Singing of balance sheet itself acknowledgement of debt. No cessation of liability u/s 41 – ITAT

Singing of the balance sheet itself is construed as acknowledgement of debt. No cessation of liability u/s 41 if trade payables shown as outstanding in the balance sheet  – ITAT

In a recent judgment, ITAT has held that singing of the balance sheet itself is construed as acknowledgement of debt  and hence no cessation of liability u/s 41.

ABCAUS Case Law Citation:
ABCAUS 3840 (2024) (01) ITAT 

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming an addition u/s 41 of the Income Tax Act, 1961 (the Act) made by the Assessing Officer (AO) towards cessation of trade liability.

The Appellant Assessee filed return of income which was selected for complete scrutiny under CASS. an assessment order came to be passed u/s 143(3) by inter alia making disallowance u/s 41 of the Act.

Aggrieved by the assessment order, the assessee preferred an Appeal before the CIT(A), which was dismissed.

Before the Tribunal, the assessee opposed the addition made and submitted that some of the trade payables were paid off in subsequent years and some of which were still un-paid. The assessee contended that he was committed to pay the amounts and these balances were duly standing in the books of account as trade payables.

The Tribunal observed that it is not in dispute that the assessee had not paid trade payables and was committed to pay the same.

The Tribunal opined that if the trade payables are shown as outstanding in the balance sheet, it cannot be said that there is a cessation or remission of trade liability as perceived under section 41 of the Act.

The Tribunal stated that singing of the balance sheet itself is construed as acknowledgement of debt.

Accordingly, the Tribunal remanded the issue to the file of the CIT(A) to verify the balance sheet and decide the issue afresh and the assessee was also directed to produce the proof of payment of the above amount if the same is paid.

Download Full Judgment Click Here >>

• Prima facie satisfaction u/s 148 can not be a non-existing or incorrect information
• Mutual Funds to value physical Gold and Silver by using the polled spot prices
• SC allows simultaneous CIRP proceedings against principal debtor & corporate guarantor
• Merely because sales were declared for only one month, same cannot be treated as bogus
• ITAT deleted addition as method of accounting had been accepted in earlier years