2013 (11) TMI 1674 - HC - Income Tax

Addition u/s 41 - Held that - Addition was made solely on the basis that said liability is more than three years, it cannot be said that the learned ITAT has committed any error in deleting the addition of ₹ 51,37,327/- made under Section 41(1) of the Act. We see no reason to interfere with the impugned judgment and order passed by the learned Tribunal

Summary

Issues:
Assessment of outstanding creditors' liability for more than three years under Section 41(1) of the Income Tax Act.

Analysis:
The case involves the assessment of the appellant's outstanding creditors' liability for more than three years under Section 41(1) of the Income Tax Act for the assessment year 2009-10. The appellant, a proprietor of a wholesale business, had shown sales of &8377; 2,76,12,707/- with a net profit of &8377; 2,72,427/- @ 0.99%. The Assessing Officer observed an abnormally high outstanding "creditors for goods" amounting to &8377; 2,53,74,512/-, which was nearly equivalent to the expenditure on purchases. The appellant was required to furnish details of the creditors, including a comparative chart of outstanding creditors over the years. It was found that several creditors were more than three years old, leading to further scrutiny of the ledger accounts for subsequent years to verify payments. The Assessing Officer made additions under Section 41(1) of the Act based solely on the outstanding liability of &8377; 51,37,327/- for more than three years.

The appellant appealed the assessment order before the CIT(A), who partly allowed the appeal by deleting the addition of &8377; 51,37,327/- but confirmed the addition of &8377; 64,47,623/-. Subsequently, both the revenue and the appellant filed appeals before the ITAT challenging different aspects of the CIT(A)'s order. The ITAT dismissed the revenue's appeal based on precedents from the Hon'ble Supreme Court and the High Court, emphasizing that the liability being more than three years old does not automatically imply cessation. The ITAT allowed the appellant's appeal, deleting the addition of &8377; 51,37,327/-, which was the subject matter of the present appeal.

In the judgment, the Court cited the decision of the Hon'ble Supreme Court in the case of Sugauli Sugar Works (P.) Ltd. and the High Court's decision in the case of Nitin S. Garg to support the deletion of the addition of &8377; 51,37,327/-. The Court emphasized that the mere age of a liability does not establish cessation, and the Assessing Officer must prove that the liability has ceased to exist. Based on the legal precedents and the facts of the case, the Court found no error in the ITAT's decision to delete the addition of &8377; 51,37,327/- made under Section 41(1) of the Act. Consequently, the Court dismissed the revenue's appeal, stating that no substantial question of law arose in the present case.