The Tax Publishers2020 TaxPub(DT) 1168 (Ahd-Trib)

INCOME TAX ACT, 1961

Section 41(1)

Remission of liability arises only when creditor violuntarily gives up the claim. In the absence of confirmation as to Matrinagar Association having given up theri right to recover amount from assessee, having given up their right to recover amount from assessee, it could not be presumed that matri Nagar Association had given up right of recovery of concerned amount from assessee and moreover issue amount had also been shown as payable by assessee was also a pointer that assessee still admitted liability to pay. Accordingly, there was no remission or cession of liability in case of assessee so as to invoke section 41(1) and no addition was called for.

Business income under section 41(1) - Remission or cessation of trading liability - Liability shown as outstanding for more than 20 years assumed to be leased to exist without creditor having given up of right to recover -

Assessee constructed a society named Matrinagar Co-operative Housing Society Bharuch and was thus required to incur expenses on account of drainage boundary wall, temple, etc. towards development of society. Since these expenses were incurred by owner of society for which assessee was required to reimburse them therefore assessee had created a provision in the books of account towards this liability. AO took the view that liabilities outstanding for more than 20 years had ceased to exist in the year under consideration and same was, therefore, liable to addition under section 41(1).Held: Remission of liability arises only when creditor violuntarily gives up the claim. In the absence of confirmation as to Matrinagar Association having given up theri right to recover amount from assessee, having given up their right to recover amount from assessee, it could not be presumed that matri Nagar Association had given up right of recovery of concerned amount from assessee and moreover issue amount had also been shown as payable by assessee was also a pointer that assessee still admitted liability to pay. Accordingly, there was no remission or cession of liability in case of assessee so as to invoke section 41(1) and no addition was called for.

Relied:Eicher Mother Ltd. v. Dy. CIT (2004) 82 TTJ 61 (Ind) : 2004 TaxPub(DT) 182 (Ind-Trib), New Commercial Mills Co. Ltd. v. Dy. CIT (2001) 73 TTJ 893 (Ahd-'C'-Trib) : 2001 TaxPub(DT) 1638 (Ahd-Trib), CIT v.Tamilnadu Warehousing Corpn. (2007) 292 ITR 310 (Mad) : 2007 TaxPub(DT) 639 (Mad-HC), CIT v. Southern Roadways Ltd. (2006) 202 CTR 289 (J&K) : 2006 TaxPub(DT) 73 (J&K-HC). Supported by:J.K. Synthetics Ltd. v. ITO (1976) 105 ITR 864 (All) : 1976 TaxPub(DT) 0444 (All-HC), CCIT v. Kesari Tea Co. Ltd. (2002) 254 ITR 434 (SC) : 2002 TaxPub(DT) 1293 (SC) and CIT v. Abdul Adhal (2001) 247 ITR 710 (J&K) : 2001 TaxPub(DT) 0669 (J&K-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

INCOME TAX ACT, 1961

Section 68

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