ANISH STUDIOS PRIVATE LIMITED,MUMBAI vs. ITO 11-1-2, MUMBAI

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ITA 1065/MUM/2026Status: DisposedITAT Mumbai13 October 2026AY 2016-176 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the factual matters regarding the applicability of section 41(1) had not been reconciled in the orders below. The Tribunal noted that the assessee's reply to the show-cause notice, which included financial statements, required consideration. The statement of profit and loss did not show any expenditure debited for the relevant years, supporting the assessee's claim that the sum was never claimed as an expense. However, the balance sheet showed trade payables, and it was unclear if the disputed amount was included or how it was dealt with. For section 41(1) to apply, an allowance or deduction must have been made, and a benefit obtained by remission or cessation. The Tribunal found that these factual aspects needed examination. Therefore, the order of the CIT(A) sustaining the addition was set aside, and the issue was restored to the AO for a fresh examination. The AO was directed to verify the balance sheet, ledger accounts, nature and period of the charge, and whether any deduction was allowed in earlier years, and to consider if a benefit was obtained by remission or cessation. The assessee was to be given an opportunity to respond. The Tribunal expressed no final view on taxability.

What were the facts?

The assessee, Anish Studios Private Limited, filed its return of income for Assessment Year (AY) 2016-17 declaring nil income. The assessment was reopened based on information that M/s. Kishco Ltd. had written off a receivable of Rs. 26,57,485/- pertaining to the assessee. The Assessing Officer (AO) issued a notice under section 148 and subsequently added the amount of Rs. 26,57,485/- to the assessee's business income. The assessee contended that its land-entering arrangement with M/s. Kishco Ltd. terminated in 2013, no charges accrued thereafter, the amount was not claimed as a deduction, and a creditor's write-off does not automatically create taxable income. The CIT(A) sustained the addition, holding that termination did not prove earlier charges were no longer outstanding and the assessee failed to substantiate that no deduction was allowed.

What were the issues?

1. Whether the order passed by the learned CIT(A) NFAC is bad in law on various counts and should be annulled? (Question of law). The assessee argued that the order is bad in law and should be annulled. The revenue relied on the orders of the authorities below. 2. Whether the learned CIT(A) erred in not appreciating the facts correctly and hence the order passed should be annulled? (Question of mixed law and fact). The assessee argued that the CIT(A) failed to appreciate facts correctly. The revenue relied on the orders of the authorities below. 3. Whether the provisions of section 41(1) of the Income-tax Act, 1961, apply to the assessee's case, and if not, should the order be annulled or set aside? (Question of law). The assessee contended that section 41(1) does not apply as the disputed amount was never claimed as an expense and no deduction was allowed. The revenue relied on the orders of the authorities below. 4. Whether the learned CIT(A) erred in confirming the addition of Rs. 2,657,485/- made by the AO, and should the same be deleted? (Question of mixed law and fact). The assessee argued for deletion of the addition. The revenue relied on the orders of the authorities below. 5. Without prejudice, whether, even if the amount is within the ambit of section 41(1), no tax should have been assessed, and the assessed income should be taken as Nil? (Question of law). The assessee argued for Nil assessed income. The revenue relied on the orders of the authorities below.

Which sections of the Income-tax Act were involved?

Section 41(1),Section 250,Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: NARENDER KUMAR CHOUDHRY & SHRI MAKARAND VASANT MAHADEOKAR

आयकर अपीलीय अिधकरण, मुंबई पीठ�, मुंबई INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: J (SMC) BEFORE NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER AND SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No. 1065/MUM/2026 (िनधा�रण वष�/Assessment Year: 2016-17) ANISH STUDIOS PRIVATE ITO 11-1-2 LIMITED AAYKAR BHAVAN M K 23-A / 502 NEW DINDOSHI HILL ROAD, VIEW OFF. FILMCITY ROAD, Vs. MUMBAI-400020, GOREGAON, MUMBAI-400097, MAHARASHTRA MAHARASHTRA अपीलाथ� Appellant ��थ� Respondent

Permanent Account Number of Assessee: AAHCA7364B

अपीलाथ� �ारा/Appellant represented by: Shri J.R. Bhatt, Ld. C.A. ��थ� �ारा/Respondent represented by: Ms. Jayshree Thakur, Ld. Sr. D.R सुनवाई की तारीख / Date of conclusion of hearing: 28-Jul-2026 घोषणा की तारीख / Date of pronouncement: 13-10-2026 आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER: This appeal by the assessee is directed against the order dated 28.11.2025 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for A.Y. 2016-17. The appeal arises from the assessment order dated 27.03.2022.

2.

The grounds raised by the assessee are: 1. On the facts and circumstances of the case and in law the order passed by the learned CIT (A) NFAC being bad in law on various counts and that the same should be annulled

ITA No. 1065/MUM/2026 ANISH STUDIOS PRIVATE LIMITED 2. On the facts and circumstances of the case and in law the learned CIT(A) has erred in not appreciating the facts correctly and hence the order passed therefore should be annulled. 3. On the facts and circumstances of the case and in law the learned CIT(A) has erred in not appreciating the fact that provisions of section 41(1) does not apply to the appellants case and hence order passed without appreciating such fact being bad in law and hence the same should be annulled 0R set aside. 4. On the facts and circumstances of the case and in law the Learned CIT(A) has erred in confirming an addition of Rs.2657485 made by the AO and that the same should be deleted. 5. without prejudice to the other grounds of appeal On the facts and circumstances of the case and in law the learned CIT(A) has erred in not appreciating the fact that even if the amount is to be treated as within the ambit of section 41(1) then also no to tax should have been assessed and hence the order of CIT(A) confirming the order of the AO deserves to be set aside and that the assessed income should be taken as Nil be 6. The appellant craves right to add, amend, alter, modify or substitute any or all the grounds of appeal at the time of hearing. 3. Brief facts of the case are such that the assessee filed its original return declaring nil income. The assessment was reopened following information received from the Department that M/s. Kishco Ltd. had written off a receivable of Rs.26,57,485/- pertaining to the assessee during the previous year relevant to A.Y. 2016-17. A notice under section 148 was issued on 31.03.2021. In the course of reassessment, the Assessing Officer issued notices seeking information and, on 08.03.2022, issued a show-cause notice along with the proposed assessment. The Assessing Officer ultimately added Rs.26,57,485/- under the head “Business Income”. Although the assessment order refers at several places to absence of a response, paragraph 11 of that order records that the assessee furnished a reply on 15.03.2022. The Assessing Officer considered the reply and documents furnished to be insufficient to explain the proposed addition.

4.

Before the learned CIT(A), the assessee submitted that its land- entering arrangement with M/s. Kishco Ltd. had terminated with effect from 30.09.2013. It contended that no land-entering charges accrued for the year

ITA No. 1065/MUM/2026 ANISH STUDIOS PRIVATE LIMITED under consideration, that the disputed amount had not been claimed as a deduction, and that a write-off in the creditor’s books did not automatically give rise to taxable income in the assessee’s hands. The learned CIT(A) accepted that termination of the arrangement would prevent fresh charges from accruing thereafter, but observed that termination did not establish that charges relating to an earlier period were no longer outstanding. The learned CIT(A) further held that the assessee had not produced the relevant accounts or earlier returns to substantiate its assertion that no deduction had been allowed. On that basis, the addition was sustained and the appeal was dismissed.

5.

Before us, the learned Authorized Representative (AR) reiterated the assessee’s contentions. He invited our attention to the reply to the show- cause notice placed at pages 50 to 53 of the paper book and submitted that the Assessing Officer’s observation regarding absence of an explanation was factually incorrect. The learned AR submitted that the reply explained the status of the studio project and stated that expenditure incurred on it had been treated as capital work-in-progress. He also drew our attention to the statement of profit and loss for the year ended 31.03.2016, containing comparative figures for the preceding year. According to him, no expenditure was debited to the profit and loss account in either year and the disputed sum had never been claimed as an expense. He accordingly submitted that the addition could not be sustained under section 41(1).

6.

The learned DR relied on the orders of the authorities below.

7.

We have considered the rival submissions and the material placed before us. The first factual matter is the assessee’s response to the show- cause notice. Paragraph 11 of the assessment order expressly acknowledges receipt of the reply dated 15.03.2022 and certain documents. Further, the reply placed in the paper book contains an explanation concerning the proposed addition and lists financial statements among its enclosures. The 3

ITA No. 1065/MUM/2026 ANISH STUDIOS PRIVATE LIMITED reply therefore required consideration on its contents and supporting material. Whether that material sufficiently establishes the assessee’s claim remains a matter of verification.

8.

The statement of profit and loss placed before us does not show any expenditure debited for the year ended 31.03.2016 or for the comparative preceding year. That circumstance is relevant to the assessee’s contention, but it does not conclusively establish the treatment of the disputed amount throughout the period of the arrangement with M/s. Kishco Ltd. Conversely, the balance sheet as at 31.03.2016 reflects trade payables of Rs.1,93,96,899/- . The present record does not identify whether the amount of Rs.26,57,485/- was included in those trade payables or in another liability account, or show how any corresponding balance was dealt with in the assessee’s books.

9.

For section 41(1) to apply, it is necessary to examine whether an allowance or deduction had been made in respect of the relevant loss, expenditure or trading liability and whether, during the previous year under consideration, the assessee obtained a benefit by way of its remission or cessation. In CIT v. Mahindra and Mahindra Ltd. (2018) 404 ITR 1 (SC), the Hon’ble Supreme Court stated in paragraph 15 that – “On a perusal of the said provision, it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed fact that the Respondent had been paying interest at 6 % per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under Section 36 (1) (iii) of the IT Act. In the case at hand, learned CIT (A) relied upon Section 41 (1) of the IT Act and held that the Respondent had received amortization benefit. Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in

ITA No. 1065/MUM/2026 ANISH STUDIOS PRIVATE LIMITED the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the deprecation of the machine and not on the interest paid by it.” 10. That decision concerned waiver of a loan incurred for acquiring capital assets. Its statement of the statutory condition is relevant here, while the character and accounting treatment of the present liability must be established on this case’s own facts. Discontinuance of the activity, by itself, does not answer the question under section 41(1).

11.

These factual matters have not been reconciled in either order below. We therefore set aside the order of the learned CIT(A) to the extent that it sustains the addition of Rs.26,57,485/- and restore that issue to the file of the Assessing Officer. The Assessing Officer shall examine the balance sheet as at 31.03.2016, its schedules and the relevant ledger accounts to determine whether the disputed amount formed part of the liabilities outstanding on that date. The Assessing Officer shall trace the corresponding entries in the earlier and subsequent accounts, ascertain the nature and period of the underlying charge, and verify from the relevant returns, computations and assessment records whether any deduction in respect of it was allowed in an earlier assessment year. The Assessing Officer shall also consider the agreement, the termination correspondence and the material concerning the creditor’s write-off to determine whether the assessee obtained a benefit by remission or cessation of the liability during the previous year relevant to A.Y. 2016-17.

12.

The verification directed above is confined to the disputed addition. The Assessing Officer shall give the assessee a reasonable opportunity to furnish the relevant records and to respond to any material proposed to be relied upon, and shall thereafter pass a speaking order in accordance with law. We express no final view on the taxability of the amount.

ITA No. 1065/MUM/2026 ANISH STUDIOS PRIVATE LIMITED 13. Grounds Nos.1 to 4 are disposed of in the above terms. Ground No.5, being an alternative plea concerning the computation of income, shall be considered by the Assessing Officer if it arises upon determination of the restored issue. Ground No.6 is general and requires no separate adjudication.

14.

In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 13-10-2026.

Sd/- Sd/- NARENDER KUMAR CHOUDHRY MAKARAND VASANT MAHADEOKAR JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai Dated: 13-10-2026 Tarun Kushwaha Sr. P. S.

Copy to: ANISH STUDIOS PRIVATE LIMITED, 23-A / 502 NEW DINDOSHI HILL VIEW 1 OFF. FILMCITY ROAD, GOREGAON, MUMBAI-400097, MAHARASHTRA

ITO 11-1-2, 2 AAYKAR BHAVAN M K ROAD,, MUMBAI-400020, MAHARASHTRA

3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE TRUE COPY ABHINAV ANANT Digitally signed by ABHINAV ANANT GAVANDE GAVANDE Date: 2026.10.24 12:44:39 +05'30' ASSISTANT REGISTRAR / SR. PRIVATE SECRETARY I.T.A.T., MUMBAI

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