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2019 (1) TMI 633 - AT - Income TaxAddition u/s 41(1)(a) - cessation of trading liability - relevancy of accounting entry - Held that:- Whether a trading liability, which the impugned amount/s represents, could be added u/s. 41(1)(a), subject of course to the conditions in its respect being satisfied, where the purchase (of goods), to which the said liability/s relates, is not doubted for its genuineness or its genuineness otherwise not in dispute. There is nothing in the clear mandate of the provision to so suggest, as sought to be canvassed by Sh. Sarna with reference to the decision in Jain Exports Pvt. Ltd. [2013 (5) TMI 690 - DELHI HIGH COURT]. Why, the very fact that the liability under reference stands allowed as a deduction, a condition precedent for the applicability of section 41(1), in an earlier year, itself implies that the genuineness of the transaction/s of purchase, giving rise to the liability, is not under question. Rather, where so, the same would disqualify the relevant amount/s for being allowed as a deduction for the year in which it arose, i.e., under the relevant provision, as under section 37(1) qua a purchase transaction, even as explained in Jain Exports (P.)Ltd. (supra). As such, nothing turns on the assertion that the relevant purchase/s stands not doubted by the Revenue; the very basis of sec. 41(1)(a) being the allowance of deduction qua the liability under reference earlier. As explained in Motilal Ambaidas v. CIT [1976 (2) TMI 17 - GUJARAT HIGH COURT] in the context of a sec. 41(1) addition, wherein no entries in respect of sale-tax collected (from customers) and paid to the Government were made by the assessee in his books of account, contending that therefore no deduction qua sales-tax paid had been claimed by him for section 41(1) to apply on the refund of the sales-tax from the Government. The contention was not accepted by the Hon’ble Court, further explaining that the provision is a machinery provision. In fact, as explained in CIT v. Balabux Birla & Co. [1985 (5) TMI 39 - PUNJAB AND HARYANA HIGH COURT] the method of accounting, cash or mercantile, adopted by the assessee is also irrelevant as far as section 41(1) is concerned, so that as soon as the assessee is found to have benefited from the remission or cessation of a trading liability, allowed in an earlier year, the provision would get attracted in the facts and circumstances of the case. The said condition, in view of the foregoing, stands satisfied, so that in my view section 41(1)(a) stands rightly invoked by the Revenue in the instant case qua the impugned liabilities. No case for telescoping, also considered, also obtains. Assessee’s appeal dismissed.
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