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Issues involved: Addition u/s 41(1) of the Income-tax Act on account of cessation of liability, charge of interest u/s 234C.
Addition u/s 41(1) - Cessation of liability: The AO added Rs. 26,20,274/- to the total income of the assessee under section 41(1) due to the outstanding credit balance in the name of M/s. Matulya Mills Ltd. since financial year 2000-01. The assessee contended that the amount was received for plumbing work and not a trading activity, hence no addition should be made u/s 41(1). However, the AO observed that the amount was received in financial year 1999-2000, and Matulya Mills Ltd. had closed down business in 2002. CIT(A) held that the amount was a trading liability, as work had been done and no evidence was produced that the company was claiming the money back. The tribunal noted that the burden of proving the liability had ceased to exist was on the revenue, and since no material was presented to show the claim was forgotten, the addition made in the current year was not justified. The tribunal also considered the unilateral write-back of the liability by the assessee in the year 2010-11, and thus deleted the addition. Charge of interest u/s 234C: The Learned AR admitted that the charge of interest was only consequential, and the AO would recompute the interest at the time of giving effect to the tribunal's order. In conclusion, the tribunal allowed the appeal of the assessee, setting aside the addition made u/s 41(1) and directing the AO to recompute the interest charge u/s 234C.
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