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2019 (3) TMI 467 - AT - Income TaxAddition u/s 41 - outstanding expenses - remission/cessation of liability - assessee had failed to prove the genuineness of liability - assessee had obtained a benefit either in cash or in any form in respect of such liability - HELD THAT:- It is an undisputed fact that the said liability is continuing in the books of account of the assessee for a long period without being paid by the assessee. Expenses have been claimed by the assessee in earlier years and are continuing unchanged till the impugned assessment year. But the disallowance was made by holding that assessee had failed to file confirmations and no payments have been made for years together. AO accepts that the liabilities were created in the earlier years, then the genuineness of such transactions have to be examined in those assessment years and not in assessment year under consideration. Reading of the provisions of section 41(1) we are of the view that before treating the amount outstanding as deemed income of the assessee u/s 41(1) on account of remission/cessation of liability, the AO is duty bound to examine whether the condition laid down u/s 41(1) are fulfilled or not. Remission or cessation of liability is also acceptable by unilateral act of writing off such liability in its account by the person showing such liability. Therefore, before applying the provisions of section 41(1), it is necessary to establish on record that the assessee had obtained a benefit either in cash or in any form in respect of such liability in the relevant previous year. Thus, when in AO’s own admission liability continued from past so many years, then what prompted the AO to conclude that the assessee has obtained benefit in respect of such liability in the impugned assessment year must be clearly brought on record. In the absence of any material to establish that the assessee had obtained any benefit in respect of the liability in the impugned assessment year, so merely on the basis of surmises and assumptions it cannot be said that there is remission/cessation of liability in the impugned assessment year. Addition u/s 41 to be deleted - Decided in favour of assessee.
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