The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition under Section 41( 1 ) of the Income Tax Act, 1961, as the assessee successfully proved the validity of its outstanding trade payables.
In this case, the assessee, Arkis Enterprises, a private limited company engaged in trading commodities, chemicals, etc., filed its income tax returns for the assessment year 2012-13, declaring no taxable income after adjusting brought-forward losses of Rs. 43,454.
During the scrutiny proceedings, the assessing officer ( AO ) made an addition of Rs. 39,62,564 under Section 41(1) of the Income Tax Act for outstanding sundry creditors. This addition was made on the basis that certain trade payables were long overdue, and no confirmations or updated KYC details were furnished for some creditors.
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The National Faceless Appeal Centre ( NFAC ) upheld the AO’s decision.
The counsel on behalf of the assessee contended that the liabilities in question were bona fide trade payables reflected consistently in its audited financial statements over several years.
The counsel submitted that the interest expenditures are incurred for meeting the working capital requirements of the assessee’s business and not for making any investments.
The bench noted that the onus was on the assessee to prove the continuity of the liabilities. The tribunal observed that evidence supported the company’s claim that the liabilities remained outstanding and were not fictitious entries designed to evade tax.
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The bench, by going through the evidence submitted by the assessee, quashed the additions made by the AO, as the evidence clearly showed the assessee intended to settle the liabilities and were not mere book entries.
The Judicial Member, Beena Pillai, partly allowed the appeal filed by the assessee and directed the deletion of the Rs. 39.62 lakh addition under Section 41(1) of the Income Tax statute.
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