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2019 (1) TMI 1276 - HC - Income TaxAddition of as remission of trading liability u/s 41(1) - book entry passed by the assessee by reducing the creditor's balance and increasing the assessee's capital balance - gift from the maternal uncle - Held that:- The confirmation letter as produced by the assessee can only be treated to be an afterthought insofar as absolving the liability under Section 41(1). We hence, uphold the assessment under Section 41(1) and we hold that existence of adverse business situation is not a requirement under Section 41(1) to find remission of trading liability. We answer the questions of law in favour of the Revenue and against the assessee; but, however notice that the assessee had raised a contention that the liability as seen from the account of M/s.Veeriah Reddiar cannot be fully considered as a trading liability. It is also to be noticed that the remission of trading liability can be deemed to be an income arising from the profit and loss accounts only to the extent of the actual credits outstanding in the creditors account wiped off on the basis of the book adjustments made by the assessee. The question whether there is any liability other than a trading liability insofar as the outstanding credits found in the account of M/s.Veeriah Reddiar also has to be verified by the AO. Though we find the assessment made under Section 41(1) to be proper, we remand the matter to the AO for the limited purpose of limiting the addition under Section 41(1) to that of the trading liability wiped off from the account of M/s.Veeriah Reddiar. The assessee shall produce sufficient material to substantiate the liability having arisen other than under trade between the two. Appeal allowed with a remand to the limited extent of ascertaining the actual quantum to be made addition of as remission of trading liability under Section 41(1).
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