INCOME TAX ACT, 1961

Section 41(1)

Business income under section 41(1) - Remission or cessation of trading liability - Long outstanding creditors - Liability reflected as payable in books of account

AO noticed that assessee had not made payment to long outstanding creditors M/s Sky Gems and M/s AR Gems inspite of getting approval of the RBI for remitting money to these parties. Accordingly, AO held that liability towards these parties had ceased to exist during financial year 2011-12 and invoking section 41(1). AO made addition of the amount concerned. Held: As apparent liability towards M/s Sky Gems and M/s. R Gems continued to exist as on close of financial year 2011-12 was evidenced by the fact that permission to remit money had been sought and granted by RBI on 4-8-2015 and thereafter, assessee again applied for permission to remit on 19-8-2016. The fact that payment had still not been made could not be sole reason as reflective of remission or cessation of said liability as there could be other financial constraints for not making payment in time. The fact remains that liability continued to exist and remain payable and the assessee continue to reflect the same as payable in its books of accounts as on close of the financial year 2011-12 and in view of the same, there was no basis for making addition under section 41(1).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13

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