2006 (5) TMI 310

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....he addition of Rs. 47,79,546 made by the Assessing Officer on account of excess liability in the books of account of the assessee. 3. The facts relevant to the impugned dispute are as follows: The assessee company is engaged in the manufacture of paper and yarn. The Assessing Officer noticed that in the account of M/s Khem Chand Bahadur Chande Ahuja, Kotkapura and Muktsar, the assessee was showing an outstanding of Rs. 1,42,29,822. The assessee was accounting for interest to the said party at the rate of 24 per cent since the earlier years. The Assessing Officer noticed that a legal dispute arose with the said party whereby a plaint was filed by the said party in the Hon'ble Punjab & Haryana High Court. In response to the same the assess....

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....ccount of trade transaction with the party and on the outstanding balance, interest at the rate of 24 per cent was being provided for in the books of account and tax was duly deducted at source year after year. That the dispute with the party was pending before the Hon'ble High Court and unless the same was resolved, the liability booked in the books of account could not be varied. The CIT(A), after considering the submissions of the assessee deleted the addition on the ground that the matter was subjudice and the non existence of the liability could not be established. The learned CIT(A) also noted that section 41(1) of the Act dealing with the remission or cessation of liabilities could not be invoked in the instant case on the ground tha....

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....ant case, as the facts stand out, no benefit in the nature of cessation of remission of liability can said to have taken place. Thus, on facts and in law it can neither be inferred that the liability in question has been overstated by the assessee and nor can it be said that such liability has ceased to exist. In view of the aforesaid, we are inclined to affirm the conclusion drawn by the CIT(A) in this regards and accordingly revenue fails on this ground. 6. The second ground is with regard to the action of the CIT(A) in deleting the addition of Rs. 10,06,057 made by the Assessing Officer on account of excessive rate of interest paid to the creditors. The Assessing Officer noticed that with respect of unsecured loans raised form four pa....