Recovery of expenditure & Remission and cessation of trading liability - (New) Section 38(1)(a) and (4) / (Old) Section 41(1)

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....e benefit related to that, then that benefit is treated as business income in the year it arises. Two Key Scenarios (i) Remission or cessation of liability • If a liability (like a creditor payable) is: • waived, • forgiven, or • written off (even unilaterally by the assessee) • Then the value of that benefit is taxable. (ii) Recovery of earlier loss/expenditure • If you receive any amount later related to: • a previously claimed expense, or • a loss • That recovered amount is taxable. Condition [ Section 38(2)(a) ] • The provision will apply only when a deduction or allowance has already been granted....

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....ar in which such amount is received. This shall apply even if the business is not in existence. • Where any deduction has been allowed in respect of a trading liability and • subsequently there is a remission or cessation of the trading liability, • then the amount of trading liability so ceased shall be deemed to be the income under the head PGBP of the previous year in which such remission or cessation took place. This shall apply even if the business is not in existence. • Writing of the liability unilaterally will also bring about a remission or cessation of the trading liability. Triggers of Section 41(1) The following indicators can be considered as triggers for Section 41....

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....ce, which was legally made, to the extent the assessee was able to reimburse himself, was added on to the assessee's income in the year in which the assessee was able to reimburse himself. Important case Law • The sales tax collected by the assessee has to be treated as its income. Any payment of sales tax made by the assessee was equally liable to be deducted from the profits made by the assessee. [ Chowringhee Sales Bureau Pvt. Limited Versus Commissioner of Income-Tax, West Bengal 1972 (10) TMI 4 - Supreme Court ] • Wavier of loan does not amount to cessation of trading liability. [ The Commissioner Vs. Mahindra and Mahindra Ltd. 2018 (5) TMI 358 - SC ] • Sales tax refund received by the ass....