Case Law Details
RELEVANT PARAGRAPH
17. Regarding the addition made u/s 41(1), we are of the view that the Assessing Officer has incorrectly invoked this provision. There is neither any remission nor cessation of the liability. The Assessing Officer has simply added all the credits appearing in the balance sheet which could not be hit by Section 41(1).
The liability to the assessee should cease to exist either due to operation of law or by an order of the court or by limitation i.e for cessation of liability there should be application of some external force. There is no role of the conducting parties in making a liability ceased to exist. They had to abide by the judgment of the court or the provisions of law or rule of limitation. In remission of liability, there has to be conscious act on the part of the creditor to wave or forgo the liability. There should be evidence on record to show that the creditor has either waived the recovery from the assessee or there is some contractual agreement between the assessee and the creditor thereby entire or part of credit standing in the balance sheet of the assessee is written off or waived. To that extent it can be said that liabilities are remitted by the creditors. Another condition common in both cessation and remission by the creditors. Another condition common in both cessation and remission is that such liability must pass through trading account or Profit and Loss Account in some earlier year i.e. it should have been allowed as a deduction. In the present case, the Assessing Officer has not proved that liabilities had passed through Profit and Loss Account/Trading account in earlier years. Presuming it to be so no case is made out that it is a remission or cessation.
21. A careful reading of above authorities and the section, we cull out following Principles;”
21.1 Section 41(1) creates a fiction. Following conditions must be satisfied for invoking this section.
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Dear Tax guru,
I have not yet received any message from your end regarding sited case laws in respect of old creditors against purchase can be disallowed or added to the income of the current year stating bogus.Please site case laws on the subject.
With regards,
N.r.Datta. FCA
Case Law relating to ITAT LUCKNOW BENCH-B in the case of DCIT Vs. Allied Leather Finishers P.Ltd is only not being a trading liability which cannot be disallowed and taken as income u/s.41(1).
But in case of old Sundry Creditors against purchase whether this can be disallowed/added to the income of the current year stating as bogus. please site case laws in the above matter.
Case law may kindly be provided relating the nature that old Creditors can be disallowed during the current year of assessment.
The case law referred to above relating to the liability not being the trading nature but in case of Sundry Creditors against purchase which are old can be disallowed in the current of assessment? Answer may kindly be furnished.