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Facts
The assessee filed his return of income, and during assessment, the AO noted unsecured loans from seven creditors existing for more than 3 years. Despite the assessee providing details like PAN, addresses, and ledger accounts, the AO made an addition of Rs. 7,07,070/- under section 41(1) for cessation of liability, citing lack of creditor confirmations.
Held
The Tribunal held that the assessee had provided sufficient documentation establishing the existence of liabilities. The AO and CIT(Appeals) failed to conduct further inquiry or provide findings on the applicability of Section 41(1), making the addition unsustainable and based on suspicion. The CIT(Appeals) order was also not in terms with statutory requirements.
Key Issues
Whether the addition made under section 41(1) for cessation of liability is valid when the assessee has provided all creditor details and the lower authorities have not conducted proper inquiry.
Sections Cited
41(1), 250(4), 250(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY & SHRI AVDHESH KUMAR MISHRA
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM:
1. The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, NFAC dated 26.11.2025 for the assessment year 2023-24 as per the grounds of appeal on record.
At the time of hearing, none appeared for the assessee. However, an adjournment petition has been filed which is rejected. The matter is heard after recording the submissions of the Ld. Sr. DR and on a careful perusal of the materials available on record.
The brief facts in this case are that the assessee is an individual and filed his return of income on 31.10.2023 declaring total income at Rs.85,07,030/- for A.Y.2023-24. At the time of assessment proceedings, the assessee had filed bank account statement maintained by the assessee, copy of form 26AS along with copy of ITR and computation of income, ledger accounts for the unsecured loans along with confirmation and proof of creditworthiness, details of stock inventory and other relevant documents. That on perusal of the these documents, it was observed by the A.O that there were seven creditors which were existing in the books of the assessee for more than 3 years and accordingly, the assessee was show caused vide notice dated 06.03.2025 as to why these liabilities should not be treated as income u/s.41(1) of the Act being cessation of liability. In 3 Jasmeet Singh Bhasin Vs. DCIT, Circle-1(1), Raipur (C.G.) response to the statutory notice, the assessee had provided full details of the creditors a/w. identity, PAN, addresses and copy of the ledgers etc. The only reason for the A.O to make additions was that the assessee did not provide confirmations from parties concerned regarding the existing liabilities. The A.O completed the assessment making addition of Rs.7,07,070/- u/s.41(1) of the Act.
The matter, thereafter, went before the Ld. CIT(Appeals)/NFAC and therein at Page 4 in the extracted assessment order, the A.O expressed that the assessee had provided the full details of the creditors, along with their identity, copy of ledger but since the assessee could not provide confirmations of the liability, hence, the additions were made. That further, the assessee had made submissions before the First Appellate Authority which reads as follows:
Admittedly, the assessee had provided full details of the creditors including PAN, addresses and ledger accounts. The Department has not doubted the genuinity of these documents. In fact, the A.O has accepted that the assessee had provided all documents at the assessment stage itself. Only grievance of the A.O while making the addition was that the assessee had not provided the liability confirmation from the said creditors. That when the Revenue has accepted the relevant documents from the assessee wherein he had established clearly the existence of liability from the creditors by furnishing ledger account, PAN, bank
5 Jasmeet Singh Bhasin Vs. DCIT, Circle-1(1), Raipur (C.G.)
A.O was not satisfied, it was incumbent upon him to conduct further inquiry. Rather, he chooses to sit on these documents and give opinion which is purely based on suspicion and guess work. There is no finding either by the A.O or by the Ld. CIT(Appeals)/NFAC as to the applicability of Section 41(1) of the Act for the addition for cessation of liability. In fact, in the written submission the assessee mentions about a dispute after which financial transactions with the said concerns were stopped. The Department should have enquired on these submissions and their genuineness instead made additions summarily and in routine perverse manner. That when the entire liability and the details of the creditors have been provided to the Department, it was not open therefore for the Revenue to make addition on summary basis without examining the said evidence/documents. That even the order of the Ld.CIT(Appeals)/NFAC is not in terms with Section 250(4) & (6) of the Act. His powers are co-terminus with that of the A.O. The Ld. CIT(Appeals)/NFAC should have verified the documents placed on record by the assessee. There is no whisper in the order of the Ld. CIT(Appeals)/NFAC that such an exercise was done and in absence thereof, sustaining the addition is unlawful and bad in law. In view thereof, we set-aside the order of the Ld. CIT(Appeals)/NFAC and direct the A.O to delete the addition from the hands of the assessee while providing appeal effect of this order.
That as per above terms, appeal of the assessee is allowed.
Order pronounced in the open court on 6th April, 2026.