Tribunal Partially Allows Revenue Appeal: Rs. 7,25,000 Liability Excluded, Rs. 65,845 Added Back to Income.

The Tribunal ruled that the amount of Rs. 7,25,000, shown as an outstanding liability to HAL, should not be included as income for the year, as the liability was still recognized by the assessee and had not ceased. However, regarding the Rs. 70,845 addition under section 41(1), the Tribunal modified the CIT(A)'s decision, restoring Rs. 65,845 to the assessee's income due to lack of evidence supporting the liabilities. Thus, the appeal by the revenue was partly allowed, with the Rs. 7,25,000 addition deleted and Rs. 65,845 restored.

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Issues Involved:
1. Deletion of addition of Rs. 7,25,000 shown as outstanding liability.
2. Deletion of addition under section 41(1) of Rs. 70,845.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 7,25,000 Shown as Outstanding Liability

Facts and Background:
The assessee, acting as an Indenting Agent for Hawson Algraphy Ltd. (HAL), London, received machinery to be exhibited in PAMEX Trade Fair 1987. The machinery was not sold at the exhibition and was subsequently sold to M/s. Conway Printers Pvt. Ltd. (CPPL) for Rs. 7.25 lakhs. The sale proceeds were shown as a liability payable to HAL in the assessee's books. Over time, HAL's business was taken over by Du Pont de Nemours & Co. Inc. and later by Agfa Gevaert NV, Belgium. The amount remained unpaid, and the Assessing Officer added it to the assessee's income, arguing it had been appropriated by the assessee.

CIT(A) Decision:
The CIT(A) deleted the addition, stating that the liability was still acknowledged by the assessee and had not ceased to exist. The amount had not been claimed as a deduction in any assessment year, so it could not be considered as income under sections 28(iv) or 41(1) of the Income-tax Act.

Arguments:
- Revenue: Argued that the amount had been appropriated by the assessee, as neither HAL nor its successors had claimed it.
- Assessee: Contended that the liability still existed in the books and had not been written off, citing Supreme Court decisions in CIT v. Sugauli Sugar Works (P.) Ltd. and Chief CIT v. Kesaria Tea Co. Ltd.

Tribunal's Analysis:
- Accountant Member: Held that the amount had effectively been appropriated by the assessee and should be taxed under section 28(iv), relying on the Supreme Court's decision in T.V. Sundaram Iyengar & Sons Ltd.
- Judicial Member: Disagreed, stating that the liability had not ceased and the amount could not be taxed as income under section 28(iv) or 41(1), following the Supreme Court's decisions in Sugauli Sugar Works (P.) Ltd. and Kesaria Tea Co. Ltd.

Third Member Decision:
The Third Member agreed with the Judicial Member, concluding that the amount could not be taxed as income. The liability was still recognized by the assessee, and there was no cessation of liability.

Final Judgment:
By majority view, the amount of Rs. 7,25,000 due to HAL does not partake the nature of any benefit or perquisite under section 28(iv) or under section 41(1) and is not to be included as income for the year under consideration.

2. Deletion of Addition under Section 41(1) of Rs. 70,845

Facts and Background:
The Assessing Officer found various sundry creditors outstanding in the assessee's books prior to the financial year 1993-94. Summons issued to these creditors were either returned undelivered or the creditors denied any dealings with the assessee. The Assessing Officer added Rs. 70,845 to the assessee's income, concluding that these liabilities had ceased to exist.

CIT(A) Decision:
The CIT(A) deleted the addition, stating that the Assessing Officer had not provided adequate opportunity to the assessee to submit its explanation.

Tribunal's Analysis:
- Global Tele (Rs. 21,000): Summons returned with the remark 'left'. The assessee failed to provide a correct address or produce the party. The addition was restored.
- United Data Base (P.) Ltd. (Rs. 3,650): Summons returned with the remark 'not known'. The addition was restored.
- Shri Sadhana Printers (Rs. 5,000): The party replied that it had closed its business and would not claim the liability. The addition was deleted.
- G.S. Quality (Rs. 2,920): The party denied any dealings with the assessee. The addition was restored.
- Suman Arts Printers (Rs. 3,475): The party confirmed only Rs. 1,545, which was written off in 1994-95. The addition was restored.
- Sahitya Sahakar Mudralaya (Rs. 5,000): The party had no record of dealings with the assessee. The addition was restored.
- Bombay Potteries & Allied Stores (Rs. 11,800): The assessee failed to furnish the address or confirmation. The addition was restored.
- India Offset (Rs. 10,000): The party confirmed no arrears due. The addition was restored.
- The Printers (Mysore) Ltd. (Rs. 8,000): The party confirmed no dealings with the assessee. The addition was restored.

Final Judgment:
The Tribunal modified the CIT(A)'s order, restoring the addition to the extent of Rs. 65,845.

Conclusion:
The appeal by the revenue was partly allowed. The addition of Rs. 7,25,000 was not included as income for the year under consideration, while the addition of Rs. 65,845 was restored.

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