Applicability of sec 411)

This query is : Resolved

Nikhil (Querist)
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25 December 2013 Dear Expert
My query is whether sec 41(1) is applicable if period of three years have not expired in respect of trading liability. Whether A.O. can make addition in the income of such trading liability on the ground that the assessee has not provide any reason for non payment and invoked s. 41(1)

Please support your opinion with relevant case laws

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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25 December 2013 Section 41(1) can only be applied when the assessee has actually written off the amount in his books.

If the limitation period is attracted then Section 41(1) CANNOT be invoked.

However, if the creditor has written off the amount in his books, then Section 41(1) will be attracted in the hands of the assessee.

Nikhil

Nikhil (Querist)
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26 December 2013 Dear Siddhartha
My query is if limitation period is not expired i.e liability outstanding for < 3 years then whether s.41 (1) can be applied. Can you please provide any case law on this

Recently Mumbai Tribunal has held in the case of ITO vs. Shailesh D Shah ITA No.7012/M/10 date of judgement 11th December 2013 that liability outstanding for long period of time is assessable as income u/s 41(1) despite no write back in the account if assessee is unable to prove genuineness of liability.

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