Surbhit Impex [130 taxmann.com 315] A.Y.: 2014-15; Date of order: 17th September, 2021 Section 41(1)

FACTS
The assessee was engaged in the business of trading. During the course of assessment proceedings, the A.O. noticed that it owed amounts of Rs. 1.25 crores and Rs. 1.88 crores, respectively, to two Chinese entities and which were outstanding. The assessee submitted that since the consignment received was not of good quality, the payment was not made. The A.O. treated the same as ceased liabilities and accordingly made an addition of Rs. 3.13 crores u/s 41(1). On appeal, the CIT(A) deleted the additions. Aggrieved, the Revenue preferred an appeal before the Tribunal.

HELD
The Tribunal noted the undisputed position that at the relevant point of time, proceedings against the assessee for recovery of these amounts were pending before the judicial forums and remarked that these amounts could not have been said to have ceased to be payable by the assessee. The Tribunal further remarked that the very basic, foundational condition that there has to be benefit in respect of such trading liability by way of ‘remission and cessation’ was not satisfied in the relevant year, and thus upheld the CIT(A)’s order.

The Tribunal observed that sometimes Departmental appeals are filed without carefully looking at undisputed basic foundational facts in a routine manner, and remarked that the Income-tax Authorities ought to be more careful in deciding matters to be pursued in further appeals.