Certain sum payable to two of its creditors which was reflected in its books of accounts. The AO held that the assessee did not have transactions with these creditors for many years and they were still being reflected in the books of the assessee therefore the AO held that such liability ceased to exist and made addition to the income of the assessee under section S. 41(1) of the Act.. The CIT (A) held that there was no supervening development over the initial relationship between the parties nullifying the liability to pay. The AO has also not established that the parties had unilaterally or bilaterally treated the said transaction to be nullity, therefore, the AO had no basis to hold that liability has ceased to exist. The ITAT upheld the order of the CIT(A). (AY. 2016-17)
Dy. CIT v. BPL Ltd. (2022) 94 ITR 66 (SN) (Bang.)(Trib.)
S. 41(1) : Profits chargeable to tax-Remission or cessation of trading liability-Merely because the liability is outstanding in the books for long period of time when there has been no supervening development nullifying the liability to pay between the parties-such liability cannot cease to exist.