Section 41

Making Chargeable to Tax U/s. 41(1) of Allowance/Deduction Already Made

Income Tax - The Supreme Court in CCIT vs. Kesaria Tea Co. Ltd. (2002) 20 SITC 172 (SC) has laid down that the resort to section 41(1) can be taken only if the liability of the assessee can be said to have ceased finally and there is no possibility or reviving it. Also, it has held that an unilateral action on the part of the assessee by way of writin...

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Analysis of Section 41(1) of Income Tax Act, 1961

Income Tax - In business there are circumstances where a person might have incurred a liability but later on he need not have to pay it for one or other reason. The Income Tax Act brings to tax such liabilities which are no more payable. ...

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Treatment of Cessation of Liabilities – Section 41 – Case Laws

Income Tax - Introduction: Section 41(1) provides for taxing any amount benefit which was obtained by a person with respect to any loss, expenditure or trading liability incurred in any earlier Assessment Years. The Section is re-produced as under:- “ Where an allowance or deduction has been made in the assessment for any year in respect of loss, [&...

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Addition U//s 41(1) not justified for creditors paid in subsequent years

Satpal & Sons (HUF) Vs ACIT (ITAT Delhi) - This is an appeal filed by the assessee against the order dated 7-11-2014 of learned Commissioner (Appeals)-XXVIII, Delhi for the assessment year 2011-12. In this appeal, the assessee has also filed a stay petition seeking stay of the outstanding demand. ...

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No cessation of liability merely because amount is outstanding for several years

The Income Tax Officer Vs M/S. Vikram A. Pradhan (ITAT Mumbai) - Amounts shown as liabilities / Outstanding in the Balance Sheet cannot be deemed to be "cessation of liability" under Section 41(1) of Income Tax Act, 1961 merely because the liabilities are outstanding for several years. Assessing Officer has to bring on record any material evidence to establish t...

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Surplus/Savings arising on prepayment of deferred sales tax not taxable u/s (iv)

Grindwell Norton Ltd. vs. Addl. CIT (ITAT Mumbai) - The ITAT Mumbai in the above cited case held that the surplus/savings arising on prepayment of deferred cannot be taxed u/s 28(iv) as by making prepayment of a future liabity at present value no monetary benefit arises to assessee as the savings it made by prepayment would get set off against the...

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Waiver of loan taken for acquiring a capital asset is taxable

CIT Vs Ramaniyam Homes (P.) Ltd. (Madras High Court) - The waiver of a portion of the loan would certainly tantamount to the value of a benefit. This benefit may not arise from the business of the assessee. But, it certainly arises from business. The absence of the prefix “the” to the word “business” makes a world of difference....

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Sec. 41(1)-Cessation of liability on capital account not taxable

Principal CIT Vs M/s Tinna Finex Ltd. (Delhi High Court) - The loan transactions were on the capital account and the writing off the loan was also on capital account and did not find place in the Profit and Loss Account. Apart from this it has been found as a matter of fact that the assessee had not got the benefit of any allowance or deduction in the asse...

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Recent Posts in "Section 41"

Addition U//s 41(1) not justified for creditors paid in subsequent years

Satpal & Sons (HUF) Vs ACIT (ITAT Delhi)

This is an appeal filed by the assessee against the order dated 7-11-2014 of learned Commissioner (Appeals)-XXVIII, Delhi for the assessment year 2011-12. In this appeal, the assessee has also filed a stay petition seeking stay of the outstanding demand. ...

Read More

No cessation of liability merely because amount is outstanding for several years

The Income Tax Officer Vs M/S. Vikram A. Pradhan (ITAT Mumbai)

Amounts shown as liabilities / Outstanding in the Balance Sheet cannot be deemed to be "cessation of liability" under Section 41(1) of Income Tax Act, 1961 merely because the liabilities are outstanding for several years. Assessing Officer has to bring on record any material evidence to establish that there was cessation of liability in ...

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Surplus/Savings arising on prepayment of deferred sales tax not taxable u/s (iv)

Grindwell Norton Ltd. vs. Addl. CIT (ITAT Mumbai)

The ITAT Mumbai in the above cited case held that the surplus/savings arising on prepayment of deferred cannot be taxed u/s 28(iv) as by making prepayment of a future liabity at present value no monetary benefit arises to assessee as the savings it made by prepayment would get set off against the interest it loses by making prepayment....

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Waiver of loan taken for acquiring a capital asset is taxable

CIT Vs Ramaniyam Homes (P.) Ltd. (Madras High Court)

The waiver of a portion of the loan would certainly tantamount to the value of a benefit. This benefit may not arise from the business of the assessee. But, it certainly arises from business. The absence of the prefix “the” to the word “business” makes a world of difference....

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Sec. 41(1)-Cessation of liability on capital account not taxable

Principal CIT Vs M/s Tinna Finex Ltd. (Delhi High Court)

The loan transactions were on the capital account and the writing off the loan was also on capital account and did not find place in the Profit and Loss Account. Apart from this it has been found as a matter of fact that the assessee had not got the benefit of any allowance or deduction in the assessment for any prior year in respect of ...

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Mere Lien over payment due to pending dispute does not result in cessation of trading liability u/s 41(1)

The ITO Vs Shri Radhey Shyam Agarwal (ITAT Jaipur)

The ITO Vs Shri Radhey Shyam Agarwal (ITAT Jaipur) Once, there is an impending dispute between assessee and M/s. Laxmi Carpet Enterprises then it cannot be assumed that liability for payment has ceased...

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In absence of any unilateral or bilateral w/off, no addition sustainable on account of cessation of liability

M/s Brothers Pharma Pvt. Ltd. Vs ITO (ITAT Jaipur)

ITAT Jaipur held In the case of M/s Brothers Pharma Pvt. Ltd. vs. ITO that the case laws referred by the CIT (A) are squarely distinguishable on the ground that there was a written off either by the assessee or bilaterally...

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No Penalty for Doubtful addition U/s. 41(1) of Income Tax Act, 1961

Smt. Sumitra Devi Agarwal Vs ITO (ITAT Jaipur)

Smt. Sumitra Devi Agarwal Vs. ITO (ITAT Jaipur)- The AO has questioned the genuineness of the liability and in absence of the requisite confirmation, has held the same to be a bogus liability. Where the liability itself has been held to be a bogus liability, where is the question of remission or cessation thereof. ...

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Bogus Purchase- Mere Adjustment in Purchase without disturbing Sales not Justified

ACIT Vs Advert Communication (ITAT Delhi)

ACIT vs Advert Communication ( ITAT Delhi) 1.If addition has to be made for bogus purchases then sales should also be disturbed ; 2.Until and unless both parties don’t confirm the cessation of liability then addition cannot be made u/s 41(1); 3....

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Cessation of loan liability taken for purchase of capital assets is capital receipt

CIT Vs V. S. Dempo & Company Ltd. (Goa High Court)

In the case of The Commissioner of Income Tax vs. V. S. Dempo & Company Ltd, Goa High Court has held that the principal amount of loan taken for purchase of capital assets was on capital account and therefore on cessation of its repayment there is no occasion to apply Section 41 (1) of the Act. And resultant income should only be treated ...

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