In a recent ruling in Saha Textile vs DCIT, the Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) deleted an addition of ₹8.74 lakh made under Section 41(1) of the Income Tax Act, 1961. The addition pertained to a liability written back in the books, which the Assessing Officer had sought to tax as cessation of liability. However, on examination, it was found that the assessee had already offered the same sum to tax as “other income” in its return of income.
The Tribunal observed that once the income had been duly disclosed and subjected to tax under the head "other income," there was no justification for invoking Section 41(1) to tax the same amount again. Such an approach would lead to double taxation, which is impermissible in law. The ITAT emphasized that the principle of real income must be applied, and only the actual untaxed portion, if any, can be brought to tax under Section 41(1). Accordingly, the ITAT deleted the addition of ₹8.74 lakh, granting relief to the assessee. The ruling reinforces the settled position that once an income has already been taxed, it cannot be taxed again under a different provision merely due to a change in characterization. This decision provides important clarity on the application of Section 41(1) in cases where the assessee has already offered the written-back liability to tax.