Liability to pay creditors not ceases merely because assessee could not furnish confirmation

Liability to pay creditors does not ceases merely because assessee could not furnish confirmation of one creditor out of several parties 

ABCAUS Case Law Citation
ABCAUS 3498 (2021) (04) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition u/s 41(1) of the Income Tax Act, 1961 (the Act) for amount outstanding in the account of the creditor.

The Assessing Officer (AO) noted that an amount was outstanding as liability in the books of account of the assessee and it had not been written back.  The assessee could not produce the confirmation of the creditor.

Not satisfied with the submissions of the assessee, the AO made the addition for the amount outstanding u/s 41 as cessation of liability.

Before the Tribunal, the assessee submitted that merely because confirmation is not furnished it does not become a non-genuine creditor. 

He submitted that there was no cessation of any liability and the liability was existed.  He further submitted that provision of section 41(1) does not apply in the case because purchase was duly accounted in the earlier year and there was no cessation of such liability.

The Tribunal noted that the said amount was outstanding in the books of account of the assessee and assessee could not produce the confirmation of such outstanding sum. 

The Tribunal also noted out of several creditors, it was the only party whose confirmation could not be produced. 

The Tribunal also observed that the fact was not denied that the liability arose on purchase of goods as trading transactions with this party in earlier year and liability still existed. 

Further, it was not the case that assessee had written back the above liability in its books of accounts; instead it was carried as liability in books. 

Thus, the liability to pay such sum was accepted by the assessee for this year. 

The Tribunal further noted that there was no evidence that the transaction resulting into credit in the name of the above party pertained to this year, in fact, it pertained to earlier year. 

The Tribunal opined that merely because the assessee could not furnish the confirmation of one of the several creditors naturally the liability to pay such party did not ceases to exist. 

The Tribunal reversed the order of the lower authorities directing the AO to delete the addition and the ground of appeal was allowed in favour of the assessee.

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