Section 41(1) cannot apply without cessation of liability; personal receipts through a bank account were not treated as taxable remission.

Section 41(1) applies only where there is a remission or cessation of an existing trading liability; it does not cover receipts that are merely credited in a personal bank account without being reflected as a payable liability in the proprietary books. Here, the surrounding materials, including the affidavit, confirmation of account and bank statement, supported the explanation that the funds were received in a personal capacity from the partner group account and were not an extinguished liability owed to the AOP concern. On that factual basis, the statutory precondition for invoking section 41(1) was not met, and the addition was deleted.

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Issues: Whether the addition made under section 41(1) of the Income-tax Act, 1961 on the footing of cessation of liability was sustainable in respect of funds received from the partner group account and credited through the assessee's personal bank account.

Analysis: The recorded material showed that the assessee had received funds from the AOP concern, which were credited in the personal bank account and were not reflected in the proprietary books as a liability payable to the AOP. The surrounding documents, including the affidavit, confirmation of account and bank statement, supported the assessee's explanation that the amount represented funds received in a personal capacity and not a remission or extinction of an existing trading liability. On those facts, the precondition for invoking section 41(1), namely cessation or remission of a liability, was not established.

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

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