ITO Vs J L G Developers Ltd. (ITAT Delhi)
Loan Liability ≠ Trading Liability: No 41(1) Addition Even if Company Struck Off
AO made addition of Rs.8.22 crore u/s 41(1) alleging cessation of liability, on the ground that assessee-company had been struck off by ROC u/s 248 of Companies Act & therefore liability towards M/s Sethi Housing Pvt Ltd had ceased. CIT(A) deleted the addition, holding that amount was a loan/advance used to repay Bank of India loan, never claimed as expenditure, never written back in P&L & continued to appear as outstanding liability.
ITAT upheld CIT(A)’s order & dismissed Revenue appeal. Tribunal held that section 41(1) applies only where (i) allowance/deduction was claimed in earlier years, (ii) liability is a trading liability, & (iii) there is remission or cessation, including unilateral write-back. In present case, liability was on capital account (loan), no deduction was ever claimed, no write-back was made & liability continued in books. Striking off u/s 248 does not amount to winding-up or extinguishment of liabilities; company can even be restored u/s 252. Explanation-1 to section 41(1) also held inapplicable as there was no unilateral act of writing off. Case of T.V. Sundram Iyengar distinguished. Hence, no addition u/s 41(1) was sustainable. Revenue appeal dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
