2013 (5) TMI 982

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....rossly erred in making an addition of Rs. 17,30,995/- by invoking the provisions of section 41(1) of the Income-tax Act, 1961. The Ld. AO did not appreciate that the provisions of section 41(1) of the Act, are not at all applicable in this case. Similarly, the Ld. CIT(A) has grossly erred in confirming the order of the AO. That the authorities bellow did not appreciate that this case does not fall within the mischief of section 41(1) and as such the addition made may be deleted. 3. That the authorities below did not appreciate that the disallowance/addition made u/s 41(1) of the Act, comprises of the following trade creditors: i) Haszi Nassar Ullah, Zaheer, Afghanistan  ii) Hazi Yarr Mohd -do-  iii) Hazi Noor Mohd.,  iv....

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....r more than three years and are stagnant creditors without any transaction. With regard to the confirmation filed by the assessee, there was no corroborative postal or courrier envelop to support the genuineness of the creditors. The said creditors are as under: i) Haszi Nassar Ullah, Zaheer, Afghanistan Rs.697840/- ii) Hazi Yarr Mohd -do- Rs.550464/- iii) Hazi Noor Mohd., Rs.143336/- iv) Bismillah, Afghanistan Rs.288115/- vi) Durga Cold Store (allegedly Burnt to ashes) Rs. 51240/-   ------------- Rs. 1730995/- ---------------   3.1. The AO invoked the provisions of section 41(1) being cessation of liability being more than three years or stagnant trade creditors and made the addition of R....

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.... by any of the authorities below that any benefit in respect of such trading liability has been obtained by way of remission or cessation thereof during the impugned order. Therefore, in the facts and circumstances of the case, section 41 cannot be made applicable. Our views find support from the decision of the Hon'ble Punjab & Haryana High Court in the case of Commissioner of Income Tax vs. Smt. Sita Devi Juneja reported in (2010) 325 ITR 593. The Head Note of the same is reproduced for the sake of clarity as under: "For the assessment year 2004-05, the A.O. made an addition on account of outstanding credit balances as on March 31, 2004, holding that the liability in respect of these creditors had ceased to exist and had become liable ....

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....as incurred traveling expenditure amounting to Rs. 1,62,087/- being foreign traveling expenditure. The assessee could not prove that the expenses have been incurred in connection with the business of party decorations and accordingly the same were disallowed. 8.1. The action of the Assessing Officer was confirmed by the Ld. CIT(A). 8.2. It was brought to our notice by the ld. counsel for the assessee, Mr. P.N.Arora, Advocate that vide assessee's letter dated 25.10.2012 available at PB 1 & 2, the assessee has submitted details of the foreign traveling expenses and has further submitted that the assessee has earned Rs. 3,56,900/- on account of traveling abroad. The AO and the ld. CIT(A) has not brought on record any adverse material wit....