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2023 (5) TMI 1011 - KARNATAKA HIGH COURTAddition u/s 41(1) - addition towards waiver of liability / expenditure claimed earlier - assessee has neither filed its return of income nor made an assessment and thus interest was not claimed as deduction - HELD THAT:- Undisputed fact of the case is, assessee stopped its operation in the year 2004 and it is under the control of Liquidator. Assessee has not filed its return from A.Y. 2003-04 onwards. As per mercantile system of accounting, assessee had been accounting for interest expenses every year in its books of accounts showing it as payable. One of the essential requirements of Section 41(1) of the Act is that there should be an allowance or deduction made in the assessment for any year in respect of loss or expenditure or trading liability. The AO has recorded a finding in para 3 of its order that the assessee has not filed the returns for the claim for the earlier years and thus no claim has been made by filing returns of income. As is right in his submission that Section 41(1) shall be applicable only when allowance is made in any assessment or reassessment for any year. In the present case, no assessment or reassessment has been made for any A.Ys. Therefore, no allowance or deductions are claimed for any A.Ys. It is not in dispute that assessee has not filed return of income in the earlier A.Ys. claiming deduction of interest and no assessment or reassessment has been made for any A.Ys. Hence, Section 41(1) of the Act is not applicable and we find no error in the CIT(A)’s order. Decided in favour of the assessee.
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