No addition can be made u/s 41(1) in respect of sundry creditors merely because the same are outstanding for last few years:

AO made addition u/s 41(1) in respect of “sundry creditors for exports” appearing in Balance-sheet since the same were outstanding for last few years. On appeal, CIT(A) observed that S.41(1) comes into play when an assessee obtains, in cash or in kind, any amount out of the expenditure allowed earlier. Alternatively, assessee must have obtained benefit by way of remission or cessation of trading liability. The third scenario in which the provisions can be invoked is when the assessee unilaterally writes off the liability. In the given case, none of the above mentioned events took place. It was also observed that the said liability continued to be outstanding even at the end of given year. Hence, CIT(A) deleted the said addition. On Revenue’s appeal, Hon’ble ITAT held that CIT(A)’s order was in conformity with the decision in the case of “CIT vs. Nitin S. Garg – 22 taxmann.com 59 (Guj)” and hence, no interference was required in CIT(A)’s order. Accordingly, Revenue’s appeal was dismissed.

[ACIT vs. Gopal Fabrics – ITA No.3338/Ahd/2010 and 463/Ahd/2013]