“sundry creditors”
The decision most relied on for sundry creditors is CIT v. Shri Vardhman Overseas Ltd. (343 ITR 408), cited in 76 judgments on BharatTax.
Leading authorities on sundry creditors
An addition under Section 68 cannot be made for genuine sundry creditors or trade payables merely carried forward from previous assessment years if there is no fresh credit in the relevant assessment year. Section 41(1) does not apply to acknowledged outstanding liabilities without actual remission or cessation.
Section 68 of the Income-tax Act is not attracted to amounts representing purchases made on credit or outstanding trade creditors, especially when the genuineness of the purchases is accepted by the department.
An amount already credited in the books of account in an earlier assessment year cannot be added again as an unexplained cash credit under Section 68 of the Income-tax Act in a subsequent assessment year.
A trading liability acknowledged and continued to be shown in the balance sheet cannot be treated as cessation of liability under Section 41(1) merely because it remained outstanding for several years, unless the assessee has written it off in its books. The Assessing Officer must prove that the assessee obtained a benefit.
Section 41(1) of the Income Tax Act applies only where there is remission or cessation of a trading liability during the previous year relevant to the assessment year, and not merely because the assessee cannot provide confirmations for sundry creditors.
Minor irregularities in books of account cannot be the sole basis for rejection of the books or for making an estimated trading addition, especially when the assessee has provided explanations for discrepancies. The case distinguishes itself by focusing on receipts not brought into account rather than expenses claimed.
A liability cannot be presumed to have ceased to exist merely because it has been outstanding for several years. Without a bilateral act between the assessee and the creditor indicating cessation, additions under section 41(1) are not permissible.
Once an assessment is reopened for a valid reason under Section 148(2), the Assessing Officer can bring to tax any escaped income that comes to their notice during the reassessment, even if it was not the original basis for reopening.
