2013 (3) TMI 833 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made by AO by invoking the provision of section 41(1) of the Income-tax Act, 1961.

Summary:

Issue 1: Deletion of Addition u/s 41(1) of the Act

The only issue in this appeal of revenue is against the order of CIT(A) in deleting the addition made by AO by invoking the provision of section 41(1) of the Act. The AO noticed credit balances in the names of various parties and invoked provisions of section 41(1) of the Act, making an addition aggregating to Rs. 24,69,889/-. The AO's rationale was that the credit balances were old, and the assessee did not have continued transactions with these parties.

The CIT(A) deleted the addition, observing that the AO did not bring any positive material on record to establish that the liabilities had ceased to exist. The CIT(A) noted that the assessee continued to show the amounts as liabilities in the balance sheet and had not transferred the credit balances to its profit and loss account. The CIT(A) relied on various judicial pronouncements, including the Hon'ble Supreme Court's decision in CIT vs Sugauli Sugar Works Pvt. Ltd., which held that mere entry in the books of accounts unilaterally would not enable the department to invoke section 41(1).

The CIT(A) further cited cases like CIT vs Tamil Nadu Warehousing Corporation and CIT vs GP International Ltd., where it was held that unless there is a cessation of liability, section 41(1) cannot be invoked. The CIT(A) concluded that the AO was not justified in holding that the outstanding liabilities had ceased to exist in the year under consideration and directed the deletion of the addition of Rs. 24,69,889/-.

The Tribunal upheld the CIT(A)'s order, noting that the assessment order did not contain any material establishing that the liability ceased during the relevant year. The Tribunal confirmed that the liabilities were outstanding as on date and could not be assessed by invoking section 41(1) of the Act. Consequently, the appeal of the revenue was dismissed.

Order pronounced in the open court on 19.03.2013.