DE vs. HINE PACK,BAHADURGARH, JHAJJAR

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ITA 8195/DEL/2025Status: DisposedITAT Delhi30 July 2026AY 2022-20236 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the addition made by the AO under Section 41(1) was illegal. The liabilities were opening balances brought forward and continuously reflected in the books of account, with no evidence of remission or cessation. Following judicial precedents, the addition was deleted.

What were the facts?

The assessee's return was selected for scrutiny due to large turnover without audit, high liabilities compared to income, and failure to file the audit report. The Assessing Officer (AO) made an addition of Rs. 1,24,59,587/- under Section 41(1) of the Income Tax Act, 1961, on the grounds that outstanding liabilities were not carried forward. The CIT(A) upheld this addition.

What were the issues?

Whether the provisions of Section 41(1) can be invoked for cessation of liability when the liabilities are opening balances reflected in the books of account and no evidence of remission or cessation is present. Whether penalty proceedings under Section 271B are justified for non-audit of books of account.

Which sections of the Income-tax Act were involved?

Section 41(1),Section 44AB,Section 271B,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH “F”, NEW DELHI

Before: SHRI VIMAL KUMAR & SHRI MANISH AGARWAL

For Appellant: Shri Naveen Kr. Goyal, CA
For Respondent: Ms. Harpreet Kaur Hansra, Sr. DR
Hearing: 23.07.2026Pronounced: 30.07.2026

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “F”, NEW DELHI BEFORE SHRI VIMAL KUMAR, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No. 8195/Del/2025, A.Y. 2022-23 Devshine Pack Vs. AO Plot No. 21, Surya Nagar, Ward-3, Bahadurgarh, Jhajjar Rohtak Jhajjar Haryana Haryana �थायीलेखासं./जीआइआरसं./PAN/GIR No: AAOFD1392A Appellant .. Respondent Appellant by : Shri Naveen Kr. Goyal, CA Respondent by : Ms. Harpreet Kaur Hansra, Sr. DR Date of Hearing 23.07.2026 Date of Pronouncement 30.07.2026 O R D E R PER VIMAL KUMAR, JM:

The appeal filed by the Assessee is against order dated 07.10.2025 of Ld. Commissioner of Income Tax(Appeals)-30, Delhi (hereinafter referred to as ‘the CIT(A)’) u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of assessment order dated 19.03.2024 of Ld. Assessing Officer / Assessment Unit (hereinafter referred to as ‘the AO’) for Assessment Year 2022-23.

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2.

Brief facts of the case are that the assessee was selected for CASS for the following reasons: (i) Large turnover but books of account not audited u/s. 44AB; (ii) High liabilities as compared to low income/ receipts; and (iii) large turnover shown in ITR, but audit report not filed. The assessee filed return of income declaring in total income of Rs. 8,50,890/-. An intimation letter dated 02.06.2023 and notice u/s 143(2) of the Act dated 02.06.2023 were issued. Thereafter, notices u/s 142(1) dated 16.10.2023 and 11.11.2023, show cause notice u/s 144 of the Act dated 08.01.202, a communication letter dated 18.01.2024, a notice u/s 142(1) of the Act dated 23.01.2024, a show cause notice proposing variation dated 06.02.2024, and a show cause notice dated 11.03.2024 were issued. The assessee replied to the show cause notice proposing variation. On completion of proceedings, Ld. AO, vide order dated 19.03.2024 made an addition of Rs. 1,24,59,587/-.

3.

Against assessment order dated 19.03.2024, the assessee filed appeal before ld. CIT(A) which were dismissed the same vide order dated 07.10.2025.

4.

Being aggrieved, the appellant/assessee preferred the present appeal on following grounds:

“1. The Ld. CIT(A) has erred in law and on facts in not deleting the addition of Rs. 1,24,59,587/- made under section 41(1) of the Income Tax Act, 1961.

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2.

the ld. CIT(A) and the Ld. AO has erred in law by invoking provisions of section 41(1) of the Income Tax Act, 1961. 3. That the Ld. CIT(A) and ld. AO had erred in law and in fact in initiating penalty proceedings u/s 271B for not getting its books of account audited as per provisions of section 44AB of the Income Tax Act, 1961. 4. Ld. CIT(A) has erred in law in upholding the impugned assessment order of the ld. AO.” 5. Ld. Authorized Representative for appellant/assessee submitted that Ld. CIT(A) erred in not deleting addition of Rs. 1,24,59,587/- made u/s 41(1) of the Act. The impugned addition was made on the basis of disclosure made in the Income Tax Return and not on the basis of any material establishes remission or cessation of liability. Ld. AO observed that ageing-wise particulars of sundry creditors were not filed in the relevant schedule of the ITR and the creditors were disclosed in a consolidated manner under the colum “Others” and not filed revised Income Tax Return. The Income Tax Return is merely a reporting document and cannot override the regularly maintained books of accounts, creditors ledgers and supporting evidences furnished during assessment proceedings. The liabilities under consideration are primarily opening balances brought forward from earlier years and had been continuously reflected in the books of account and balance sheet is at page No. 98 of paper book. During the year under consideration, no liability had been written back. No creditor has waived or remitted the amount, no settlement has taken place; and no benefit has accrued to the

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appellant/assessee. Therefore, none of the statutory conditions prescribed under section 41(1) of the act were issued. Once the books of account have been accepted and the liabilities continued to be reflected therein, the provisions of section 41(1) of the Act cannot be invoked in the absence of any material evidencing remission or cession. Reliance was placed in ITA No. 334/Del/2020 titled as Gurmeet Singh Sethi vs. ITO, dated 17.09.2025.

6.

Ld. Departmental Representative relied on impugned order.

7.

From examination of record in light of aforesaid rival contention, it is crystal clear that Ld. CIT(A) vide order dated 07.10.2025 upheld. The assessment order dated 19.03.2024 providing addition of Rs. 1,24,59,587/- made u/s 41(1) of the Act. Ld. AO in para No. 3.8. Concluded that the outstanding liability of Rs. 1,24,59,587/- for the year ending 31.03.2021 is not carry forward for the year under consideration which resulted in liability cease to exist within the meaning of provisions of section 41(1) of the Act. Ld. AO had made addition on the basis of ITR. Ld. AO did not consider that liabilities under consideration are primarily opening balance brought forward from earlier years was continuously reflected in books of account and balance sheet of assessee which is page No. 98 of paper book. During the assessment year, neither liabilities were written back nor

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creditor had waived or remitted the amount nor the settlement had taken place nor any benefit had occurred to the assessee.

7.1 A co-ordinate Bench in ITA No. 334/Del/2020 titled as Gurmeet Singh Sethi vs. ITO in para No. 3 observed as under:

“3. As far as addition of Rs. 1,12,75,060/- on account of cessation of liability u/s. 41(1) is concerned, we note that Ld. CIT(A) sustained the addition in dispute even after furnishing of all the information alongwith PAN and address of sundry creditors available with him. It is noted that assessee has started a new proprietorship business in the name of M/s RJ Traders dealing in trading of mobile gadgets after shutting down the business in name of M/s United Fashions 2010 during the AY 2012-13. Additions have been made amounting to Rs. 1,12,75,060/- on account of cessation of liability u/s. 41(1) and the amount was received in the new business during the year as advance for supply of goods also the confirmation of major accounts were furnished in the course of assessment proceedings by the parties. It is further noted that addition of Rs. 16,52,720/- has been made on account of non-deduction of TDS from Commission, whereas in books of accounts it is reflected on discount 4 account the amounts of which were credited to Sales A/c, and written as commission in profit and loss account. However, the commission was never paid via bank / cash, which facts is evident on perusal of books of accounts which were produced in the course of assessment proceedings. There should be benefit obtained by the assessee by way of remission or cessation of liability either in cash or in any other manner. There is no document on record which prove that there is actual remission and cessation or the liability. It has been decided in various cases, that where notices issued to sundry creditors u/s. 133(6) remained unanswered, the same cannot diminish the genuineness of creditors and additions on this behalf cannot be made. We note that in this case assessee has furnished all the necessary details of the companies alongwith PAN but none of the lower authorities have confirmed the same from AO’s having jurisdiction over the said companies. Thus, the assessee cannot be penalized merely on the ground that the said companies failed to reply to the notices issued to them under section 133(6) of the Act. It is further noted that AO has not brought any cogent basis and these amounts have been written off in the books of accounts, we do not find any reason to hold that the amount is liable to be added u/s. 41(1) of the Act. Hence, we delete the addition in dispute allow the ground in favour of the assessee.”

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7.2 In view of above material facts by respectfully following the judicial precedents, it is held that the addition of Rs. 1,24,59,587/- made by Ld. AO being illegal, is deleted. The Grounds of appeal are accepted.

8.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 30.07.2026

Sd/- Sd/- (MANISH AGARWAL) (VIMAL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 30.07.2026 Binita, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI

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