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2005 (8) TMI 96 - HC - Income TaxDeduction - There is a clear distinction between an acknowledgment contemplated under the Limitation Act and an admission for the purpose of reflecting a liability or loss in the accounts maintained under the mercantile system by the assessee for the purpose of the Income-tax Act, 1961. - The admission of liability for the purpose of making entry of loss or reflection of liability in the accounts maintained in the mercantile system for the purpose of claiming deduction of loss in the course of assessment is distinct from acknowledgment of liability vis-a-vis the creditor. Inasmuch as if the amount becomes recoverable vis-a-vis the creditor, i.e., the liability ceases to be recoverable, the loss becomes income of the assessee chargeable to tax in the year of such accretion. The assessee is entitled to make such entry in the accounts maintained in the mercantile system as soon as he admits the liability. Therefore, he is entitled to the deduction of the loss in computing the income of the assessment year in which such entry is made, subject, however, to section 41 of the Income-tax Act, 1961.
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