M/S. RAHMAN PROPERTIES LIMITED,GUWAHATI vs. JOINT COMMISSIONER OF INCOME TAX, RANGE-2, GUWAHATI

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ITA 241/GTY/2019Status: DisposedITAT Guwahati26 August 2025AY 2005-06Bench: SHRI RAJESH KUMAR (Accountant Member), SHRI MANOMOHAN DAS (Judicial Member)14 pages

AI SummaryAllowed

Facts

The assessee's case was selected for scrutiny for A.Y. 2005-06, and the AO added ₹1.00 crore for written-back current liabilities and ₹1,28,374/- for waived interest, treating them as deemed profit under Section 41(1) of the Income Tax Act. The CIT(A) upheld this addition, concluding that Section 41(1) was applicable even if the liabilities were capital in nature, as the assessee failed to provide sufficient evidence.

Held

The tribunal found that almost all the written-back liabilities/expenses were incurred on capital account for building, plant, machinery, or capitalized rent, and were never charged to the Profit & Loss account. Since Section 41(1) applies only to liabilities/expenses previously allowed as a deduction in computing income, the tribunal held it was not applicable to these capital liabilities. The order of the CIT(A) was set aside, and the AO was directed to delete the addition.

Key Issues

Whether Section 41(1) of the Income Tax Act applies to write-back of liabilities that are capital in nature and were never debited to the Profit & Loss account for computing income.

Sections Cited

Section 41(1), Section 143(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘GUWAHATI’ BENCH, GUWAHATI’

For Appellant: Shri Akhilesh Shrivastava, AR

For Respondent: Shri Kausik Ray, DR

Hearing: 09.07.2025Pronounced: 26.08.2025

O R D E R Per Rajesh Kumar, AM:

This appeal preferred by the assessee against the order of the Commissioner of Income-tax (Appeals), Guwahati (hereinafter referred to as the “Ld. CIT(A)”] dated 15.03.2019 for the A.Y. 2005- 06.

The only issue raised in ground no.1 is against the confirmation of addition by the ld. CIT (A) as made by the ld. AO of ₹1.00 crore u/s 41 of the Act and the issue raised in ground no.2 is against the confirmation of addition of ₹1,28,374/- by the ld. CIT (A) as made by the ld. AO u/s 41(1) of the Act. Thus, the issue involved in both the grounds is same and therefore, they are being disposed off together.

In the appellate proceedings also the ld. CIT (A) upheld the order of the ld. AO by dismissing the appeal of the assessee on this issue despite the submissions of the assessee that provisions of Section 41(1) of the Act were not applicable in the instant case as the same is applicable along only when the liabilities/ expenses which were written back were rooted to the profit and loss account and are of revenue nature alone. But the submission of the assessee did not find favour with the ld. CIT (A) and he dismissed the appeal by holding that the assessee had not furnished any documentary evidences in this regard. The ld. CIT (A) also noted that in the assessment proceedings, the assessee averment that the majority of the expenses were incurred on account of capital transactions remained unapproved.

After hearing the rival contentions and perusing the materials available on record, we find from the evidences filed before us which “This is in reference to the clarification notice received from your Hon'ble Bench regarding the write-off of certain outstanding payables reflected in our books. We respectfully submit as under: 1.) During the financial year 2004-05, we undertook a comprehensive review of our old liabilities to ensure that our financial statements reflect a true and fair view of our obligations. As a part of this exercise, we wrote off various payables which had been outstanding for a prolonged period and were no longer payable. I would like to clarify that the liabilities written off are related to Capital Expenditure-The list of suppliers written of are as follows: