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The ITAT held that the addition of salary payable as on 31-03-2016 under section 56 was unsustainable. Applying the mercantile system of accounting, the bench found the outstanding salary to be a bona fide business liability reflected in the assessee's books of account; subsequent disbursements were evidenced in the following year's records. The tribunal concluded that the AO failed to appreciate the accounting entries and the assessee's conduct, and that section 56 could not, per se, be invoked to characterize the liability as income. The impugned addition was accordingly deleted and the appeal allowed in favour of the assessee.
The ITAT held that the addition of salary payable as on 31-03-2016 under section 56 was unsustainable. Applying the mercantile system of accounting, the bench found the outstanding salary to be a bona fide business liability reflected in the assessee's books of account; subsequent disbursements were evidenced in the following year's records. The tribunal concluded that the AO failed to appreciate the accounting entries and the assessee's conduct, and that section 56 could not, per se, be invoked to characterize the liability as income. The impugned addition was accordingly deleted and the appeal allowed in favour of the assessee.
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