Cessation of Liabilty u/s 41(1) of Income Tax Act cannot be treated as Income for Addition : ITAT sets aside Addition[Read Order]

The Delhi bench of Income Tax Appellate Tribunal ( ITAT) held that cessation of liability under Section 41(1) of Income Tax Act,1961 cannot be treated as an income for addition.

Raunika Fashion Pvt. Ltd, the appellant assessee  e-filed its return of income declaring total income at ‘Nil’ and claimed loss of an amount for the assessment year. The assessment was framed under Section 143(3) of the Income Tax Act by the Assessing Officer (AO).

The assessee appealed against the order passed by the Commissioner of Income Tax (Appeals) for confirming the additions made by the assessing Officer under Section 41(1) of the Income Tax Act on account of cessation of liability.

During the hearing of appeal none was appeared for the assessee. The assessee submitted that the Asessing Officer however based on non service of notice under Section 133(6) of Income Tax Act concluded that the liability had ceased to exist and the provision of Section 41(1) of Income Tax Act were invoked. Also, the additions were made.

Atiq Ahemad, the counsel for the respondent strongly opposed the contentions made by the assessee and supported the decision made by the lower authorities.

The two member bench comprising of Kul Bharat( Judicial) and Pradip Kumar Kedia(Accountant) held that the Section 41(1) of Income Tax Act had the effect of deeming such cessation or remission of liability as income in departure with the general law where such remission or cessation was not treated as an income.

It was also held that the assessee had continued to recognize the liability and one cannot say that the liability was not unenforceable against the assessee without its discharge or reversal and the addition made under section 41(1) of Income Tax Act was set aside while allowing the appeal filed by the assessee.

To Read the full text of the Order CLICK HERE

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