Ad-Hoc percentage basis Addition on Sundry Creditors Is Illegal – 41(1) Can’t Run on Presumptions

Blaze Manufacturing Co Vs DCIT (ITAT Delhi) ITAT Delhi allowed the assessee’s appeal for AY 2014-15 in Blaze Manufacturing Co., deleting the massive addition of ₹5.00 crore made u/s 41(1) on an estimated / percentage basis, holding that cessation of liability cannot be presumed. The AO, while giving effect to PCIT’s order u/s 263, made enquiries only in 207 out of 680 sundry creditors and found 63 parties allegedly non-traceable / non-responsive. On this basis, he applied a 29.24% thumb-rule to the entire creditor balance of ₹17.12 crore and treated ₹5.00 crore as cessation of liabil...