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2023 (1) TMI 1068 - AT - Income TaxAddition u/s 41(1) - assessee has shown liabilities of sundry creditors - assessee stated that the outstanding liability is against the purchase of machinery from Sabko Emerystone & Engineering Industries - As assessee has not claimed depreciation on this machinery in any of the assessment order. In absence of any claim of expenditure/loss, depreciation in any assessment year, the provision of Section 41(1) cannot be applied - AO held that assessee has not established his claim of sundry creditor is capital in nature - HELD THAT:- Lower authority has not disputed about the purchase of machinery. No adverse evidence is brought on record that the liability is other than purchase of machinery. Thus, the credit in the books is not on account of trading liability. The expenditure incurred and purchases of machinery are certainly a capital expenditure. Further, the assessee has never claimed depreciation on such machinery. In the case of CIT vs Mahindra & Mahindra [2018 (5) TMI 358 - SUPREME COURT] held on a perusal of section 41(1), it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax u/s 41. The objective behind this section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. In absence of any evidence that liability shown by assessee was other than purchase of machinery (capital asset), which was never put to use and the assessee never claimed depreciation thereof. That the consideration under section 41(1) of the Act is not sustainable. Appeal filed by the assessee is allowed.
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