INCOME TAX ACT, 1961

Section 41(1)

Business income - Remission and cessation of liability - Assessee had shown outstanding liability for years and non-furnishing of complete details -

Assessee was engaged in business of pharmaceutical products, chemicals, etc. During the scrutiny assessment, AO noticed that though no transaction was made with certain parties, however, their outstanding balance remained reflected in the balance sheet since long. AO asked assessee to prove genuineness of outstanding liability and as to why such liability be not considered to have ceased to exist, and be not treated as deemed income under section 41(1). Assessee submitted that merely because assessee had shown the outstanding liability for years and non-furnishing of complete details, could not be the reason for considering the liability had ceased to exist. AO did not accept the explanation of assessee, and added the same to total income of assessee under section 41(1). Held: Liability had not ceased and facts remain undisputed by authorities were that these amounts were debited by assessee and allowed by Revenue. AO had not brought any evidence on the record to show that liability had ceased. Assessee had not written off the liability in the accounts. Therefore, addition could not be made unless liability in the accounts was written off and accordingly, deleted the disallowance.

REFERRED : Dattatray Poultry Breeding Farm Pvt. Ltd. v. ACIT (2019) 104 taxmann.com 366 (Guj) : 2019 TaxPub(DT) 2821 (Guj-HC) CIT v. Bhogilal Ramjibhai Atara (2014) 43 taxmann 313 (Guj) : 2014 TaxPub(DT) 1536 (Guj-HC)

FAVOUR : In assessee's favour

A.Y. : 2013-14

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