MORLIDHAR B VAMDOTE,BARDOLI vs. ITO, WARD-1, BARDOLI

ITA 1174/SRT/2025Status: DisposedITAT Surat01 October 2026AY 2017-188 pages
AI SummaryAllowed

What were the facts?

The assessee, Morlidhar B Vamdote, a firm engaged in running a petrol pump, filed its return for Assessment Year 2017-18 declaring an income of Rs. 5,89,230/-. The Assessing Officer (AO) completed the assessment under Section 143(3) of the Income-tax Act, 1961, making an addition of Rs. 63,90,926/- under Section 41(1) on account of outstanding liabilities to four parties. The Commissioner of Income-Tax (Appeals) - NFAC, Delhi (CIT(A)) granted partial relief by deleting the addition of Rs. 3,69,987/- related to M.B. Vamdot (Bharat Gas), but upheld the remaining addition of Rs. 60,20,939/- concerning liabilities to Late Smt. Vandanaben V Bhatt, Tushariben V Bhatt, and Tirthesh M Bhatt. The assessee is aggrieved by the CIT(A)'s order and has filed this appeal before the Income Tax Appellate Tribunal (ITAT).

What did the Tribunal hold?

The Tribunal held that the addition of Rs. 60,20,939/- made under Section 41(1) of the Income-tax Act, 1961, is not sustainable. The Tribunal found that the second condition of Section 41(1), namely "cessation or remission" of liability, was not satisfied in respect of any of the three liabilities. The assessee continued to show these liabilities in its books of account as payable, and the revenue had not provided any material to establish that the creditors had foregone their claims or that the liabilities had ceased to exist. The Tribunal reiterated the principle laid down by the Hon'ble Supreme Court in Commissioner of Sugauli Sugar Works (supra) that the expiry of the limitation period does not extinguish a debt but merely bars its enforcement. Therefore, the mere fact that the liabilities remained outstanding for 6 to 8 years does not, by itself, establish remission or cessation. The Tribunal also noted that due to the absence of complete details regarding earlier years' records and the nature of expenses for Tushariben V Bhatt's liability, it was not possible to definitively ascertain whether the first condition of Section 41(1) (allowance or deduction in an earlier year) was met. However, since the second condition was demonstrably not met, the addition was deleted. The AO was directed to delete the addition of Rs. 60,20,939/-.

What were the issues?

1. Whether the addition of Rs. 60,20,939/- made under Section 41(1) of the Income-tax Act, 1961, in respect of outstanding liabilities to Late Smt. Vandanaben V Bhatt, Tushariben V Bhatt, and Tirthesh M Bhatt is sustainable, considering the conditions stipulated in Section 41(1) are met? Assessee's Contentions: - The twin conditions for attracting Section 41(1) are not satisfied. Firstly, no deduction for loss, expenditure, or trading liability was allowed in respect of these liabilities. Secondly, there has been no remission or cessation of these liabilities as they continue to be shown in the books of account and have not been written off. The assessee relied on Commissioner of Income-tax Vs. Sugauli Sugar Works (P) Ltd. (1999) 236 ITR 518 (SC) to argue that expiry of limitation period does not extinguish a debt. Revenue's Contentions: - The liabilities are reflected as "Sundry Creditors" and not as capital or loans. The liability of Tushariben V Bhatt is towards expenses, implying a deduction was taken. The liabilities are long-pending (6-8 years), indicating remission or cessation by the creditors, as no creditor would remain silent. The CIT(A)'s order, which granted partial relief after consideration, deserves to be upheld.

Which sections of the Income-tax Act were involved?

Section 41(1),Section 143(3),Section 40(b)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, SURAT BENCH, SURAT

Before: MS. SUCHITRA KAMBLE & SHRI B.M. BIYANI

For Appellant: Shri Sujesh C. Suratwala, CA
For Respondent: Shri Ashish Kumar, Sr. DR
Hearing: 07.07.2026Pronounced: 01.10.2026

Per B.M. Biyani, A.M.:

Feeling aggrieved by the order of first appeal dated 16.10.2025 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“Ld. CIT(A)”], which in turn arises out of the assessment-order dated 22.12.2019 passed by learned ITO, Ward-1, Bardoli [“Ld. AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2017-18, the assessee has filed this appeal on the grounds as mentioned in Appeal Memo (Form No. 36). ITA No. 1174/Srt/2025 – AY 2017-18

2.

The background facts leading to present appeal ar

The order continues below.

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