2017 (3) TMI 1775 - AT - Income Tax

Addition u/s 41(1) in respect to outstanding sundry Creditors - cessation of liability - HELD THAT - Admittedly in the year under consideration i.e. the assessment year 2010-11 by way of remission or cessation no gain has accrued or arisen to the assessee in the given facts and circumstances of the case. Admittedly, as given in the chart above by the assessee before us, the assessee had already declared the credit to the Profit and Loss Account on account of cessation of liability under cessation of liability u/s 41(1) on account of sundry creditors and offered to tax. Assessee fairly agreed that this fact can be verified by the AO. Assessee's Counsel fairly agreed for verification of factum of offering of this amount of sundry creditors as income in their respective years, the AO can verify the same. However, in this year no addition can be made u/s 41(1) of the Act and we delete the addition . Disallowance of foreign travel expenses - Expenses relatable to partner of the firm - HELD THAT - Expenses relatable to partner of the firm can be allowed because they have gone for business purpose also and i.e. for studying new designs, new concepts of construction etc. In view of the above we direct the AO to allow the expenses of partners. Matter is remanded back to the file of the AO. This issue of assessee's appeal is partly allowed.

Summary

Issues:
1. Addition made under section 41(1) of the Income Tax Act regarding outstanding sundry creditors.
2. Disallowance of foreign travel expenses.

Issue 1: Addition under Section 41(1) - Outstanding Sundry Creditors:

The appeal by the assessee challenged the order of CIT(A) confirming the addition made by the AO under section 41(1) of the Act regarding outstanding sundry creditors amounting to ?31,88,521. The AO observed that the creditors were outstanding for a long time, and the genuineness of the credit balances was not proven by the assessee. The CIT(A) upheld the addition, stating that the appellant failed to provide sufficient evidence justifying the outstanding amount. The appellant argued that a part of the amount had already been offered for tax in subsequent years, and taxing the same amount more than once is impermissible under the law. The Tribunal analyzed the provisions of section 41(1) and concluded that the conditions for its applicability were not met in the present case. The AO was directed to verify the fact of the amount being declared as income in the respective years, and the addition under section 41(1) was deleted. The appeal of the assessee on this issue was allowed.

Issue 2: Disallowance of Foreign Travel Expenses:

The second issue in the appeal was against the disallowance of foreign travel expenses amounting to ?6,27,772. The CIT(A) upheld the disallowance, noting that the appellant failed to provide concrete evidence that the foreign visit was for business purposes. The appellant contended that the expenses were incurred for studying new designs and concepts related to construction. The Tribunal directed the AO to allow the expenses related to the partners of the firm who traveled for business purposes. The matter was remanded back to the AO for further consideration. Consequently, this issue of the assessee's appeal was partly allowed.

In conclusion, the Tribunal partially allowed the appeal of the assessee concerning the addition under section 41(1) of the Act and the disallowance of foreign travel expenses. The decision highlighted the importance of meeting the conditions specified in the law for the applicability of tax provisions and the necessity of providing substantial evidence to support expense claims.