Unpaid audit fee was not income u/s 41(1) even if confirmation letter not produced as no expenditure was claimed in the current year-ITAT

Unpaid audit fee was not income u/s 41(1) even if confirmation letter not produced as no expenditure was claimed in the current year-ITAT

ABCAUS Case Law Citation:
ABCAUS 1084 (2016) (12) ITAT

Brief Facts of the Case:
The assessee was a Government Corporation. In the balance sheet of the appellant assessee, there was an unpaid liability of Rs. 7,41,267/-  pertaining to audit fees and accounting charges. The Assessing Officer asked the confirmation/proof of liability but the assessee failed to produce the confirmation regarding the said outstanding liability. Therefore the amount was disallowed and added back to the returned income of the assessee u/s 41(1) considering it cessation/remission of the liability.

On appeal by the assessee, the CIT(A) sustained the addition on the ground that the assessee could not place anything on record to prove that those liabilities were actually payable. Also CIT(A) was of the opinion that a genuine liability could not have remained unclaimed for such a long period of time. He held that the said liability was not existent in the relevant year and consequentially the asset to that extent remained unexplained; therefore, the liability required to be assessed as income.  

Observations made by the ITAT:
The Tribunal observed that it was an admitted fact that the liability was carried forward from the earlier years and even if the assessee was not able to produce the confirmation of liabilities, the same could not be disallowed because in the current year no expenditure was claimed by the assessee. Therefore, when no expenditure was claimed in this year, merely because the assessee could not file the confirmation, there could not be any disallowance.

The Tribunal opined that Merely because the liability remained unpaid for a longer period, it could not be treated as income. The unpaid liability can be treated as income only when there is remission and cessation of liability and provision of Section 41(1) applies.

The ITAT further observed that CIT(A) himself had already given the finding that Section 41(1) was not applicable.

Held:
The disallowance made was deleted.