Liabilities disclosed in the balance sheet by the assessee, if acknowledged and supported with evidence, cannot be treated as remission or cessation of liability under Section 41(1) of the Income-tax Act, 1961: ITAT Delhi

The ITAT, Delhi Bench in the case of Golden Moment (P.) Ltd v. ACIT has held that liabilities disclosed in the balance sheet by the assessee, if acknowledged and supported with evidence, cannot be treated as remission or cessation of liability under Section 41(1) of the Income-tax Act, 1961. In this case the AO made addition on the ground that the liabilities shown as sundry creditors were fictitious.

This conclusion was based on the non-responsiveness of creditors to notices and summons, and an inspection report indicating that creditors did not exist at the provided addresses.

Tribunal has stated that any discrepancy found in the confirmation and the balance sheet of sundry creditor’s suitable action should be taken in the hands of those sundry creditors and no adverse inference could be drawn on the assessee.

The assessee had discharged its primary onus by providing confirmations, PAN details, and ledger accounts of creditors, along with proof that these liabilities were settled in subsequent years.

In these circumstances, the provisions of Section 41(1) of the Act cannot be made applicable in the instant case.

The reliance placed on the decision of the Hon’ble Jurisdictional High Court in the case of PCIT v. New World synthetics Ltd in ITA No. 806 of 2018 dated 27.08.2018 is very well founded and directly applicable to the facts of the assessee’s case.

The copy of the order is as under:

13071-Delhi-HC-806-2008