In order to apply sec 41 (1) assessee should have obtained deduction in the assessment in any year in respect trading liability incurred by the assessee

Last updated: 27 December 2011

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
Brief facts of this issue are that during the year, the company has written off unsecured loans to the tune of Rs.52.75 lakhs and it is mentioned in the schedule-L i.e., notes forming part of accounts that there was no claim from the loan creditors and hence they were written off. During the proceedings, it was explained that he company has raised loans in the personal capacity of the Directors by giving personal guarantees to the tune of Rs.52.75 lakhs and the company had not executed any documents and there were no claims from the above said unsecured loans and hence the Board has transferred them to Sundry Balances written off a/c. The assessee is not a position to furnish the names of the creditors and reasons for which the liability has been incurred in the absence of such details and the inference is that the liability is during the course of business and that the assessee has derived the benefit of expenditure on the basis of which the liability has been created. Since the unilateral act of writing back the loans amounts to cessation of liability for the company, it is to be treated as ‘income’ under section 41 of the income-tax Act.

Citation :
M/s. NJP Surya Cold Storage Pvt Ltd., R.R .District, Hyd.(PAN:AABCN 3603 Q)(Appellant)VS Income-tax Officer,Ward-7(2), Hyderabad.(Respondent)