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2021 (9) TMI 287 - AT - Income TaxAdditions u/s. 41(1) - Liability as extinguished and assumed the character of income as envisaged in section 41(1) - CIT(A) allowed the issue of the assessee and deleted the additions - HELD THAT - Admittedly, these amounts were received prior to 2003 and was outstanding due to closure of assessee-company. The advances so received were adjusted to the receivables and reconciliation was filed. As on 31.03.2016, the advances received against sales amount is Nil' as per the Balance Sheet. Therefore, the liability cannot be construed to have been extinguished and assumed the character of income as envisaged in section 41(1) of the I.T. Act. In this context, we rely on the judgment in the case of CIT v. Shri Vardhman Overseas Ltd. 2011 (12) TMI 77 - DELHI HIGH COURT wherein it was held that the liability appearing in the Balance Sheet tantamount to acknowledgement of debt. Therefore, it was held by the Hon'ble High Court that the liability has neither ceased to exist nor there is a remission of liability in terms of section 41(1) of the I.T. Act. In view of the judgment of the Hon'ble High Court of Delhi (supra) and aforesaid reasoning, we uphold the order of the CIT(A). - Decided against revenue.
Issues:
1. Non-adjudication of ground Nos. 4 and 5 by ITAT in its order dated 31.01.2018. 2. Disallowance of amount under section 41(1) of the I.T. Act. 3. Appeal against the CIT(A)'s decision to delete the additions made under section 41(1) of the I.T. Act. Issue 1: Non-adjudication of ground Nos. 4 and 5 by ITAT: The Revenue filed a Miscellaneous Petition for non-adjudication of ground Nos. 4 and 5 in the ITAT's order dated 31.01.2018. The ITAT allowed the Miscellaneous Petition, recalling the impugned order for the limited extent of adjudication of grounds 4 & 5. The case was directed to be reheard by issuing notices to both parties. Issue 2: Disallowance under section 41(1) of the I.T. Act: The Assessing Officer disallowed an amount under section 41(1) of the I.T. Act, adding it to the total income due to advances received against sales/services. The CIT(A) allowed the assessee's appeal, deleting the additions made under section 41(1) of the I.T. Act. The CIT(A) emphasized that the liability's extinguishment or remission was crucial to consider it as income, which was a question of fact. The CIT(A) found that the liability had not ceased to exist, relying on judicial precedents and the appellant's submissions. Issue 3: Appeal against CIT(A)'s decision: The Revenue appealed against the CIT(A)'s decision before the ITAT. The ITAT upheld the CIT(A)'s order, emphasizing that the advances received were adjusted against receivables and the liability was not extinguished. Referring to a judgment of the Delhi High Court, the ITAT concluded that the liability, as acknowledged in the Balance Sheet, did not amount to remission under section 41(1) of the I.T. Act. Consequently, the appeal filed by the Revenue was dismissed. In conclusion, the ITAT's decision affirmed the CIT(A)'s ruling, emphasizing the non-extinguishment of liabilities and the inapplicability of section 41(1) of the I.T. Act in the given circumstances.
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