Go Ad-Free on CAclubindia with Daily Mobile Updates. Subscribe Now!

Remission and Cessation u/s 41(1)

Ravinder Singh Malhan (ARTICLE) (70 Points)

06 January 2010

if a person has taken any advance for supply of goods but due to some business commitment could not made any supply. After completion of 3 years is that treated as cessation of liability and whether the ITO can make addition for that? Further is that be added by ITO as unexplained Credits. As the assessee fails to submit the proof of such advance received by him. The respondant reply that no trading liability because no expenditure is transfered to Trading and P&L Account. So, it can't be said cessation of liability.

Reply
Follow
Share

6 Replies

Amir (Learner) (4016 Points)
Replied 06 January 2010

If any advance is not payable then it does not become a remission/cessation of trading liability within the maening of Sec 41(1),

As far as adding in the income is concerned it will remain question of fact..the period of 3 years as per Limitation Act is only an indicative and NOT DECISIVE since only the legal rite to enforce a debt has lapsed but parties can still perform their part on their will or keeping in mind their goodwill..

After the expiry of 3 years AO may ask you to get a confirmation from the customer regarding this advance that "THE GOODS WILL BE SUUPLIED IN FUTURE" and if assessee fails to get this confirmation then AO will be justified in adding the amount of advance to the income..

Upgrade to CAclubindia Pro. Subscribe Now!

Ravinder Singh Malhan (ARTICLE) (70 Points)
Replied 06 January 2010

it has been about 7 years that the balance is stood in balance sheet. the party has no valid address. further entry was passed as per real account, it is not as per nominal account. As per sec 41(1), this situation does not fall within it.

Amir (Learner) (4016 Points)
Replied 06 January 2010

Agreed Ravi, Infact that is wat I said that the case is not covered u/s 41(1)..

But in case Assessee fails to provide confirmation of the balance (which is likely since it's a long outstanding balance + party has no valid address) then AO would be rite by treating it as Income..

kumarsatish022 (Professional) (165 Points)
Replied 06 January 2010

Dear Ravinder

As per litigation goes Ao can tax this reciept as income as it involves trading activities as per recent judgement in this regard. i will mention it as soon i will get it

Ravinder Singh Malhan (ARTICLE) (70 Points)
Replied 07 January 2010

satish as per ur suggestion, i feel its not an trading activity as it is not passed through the Trading account. Its an balance sheet item. Can AO add this income as remission of liability or add as unexplained credit, not verified by the party.