ASSOCIATED PROJECTS INFRA,HYDERABAD V. DCIT., CENTRAL CIRCLE -2(4), HYDERABAD

ITA 1482/HYD/2025

AI Insights

The case involves M/s Associated Projects Infra, a partnership firm engaged in earth works and blasting works, which appealed against the order of the Learned Commissioner of Income Tax (Appeals)-12, Hyderabad. The dispute centered on an addition of Rs.56,23,216 made under section 41(1) of the Income Tax Act, 1961, by the Ld. AO, which was confirmed by the Ld. CIT(A). The amount represented expenditures incurred by the assessee on behalf of M/s. Sai Sri Constructions, a sub-contractor, which were later written off as bad debt by the creditor. The assessee contended that this write-off was merely an accounting entry and did not reflect a true cessation of liability. The ITAT admitted an affidavit as additional evidence, which clarified the nature of the write-off, and restored the matter to the Ld. AO for a fresh examination.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 827903 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2020-2021
• Appeal Filed On: 19-09-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside; Business income; Opportunity of being heard; Additional evidence
• Section: 143(3); 133A

Judgement Text

" ITA No 1482 of 2025 Associated Projects Infra Page 1 of 8 आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad ŵी रिवश सूद,Ɋाियक सद˟ एवं ŵी मधुसूदन साविड़या लेखा सद˟ समƗ | Before Shri Ravish Sood, Judicial Member A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No.1482/Hyd/2025 (िनधाŊरण वषŊ/Assessment Year: 2020-21) M/s Associated Projects Infra, Hyderabad PAN:AAOFA6125E Vs. Deputy Commissioner of Income Tax, Central Circle 2(4), Hyderabad (Appellant) (Respondent) िनधाŊįरती Ȫारा/Assessee by: C.As EV Sri Krishna and Siva Charan राज̾ व Ȫारा/Revenue by:: Ms. Helen Ruby Jesindha, Sr. DR सुनवाई की तारीख/Date of hearing: 18/12/2025 घोषणा की तारीख/Pronouncement: 07/01/2026 आदेश/ORDER Per Madhusudan Sawdia, A.M.: This appeal is filed by M/s. Associated Projects Infra (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals)-12, Hyderabad (“Ld. CIT(A)”) dated 22.07.2025 for the A.Y. 2020-21. Printed from counselvise.com ITA No 1482 of 2025 Associated Projects Infra Page 2 of 8 2. The assessee has raised the following grounds of appeal: “1 The order of CIT(A) is erroneous of law and on facts of the case. 2 The CIT(A) erred in sustaining the addition of Rs.56,23,216 u/s 41(1) made by the Assessing Officer for the reason that the creditor to the appellant, M/s Sai Sri Constructions wrote off the amount as bad debt in their books of account. 3 The CIT(A) erred in not considering the submission of the appellant, that the Assessing Officer did not grant enough opportunity to the appellant to reconcile the difference and explain the factual position. 4 The CIT(A) erred in not examining the creditor, M/s Sai Sri Constructions to record the reason and working for the amount wrote off as bad debt in their books of account. 5 The CIT(A) erred in not examining the mandatory condition of Section 41(1), viz., claim of expenditure in the hands of appellant was satisfied or not. 6 The CIT(A) ought to have sought reconciliation between the accounts of assessee and that of creditor to examine the nature of recording of entries in the books of account, which evidence whether or not the appellant claimed the amount under question as expenditure/deduction. 7 The CIT(A) erred in coming to the conclusion that the appellant also claimed the amount in question, as expenditure in its books of account, which was shown as income by the creditor, since no proper examination of books of account of both was carried out. 8 The CIT(A) grossly erred in concluding that, the amount wrote off as bad debt by the Sri Sai Constructions - Creditor would automatically become non-payable by the Assessee - Debtor and thus erred in considering that such write off as income u/s 41(1) in the hands of Assessee - Debtor. 9 The CIT(A) erred in not considering the submission of appellant that the creditor did not properly account for the transactions as agreed between the appellant and the Printed from counselvise.com ITA No 1482 of 2025 Associated Projects Infra Page 3 of 8 creditor, thus the entries made by the creditor in their books of account do not reflect the true position. 10 The CIT(A) erred in holding that the appellant failed to show the liability is still subsisting in its books of account, for not invoking the Section 41(1), for the simple reason that there was no such liability arising out of claim of expenditure in the books of appellant in the first instance. 11 The CIT(A) grossly erred in stating that unilateral act of creditor writing off the amount would be treated as cessation of liability. 12 Any other ground that may be raised during the appellate proceedings with the kind prior permission from Hon’ble Tribunal.” 3. The brief facts of the case are that the assessee is a partnership firm engaged in the business of earth works and blasting works. A survey operation under section 133A of the Income Tax Act, 1961 (“the Act”) was conducted in the business premises of the assessee on 20.02.2020. Subsequently, the assessee filed its return of income for the Assessment Year 2020- 21 on 31.03.2021, declaring a total income of Rs.9,30,86,960/-. The case of the assessee was selected for compulsory scrutiny and, accordingly, notice under section 143(2) of the Act was issued by the Learned Assessing Officer (“Ld. A.O”). During the course of assessment proceedings, the Ld. AO noticed that M/s. Sai Sri Constructions, one of the creditors of the assessee, had written off an amount of Rs.56,23,216/- as bad debt in its return of income for the Assessment Year 2020-21. The Ld. AO further observed that the assessee was showing the said amount as payable to M/s. Sai Sri Constructions in its books of account. According to the Ld. AO, since the creditor had written off the said Printed from counselvise.com ITA No 1482 of 2025 Associated Projects Infra Page 4 of 8 amount in its books, the assessee was no longer under any obligation to pay the said amount and, therefore, the liability had ceased. Accordingly, invoking the provisions of section 41(1) of the Act, the Ld. AO treated the said amount of Rs.56,23,216/- as remission or cessation of liability and added the same as business income of the assessee for the relevant previous year. Accordingly, the assessment of the assessee was completed by the Ld. AO under section 143(3) of the Act vide order dated 31.03.2022, making an addition of Rs.56,23,216/- under section 41(1) of the Act and computing the total income of the assessee at Rs.9,87,10,176/-. 4. Aggrieved by the order of the Ld. AO, the assessee carried the matter in appeal before the Ld. CIT(A). The Ld. CIT(A), after considering the submissions of the assessee, confirmed the addition made by the Ld. AO, holding that the assessee had failed to produce any cogent evidence to establish that there was no cessation of liability. Accordingly, the appeal of the assessee was dismissed. 5. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the only issue involved in the present appeal is with regard to the addition of Rs.56,23,216/- made under section 41(1) of the Act. The Ld. AR submitted that M/s. Sai Sri Constructions is a sub-contractor of the assessee. The assessee had incurred certain expenditures on Printed from counselvise.com ITA No 1482 of 2025 Associated Projects Infra Page 5 of 8 behalf of M/s. Sai Sri Constructions in earlier years, amounting to Rs.56,23,216/-, which were debited to the account of M/s. Sai Sri Constructions in the books of the assessee. However, M/s. Sai Sri Constructions could not account for these expenditures in its books of account in the relevant years. It was submitted that, in order to reconcile the difference in the balances, M/s. Sai Sri Constructions wrote off the said amount in its books as bad debt, though in substance the amount does not represent any bad debt recoverable from the assessee. According to the Ld. AR, the write- off was merely an accounting entry passed by M/s. Sai Sri Constructions to adjust the expenditures incurred by the assessee on its behalf, and there was no remission or cessation of liability in real terms. The Ld. AR further submitted that there is neither any waiver of liability nor any benefit accrued to the assessee so as to attract the provisions of section 41(1) of the Act. It was contended that the treatment given by the creditor in its books cannot, by itself, lead to the conclusion that the assessee has derived any income. The Ld. AR submitted that the assessee has now obtained an affidavit from M/s. Sai Sri Constructions, clarifying the factual position that the write-off was only an accounting adjustment and that there was no remission of liability giving rise to income in the hands of the assessee. Since the said affidavit could not be obtained earlier and was not available either during the assessment proceedings or before the Ld. CIT(A), the assessee sought admission of the said affidavit as additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Printed from counselvise.com ITA No 1482 of 2025 Associated Projects Infra Page 6 of 8 Rules, 1963. The Ld. AR submitted that if there is any deficiency or error in the accounting treatment adopted by M/s. Sai Sri Constructions, the assessee cannot be penalized for the same. He, therefore, prayed that the addition made under section 41(1) of the Act be deleted. 6. Per contra, the Learned Departmental Representative (“Ld. DR”) submitted that the additional evidence filed by the assessee in the form of affidavit should not be admitted, as the assessee had failed to produce the same before the lower authorities without any justifiable reason. Alternatively, the Ld. DR submitted that, if the Tribunal is inclined to admit the additional evidence, the same requires proper verification from the books of account and other corresponding records of both the assessee and M/s. Sai Sri Constructions. Therefore, the matter may be restored to the file of the Ld. AO for verification and for deciding the issue afresh in accordance with law. 7. We have considered the rival submissions and examined the material available on record. The dispute in the present appeal revolves around the applicability of section 41(1) of the Act in respect of an amount of Rs.56,23,216/-, which was written off by M/s. Sai Sri Constructions in its books of account. The assessee has sought to file an affidavit of M/s. Sai Sri Constructions as additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. On perusal of the affidavit, it is evident that the same seeks to clarify the factual Printed from counselvise.com ITA No 1482 of 2025 Associated Projects Infra Page 7 of 8 position relating to the nature of the write-off and asserts that the write-off was merely an accounting adjustment to reconcile expenditures incurred by the assessee on behalf of M/s. Sai Sri Constructions in earlier years. We find that the said affidavit goes to the root of the controversy and is crucial for adjudicating the issue as to whether there was, in fact, any remission or cessation of liability so as to attract the provisions of section 41(1) of the Act. We further note that the assessee has explained that the said affidavit could not be obtained earlier and, therefore, could not be produced either before the Ld. AO or before the Ld. CIT(A). In the interest of substantial justice and considering that the additional evidence is relevant and material for adjudication of the issue, we deem it appropriate to admit the affidavit as additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. However, since the said affidavit and the factual assertions contained therein have not been examined or verified by the Ld. AO, we are of the considered view that the matter requires verification at the level of the Ld. AO. Accordingly, we set aside the orders of the authorities below on this issue and restore the matter to the file of the Ld. AO, with a direction to examine the additional evidence filed by the assessee in the form of affidavit of M/s. Sai Sri Constructions, verify the same with reference to the books of account and other relevant records of both the assessee and the said concern, and thereafter decide the issue afresh in accordance with law, after affording adequate opportunity of being heard to the assessee. Printed from counselvise.com ITA No 1482 of 2025 Associated Projects Infra Page 8 of 8 8. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the Open Court on 7th January 2026. Sd/- Sd/- (RAVISH SOOD) JUDICIAL MEMBER (MADHUSUDAN SAWDIA) ACCOUNTANT MEMBER Hyderabad, dated 7th January 2026 Vinodan/sps Copy to: S.No Addresses 1 ASSOCIATED PROJECTS INFRA. H.No.8-293/82/A/1222, Road No. 36shaikpet, Jubilee Hills S.O, Hyderabad - 500033 2 Dy. CIT, Central Circle 2(4)Aayakar Bhavan, Basheerbagh, Hyderabad 500004 3 Pr. CIT – Central, Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File By Order Printed from counselvise.com "