Trading liability cessation under section 41(1) fails where the debt remains acknowledged, unpaid, and unreversed in books.

Section 41(1) did not apply to the alleged trading liability because the amount continued to appear in the assessee's books and had not been written back. The creditor's response under section 133(6) confirmed that the sum remained receivable, which negatived any inference of remission or cessation. Mere delay in payment, or a timing discrepancy without evidence of waiver, extinguishment, legal unenforceability, or any bilateral act ending the liability, is insufficient to trigger section 41(1). The addition was therefore unjustified and was deleted, with the issue decided in favour of the assessee.

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Issues: Whether the addition made under section 41(1) of the Income-tax Act, 1961 on account of alleged cessation of trading liability was sustainable.

Analysis: The outstanding liability continued to be reflected in the assessee's books and had not been written back. The creditor's reply to the notice under section 133(6) confirmed that the amount remained receivable from the assessee, which negatived any inference of remission or cessation. Mere delay in payment or a discrepancy regarding the timing of payment, without material showing waiver, extinguishment, legal unenforceability, or any bilateral act ending the liability, is insufficient to attract section 41(1).

Conclusion: The addition under section 41(1) was not justified and was rightly deleted; the issue is decided against the Revenue and in favour of the assessee.

Ratio Decidendi: Section 41(1) applies only where there is clear remission, waiver, extinguishment, or cessation of a trading liability; such cessation cannot be inferred merely from delay in payment or presumptions when the debt remains acknowledged and subsisting.

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