By K. B. Bhujle | Advocate
New Page 1
Reported
:
52 Business Income: Deemed Profit: S. 41(1) of I. T. Act,
1961: A. Y. 2002-03: Write back/off of amount which had not entered P & L a/c:
S. 41(1) has no application
[CIT Vs. Saden Vikas India Ltd.; 320 ITR 538(Del)]
The assessee had received Rs. 50 lakhs as advance from PAL
for supply of components for automobiles manufactured by the latter. After
receipt of the amount a strike took place in the plant of PAL which resulted in
the suspension of the production and all transactions. PAL requested the
assessee to subscribe the said amount of Rs. 50 lakhs in its sister concern.
Accordingly the assessee invested the sum of Rs 50 lakhs in 12% optionally
convertible debentures of the said sister concern of PAL. However, both PAL and
its sister concern ran into difficulties and the assessee did not receive any
interest from the debentures and even the prospect of recovery of the maturity
value of the debentures became uncertain. The assessee therefore decided to
write off the amount both in the debit and credit sides of the balance-sheet.
The Assessing Officer made an addition of Rs. 50 lakhs invoking the provisions
of section 41(1) of the Income-tax Act, 1961. The Commissioner (Appeals) deleted
the addition and held that the assessee was entitled to write off the amount.
The Tribunal confirmed the order of the Commissioner (Appeals).
On appeal filed by the Revenue, the Delhi High Court upheld
the decision of the Tribunal and held as under:
“i) The assessee had received the sum of Rs. 50 lakhs only
on the capital account for infrastructure on behalf of PAL and it had a right
to use such capital asset for manufacture of air-conditioning systems for cars
to be produced by PAL. The undisputed fact was that the amount of Rs. 50 lakhs
written off was not allowed as deduction nor did it represent trading
liability which had gone into the computation of income for earlier years.
ii) The Tribunal noted the above facts and held that
writing off the amount would not attract the provisions of section 41(1). The
conclusion arrived at by the Tribunal was correct and justified.”
