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Facts
The assessee's appeal for assessment year 2016-17 arose from an order upholding the addition of Rs. 10 lakhs as cessation of liability under Section 41(1) of the Income Tax Act. The lower authorities had made this addition based on assessment and appellate orders.
Held
The Tribunal held that the addition made under Section 41(1) was not sustainable in law. This was because the Assessing Officer's observation in the assessment order did not clearly establish that the amount in issue had ceased to exist as a liability as per the assessee's books of account, a mandatory condition cited from CIT v. Sugauli Sugar Works (P) Ltd.
Key Issues
Whether the addition of Rs. 10 lakhs as cessation of liability under Section 41(1) was sustainable in law without clear evidence from the assessee's books.
Sections Cited
41(1), 153C, 143(3)
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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA
ITBA/APL/M/2025-26/1081749296(1), in proceedings u/s 153C/143(3) of the Income-tax Act, 1961, hereinafter referred to as the ‘Act’.
Heard both the parties. Case file perused.
It emerges during the course of hearing that both the lower authorities have added the amount in question of Rs. 10 lakhs in the assessee’s hands as cessation the lower appellate discussion.
Faced with this situation, the Revenue could hardly dispute the clinching fact emanating from the case records that the learned Assessing Officer’s relevant observation in para 3 at page 7 of the assessment order has nowhere made it clear that the amount in issue had ceased to exist as a liability as per the assessee’s books of account in the relevant previous year held as mandatory in CIT v. Sugauli Sugar Works (P) Ltd. (1999) 236 ITR 518 (SC). I accordingly hold that impugned section 41(1) cessation of liability as not sustainable in law.
Order pronounced in open court on 24.12.2025.