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November 2015

Income – Deemed profit – Section 41(1) – A. Y. 2007-08 – Amounts shown for several years as due to sundry creditors – Amount not written off in relevant year – Genuineness of credits not doubted – Amount not assessable u/s. 41

By K. B. Bhujle Advocate
Reading Time 1 mins
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Principal CIT vs. Matruprasad C. Pandey; 377 ITR 363 (Guj):

For the A. Y. 2007-08, the Assessing Officer made an addition of Rs. 56,96,645/- u/s. 41(1), doubting certain sundry creditors amounting to Rs. 56,96,645 appearing in the balance sheet of the assessee for the past several years. The addition was deleted by the Tribunal.

On appeal by the Revenue, the Gujarat High Court upheld the decision of the Tribunal and held as under:

“i) The addition u/s. 41(1) cannot be made unless and until it is found that there was remission or cessation of the liability that too during the previous year relevant to the assessment year in question.

ii) The sundry creditors mentioned in the balance-sheet of the assesee were shown as sundry creditors for several years before the relevant assessment year and at no point of time earlier had the Assessing Officer doubted the creditworthiness or identity of the creditors. There was no remission or cessation of the liability during the previous year relevant to the assessment year under consideration. The deletion of the addition was justified.”

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