Case Law Details
HPL Additive Ltd Vs DCIT (ITAT Delhi)
The issue under consideration is whether the addition made by A.O. u/s 41(1) treating the outstanding as cessation of liability is justified in law?
During the course of scrutiny assessment proceedings, assessee was asked to furnish complete details of sundry creditors. After perusing the details, AO noticed that the creditors were static since long. Assessee was asked to show cause as to why these creditors be not treated as ceased liability and added back to the total income of assessee under section 41(1). Assessee stated that it was under discussion with the parties to sort out differences which arose on account of short supply and defective goods and as liability of assessee to pay had not ceased to exist, the same could not be treated as cessation of liability under section 41(1).
As per ITAT, merely because the period of limitation prescribed under the Limitation Act has expired, would not extinguish the debt. As the liability still exists in the balance of the assessee, additions made under section 41(1) of the Act are unwarranted and deserve to be deleted in the light of ratio laid down by the Hon’ble Supreme Court (supra). The assessing officer is directed to delete the addition of Rs. 4,17,252. Hence, the appeal is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
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