Unclaimed creditors to be added to Income u/s 41, even if the same is not written back in Income statement

M/s. West Asia Exports & Imports Vs. ACIT (Madras High Court)

We know that Sec 41(1) of Income Tax Act 1961, where there is cessation of any trading liability then the benefit accruing on account of cessation of such liability will be deemed to profits and gains of business or profession whether or not such business or profession is in existence.

In the case of M/S. West Asia Exports & Imports vs Assistant Commissioner of Income Tax, Chennai, on 11.03.2019 Madras high court decided that in order to attract sec 41(1) it is not mandatory that such liability should be credited back to profit & loss account. Where there is passage of sufficient time, no claim is made by creditors , no payment is made to creditor, no confirmation is produced by assesse and change in line of business of the assesse, then the unpaid creditors will be treated as Income of assesse (in terms of Sec 41(1)) even if the said amount is not credited by the assesse in his profit & Loss account.

Fact of the case:

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