INCOME TAX ACT, 1961

Section 41(1)

Business income - Profits chargeable to tax under section 41(1) - Remission or cessation of trading liability - Assessee's failure to prove existence of liability

Liability of Rs. 18 lakhs was shown by assessee in the name of one 'B'. as on 31-3-2011. In order to verify the same, a notice was issued by AO at the address of said party as given by assessee. The same, however, was returned back with Postal remarks 'not known'. When this position was brought by AO to the notice of assessee, a new address of said party was provided. In order to make verification at the new address, Inspector was deputed by AO who failed to locate any such party even at the new address given by the assessee after a long effort. AO, therefore, treated liability standing in the name of 'B' as ceased to have existed and made addition under section 41(1).Held: Although assessee claimed that amount of Rs. 18 lakhs was payable to 'B' party as on 31-3-2011, there was nothing on record to show that said amount was ever claimed by said party from assessee. Even confirmation of said party was never filed by assessee to show existence of the liability as claimed by it. On the other hand, the enquiry conducted by the AO at the address of said party available on record as well as new address provided by assessee revealed that party was not in existence, accordingly, liability in question was rightly treated by AO as ceased to have existed and AO was fully justified in making addition under section 41(1).

REFERRED :

FAVOUR : Against the assessee.

A.Y. :

INCOME TAX ACT, 1961

Section 41(1)

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