The AO has made additions under section 41(1) of the Act stating that the liability has been outstanding since a long time and no transactions have been occurred since then. The Tribunal relied on the Gujarat High Court ruling the case of Bhogilal Ramjibhai Atara (43 taxmann 313) which has held that even if the liability is found to be non-genuine from the inception then also 41(1) of the Act was no solution for it. The Tribunal held that revenue authorities has not shown that the liability has ceased to exist and the assessee has not written back and continue to show the same in liabilities outstanding in the balance sheet. Hence, following the above decision of the Gujarat High court in the case of Bhogilal Ramjibhai Atara (43 taxmann 313), the Tribunal deleted the adjustment made under section 41(1) of the Act. (AY. 2013-14)
Shivacid India Private Ltd. v. ITO (2019) 76 ITR 76 (SN) (Ahd.)(Trib.)
S. 41(1) : Profits chargeable to tax-Remission or cessation of trading liability-No addition can be made if AO has not brought any evidence to show that liability has ceased to exist–No additions can be made unless liability has not been written off in books of accounts.[S. 145]