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2004 (7) TMI 597 - AT - Income TaxRemission or cessation of trading liabilities - Treatment of amount received for booking of flat u/s 41(1) - HELD THAT - During the course of hearing a specific query was asked from the assessee s counsel about the present status of this amount and in response thereto it was submitted that this amount still shown in the books of account of the assessee and it has not been claimed so far by the legal heirs of Shri Sudershan Kapoor. Since his membership was cancelled in the year 1999 and thereafter no claim of refund was made either by Shri Sudershan Kapoor in his life time or his legal heirs after his death, there is no possibility of any claim or refund in future because it is barred by limitation. Since this amount has not been paid to the legal heirs of Shri Sudershan Kapoor, I am of the view that the lower authorities have rightly treated this amount as income of the assessee. Moreover, I do not find any force in the contention of the assessee that section 41(1) cannot be invoked in the instant case because the assessee was engaged in the construction business and the amount was received as an advance of booking of flat, which was shown by the assessee as a trade liability. Once the trade liability is ceased to exist, it becomes an income of the assessee under the provisions of section 41(1) of the I.T Act. I, therefore, do not find any merit in the assessee s appeal. Accordingly, I dismiss the same. In the result, the appeal filed by the assessee, is dismissed.
Issues Involved:
The judgment involves the following Issues: 1. Addition under section 41(1) of the Income-tax Act. 2. Treatment of amount received for booking of flat under section 41(1). Issue 1: Addition under section 41(1) of the Income-tax Act: The assessee appealed against the addition under section 41(1) of the Income-tax Act, arguing that the accrued liability not paid should not have been considered as income. The Commissioner of Income-tax (Appeals) upheld the addition, stating that the liability had ceased to exist as it was neither paid nor claimed by the legal heirs. The Commissioner noted that the appellant company failed to provide evidence that the amount had been claimed as a refund. The Tribunal affirmed the decision, emphasizing that the balance amount retained by the appellant was to be treated as income since it was not paid to any person and no refund claim was established. Issue 2: Treatment of amount received for booking of flat under section 41(1): The assessee received a sum for booking a flat, which was later cancelled, resulting in a balance amount remaining outstanding. The Assessing Officer treated this remaining amount as income of the assessee under section 41(1) of the Act, as it was not refunded to the payee or claimed by legal heirs. The Commissioner of Income-tax (Appeals) concurred with this decision, noting that the appellant company failed to prove that the amount had been claimed as a refund. The Tribunal upheld the lower authorities' decision, stating that once the trade liability ceased to exist, the amount became income of the assessee under section 41(1) of the Income-tax Act. This judgment highlights the application of section 41(1) of the Income-tax Act in cases where liabilities cease to exist and amounts received are not refunded or claimed by legal heirs, resulting in their treatment as income.
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