INCOME TAX OFFICER v. SMT. KAVITA KHURANA
[Citation -2007-LL-1019-1]

Citation 2007-LL-1019-1
Appellant Name INCOME TAX OFFICER
Respondent Name SMT. KAVITA KHURANA
Court ITAT
Relevant Act Income-tax
Date of Order 19/10/2007
Assessment Year 1999-2000
Judgment View Judgment
Keyword Tags remission or cessation • computation of income • trading liabilities • trading liability • gross receipt • car loan
Bot Summary: The AO invoked s. 59(1) of the Act and added a sum of Rs. 5,25,764 on account of liability outstanding as payable to Shri B.L. Khurana Rs. 69,630, Shri Ankush Khurana Rs. 1,91,301, Shri Akash Khurana Rs. 49,080 and Shri Ravi Khurana HUF Rs. 2,15,753. Under the provisions of s. 41(1), where an assessee who has been allowed deduction in respect of any trading liability in any year obtains any benefit in any subsequent year in respect of such trading liability by way of remission or cessation thereof, the value of benefit accrued to him is deemed to be profits and gains of the business and chargeable to tax as income of the previous year in which such benefit is obtained. In order to apply these provisions to computation of income from other sources, the liability in respect of which any cessation or remission takes place during the year has to be of the nature similar to the trading liability in respect of which deduction was allowed in an earlier year in computing the taxable income under the head Income from other sources. The facts of the present case show that the liabilities outstanding during the year were not in the nature of liabilities similar to the trading liabilities in respect of which any deduction or allowance was made in computing the income from other sources in the earlier years. These liabilities are in the nature of loan liabilities which do not fall within the purview of s. 59(1), r/w s. 41(1) of the Act. With respect to the other liabilities, the CIT(A) found that the loan liabilities outstanding against Shri Ankush Khurana, Shri Akash Khurana and Ravi Khurana HUF were brought forward from earlier years and the additions, if any, made during the year to the opening balances were only on account of interest credited in the respective loan accounts. Accordingly, the additions of Rs. 1,91,301, Rs. 49,080 and Rs. 2,15,753 on account of liabilities payable to Shri Ankush Khurana, Shri Akash Khurana and Ravi Khurana HUF respectively were correctly deleted by the CIT(A) in view of non-applicability of the provisions of s. 59(1), r/w s. 41(1) of the Act.


This is appeal filed by Revenue against order of CIT(A) dt. 8th Jan., 2004 for asst. yr. 1999-2000, in matter of order passed under s. 143(3) of IT Act, 1961. Nobody appeared on behalf of assessee inspite of giving so many opportunities, Bench, therefore, decided to dispose of appeal after hearing learned Departmental Representative and considering material placed on record. We have gone through orders of lower authorities and found that addition was made by AO by invoking provisions of s. 59(1) of Act. In respect of loan liability shown by assessee in her balance sheet, AO observed that in some of cases, assessee had not filed confirmation or there is some difference in amount shown by these persons in their respective statement of account. AO, therefore, invoked s. 59(1) of Act and added sum of Rs. 5,25,764 on account of liability outstanding as payable to Shri B.L. Khurana Rs. 69,630, Shri Ankush Khurana Rs. 1,91,301, Shri Akash Khurana Rs. 49,080 and Shri Ravi Khurana HUF Rs. 2,15,753. By impugned order, CIT(A) deleted addition by observing that liability shown by assessee was in nature of loan liability and no credit or deduction was taken by assessee while computing her income in any of earlier assessment years, therefore, provisions of s. 59(1), r/w s. 41(1) of Act was not applicable. We have considered contentions of learned Departmental Representative. provisions of s. 59(1) extends principles of s. 41(1) to computation of income from other sources. Under provisions of s. 41(1), where assessee who has been allowed deduction in respect of any trading liability in any year obtains any benefit in any subsequent year in respect of such trading liability by way of remission or cessation thereof, value of benefit accrued to him is deemed to be profits and gains of business and chargeable to tax as income of previous year in which such benefit is obtained. In order to apply these provisions to computation of income from other sources, liability in respect of which any cessation or remission takes place during year has to be of nature similar to trading liability in respect of which deduction was allowed in earlier year in computing taxable income under head Income from other sources. facts of present case show that liabilities outstanding during year were not in nature of liabilities similar to trading liabilities in respect of which any deduction or allowance was made in computing income from other sources in earlier years. These liabilities are in nature of loan liabilities which do not fall within purview of s. 59(1), r/w s. 41(1) of Act. While invoking provisions of s. 59(1), onus is on Revenue to first establish that assessee has taken benefit of deduction of any such liability in any of earlier years and which has now ceased to exist. In present case, no finding has been recorded by AO with regard to year in which assessee has taken benefit of deduction of these liabilities while computing her income in any of earlier previous year. Undisputedly, liabilities were in respect of loan taken by assessee for which CIT(A) has categorically observed that additions can be made in respect of only those loan amounts which were received during year under consideration and assessee has failed to prove nature and source of such loan. In instant case, assessee has taken loan of Rs. 45,000 during year from M/s B.L. Khurana, as assessee was unable to satisfactorily explain reasons for not showing said liability by Shri B.L. Khurana in his statement of affairs, addition was made by AO and CIT(A) has confirmed same. With respect to other liabilities, CIT(A) found that loan liabilities outstanding against Shri Ankush Khurana, Shri Akash Khurana and Ravi Khurana HUF were brought forward from earlier years and additions, if any, made during year to opening balances were only on account of interest credited in respective loan accounts. There was no fresh receipt of any loan during year under consideration from these three persons. Therefore, no addition can be made under s. 68 in respect of loan liabilities outstanding in name of above three persons. Accordingly, additions of Rs. 1,91,301, Rs. 49,080 and Rs. 2,15,753 on account of liabilities payable to Shri Ankush Khurana, Shri Akash Khurana and Ravi Khurana HUF respectively were correctly deleted by CIT(A) in view of non-applicability of provisions of s. 59(1), r/w s. 41(1) of Act. In view of above discussion, ground No. 1 of Revenue s appeal stands dismissed. In ground No. 2, Revenue is aggrieved for deletion of disallowance of 75 per cent of expenses claimed by assessee. We have heard learned Departmental Representative and found from record that it was first year of business of assessee, total receipts from above business was only at Rs. 88,489 against which total expenditure (excluding car depreciation and interest on car loan) was only Rs. 63,937. loss at Rs. 59,771 had arisen due to car depreciation which was claimed at Rs. 60,989 and interest on car loan at Rs. 25,427. By impugned order, CIT(A) deleted disallowance by observing that loss of Rs. 59,771 had arisen on account of claim of car depreciation of Rs. 60,989 and interest on car loan of Rs. 25,427. After excluding car depreciation and interest on car loan, there was net profit of Rs. 26,645 which works out to Rs. 30.11 per cent of gross receipt of Rs. 88,489 and same is found to be very reasonable, considering it to be first year of business. CIT(A) also found that assessee had herself disallowed 1/8th of expenses on account of depreciation and interest on car loan for her personal use. Accordingly, we do not find any infirmity in order of CIT(A) for deleting disallowance of expenses. In result, appeal of Revenue is dismissed. *** INCOME TAX OFFICER v. SMT. KAVITA KHURANA
Report Error