Neither Section 41(1) nor Section 68 applied to the lease deposits and booking Advances: ITAT

The ITAT upheld the Commissioner of Income Tax (Appeals)’s decision to delete the addition of ₹5.20 crore, concluding that neither Section 41(1) nor Section 68 applied to the lease deposits and booking advances in question.

While considering the case, ITAT relied upon the following:

1.  CIT v. Shivali Construction Pvt. Ltd. (2013) 355 ITR 218 (Delhi HC) wherein it has been held that advances received for booking of flats, remaining unclaimed for several years, do not automatically become taxable under Section 41(1) without evidence of cessation or remission of liability.

2.  CIT v. Speedways Tyre Ltd. (2014) 364 ITR 401 (P&H HC) wherein it has been hled that for Section 41(1) to apply, there must be an irrevocable cessation of liability, and the onus is on the Revenue to prove such cessation.

3.  CIT v. Jain Exports Pvt. Ltd. (2013) 89 DTR 265 (Delhi HC) wherein it has been clarified that old outstanding balances do not constitute income under Section 41(1) unless there is evidence of remission or cessation of the liability.

4.  CIT v. Hotline Electronics Ltd. (2012) 80 CCH 156 (Delhi HC) wherein it is reiterated that unilateral action by the assessee, such as writing back a liability, is necessary for Section 41(1) to be invoked; mere inaction by the creditor does not suffice.

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