Trading liability of business discontinued 10 years ago is deemed as business profit u/s 41(1).
West Asia Exports & Imports (P.) Ltd. v. ACIT –  104 taxmann.com 170 (Madras)
The assessee was earlier engaged in business of Timber, but about 10 years back from Assessment Year in instant case, it closed that Timber business and switched over to the business of Recruitment of employees for sending to Gulf countries on behalf of certain foreign companies.
Assessee continued to show its erstwhile sundry creditors of its erstwhile timber business in balance sheet of current business also. Assessee was unable to produce written confirmations on being asked to produce the confirmations from those Sundry Creditors about the current existence of its liability.
Thus, Assessing Officer (AO) added back the amount as income of assessee as per section 41(1).
The Madras High Court held that lapse of ten years of time, coupled with fact that there was a change of business altogether by assessee, and fact that debts had become time barred and no creditor made any claim for recovery from assessee during any of these years, even upto now, absolutely justified AO to draw an adverse inference against assessee about cessation of liability.