Max Media Technologies Private Limited Vs ITO (ITAT Mumbai)
ITAT Mumbai deleted addition of ₹43.79 lakh made u/s 41(1) holding that mere long-standing unpaid trade liabilities do not amount to cessation of liability. Assessee had outstanding balances towards foreign suppliers arising from earlier imports, which continued to be reflected in books and were supported by ledger confirmations, invoices and import documents. There was no waiver, write-back or benefit obtained by assessee during the relevant year.
Tribunal observed that provisions of s.41(1) apply only where there is actual remission or cessation of liability. Reliance placed by AO on T.V. Sundaram Iyengar and RBI/FEMA compliance issues was held misplaced, as regulatory non-compliance or mere passage of time does not convert liability into income. Since waiver was actually granted and offered to tax in AY 2024-25, it proved that liability had not ceased during the impugned year.
Accordingly, addition u/s 41(1) was deleted and assessee’s appeal allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Present appeal filed by assessee arises out of order dated 09/06/2025 passed by NFAC, Delhi [hereinafter “the Ld.CIT(A)”], for Assessment Year 2013-14 on the following grounds of appeal:-
“1. Violation of principles of natural justice:
On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in dismissing the appeal without adequately considering the detailed submissions, documentary evidence, and case laws furnished by the appellant, thereby violating the principles of natural justice.
2. Non-appreciation of evidence and incorrect factual findings:
On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the addition of 743,79,941/- under section 41(1) of the Act by holding that no evidence of any dispute with the foreign creditors has been submitted, despite of the fact that the appellant filed ledger confirmations of outstanding balance from Foreign supplier along with purchase invoices. The issuance of confirmation confirming of balance outstanding and the same, till the year under consideration was under settlement due to disagreement in terms and conditions of supplies in respect to quality. The liability could not be written back and charged to Income unless it is being accepted by the creditors. It is pertinent to note that the limitation period for recovery only bar a company to recover the outstanding amount through court of Law but cannot be disowned the liability itself. Since the Foreign supplier was the regular supplier and both are trying to resolved the issues amicably but it had taken time and not resolved till the year under consideration.
3. Misapplication of RBI and FEMA guidelines:
On the facts and in the circumstances of the case and in law, the CIT(A) erred in relying on RBI and FEMA norms to hold the liability as ceased without establishing any provision under the Income Tax Act that mandates automatic cessation of liability due to regulatory noncompliance, which is beyond the scope of section 41(1). The default of RBI and FEMA compliances regarding non-payment is termed as default under the respective Law and Regulation under RBI guidelines in consequences of default in compliance as per RBI and FEMA does not resulted noncompliance of income tax act and does not resulted addition as per section 4191) under the income tax act 1961.
4. No cessation or remission of liability in fact or in law:
On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the addition under section 41(1) despite no evidence of actual cessation or remission of liability by the foreign creditors, nor any write-back in the appellant’s books of account.
5. Ignoring binding judicial precedents:
On the facts and in the circumstances of the case and in law, the CIT(A) erred in disregarding judicial precedents cited by the appellant which held that mere long pendency of liability, without extinguishment or unilateral write-back, does not constitute cessation under section 41(1).
6. Incorrect assumption of cessation based on time lapse:
On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that mere non-payment for a long-time result in automatic cessation of liability under section 41(1), which is contrary to law and settled judicial position.
The appellant craves leave to add to, amend or alter the above grounds before or at the time of hearing of the appeal.”
2. Brief facts of the case are as under:-
