee only submitted that this security was received in financial year 1995-96. He further relied on the decision in the case of CIT Vs. Rajasthan Golden transport Co. (P) Ltd. (2001) 116 Taxman 60. The amounts of security deposited are assessee’s own money due to bar provided in Limitation Act. Even the assessee was not having addresses of these persons Correspondence of M/s Swastik Distributors filed by the assessee relates to F.Y. 1999-2000 where they were claiming the amount but the assessee had not paid their dues till date and even no correspondence was made after that day. Therefore, the security deposits to the tune of Rs. 3,60,000/- has been treated as income U/s 41(1) of the Act.

20.2 He further observed that as far as claim of assessee regarding unsecured loans is concerned, the same is verifiable from past records of assessee that the money was received by them from those persons but it is not verifiable that whether these were unsecured loans or advance against supply of medicines. The assessee had not furnished name and address of the cash creditors during the assessment proceedings. The audit report filed by the assessee as on 31/3/2010 in Schedule-4, unsecured loan from Directors and relatives had been shown at Rs. 32,18,318.66 and from others NIL. He held that these persons were neither Director of the company nor the relatives and loan from others was shown at NIL. The assessee failed to furnish confirmation from these persons. The assessee had not paid any interest on these amounts. Therefore, he presumed that these amounts were received by the assessee for supply of medicines but no medicine was supplied by the assessee. Hence, money became assessee’s own money. Therefore, he made addition of Rs. 18,05,000/- U/s 41(1)(a) of the Act. Thus, total addition of was made at Rs. 31,06,335.99 under this Section.

21. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition after considering the assessee’s reply by observing that the assessee could file confirmation from Vijaydeep Agencies, Healmen Pharmaceuticals and Sh. Amit only. The Assessing Officer issued notice U/s 133(6) to M/s Healmen Pharmaceuticals, which was returned back. There were certain credit balances which were written off by the assessee in A.Y. 2009-10, which was excluded by the Assessing Officer. Regarding creditors to the tune of Rs. 9,41,354/-, security deposit Rs. 3,60,000/- and unsecured loan of Rs. 18,05,000/-, the assessee could not submit the complete address of the alleged creditors. The assessee was very prompt in writing off bad debts as the same principle was not applied to the outstanding credit balances. It is a settled law that when an assessee ceases to be liable to pay something that it was legally bound to pay, then in effect, it gains the amount that it was bound to pay. The case of the appellant is distinguishable from other cases inasmuch as the deposits/loans/liabilities are outstanding for more than 12 to 13 years and there is not even a whisper that the assessee intends to return these amounts. He further held that even the unsecured loans are taxable under the head “profits and gains of business or profession” because the loans were taken for the purpose of business. A perusal of the definition of Section 2(24) of the Act, which defines income would include the value of any benefit or perquisite, whether convertible into money or not, that would arise from the business. He further relied on the decision in the case of Solid Containers Ltd. Vs DCIT 308 ITR 417, which was applied in TV Sundaram Iyengar and Sons Ltd. 222 ITR 344, had distinguished its decision in Mahindra and Mahindra Ltd. Vs. CIT 261 ITR 501 and held that on waiver of loan taken for business purposes, the amount was retained in the business and as such, the amount that initially did not have the character of income became income liable to tax. In the case of T V Sundaram Iyengar & Sons Ltd. (supra) the assessee had accepted his deposits. The assessee has written off these deposits. The Assessing Officer treated these deposits as revenue receipts, which was held capital receipt by the CIT(A) and Hon’ble ITAT. However, the Hon'ble Supreme Court held that these receipts were originally capital receipt but change its character by efflux of time. The Hon'ble Supreme Court relying upon its judgment in the case of Punjab Distilling Industries Ltd. Vs CIT 35 ITR 519 by applying the above said principle, it was held that the assessee because of trading operations had become richer by the amount transferred to its profit and loss account. He further relied on the decision in the case of CIT Vs. Karam Chand Thapar 222 ITR 112 (SC), Rollatainers Ltd. Vs. CIT 339 ITR 54, Logitronics Pvt. Ltd. Vs. CIT 333 ITR 386 (Del) and Jay Engineering Works Ltd. Vs. CIT 311 ITR 299. Accordingly, he confirmed the addition.

22. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that unsecured loan of Rs. 18,05,000/- was outstanding loan from five parties not four parties mentioned by the ld Assessing Officer. If the amount of Shri Ajit Kumar is included in unsecured loan, the total unsecured loans were Rs. 19.55 lacs. The ld AR has drawn our attention on page No. 9 of the assessment order and balance sheet at page No. 66 of the paper book. He further argued that such type of credit balances does not fall U/s 41(1) of the Act. It is undisputed fact that these amounts were unsecured loan in the nature of cash credit as contemplated U/s 68. A bare reading of Section 41(1) makes it clear that the underlying idea behind introduction of this provision is that the legislature wanted to tax the amount of deductions/allowances which an assessee had already taken/allowed in the earlier years but the liability relating thereto was not discharged or in other words, was not paid. However, in case of loan taken, there is no question of the appellant having taken the advantage of any deduction/allowance in the past inasmuch as it was not at all an expenditure claimed and allowed in the earlier years. These loans were taken in A.Y. 1999 and assessment year 2000-01 was scrutinized U/s 143(3) vide order dated 25/3/2003 for which he has drawn our attention on page No. 110 to 113 of the paper book. The ld Assessing Officer had not made any addition U/s 68 of the Act in scrutiny assessment. Meaning thereby there was no doubt on the fact of genuineness of these loans

22.1 It is a trite law that there has to be a bilateral waiver meaning thereby, there has to be a specific and admitted position of fact from the side of the debtors and the creditors that they have reached a common consensus of waiving off/forgiving the liabilities between them. The law does not permit to draw any inference or presumption based upon the lapse of time or on some other factors that the creditors did not exist or they were not pressing/waived the liability. It does not mean that liability not existed or waived by the creditor. The number of Hon'ble High Courts held that mere unilateral reversal of entries by one party will not amount to cessation of liability and that expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt, but it would only prevent the creditor from enforcing the debt. Mere entry in the books of accounts of the debtor, made unilaterally without any act on the part of the creditor, will not enable the debtor to say that the liability has ended. The revenue had not proved the waiver by the creditor even there is not a case of unilateral waiver of the subjected liability. The ld CIT(A) had wrongly concluded that 18.05 lacs not liable to be returned is nothing more than a suspicion. The entire amount had been paid by the assessee in A.Y. 2013-14 and 2014-15 as per Annexure-A of the assessee’s submission before the Bench. The ld CIT(A) had not considered the assessee’s case laws referred before him in his order. The Assessing Officer as well as the ld CIT(A) had utterly failed to show that some deduction was really claimed and allowed in earlier year.

22.2 He further submitted that Rs. 9,41,354/- were received from the customer, which was paid in the later years, which proved that the related liabilities totaling to Rs. 7,91,354/- towards these Sundry creditors did exit in the subjected year. He has further drawn our attention on page No. 122 of the paper book that the assessee had repaid these advances received from these customers in subsequent year. The ld CIT(A) was wrongly held Rs. 9,41,354/- was claimed by the assessee in earlier year. Non-service of notice in the case of M/s Healmen Pharmaceuticals is irrelevant as balance has already paid/adjusted. Latest address available with the assessee was provided to the ld Assessing Officer during the course of assessment proceedings, the ld Assessing Officer has not confronted observation made by the postal authority with the assessee. He further relied on the decision in the case of CIT Vs. Bhawan Path Nirman (Bohra) & co. (2002) 258 ITR 440 (Raj.) on cessation liability U/s 41(1) with regard to sales tax refund which has been held by the Hon’ble Jurisdictional High court that amount of sales tax refund could not deemed to be income merely by drawing inference that it might have been allowed as deduction in the earlier assessment years.

22.3 The ld AR further submitted that deposits of Rs. 3,60,000/- were having the nature of security deposits. Similar additions were made in A.Y. 1996-97 at Rs. 2.10 lacs for which he has drawn our attention on page No. 96 to 103 of the paper book, which has been again reconsidered by the Assessing Officer for addition U/s 41(1) of the Act, for which he has drawn our attention of page No. 92 of the paper book. The matter was contested before the ld CIT(A), who deleted the same vide order dated 09/12/2003 for A.Y. 1996-97. The department had not challenged the ld CIT(A)’s order for A.Y. 1996-97 before the Hon’ble ITAT, therefore, this issue in hand has become final with respect to the legal position as also on the facts. The ld CIT(A) has not whispered any word even any specific submission made by the assessee during the course of appellate proceedings. Hence no addition is called for. The remaining amount was pertained to M/s Swastik Distributors, the assessee filed confirmation for Rs. 1,64,472.72 which includes Rs. 1 lacs security deposit for which he has drawn our attention on page No. 93 to 95 of the paper book. The ld Assessing Officer had not made any inquiry on it. Therefore, the ld Assessing Officer do not have any contrary evidence against the assessee, the addition is uncalled for. He further relied on the decision in the case of CIT Vs. Sadul textiles Ltd. 59 CTR 98 (Raj.), which is directly applicable on this issue wherein it has been held that onus was on the Assessing Officer that there was a bilateral waiver of liability. There was amendment in the law from A.Y. 1997-98 after that unilateral write-off has been treated a case of remission and cessation but in assessee’s case, even there is no unilateral action and had not written off these amounts in the P&L account. He further relied on the decision in the case of CIT Vs. Eid. Mohd. Nizammudin (2007) 294 ITR 139 (Raj.). The Hon'ble Supreme Court in the case of Chief CIT Vs. Kesaria tea Co. Ltd. (2002) 173 CTR 394 (SC) has held that unilateral action on the part of the assessee by way of writing off liability in its account, does not necessary mean that the liability has ceased in the eye of law. The amount written back is not chargeable to tax U/s 41(1) of the Act. He further relied on the following case laws:-

(i) CIT Vs. Jain Exports Pvt. Ltd, (2013) 85 CCH 0066 (Del.)
(ii) CIT Vs. Sugauli Sugar Works (P) Ltd. (1999) 152 CTR 46 (SC)
(iii) ITO Vs. Bansi Lal Gupta (2008) 113 TTJ 898 (Asr)
(iv) Thomas Cook (India) Ltd. Vs. D/JCIT (2006) 105 TTJ 317 (Mum)

(v) Bindal Duplex Ltd. Vs. ITO (ITA No. 352/Del./2012. Therefore, he prayed to delete the addition. He further argued that the case laws referred by the ld. Assessing Officer and ld CIT(A) are distinguishable fully as in all these cases. There was either unilateral written off or bilateral written off liability, therefore, principle laid down in case of TV Sundaram Iyengar & Sons Ltd. is not applicable in the case of the assessee.

23. At the outset, the ld DR has vehemently supported the order of the lower authorities and argued that the liability already ceased to be existed. Therefore, order of the ld CIT(A) may please be upheld.

24. We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that the assessee had not written off any liability on account of loan creditor, trade creditor or security creditor during the year under consideration. The assessee had furnished required details before the Assessing Officer as well as ld CIT(A). In one of the case the inquiry letter U/s 133(6) has been returned back to the Assessing Officer. It is fact that these amounts were very old, it is possible that the creditor has closed or shifted the business from the given address. The assessee had produced copy of balance sheet and it is claimed by the assessee that to the tune of Rs. 18,05,000/- are unsecured loan from earlier years, which has not been claimed as deduction or allowances in earlier year by the assessee. The lower authorities also had not able to establish their case that the assessee had deducted or allowed these advances as deduction in earlier years. As the case laws referred by the assessee including Hon'ble Supreme Court and Hon'ble Jurisdictional High Court held that burden is on the revenue to prove that the assessee has taken deduction in earlier year and there is a write-off bilateral. In assessee’s case, even unilateral written off has not been claimed by the company. The other creditors were advance received from the customer to the tune of Rs. 9,41,354/-, which was paid of in later years. The AR of the assessee filed relevant evidences for repayment in subsequent year, which proved that the assessee’s liability was in existence. The revenue has not brought on record any adversary evidence to establish that liability was not inexistence or not paid in the subsequent year. The assessee has shown Rs. 3.60 lacs as security deposit out of this Rs. 2.10 lacs were added by the Assessing Officer in A.Y. 1996-97, which has been deleted by the ld CIT(A). No appeal had been filed by the revenue before the ITAT, therefore, issue is settled. Further remaining amount, the assessee filed confirmation and the ld Assessing Officer had not made any inquiry and established the case that liability is not inexistence. The case laws relied upon by the assessee are squarely applicable particular Hon'ble Supreme Court decision in the case of Chief CIT Vs. Kesaria Tea Co. Ltd. (supra). The case laws referred by the ld CIT(A) are squarely distinguishable on the ground that there was a written off either by the assessee or bilaterally. After careful consideration of all the facts and circumstances of the case and written submissions made by the ld AR on Section 41(1) of the Act, we do not find any reason to confirm the order of the ld CIT(A). Accordingly, the addition confirmed by the ld CIT(A) is deleted. This ground of assessee’s appeal is allowed.

25. The 7th ground of the assessee’s appeal is against confirming the disallowance of ESI contribution of Rs. 1,519/- made U/s 36(1)(x) read with Section 2(24)(10) of the Act. The ld Assessing Officer observed that during course of assessment proceedings, it was found that the assessee had deposited employees ESI contribution after due date for the month of June 2007, July 2007, November 2007, January 2008, February and March, 2008. The ld Assessing Officer gave the reasonable opportunity of being heard, which was replied by the assessee. Reply of the assessee has reproduced on page No. 10 of the assessment order. After considering the assessee’s reply the ld Assessing Officer observed that the assessee had failed to deposit employees ESI contribution for the month or on or before the due date. ESI employees contribution was not deposited on time for the months above i.e. totaling to Rs. 1,519/-. As per provisions of Section 36(1)(x) read with Section 2(24)(x), the cannot be allowed as deduction from the income of the assessee. Therefore, he disallowed Rs. 1,519/- and added to the total income of the assessee.

26. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that as per provisions of Section 2(24)(x), any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of Employees State Insurance Act or any other fund, for the welfare of such employees, was to be included in the income of the assessee. He further held that as per provisions of Section 36(1)(x) of the Act, any sum received by the assessee from any of his employees to which the provisions of Section 2(24)(x) apply, shall be deducted as expenditure, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date. The payment of Rs. 1519/- on account of employee’s contribution towards ESI had been paid beyond the due date. The provisions of Section 43B(b) are applicable only in respect of employer’s contribution of PF or ESI and not to the employee’s contribution. Therefore, he upheld order of the Assessing Officer on this ground.

27. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that this is directly covered matter, for which he relied on the following case laws:

(i) CIT Vs SBBJ (2014) 363 ITR 70 (Raj.)
(ii) CIT Vs. JVVNL (2014) 363 ITR 307 (Raj.)
(iii) ACIT Vs. M/s Anil Special Steel Industries Ltd., Jaipur (2014) 52 TW 189 (JP).
(iv) CIT Vs. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC)/ 227 CTR 417 (SC)32 DTR 49 (SC).
(v) CIT Vs. Ghatge Pali Transports Ltd. (2015) 112 DTR 369 (Bom).
Therefore, he prayed to delete the addition confirmed by the ld CIT(A). At the outset, the ld DR has vehemently supported the order of the ld CIT(A).

28. We have heard the rival contentions of both the parties and perused the material available on the record. The ld AR has submitted that the said amount of ESI has been paid before due date of return to the fund. In view of the facts and circumstances, we delete the addition made by the Assessing Officer and confirmed by the ld CIT(A). Accordingly, this ground of the assessee’s appeal is allowed.

29. The 8th ground of the assessee’s appeal is against charging interest U/s 234B and 234C of the Act, which is consequential to the above finding, therefore, the Assessing Officer take decision as per law.

30. In the result, the assessee’s appeal is partly allowed.