Disallowances u/s41(1)

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mukund (Querist)
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03 February 2015 Sir,is the amount of creditors unpaid for more than three years disallowed u/s 41(1) and added to profit?

MUKUND CA student

Vinayak

Vinayak (Expert)
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03 February 2015 Many a times, there are instances where the person has standing liability in his books of accounts year after year. The person neither receives any payment against it nor writes it back in books of accounts. In such a situation, the Assessing officer takes the stand that the liability which is outstanding for a very long period ceases to be in existence either because the creditor is not demanding it or by operation of law it becomes barred by time. There are contradictory judgements of different courts, some in favour of the assessee and few against. In recent times, an interesting case came up before the Mumbai Tribunal- ITO v/s Shailesh D. Shah ITA 7012/M/10 wherein it was held that the assessee has just continued the entry in his books of accounts without any intention to pay back the same and relied on Chipsoft Technology 210 Taxman 173 (Del) and confirmed addition of liability u/s 41(1). It referred to Vardhaman Overseas Ltd. 343 ITR 408 (Del) wherein it was held that section 41(1) does not apply if the amount is not written back in the books of accounts. Contrary to this, in CIT v/s Bhogilal Ramjibhai Atara (Guj) held that even if there is unclaimed liability of earlier years where even creditors are untraceable and liabilities are non-genuine, then also the addition cannot be made u/s 41(1) since assessee has not written it back in books of account. - See more at: https://taxguru.in/income-tax/analysis-section-411-income-tax-act-1961.html#sthash.dZQKAqlT.dpuf

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