DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 4(3), KOLKATA, KOLKATA vs. MIHIJAM VANASPATI LIMITED, JHARKHAND

ITA 1438/KOL/2025Status: DisposedITAT Kolkata28 September 2026AY 2021-2211 pages
AI SummaryDismissed

What were the facts?

The assessee, Mihijam Vanaspati Limited, filed its return of income for Assessment Year 2021-22 declaring Nil income. The case was selected for scrutiny following a search operation on the 'Agarwal Group' to which the assessee belongs. The Assessing Officer (AO) made an addition of Rs. 3,65,28,285/- under Section 41(1) of the Income-tax Act, 1961, for a liability to M/s International Enterprises that remained outstanding for several years. The AO invoked Section 41(1) as the assessee could not provide confirmation from the foreign creditor and the import remittance was not made within the prescribed period under FEMA/RBI Master Directions, leading the AO to believe the liability had ceased. The Commissioner of Income Tax (Appeals) deleted this addition, holding that mere non-payment or lapse of time does not constitute cessation of liability, and the statutory conditions for Section 41(1) were not met. The Revenue has appealed this deletion.

What did the Tribunal hold?

The Tribunal held that the deletion of the addition of Rs. 3,65,28,285/- by the learned CIT(A) was correct. The Tribunal reasoned that the liability towards M/s International Enterprises was continuously reflected in the assessee's books of account and had not been written back. The AO had not provided any material to demonstrate that the creditor had waived the liability or that it had been remitted or extinguished. The Tribunal found that the reasons for the addition – the liability remaining outstanding for a long period, failure to produce confirmation, and non-compliance with RBI/FEMA remittance periods – did not, individually or collectively, establish remission or cessation of liability as contemplated under Section 41(1) of the Act. The Tribunal relied on the Supreme Court's decision in CIT vs. Sugauli Sugar Works (P.) Ltd., which held that mere lapse of time or non-payment does not amount to cessation of liability. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal on this ground.

What were the issues?

1. Whether the Tribunal had to decide if the deletion of Rs. 3,65,28,285/- by the learned CIT(A) under Section 41(1) of the Income-tax Act, 1961, concerning the outstanding liability to M/s International Enterprises, was correct. Assessee's Contention: The learned AR supported the order of the learned CIT(A), arguing that Section 41(1) can only be invoked upon actual remission or cessation of liability. The liability was consistently reflected in audited balance sheets, never written back, and no benefit accrued to the assessee. The Revenue failed to provide evidence of waiver or remission. FEMA/RBI regulations do not affect the existence of the commercial liability under the Income-tax Act. Reliance was placed on CIT vs. Sugauli Sugar Works (P.) Ltd. and PCIT vs. Soorajmul Nagarmull. Revenue's Contention: The learned Sr. DR supported the assessment order, submitting that the liability remained outstanding for over a decade without payment. No confirmation was produced, and the assessee failed to discharge its burden. As per RBI Master Directions, payments should be settled within the prescribed period. Since remittance was never made, the liability became doubtful and unenforceable. The AO was justified in invoking Section 41(1) as the liability had ceased to exist.

Which sections of the Income-tax Act were involved?

Section 41(1),Section 68,Section 115BBE,Section 132,Section 133(6),Section 142(1),Section 143(2),Section 127

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA‘C’ BENCH, KOLKATA

Before: SHRI RAJESH KUMAR & SHRI PRADIP KUMAR CHOUBEY

For Appellant: Shri S. Jhajharia, AR
For Respondent: Shri Swaminathan M. Sr. DR
Hearing: 23.07.2026Pronounced: 28.09.2026

Heard together (2 matters)

I.T.A. No.1438/KOL/2025
C.O. No.78/KOL/2025

Read from the judgment's own cause title. This page is filed under one of them.

PER RAJESH KUMAR, ACCOUNTANT MEMBER:

These cross-appeal preferred by the revenue and assessee are against the orders of the learned Commissioner of Income Tax (Appeals),Kolkata -

ITA No.1438/Kol/2025/A.Y.2021-22 27(hereinafter referred to as the “ld.CIT(A)”], dated 10.03.2025 for Assessment Year (AY) 2021-22. 2. The appeal has been filed by the revenue with a d

The order continues below.

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