SHRI SUNIL JAGDISHCHAND MEHRA,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 29(3), MUMBAI, MUMBAI

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ITA 3218/MUM/2026Status: DisposedITAT Mumbai30 July 2026AY 2015-166 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the crucial issue is the year in which remission or cessation of liability occurred. Since additional evidence regarding write-back in the succeeding year was not available before the lower authorities, the matter was restored to the Assessing Officer for verification.

What were the facts?

The Assessing Officer treated outstanding sundry creditors as cessation of liability under Section 41(1) and added it to the assessee's income for AY 2015-16. The assessee claimed these liabilities were written back and offered to tax in the subsequent AY 2016-17.

What were the issues?

The primary issue was to determine the correct assessment year for taxing the cessation of liability under Section 41(1), especially when the assessee provided evidence of write-back and taxation in a subsequent year.

Which sections of the Income-tax Act were involved?

Section 41(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI

Before: SHRI OM PRAKASH KANT & SHRI PAWAN SINGH

For Appellant: Ms. Shefali Garg, CA
For Respondent: Shri Rajgopal Parthasarathi – SR
Hearing: 23/07/2026Pronounced: 30/07/2026

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI PAWAN SINGH (JUDICIAL MEMBER)

ITA No. 3218/MUM/2026 Assessment Year: 2015-16

Shri Sunil Jagdishchand Assistant Commissioner of Mehra, 1506 B, Raj Grandeur Income Tax, Circle 29(3), Piramal Building, Powai, Mumbai – Vs. Chambers, Lalbaug, Parel, 400076, Maharashtra.. Mumbai – 400012, Maharashtra. PAN NO. AAKPM 5773 C Appellant Respondent

Assessee by : Ms. Shefali Garg, CA

Revenue by : Shri Rajgopal Parthasarathi – SR DR.

Date of Hearing : 23/07/2026 Date of pronouncement : 30/07/2026

ORDER PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against the order dated 21.01.2026, passed by the learned Commissioner of Income-Tax (Appeals) – National Faceless Appeal Centre, Delhi [in short, ‘the Ld. CIT(A)’], for Assessment Year (in short ‘A.Y’), 2015-16, raising following grounds:

Shri Sunil Jagdishchand Mehra 2 ITA No. 3218/MUM/2026

1.

On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in making an addition of Rs.2,48,93,271/- u/s 41(1) of Income Tax Act, 1961 by treating the outstanding balance of Sundry Creditors as alleged cessation of liabilities, without considering the facts and circumstances of the case." 2. Briefly stated, the assessee filed its return of income declaring total income of ₹80,79,360/-. During the scrutiny assessment, the Assessing Officer noticed following sundry creditors aggregating to ₹2,48,93,731/- standing outstanding since Financial Year 2011-12:

Name of Party Amount(Rs.) S.N . 1. JalaRam Trading CO. 32,63,512/- 2. Loksmiths 16,85,477/- 3. Planate Enterprises 39,43,603/- 4. S.K. Fabrics 37,52,219/- 5. U.D. Synthetics 20,24,948/- 6. Venus Infotech 8,89,022/- 7. La Papers Converters 26,61,577/- 8. Lumberkraft 23,97,769/- 9. United Technicians 42,69,604/- Corporation TOTAL 2,48,93,731/-

2.1 According to the Assessing Officer, the assessee failed to furnish complete particulars of the creditors, including their addresses, PAN, ledger accounts and supporting evidence of purchases. Observing that the liabilities had remained unpaid for several years and had become unenforceable in view of the Limitation Act, 1963, the Assessing Officer held that there was cessation of trading liability within the meaning of section 41(1) of the Income-tax Act, 1961 ("the Act") and accordingly brought the said amount to tax observing s under:

Shri Sunil Jagdishchand Mehra 3 ITA No. 3218/MUM/2026

“ 3.4 Before proceeding further in the matter it has to be mentioned that it is an admitted preposition of law that in respect of a self- sufficient fact, no farther evidence is required to be furnished by an assessee who claims the existence of such fact. Contrary to nonexistence of self-sufficient fact burden of proof is always on the assessee to establish the existence of particulars facts. The onus never shifts to the department. From this it follows that the assessee who wishes to the revenue to believe the existence of particular facts, onus heavily lies upon him to furnish necessary detail(s)/ evidence(s) to establish the existence of particular facts. From this it also follows that the burden of proof does not shift upon the revenue to disapprove the existence of the fact and accordingly it is duty of the person to prove that he is correct. The onus is not upon the revenue to prove that he is not incorrect. From this it also follows non furnishing of details/ evidences in support of existence of a non self-sufficient fact from the assessee would lead the revenue to take a contrary view to that of the claim made by the assessee. 3.5. Even in response to final show cause, Assessee could not produce any document, which can prove genuineness of creditors. Assessee could not furnish complete identity of the creditors i.e PAN and proper postal addresses of the creditors. Assessee could not provide ledger account of the creditors and detail of purchases made from these creditors. In the absence of documentary evidence, genuineness of the liability to sundry creditors viz. JalaRam Trading Co., Loksmiths, Planate Enterprises, S.K. Fabrics, U.D. Synthetics, Venus Infotech, La Papers Converters, Lumberkraft, United Technicians Corporation could not be ascertained. The liability to these creditors to the tune of Rs. 2,48,93,731/- are pending for more than 3 years, which means that the same are not payable, especially considering the provisions of the Limitation Act 1963. Assessee has failed to prove the identity and genuineness of these creditors. As the assessee could not give addresses of creditors, it could not be found whether they are showing assessee as their debtors or not. This being the facts of the case, Since the said amounts are paid even after five years, this amounts to cessation of liability of the assessee concern. Hence Rs.2,48,93,731/-is treated as the income of the asseasce as per Sec.41(1) of the Income Tax Act, 1961. However, the same shall be allowed as a deduction in the year in which payment is made to the above parties. Penalty U/s 271(1)(c) of Income tax Act 1961 is initiated furnishing inaccurate particular of income.

3.

In appeal, the learned CIT(A) concurred with the Assessing Officer. According to him, the assessee had failed to establish either the identity of the creditors or the continued existence of the liabilities. He further held that mere disclosure of the outstanding amounts in the balance sheet could not establish the subsistence of

Shri Sunil Jagdishchand Mehra 4 ITA No. 3218/MUM/2026

the liabilities when the surrounding circumstances indicated their cessation. The addition under section 41(1) was, therefore, sustained.

4.

Before us, the learned counsel for the assessee filed additional evidence to demonstrate that the very same outstanding liabilities had been written back in the books in the immediately succeeding Assessment Year 2016-17 and the corresponding amount had already been offered to tax in that year. It was submitted that, if the liability has admittedly been taxed in the subsequent year on its write-back, the fundamental question requiring examination is not whether section 41(1) is attracted, but the year in which the remission or cessation of liability actually occurred. It was, therefore, contended that the addition in the year under consideration would result in taxing the same amount in an incorrect assessment year.

5.

We have considered the rival submissions and perused the material available on record. Section 41(1) creates a legal fiction whereby a trading liability, allowed as deduction in an earlier year, becomes chargeable to tax only in the year in which the assessee derives a benefit by way of remission or cessation thereof. Thus, the pivotal issue is not merely the existence of an outstanding liability, but the point of time at which such remission or cessation can legally be said to have taken place.

Shri Sunil Jagdishchand Mehra 5 ITA No. 3218/MUM/2026

6.

The additional evidence produced before us, if found to be correct, has a direct bearing on this issue. In case the assessee has in fact written back the impugned liabilities in the subsequent Assessment Year and offered the corresponding amount to tax, the question whether the benefit contemplated under section 41(1) accrued during the year under appeal or in the succeeding year requires proper factual verification. This material, therefore, goes to the root of the controversy and cannot be ignored.

7.

Since the aforesaid evidence was not available before the lower authorities, and its examination is essential for determining the correct year of taxability under section 41(1), we consider it just and proper to restore the matter to the file of the Assessing Officer. The Assessing Officer shall verify the additional evidence, examine whether the impugned liabilities were in fact written back and offered to tax in Assessment Year 2016-17, and thereafter determine, in accordance with law, the year in which the remission or cessation of liability, if any, occurred for the purposes of section 41(1). Needless to observe, the assessee shall be afforded adequate opportunity of being heard before passing the fresh order. The grounds of appeal of the assessee are accordingly allowed for statistical purposes.

Shri Sunil Jagdishchand Mehra 6 ITA No. 3218/MUM/2026

8.

In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open Court on 30/07/2026.

Sd/- Sd/- (PAWAN SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai; Dated: 30/07/2026 M. Ranganath Vittal , Sr. P.S.

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai

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