MAX MEDIA TECHNOLOGIES PRIVATE LIMITED ,MUMBAI V. ITO WARD 12(3)(1), MUMBAI

ITA 4922/MUM/2025

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The case involves Max Media Technologies Private Limited, which appealed against the order of the Commissioner of Income Tax (Appeals) confirming the addition of 43,79,941 under section 41(1) of the Income Tax Act. The addition was initially made by the Assessing Officer (AO) on the grounds that the liabilities to foreign creditors had ceased, thus treating them as income. The Tribunal examined whether the liabilities had indeed ceased and whether the assessee had derived any benefit from them. The Tribunal concluded that the liabilities had not ceased as they were still reflected in the books and no payments were made to the creditors during the year under consideration. The Tribunal also noted that the assessee had offered the waived amount to tax in the subsequent assessment year, indicating that the liabilities had not ceased during the year in question.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 835275 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 05-08-2025
• Other Referred Cases: CIT v. Sundaram Iyengar (T.V.) & Sons Ltd., CIT v. T.V. Sundaram Iyengar & Sons Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LIMBASIYA KAVAN NARESHKUMAR
• Assessee Lawyers: RAMAN
• Keywords: Period of limitation; Principle of natural justice; Time period of passing order
• Section: 142(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) I.T.A. No. 4922/Mum/2025 Assessment Year: 2013-14 Max Media Technologies Private Limited Table No. 3, Office No. 704 7th Floor, Palm Spring Centre Malad West Mumbai - 400064 [PAN: AAJCM1695H] Vs. ITO (Appellant) (Respondent) Assessee by Shri Raman, C.A. Revenue by Shri Limbasiya Kavan Nareshkumar, Sr. DR. Date of Hearing 03.02.2026 Date of Pronouncement 10.02.2026 ORDER Per Smt. Beena Pillai, JM: 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 Printed from counselvise.com 2 I.T.A. No. 4922/Mum/2025 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 non- compliance, 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 non- compliance 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:- Printed from counselvise.com 3 I.T.A. No. 4922/Mum/2025 The assessee is a company engaged in the business of import and resale of mobile phones and their accessories. For the year under consideration, it filed its return of income on 13/08/2014 declaring a loss of ₹1,42,598/-. The case was selected for scrutiny and notice u/s 143(2) of the Act was issued on 31/08/2015. Subsequently, notice u/s 142(1) along with a questionnaire was issued. In response to the statutory notices, the representative of the assessee appeared before the Ld. AO and furnished the details as called for. 2.1. During the course of assessment proceedings, the Ld. AO observed that certain sundry creditors were outstanding from the preceding years. Accordingly, the Ld. AO called for party-wise details of the sundry creditors and required the assessee to explain as to why the unpaid creditors should not be treated as income on account of cessation of liability. 2.1.1. In response, the assessee submitted that mobile phones and accessories were purchased in the earlier years from Zytel Industries Ltd., and Hainan Peng Hua National Industries, both being Hong Kong-based entities, and that the outstanding balances were continuing to be reflected as trade creditors since FY 2008–09 & 2009-10 respectively. The assessee submitted before the Ld. AO that, the amounts represented outstanding liabilities and did not amount to cessation of income. It was further submitted that, the assessee had not derived any benefit from the outstanding creditors during the year under consideration since the same was not waived by the creditors. In support of its contention, the assessee Printed from counselvise.com 4 I.T.A. No. 4922/Mum/2025 furnished confirmations of the outstanding balances from the creditors before the Ld. AO. 2.2. However, the Ld. AO was of the opinion that the assessee failed to establish the genuineness of the creditors and, thus held that the liability ceased to exist. In support of this conclusion, the Ld. AO placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT v. Sundaram Iyengar (T.V.) & Sons Ltd.. Accordingly, the Ld. AO treated the outstanding credit liability as income u/s 41(1) of the Act. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld.CIT(A). 3. The Ld.CIT(A), after considering the submissions of the assessee, observed and held as under:- “Ground no 1: Assessee has challenged addition of Rs 43,79,941/-. From time to time, assessee has made various submission to justify its claim. Assessee made submission when an opportunity was provided by undersigned also. Gist of the submission made by assessee is as below: • When liability is still outstanding as on 31-03-2013 in books of accounts, addition u/s 41(1) of the Act is liable to be deleted. • Unless the liability becomes unenforceable or is given up by the other party or something is brought on records that there is cessation of liability, the same cannot be brought to tax u/s 41(1) of the Act. Assessee has also relied on various case laws. After considering material available on record and submission made by assessee, find that assesse fails to justify its claim. As noted by AO, the amounts were long pending to be paid on 31-03-2013. Assessee has failed to substantiate why payments were not being made to a foreign party (not a domestic party). Further, assessee failed to bring any evidence of dispute with foreign parties on record. Such a situation is squarely covered by provisions of section 41 of the Act which is reproduced as under: Printed from counselvise.com 5 I.T.A. No. 4922/Mum/2025 Profits chargeable to tax. 41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (Explanation 1.-For the purposes of this sub-section, the expression \"loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first-mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.] It is amply clear that inclusion of word \"shall include\" in the Explanation means that it is not necessary that assessee should admit cessation of liability before AO can invoke provisions of section 41 of the Act. Further, case laws cited by assessee are distinguishable on facts of the case under consideration. Rather I find support in Supreme Court judgment in case of Sundaram lyengar (TV) & Sons Ltd (as cited in assessment order) that assessee because of its business operation has become richer by the amount of Rs 43,79,941/-, that the amount has arisen out of ordinary business transactions, that the amount remained with assessee for a long period unpaid to foreign parties, that the claim of foreign parties attains a totally different quality after such a long time period, that the amount becomes a definite surplus in hands of assessee. In spite of availing various opportunities, assessee has not confirmed whether the amounts have been paid as on date. All these factual details confirm the decision taken by AO. Hence the ground of appeal raised by assessee is dismissed.” Aggrieved, by the order of Ld.CIT(A), assessee is in appeal before this Tribunal. Printed from counselvise.com 6 I.T.A. No. 4922/Mum/2025 4. The Ld.AR submitted that, the liability arose due to its agreement with the quality/care issues of the consignment received from suppliers. He submitted that the payment, therefore, did not take place for a long time and there was also no waiver of liability during that period. The Ld.AR at the outset, submitted that, assessee had continuously recognised the outstanding balance as payable in its balance sheet. It is submitted that, the liabilities were never written back nor treated as income during the preceding assessment year. 4.1. The Ld. AR submitted that the dispute was resolved with both foreign suppliers during FY 2023–24 and they agreed to grant relief by way of waiver of the outstanding liabilities and the said amounts were written back during FY 2023–24. He submitted that the said amount of ₹43,79,941/- was thus credited to the profit and loss account in the financial statements for AY 2024–25 relevant to FY 2023–24. 4.2. The Ld. AR submitted that during the course of assessment proceedings the assessee had furnished the following details to establish the genuineness of the transactions: 1. Name and address of the parties. 2. Copy of ledger accounts of both creditors for the period from 01/04/2008 to 31/03/2013. 3. Copy of invoices for disputed purchases from earlier years along with bills of entry evidencing import of goods into India. Printed from counselvise.com 7 I.T.A. No. 4922/Mum/2025 4. Copy of ledger confirmations from both creditors wherein the parties confirmed the outstanding liability as on 31/03/2013. 4.2.1. The Ld. AR submitted that the AO could not identify any error in these documents nor doubted the genuineness of the purchases of goods from the suppliers in the earlier years. He further submitted that in the earlier years the AO had not made any addition on account of cessation of liability in respect of the outstanding credits relating to the two suppliers under consideration. 4.3. The Ld. AR submitted that confirmations regarding waiver of liabilities have also been placed on record in support of the submissions. The Ld. AR further submitted that, the assessee closed its business in the year 2019 and that the assessee discharged its primary onus to establish the genuineness of the transactions recorded in its books of account which were within its knowledge. He submitted that the amount remained outstanding till the closure of the business and it was only thereafter that waiver of liabilities was intimated by the creditors. 4.4. The Ld. AR submitted that the Ld.AO doubted the transactions merely on the ground that, assessee did not make payment to the creditors within six months from the date of shipment as per RBI policy and FEMA regulations. He submitted that the Ld. AO proceeded on the footing that the assessee did not seek extension of Printed from counselvise.com 8 I.T.A. No. 4922/Mum/2025 time from the RBI for making payment to the foreign entities and, on that basis alone, treated the transactions as not genuine. 4.5. It was further submitted that, the decision relied upon by the Ld. AO of the Hon’ble Supreme Court in the case of CIT v. T.V. Sundaram Iyengar & Sons Ltd. (supra) is distinguishable and operates on a different footing. He submitted that the issue considered by the Hon’ble Supreme Court in that case was whether advances received would assume the character of income where such amounts remained unclaimed by the trade parties. The Hon’ble Supreme Court thus observed that, by the lapse of time, the deposits become time barred and the amount attained a totally different quality. The Ld.AR submitted that, in the present facts of the case, it was a liability in the books of assessee which remained so and based on the dispute that continued between assessee and the suppliers (creditors), and it never crystallized to be paid by assessee. The Ld.AR thus submitted that, liability that arose, does not get converted into income u/s 41(1) of the Act. 4.5. On the contrary, the Ld.DR submitted that, there is no evidence that the supplier took necessary steps to recover money from assessee. He also submitted that, assessee did not recognise the outstanding credits in its books as liability and has retained the trade liability till it was decided to be waived off by the suppliers. It was the contention of the Ld. DR that since no payment was made till FY 2023–24, the trade liability continued to remain outstanding in the books of the assessee and was liable to be treated as income Printed from counselvise.com 9 I.T.A. No. 4922/Mum/2025 on the ground that the liability had ceased to exist. The Ld. DR thus placed reliance on the orders passed by the authorities below. Perused the submissions advanced by both sides in light of the material placed on record. 5. Admittedly, the assessee had not written off the said liabilities in its books and there was no cessation of liability during the year under consideration. The requirement of section 41(1) of the Act postulates that the liability should have ceased to exist so as to attract the said provision. It is also noted that the assessee had not claimed any deduction or benefit in respect of the trading liability in any of the earlier assessment years. The documents relied upon by the Ld. AR and placed before the Ld. AO during the course of assessment proceedings establish that, no cessation of liability occurred. 5.1. It is further noted that, Ld. AO has not demonstrated that assessee obtained any benefit in respect of the outstanding liability in cash or in kind or in any other manner so as to result in cessation. Admittedly, the waiver of liability was offered to tax by the assessee in AY 2024–25, which clearly shows that the liability had not ceased during the year under consideration. In any event, the assessee has subsequently offered to tax the amount waived by the creditors in the relevant assessment year based on information received regarding such waiver. In the present facts and circumstances, we find that the Ld. AO has not made out a case to Printed from counselvise.com 10 I.T.A. No. 4922/Mum/2025 invoke provisions of section 41(1) of the Act. Accordingly, the addition made u/s 41(1) of the Act is directed to be deleted. Accordingly, grounds raised by the assessee stand allowed. In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 10/02/2026 Sd/- (BEENA PILLAI) Judicial Member Mumbai Dated: 10/02/2026 SC Sr. P.S. Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order (Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "