2019 (3) TMI 683 - AT - Income Tax

Addition u/s 41(1) - non verification of static sundry creditors for several years - as per AO as assessee to prove that it is not a case of remission or cessation of liability and assessee has not been able to discharge its onus with any supporting document or proof - HELD THAT - CIT (A) categorically record that said liability exists in books of assessee, and has not been written off unilaterally or by other party, which is evident from confirmation issued by M/s. Hero Motors Co. Ld.Sr.DR has not been able to bring on record any documents to establish that said sum has been treated by assessee either as trading liability, or that there has been remission or cessation of liability in order to attract provisions of section 41 (1) - we are satisfied with view taken by Ld.CIT (A) - Decided against revenue.

Summary

Issues:
1. Addition of ?2,08,00,000 under section 41(1) for non-verification of sundry creditors.

Analysis:
The case involved an appeal by the revenue against an order passed by the Ld. CIT (A) regarding the addition of ?2,08,00,000 under section 41(1) due to non-verification of static sundry creditors. The Assessee, engaged in providing R&D services for the automotive industry, had shown this amount as sundry creditors in its balance sheet for multiple years. The Assessing Officer (AO) requested details to verify if this was a static liability. The Assessee claimed it was not a case of loss/expenditure or trading liability, and there was no remission or cessation of liability. However, lacking documentary evidence, the AO made the addition under section 41(1).

Upon appeal, the Ld. CIT (A) deleted the addition, finding that the liability existed in the Assessee's books and had not been unilaterally written off. The confirmation issued by M/s. Hero Motors Co. supported this. The revenue argued that the Assessee failed to prove it was not a case of remission or cessation of liability. However, the Assessee presented evidence showing the amount as receivables in the books of M/s. Hero Motors Ltd., never claimed as a loss/expenditure/trading liability, thus contending that section 41(1) and 41(1)(a) were not applicable.

The Appellate Tribunal upheld the Ld. CIT (A)'s decision, noting the absence of evidence establishing the treatment of the sum as a trading liability or any remission or cessation of liability. Consequently, the grounds raised by the revenue were dismissed, and the appeal was also dismissed.