Law:

Section:

Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessment year 1974-75 - Sales-tax liability was fastened on assessee on basic of ex-parte order dated 16-8-1967 passed by CTO - On appeal, vide order dated 4-4-1973 , ACCT set aside said ex-parte order - ITO sought to assess said sum as assessee's income under section 41(1) - There was no material to show that Sale Tax Department had filed any further appeal - Whether since appellate order of ACCT had become final and sales tax demand ceased to exist, ITO was fully justified in bringing to tax amount in question by applying provisions of section 41(1) - Held, yes FACTS For the assessment year 1968-69, the assessee-company had claimed and was allowed a deduction of the sales tax liability in respect of four quarters ending on 31-8-1963. This liability was fastened upon the assessee on the basis of the ex-parte order dated 16-8-1967, passed by the CTO. The assessee did not make any provision for this sales tax liability in its books of account, but the claim was made by the assessee-company based upon the said ex parte order. Subsequently, on appeal, the ACCT by his order dated 4-4-1973, set aside the ex parte order and directed to make a fresh assessment. Since the sales tax liability ceased to exist as a result of the appellate order, the ITO sought to assess the said sum as the assessee's income under section 41(1) in the assessment for the previous year ending 31-3-1974. On appeal, the AAC affirmed the order of the ITO. On second appeal, the Tribunal held that section 41(1) was not applicable as there was a distinct possibility of revival of the demand. On reference: HELD There was no material before the Tribunal to show that the Sales Tax Department had filed any further appeal against the setting aside of the ex-parte assessment order. In other words, there was no dispute and it was an admitted position that the appellate order dated 4-4-1973, passed by the ACCT had become final and the sales tax demand which was originally raised by the CTO by his ex-parte order dated 16-8-1967, was no longer in existence and had ceased to exist. Therefore, the ITO was fully…

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