Trading liability limitation expiry does not establish cessation under Section 41(1), while ad hoc business expense disallowances remain impermissible.

Expiry of the limitation period for enforcing a trading liability does not by itself trigger Section 41(1), because it bars the creditor's remedy without extinguishing the underlying liability. Section 41(1) requires remission or cessation of the liability and a resulting benefit to the assessee; creditor confirmation further supported the continuing liability. The addition for alleged cessation was therefore deleted. Ad hoc disallowance of hotel and travelling expenditure was also impermissible under applicable coordinate-bench decisions, and that disallowance was deleted. Both additions were deleted in favour of the assessee.

---

---

Issues: (i) Whether an outstanding trading liability could be treated as having ceased under Section 41(1) merely because the limitation period for its recovery had expired; (ii) Whether an ad hoc disallowance of hotel and travelling expenditure was sustainable.

Issue (i): Whether an outstanding trading liability could be treated as having ceased under Section 41(1) merely because the limitation period for its recovery had expired.

Analysis: Section 41(1) requires that the assessee must have obtained an amount or benefit in respect of a trading liability through its remission or cessation. The liability had been incurred in the assessment year 2012-13 and was outstanding in the relevant assessment year. Expiry of limitation for recovery bars the remedy but does not extinguish the underlying right, and therefore does not by itself establish cessation of the liability. The creditor's confirmation was also on record.

Conclusion: The addition for alleged cessation of the trading liability was unsustainable and was deleted, in favour of the assessee.

Issue (ii): Whether an ad hoc disallowance of hotel and travelling expenditure was sustainable.

Analysis: The applicable coordinate-bench decisions establish that ad hoc disallowances of such business expenditure cannot be made.

Conclusion: The disallowance of hotel and travelling expenditure was unsustainable and was deleted, in favour of the assessee.

Final Conclusion: The assessee obtained deletion of both additions.

Ratio Decidendi: Expiry of the limitation period for enforcing a trading liability, without remission, actual cessation, or a benefit obtained by the assessee, does not attract Section 41(1); ad hoc disallowance of business expenditure is impermissible.

---