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| The Tax Publishers2021 TaxPub(DT) 0729 (Mum-Trib) INCOME TAX ACT, 1961
Section 41(1)
Where trade liabilities were carried forward in assessee's books of account from earlier years and the assessee was liable for payment to concerned trade creditors and further, the assessee had not written off the said liabilities as no longer required in the books of account, the AO was not justified in making addition in respect of cessation of such trade liabilities under section 41(1) and hence, the said addition was liable to be deleted.
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Business income - Profits chargeable to tax under section 41(1) - No cessation of liability -
Assessee-company was engaged in business of dealing in computers and computer related parts. AO made addition in respect of cessation of liabilities under section 41(1), which were outstanding for longer period. He assumed that it was no longer necessary for assessee to make payment for such liabilities. CIT (A) enhanced the addition of cessation of liabilities under section 41(1). Assessee submitted that the said trade liabilities payable by it existed from the earlier years and were disclosed in financial statements, therefore the addition made under section 41(1) was untenable. Held: Trade liabilities were carried forward in assessee's books of account from earlier years and the assessee was liable for payment to concerned trade creditors and substantiated the same with details. Further, the assessee had not written off the liabilities as the same no longer required in the books of account. Further, on perusal of assessment order, it was found that AO had neither recorded satisfaction for making disallowance or made enquiries on trade creditors nor supported with any evidence that the trade liabilities were no longer payable by the assessee. Accordingly, the addition made under section 41(1) was deleted.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. :
IN THE ITAT, MUMBAI BENCH
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