Brought forward liability cannot be taxed as ceased income in a later year when reversed in subsequent assessments.

A brought forward provision for salary and statutory dues could not be taxed as a bogus or ceased liability under section 41(1) in the year under appeal when the assessee reversed the provision in subsequent years and those reversals were accepted in regular assessments. On those facts, no adverse inference could be drawn against the provision for the relevant year, and the amount could not be brought to tax merely because it appeared as an opening balance. The liability, if regarded as non-genuine, would have to be considered in the year of its genesis, not in a later year, to avoid double taxation.

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Issues: Whether the addition of provision for salary and statutory dues payable, brought forward in the books and later reversed in subsequent years, could be sustained as a bogus or ceased liability under section 41(1).

Analysis: The assessee had reversed the impugned provision in the succeeding assessment years and the reversals were reflected in the regular assessments completed under section 143(3). On these facts, no adverse inference could be drawn against the genuineness of the provision for the year under consideration. The addition could not be sustained in that year merely because the amount appeared as a brought forward balance. Even if the liability were viewed as non-genuine, it could not be assessed in the year under appeal as income in the absence of genesis of the credit in that year, and sustaining it would also result in double taxation.

Conclusion: The addition under section 41(1) was not sustainable and was deleted; the issue was decided in favour of the assessee.

Ratio Decidendi: A liability shown as a brought forward balance cannot be taxed in the year under appeal as a ceased or bogus liability where it is reversed in subsequent years and accepted in regular assessments; if at all taxable, it must be brought to tax in the year of its genesis.

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