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Issues involved: Appeal against deletion of addition made by AO u/s 41(1) of the IT Act for the assessment year 2007-08.
Facts of the case: The assessee, an individual and Managing Director of a company, filed income tax return for AY 2007-08 showing income from salary and loss from proprietary business. During assessment, AO observed outstanding sundry creditors from previous years and questioned the nature of these liabilities. Assessee explained that liabilities were continuously renewed and not ceased. AO, unable to trace creditors, treated outstanding amounts as cessation of liability u/s 41(1) and added to income. Decision of CIT(A): CIT(A) allowed the appeal noting receipts from creditors and payment made by assessee to one of the creditors. CIT(A) held that without evidence of cessation of liability, AO's presumption was incorrect and deleted the addition. Appellate Tribunal's Decision: The Tribunal upheld CIT(A)'s decision, stating that there can only be cessation of liability when the creditor gives up the claim or the assessee recognizes it. Assessee provided receipts as proof of payment, showing no cessation of liability. Tribunal noted previous case where similar addition u/s 41(1) was deleted. Revenue failed to provide evidence to rebut CIT(A)'s findings, leading to dismissal of the appeal. Outcome: Revenue's appeal was dismissed, upholding CIT(A)'s decision to delete the addition made by AO u/s 41(1) of the IT Act for the assessment year 2007-08.
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