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2015 (6) TMI 312 - AT - Income TaxAddition u/s. 41(1) - cessation of liability of outstanding interest shown as payable by the assessee to his group concern - CIT(A) deleted the addition - Held that - The assessment year under consideration is A.Y. 2008-09 in respect of which, the A.O. noticed that the assessee had continuously avoided the payment of tax by showing the said interest liability as payable, whereas the creditor AOP had not shown it as its income because of the different accounting methods, that too, so managed by the assessee. After the addition has been made by the A.O., and the litigation has started, the assessee to avoid further consequences, has allegedly been paid the said amount in the year 2013. We find that the appeal in this case before us, had been filed on 08.05.2012 and the said liability has allegedly been paid even after the filing of the present appeal by the Revenue. The payment of a liability in the year 2013 by the assessee, in our view, it is nothing but an afterthought to avoid the consequence of addition made by the A.O. during the assessment proceedings for the year consideration. In view of this, we do not agree with the contention of the assessee in this respect. In view of our observation made above, we hold that the A.O. has rightly made the addition u/s.41(1) of the Act in this case and the same is confirmed. The order of the ld. CIT(A) is set aside and that of the A.O. is restored on this issue. - Decided against assesse.
Issues:
1. Addition of outstanding interest under section 41(1) of the Income Tax Act. 2. Applicability of section 41(1) in the case of the appellant. 3. Treatment of interest payable and accounting methods. 4. Intention to pay the liability and subsequent payment in 2013. Analysis: Issue 1: Addition of outstanding interest under section 41(1) of the Income Tax Act. The Revenue appealed against the deletion of the addition of outstanding interest amounting to &8377;42,67,500 by the ld. CIT(A) under section 41(1) of the Act. The A.O. had treated this amount as income of the assessee for the year under consideration due to the cessation of liability, which had not been paid for several years. Issue 2: Applicability of section 41(1) in the case of the appellant. The ld. CIT(A) deleted the disallowance, stating that the liability had not ceased to exist as the interest payable was still outstanding and payable. Citing various judicial pronouncements, the CIT(A) held that section 41(1) could not be invoked as the debt had not been extinguished, and the liability remained payable. Issue 3: Treatment of interest payable and accounting methods. The Revenue contended that the appellant had deliberately managed the accounting methods to avoid tax by showing the liability in the books without corresponding income in the hands of the AOP. The AOP, managed by the appellant, had switched to a cash system, not reflecting the interest as receivable. The Tribunal noted the deliberate avoidance of tax through accounting manipulation. Issue 4: Intention to pay the liability and subsequent payment in 2013. The appellant argued that the liability was paid in 2013, indicating the intention to pay. However, the Tribunal found this payment as an afterthought to avoid the consequences of the addition made by the A.O. in the assessment proceedings. The Tribunal upheld the A.O.'s addition under section 41(1) and set aside the CIT(A)'s order. In conclusion, the Tribunal held that the appellant's intentional manipulation of accounts to avoid tax liability was evident. The subsequent payment in 2013 was deemed an attempt to circumvent the tax consequences. The A.O.'s addition under section 41(1) was upheld, and the Revenue's appeal was allowed.
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