No Cessation of Liability u/s 41(1) as debt not written off in books

Total Environment Building Systems Pvt Ltd Vs DCIT (ITAT Bangalore)

ITAT Bangalore held that unless the debt has been written off in the books of accounts of both the assessees, it cannot be said that “that cease to exist”. Hence, as assessee has not written off the same in its books of accounts and it cannot be said that the debt ceased to exist. Thus, amount cannot be considered as cessation of liability u/s. 41(1) of the Income Tax Act.

Facts- AO while passing assessment order has disallowed the Value Added Tax Provision at the year end amounting to Rs.42,52,413/- on the ground that the same has not been paid before the due date of filing of the return of income and therefore, the same was disallowed u/s 43B of the Act by ld. AO.

NFAC also observed that VAT payable was routed through P&L account are not liable to be allowed as deduction only on actual payment by applying the payment made u/s 43B of the Act. Hence, the said VAT payable of Rs.42,52,413/- without making actual payment before the due date of furnishing of return of income u/s 139(1) of the Act needs to be added to the income of assessee. Against this assessee is in appeal before us.

Further, appeal is also preferred with regard to addition of Rs. 39,65,829/- towards cessation of lability without appreciating that the liability was existing during the assessment year 2012-13.

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