High Court of Karnataka at Bengaluru · Judgments and reasoned final orders
The Pr. Commissioner of Income-Tax, Central & Anr. v. M/s Dream Logistics Company Ltd.
Income Tax Appeal No. 28 of 2025 ·
Section 41(1) addition of Rs. 2.60 crore as cessation of trading liability towards M/s Megha Minerals rightly deleted where liability was discharged by cheque on 21.04.2010, no cash-back was proved, and third-party statement was untested by cross-examination.
1. FACTS OF THE CASE
For AY 2011-12, the assessment of M/s Dream Logistics Company Ltd. (engaged in iron ore mining and logistics) was reopened under section 147 based on an ADIT (Investigation), Ballari enquiry report in the case of M/s Megha Minerals and the sworn statement of Sri Iranna Shankarappa Baddur. The AO added Rs. 2,60,00,000 under section 41(1) as cessation of liability, which the CIT(A) affirmed on 09.03.2024. The ITAT Bengaluru (in ITA No. 526/Bang/2024, order dated 13.09.2024) deleted the addition.
2. DISCUSSION BY THE COURT
The Division Bench noted that the Tribunal had recorded categorical findings of fact that the liability towards M/s Megha Minerals stood discharged through banking channels by cheque on 21.04.2010, there was no evidence of remission or cessation of liability under section 41(1) or that any cash was received back by the assessee after encashment, and the assessee was never afforded an opportunity to cross-examine the third-party deponent. Revenue's counsel fairly submitted that no substantial question of law arose.
3. JUDICIAL DECISION
Holding that the Tribunal's findings were based on appreciation of evidence without perversity and raised no substantial question of law under section 260A, the High Court dismissed ITA No. 28 of 2025 at the admission stage with no order as to costs.
4. OUTCOME
In favour of the assessee (M/s Dream Logistics Company Ltd.); Revenue appeal dismissed.
5. AKHB REVIEW POINT
AKHB analysis: Section 41(1) cannot be invoked to tax alleged bogus purchases where the trade liability has actually been paid by cheque through banking channels and the AO relies solely on an un-cross-examined third-party statement without proving cash plough-back or remission of liability.
Source and verification
Reviewed from the complete 8-page official High Court judgment PDF (20260730_KAHC010073742025.pdf, SHA-256: 1ca37b8e51d094468715d7fb7edc09e9f947c83a9d12830e1bfab0c9289200b1).
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Refers to the Income-tax Act, 1961 and allied statutory rules/circulars as applicable to the relevant assessment years.
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