Provisions of Section 41(1) cannot apply when liability is still payable to Sundry Creditor and not written off in Books of Account: ITAT [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT), held that Provisions of section 41(1) of the Income Tax Act, 1961 cannot apply when liability is still ‘payable’ to sundry creditor and not written off in books of account.

The assessee, Simu Sonthalia is engaged in carrying on business in manufacturing of BOPP Self Adhesive Tapes, Paper Core etc. The Income at Rs. 19,320 in return was declared after claiming deduction under chapter VI of Rs. 10,73,120. The Case selected for limited scrutiny followed by serving of notices u/s. 143(2) & 142(1) of the Act.

 During the course of assessment proceedings, the AO called for details of purchases and the confirmation of sundry creditors. The assessee neither filed any detail of purchases nor any confirmation. The AO, thereafter, issued notice u/s. 133(6) of the Act to one of the sundry creditors. Notice u/s 131(1) of the Act in the case of sundry creditor, duly served. But neither the sundry creditor(s) appeared nor filed any details. Therefore, the AO made the addition u/s. 41(1) of the Act at Rs.1,04,24,883 and Rs.93,43,452 for cessation of liability in the name of M/s. Anurag Packaging and Maa Kamakhya Packaging respectively. Similar addition was also made u/s. 41(1) of the Act at Rs. 93,89,186/- for outstanding liability in the name of the assessee’s husband.

A Coram consisting of Manish Borad, Accountant Member and SonjoySarma, Judicial Member observed that “The CIT(A) held that provisions of section 41(1) of the Act cannot apply since the liability is still ‘payable’ to sundry creditor and had not been written off in the books of account. There is an opening balance of Rs.94,92,586.87 and almost monthly payment of Rs.9,400 is made and the liability is payable to him. The husband of the assessee being genuine sundry creditor/loan, which the ledger account suggests, we find that no addition was called for u/s. 41(1) of the Act for the credit balance appearing in the name of the husband of the assessee and to this extent, the finding of the ld. CIT(A) is confirmed.”

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