The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition as no addition under section 41(1) of the Income Tax Act shall be made solely on the grounds of the expiration of the limitation period.
The assessee is a private limited company carrying on the business of trading in hygiene and cleaning chemicals. The assessee filed the return of income for AY 2013-14 on 29.09.2013 declaring a total income of Rs. 89,78,510/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee
The AO noticed that a sum of Rs. 15,000/- is outstanding for more than three years, the AO made an addition under Section 41(1) of the said amount stating that the liability is outstanding for more than three years and that the assessee has not brought on record any evidence or documents to show that there is any intention to make the above mentioned payment. On further appeal, the CIT (A) upheld the disallowance
The counsels for the assessee Ms.Dinkle Hariya and Ms. Rashmi Vyas submitted that as per Auditor Financial statements for the year under consideration, the said amount was outstanding on the date of balance-sheet which would mean that the assessee had not considered the said amount as Cessation of Liability in the books of accounts. Further submitted that the amount outstanding was an admitted liability and therefore, cannot be treated as income under section 41(1) merely for the reason that the liability is barred by limitation.
On contrary, Mr. P.D. Chougule representing the revenue relied on the order of the lower authorities stating that the assessee has not brought anything on record to show that there is an intention to settle the outstanding liability.
The two member bench comprising Narendar Kumar Choudhari ( Judicial member ) and M.S Pathmavathy ( Accountant member ) noticed in Assessee’s case that the assessee as part of the financial statements reflecting the outstanding liability it would mean that it is an acknowledge liability and that the assessee was intending to settle the liability in the future date.
The jurisdictional High Court decision stated that addition under section 41(1) cannot be made merely for the reason that the period of limitation has expired. Further, considered view that the AO was not correct in making the addition under section 41(1) of an acknowledged liability of the assessee.
Accordingly, ITAT directed the AO to delete the addition, accordingly, appeal of the assessee was allowed.
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