Section 41(1) Section 40A(5) of the Income-tax Act, 1961

Court :
HIGH COURT OF ALLAHABAD

Brief :
Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessment year 1984-85 - Whether an unilateral entry on part of assessee-debtor to write back amount of liability lying unclaimed on ground of limitation having expired, would not tantamount to cessation of liability and, therefore, provisions of section 41(1) would not be attracted - Held, yes II Section 40A(5) of the Income-tax Act, 1961 - Business disallowance - Remuneration, etc., paid in excess of prescribed limits in case of company, etc. - Assessment years 1984-85 to 1987-88 - Whether provision of section 40A(5)cannot be controlled by rule 3 of Income-tax Rules, 1962 - Held, yes III Section 145 of the Income-tax Act, 1961 - Method of accounting - Change of - Assessment year 1985-86 - Whether payment of bonus to employees in respect of amount which had accrued as a liability in preceding assessment years, but could not have been allowed as assessee was following cash system of accounting, was liable to be allowed during previous years, relevant to assessment years in question on actual payment basis even where there was a change of accounting system from cash to mercantile system - Held, yes Facts - I An amount of Rs. 2,99,287, relating to sundry creditors, was written back by the assessee on the ground that the same was lying unclaimed for the last three years. The Assessing Officer, however, added the amount by invoking the provisions of section 41(1) by treating it to be a case of cessation of liability. On appeal, the Commissioner (Appeals) upheld the impugned action. On second appeal, the Tribunal holding that the addition was not justified, allowed assessee’s said appeal. On reference : Facts - II The Assessing Officer made certain additions under section 40A(5). On appeal, the Tribunal directed the Assessing Officer to work out the impugned disallowance in terms of rule 3(c)(ii) of the Income-tax Rules. On reference: Facts - III The assessee had claimed deduction of Rs. 3,67,872 towards payment of bonus to its employees which pertained to the previous accounting years on the ground that same pertained to the liability of earlier years but was paid during the year in question. The assessee’s claim was disallowed on the ground that it had changed its accounting system from cash to mercantile in respect of said payment during assessment year 1985-86. The Tribunal, however, allowed the same on the ground that the change in the accounting method was bona fide and that whatever liability of the previous year, which was being allowed on cash system and had been paid during the year in question, had to be allowed apart from the liability which had accrued during the year in question. On reference:

Citation :
Commissioner of Income-tax, Meerut v. Willard India Ltd.