TMI Blog2021 (9) TMI 1213X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to be taxed under the profits and gains of the business of income of that person of the previous year The expression loss or expenditure or some benefit in respect of any such trading liability by any unilateral act by the first mentioned person under clause(a) or the successor in business under clause (b) of section 41(1) of the Act. In the instant case, the first mentioned person is the assessee, but not the creditor. In the instant case, the assessee has not written off the liability, though the creditor has written off the debt. Though the debtor has no legal right to enforce the debt, still the assessee is having liability to make the payment, till the assessee writes off the debt. In these facts and circumstances there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot owe any amount to the creditor, therefore, invoked the provisions of section 41(1) and made the addition holding that the liability stands ceased. 3. Against the order of the AO the assessee went on appeal before the CIT(A) and the Ld.CIT(A) observed that M/s Sravan Shipping had written off debt in their books of accounts and hence, M/s Sravan Shipping has forgone the right to receive the debt, therefore, viewed that the assessee need not discharge its obligation pay debt and the liability does not exist. Accordingly, confirmed the order of the AO and the addition. 4. Against which the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR submitted that though the creditor has written off the debt, st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant case, the assessee is the debtor who has incurred the expenditure and therefore, argued that in case, the assessee treats the same as not payable, the same required to be brought to tax, but not otherwise under the head profits and gains. 7. We have heard both the parties and perused the material placed on record. There is no dispute that there was a liability in existence in the books of the assessee. The AO has to go according to the books of accounts of the assessee, while computing the income of the assessee but not as per the books of accounts of the creditor. As per section 41(1) of the Act any allowance or deduction made in the assessment year in respect of loss or expenditure or trading liability incurred by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1.-For the purposes of this sub-section, the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first-mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. Explanation I clearly explains that the express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof. the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince there was no writingoff of the liability by the assessee to pay to the creditors in the assessee's account. In the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Nitin. S. Garg reported in 208 taxman 16 (Guj), it was held that addition u/s 41(1) can be made only when it is found that there was a remission and/or cessation of the liability. The relevant extract of the order is reproduced below:- It is not been established that the assessee has written off the outstanding liabilities in the books of account. The Appellate Tribunal is justified in taking the view that as assessee had continued to show the admitted amounts as liabilities in its balance sheet the same cannot be treated as assessment of liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X
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