2019 (2) TMI 1585 - AT - Income Tax

Addition u/s 41(1) - outstanding share application money - cessation of liability - HELD THAT - In the case on hand, there is no instance of allowance or deduction made in any assessment in respect of loss, expenditure or trading liability incurred by the assessee. This was a case of share application money received which is a capital receipt. Hence, the addition u/s 41(1) of the Act, has been wrongly resorted to by the AO. - Decided against the revenue.

Summary

Issues:
1. Addition u/s 41(1) of the Income Tax Act for outstanding share application money.

Analysis:
The appeal was filed by the revenue against the order of the Learned Commissioner of Income Tax -4, Kolkata, for the Assessment Year 2012-13. The Assessing Officer made an addition u/s 41(1) of the Act for outstanding share application money, stating that the shares were not allotted since 31/03/2014. The assessee was asked to justify why the share application money received during the Assessment Year 2003-04 & 2004-05 should not be added due to cessation of liability. The ld. CIT(A) deleted the addition, emphasizing that no deduction was claimed in earlier years under section 41(1) of the Act, thus the provision could not be invoked. The liability had not ceased as evidenced by a letter requesting the return of share application money. The ld. CIT(A) found no material evidence that the liability was written off in the books, hence directed the addition to be deleted.

The Tribunal found no fault in the ld. CIT(A)'s decision. Section 41(1) of the Act applies when an allowance or deduction has been made in the assessment for any year, but in this case, it was a capital receipt of share application money, not a loss, expenditure, or trading liability. Therefore, the Assessing Officer wrongly applied section 41(1) of the Act. Consequently, the Tribunal upheld the ld. CIT(A)'s order and dismissed the revenue's appeal.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the deletion of the addition u/s 41(1) of the Act for outstanding share application money. The judgment highlighted the incorrect application of the provision due to the nature of the receipt as capital in nature, not falling under the purview of section 41(1) of the Act.

This detailed analysis provides a comprehensive understanding of the judgment, emphasizing the legal interpretation and application of section 41(1) of the Income Tax Act in the context of outstanding share application money.