No Material Found during Search: ITAT deletes Addition made by AO u/s 41(1) [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) in a recent ruling deleted the addition that was made by the Assessing Officer (AO) under Section 41(1) of the Income Tax Act, 1961, in respect to the impugned amount of Rs. 1,94,18,130/-.

In this case, the assessee, Niyaz Sea Foods, is a partnership business that mainly deals in raw fish wholesale. The assessee had filed its Income Tax Returns (ITR) for assessment year (AY) 2017-18 on 12.10.2017 by declaring a total income of Rs. 67,06,650/-. Later on, search and seizure operations were conducted at the residential premises of U.K. Bava, who is the partner of the assessee, on 8.2.2018 under Section 132 of the Income Tax Statute.

In the assessment order passed by AO, he had made disallowance of Rs. 1,94,18,130/- u/s 41(1) as cessation of liability and also raised tax demand of Rs. 1,76,67,975/-.

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Aggrieved by the order passed by AO, the assessee approached the Commissioner of Income Tax (Appeals) [CIT(A)]. But the CIT(A) confirmed the order passed by the AO.

Later on, the assessee approached the ITAT for relief.

The counsel on behalf of the assessee contended that the addition made by AO under provisions of Section 41(1) of the Income Tax Act is not based on any seized material found during the course of the search.

The counsel representing the revenue submitted that the income offered by the assessee at Rs. 7.5 crores during the course of search as additional income has nothing to do with the addition made by AO under Section 41(1) of the Income Tax Act.

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The bench observed that no seized material was found during the course of the search action at the place of U.K. Bava to prove that the said liability ceased to exist, and it has been shown in the books of accounts and there was no write-off of said debts by the assessee or by the creditors.

The bench, comprising  of Chandra Poojari (Accountant Member) and Keshav Dubey (Judicial Member), deleted the addition made by AO under Section 41(1) of the Income Tax Act with respect to the impunged amount of Rs. 1,94,18,130/-.

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