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TMI Blog2015 (6) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - I.T.A. No. 3188/Mum/2012 - - - Dated:- 13-3-2015 - Shri B. R. Baskaran And Shri Sanjay Garg JJ For the Appellant : Shri Love Kumar For the Respondent : Shri Deepak Tralshawala ORDER Per Sanjay Garg, Judicial Member : The present appeal has been preferred by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals) (hereinafter referred to as CIT(A) ) dated 24.02.2012. The Revenue has agitated the action of the ld. CIT(A) in deleting the addition of ₹ 42,67,500/-, which was made by the A.O. u/s. 41(1) of the Act on account of cessation of liability of outstanding interest shown as payable by the assessee to his group concern. 2. The brief facts of the case are that the assessee had borrowed the loan from its sister concerned M/s. Lok Financiers Company (LFC), an Association of Per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee but on the other hand the assessee had been showing the accrued interest payable of ₹ 42,67,550/- since so many years and thereby preventing it from getting taxed. He observed that had the lender company not changed to cash system, it would have to offer the interest as its receivable income, but, the assessee and his group AOP have managed the affairs in such a dubious way that on the one hand the amount of interest was claimed by the assessee as deduction in his P L account and on the other hand he had not been letting the amount to be offered to tax by his sister concern, LFC. The A.O. observed that this was a method deployed by the assessee to avoid the tax. He, therefore, treated the said amount as income of the assessee for the year under consideration as it represented an artificial liability which actually had ceased to exist since long with and accordingly added it to the income of the assessee u/s.41(1) of the Act. 3. In the first appeal, the ld. CIT(A) deleted the disallowance so made by the A.O. observing as under: 2.2. I have considered the submissions of the Ld. Counsel and gone through the assessment order. The appellant had borrowed the loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of Section 41 (1) cannot be invoked in the present circumstances for the reason that the appellant had neither received any benefit nor any advantage and liability in the form of interest is outstanding and payable as on date. Therefore, the addition of ₹ 42,67,550/- is deleted. Hence, this ground of appeal is allowed. 3. In the result. the appeal is allowed. 4. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us. 5. We have heard the rival contentions and have also gone through the record. A perusal of the above reproduced conclusion of the ld. CIT(A) reveals that the ld. CIT(A) has deleted the disallowance observing that since the LFC (AOP) had switched over to cash system from the mercantile system of accounting w.e.f. A.Y. 1998-99, the company had not showed the interest of ₹ 42,67,550/- being receivable from the assessee because of the fact that the same was not actually received. He, therefore, has held that the provision of section 41(1) of the Act are not applicable as the amount of interest payable has not been written off nor the debt has extinguished. The ld. DR, before us has contended that it was not a cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c person otherwise, but, different entity for the purpose of Income Tax Act. The assessee on the one had has been receiving profits of his share from the AOP but on the other hand has been showing the liability of interest as payable to the said AOP, without adjustment/setting off the same out of the receivables from the said AOP. By changing the method of accounting of the AOP, the expenditure of interest claimed by the assessee in his P L a/c is avoided from taxation at the hands of the AOP as the same is not shown as income. The argument that the change of method of accounting of the said AOP has been accepted by the Revenue over the years and that as per the said accounting system, the AOP was not required to show the said receivable as income , in our view, is not teneable because of the fact that the AOP has also been managed by the person, who is the debtor of the said AOP and that very person on the one hand is receiving the share in profits of the said AOP and on the other hand is not setting off or adjusting the amount payable to the said AOP and thereby avoiding the payment of tax at the hands of the said AOP for the years together. The above conduct shows that it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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