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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Waiver of loan taken on capital account cannot be taxed U/s. 41(1)

Shrm Food & Allied Services (P) Ltd. Vs ITO (ITAT Mumbai) - Total dues payable by the Bank consisted of principal component and interest component. The principal Component being a loan in respect of which no deduction, benefit or loss was either claimed or allowed, was transferred to Capital Reserve Account and interest component was duly credited to the Pro...

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Cessation of liability U/s. 41(1) cannot be presumed, merely because liability remained unpaid for a period of 3 years

ITO Vs. Thadaram Khaldas Tolani (ITAT Mumbai) - Merely on the reasoning that liability in respect of some of the sundry creditors have remained outstanding for about three years the assessing officer has concluded that they have to be treated as income of the assessee in the impugned assessment year as they have ceased to exist as per section 41(...

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Section 41(1) includes remission or cessation of any liability by a unilateral act

DCIT vs Sonodyne Television Co. Ltd.(ITAT Kolkata) - Loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation shall be includible by a unilateral act by the first person who is assessee, i.e., debtor. There is no stipulation of such unilateral act by the creditor. ...

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Large amount spent on repair and maintenance having no enduring benefit allowable as expense

Dy. CIT Vs. Kalyanapur Cement Ltd. (ITAT Kolkata) - Expense was classified under the head major repair and maintenance on the ground that the large expense was spent on repair and maintenance but the fact is that there was no enhancement in the capacity of the plant and machinery as well as no increase in the efficiency....

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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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Recent Posts in "Section 41"

Waiver of loan taken on capital account cannot be taxed U/s. 41(1)

Shrm Food & Allied Services (P) Ltd. Vs ITO (ITAT Mumbai)

Total dues payable by the Bank consisted of principal component and interest component. The principal Component being a loan in respect of which no deduction, benefit or loss was either claimed or allowed, was transferred to Capital Reserve Account and interest component was duly credited to the Profit and Loss Account and also offered to...

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Cessation of liability U/s. 41(1) cannot be presumed, merely because liability remained unpaid for a period of 3 years

ITO Vs. Thadaram Khaldas Tolani (ITAT Mumbai)

Merely on the reasoning that liability in respect of some of the sundry creditors have remained outstanding for about three years the assessing officer has concluded that they have to be treated as income of the assessee in the impugned assessment year as they have ceased to exist as per section 41(1) of the Act. ...

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Section 41(1) includes remission or cessation of any liability by a unilateral act

DCIT vs Sonodyne Television Co. Ltd.(ITAT Kolkata)

Loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation shall be includible by a unilateral act by the first person who is assessee, i.e., debtor. There is no stipulation of such unilateral act by the creditor. ...

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Large amount spent on repair and maintenance having no enduring benefit allowable as expense

Dy. CIT Vs. Kalyanapur Cement Ltd. (ITAT Kolkata)

Expense was classified under the head major repair and maintenance on the ground that the large expense was spent on repair and maintenance but the fact is that there was no enhancement in the capacity of the plant and machinery as well as no increase in the efficiency....

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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 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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