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| The Tax Publishers2020 TaxPub(DT) 0090 (Del-Trib) INCOME TAX ACT, 1961
Section 41(1)
It was not in dispute that creditors were outstanding for more than three years but merely because the period of limitation prescribed under the Limitation Act had expired, would not extinguish the debt, therefore additions made under section 41(1) were unwarranted and deserve to be deleted.
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Business income - Profits chargeable to tax - Addition under section 41(1) treating outstanding as cessation of liability -
During the course of scrutiny assessment proceedings, assessee was asked to furnish complete details of sundry creditors. After perusing the details, AO noticed that the creditors were static since long. Assessee was asked to show cause as to why these creditors be not treated as ceased liability and added back to the total income of assessee under section 41(1). Assessee stated that it was under discussion with the parties to sort out differences which arose on account of short supply and defective goods and as liability of assessee to pay had not ceased to exist, the same could not be treated as cessation of liability under section 41(1). Held: It was not in dispute that creditors were outstanding for more than three years. Merely because the period of limitation prescribed under Limitation Act had expired, would not extinguish the debt. As the liability still exists in the balance of the assessee, additions made under section 41(1) were unwarranted and deserve to be deleted in the light of ratio laid down Sugauli Sugar Works Pvt. Ltd. ((1999) 236 ITR 518 (SC) : 1999 Taxpub(DT) 1163 (SC)).
REFERRED : CIT v. Sugauli Sugar Works Pvt. Ltd. (1999) 236 ITR 518 (SC) : 1999 TaxPub(DT) 1163 (SC)
FAVOUR : In assessee's favour.
A.Y. :
INCOME TAX ACT, 1961
Section 40A(3)
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