2024 (5) TMI 593 - AT - Income Tax

Addition u/s 41(1) - cessation of liability - HELD THAT - DR failed to pinpoint any specific material in assessee s books of account in support of the learned lower authorities impugned action invoking sec. 41(1) of the Act. Faced with this situation we quote Sugauli Sugar Works 1999 (2) TMI 5 - SUPREME COURT that the impugned addition does not get attracted merely because of lapse of long time or in absence of any actual cessation in assessee s books of account. Thus deem it as a fit case to delete the impugned addition in very terms. Assessee appeal allowed.

Summary

Issues involved: Challenge to correctness of addition u/s 41(1) for cessation of liability in assessment year 2016-17.

Issue 1: Addition u/s 41(1) for cessation of liability

The assessee challenged the correctness of the addition of Rs. 14,37,096 u/s 41(1) as a cessation of trading liability towards JK Enterprises. The AO had gathered evidence from JK Enterprises, including a confirmation, debit note, and list of debtors reflecting the appellant's name, indicating a trading liability. The appellant claimed to have no trading transaction with JK Enterprises but only a share trading account. The CIT(A) upheld the addition based on the evidence gathered. However, Mr. Mehta, for the Revenue, failed to provide specific material from the assessee's books supporting the addition. In line with the precedent set in Sugauli Sugar Works vs. CIT, it was deemed that the addition was not justified solely based on the lapse of time or absence of actual cessation in the books of account. Consequently, the impugned addition was deleted, and the appeal was allowed in favor of the assessee.

This summary provides a detailed overview of the issues involved in the legal judgment, focusing on the challenge to the addition u/s 41(1) for cessation of liability. It outlines the arguments presented by both parties, the evidence considered, and the ultimate decision of the tribunal in favor of the assessee based on legal precedent.