2012 (7) TMI 1011 - AT - Income Tax

Summary

Issues involved: Appeal against addition made u/s.28(iv) of the I.T. Act for assessment year 2007-08.

Summary:

1. The appellant, a company engaged in trading shares, filed an appeal against an addition made by the Assessing Officer (AO) on account of cessation of liability u/s.41(1) of the Act. The AO added an amount of &8377; 2,08,17,130 to the total income for A.Y. 2007-08. The appellant contended that the amount mentioned in the appeal was factually incorrect.

2. The AO based the addition on the advance received against export to Marron Holdings Ltd (MHL) in 1997-98, which remained unpaid. The AO considered the unclaimed advance as income u/s.41(1) of the Act due to the lapse of time.

3. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition u/s.28(iv) of the Act, citing the 10-year-old nature of the matter and the appellant's cessation of export activities. The CIT(A) relied on a Bombay High Court decision in a similar case.

4. During the appeal hearing, the appellant argued that the liability to repay the advance still existed, as evidenced by correspondence with MHL and RBI seeking approval for refund. The appellant had not written off the liability from its books.

5. The Tribunal noted that the liability to repay the advance remained on the appellant's balance sheet and had not been written off. Citing relevant court decisions, the Tribunal held that the amount could not be added as income u/s.41(1) or u/s.28(iv) of the Act.

6. The Tribunal observed that the appellant's liability to repay the advance was ongoing, as evidenced by recent correspondence with MHL and RBI. The Tribunal allowed the appeal, deleting the addition made by the authorities.

7. The appeal was allowed in favor of the appellant.