TaxTMI 
TaxTMI 
2011 (2) TMI 697
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....verdraft from Oriental Bank of Commerce. He has also found that in many cases even the names of parties were not mentioned. Therefore, the AO was of the view that the correct nature is of discharged liabilities and the assessee has merely passed book entries to substantiate that the discharge was by way of repayment of the credit balances. The AO found that the said treatment is clearly in the nature of treatment specified in Explanation 1 to Section 41(1) regarding entries which can be treated as discharges of liability by unilateral Act of writing off such liabilities in its books. 4. The AO also observed that there was substantial credits outstanding in the books of assessee for the last 8-10 years, which are reproduced below: Sr. No. Name of the party Amount 1 Kanchan M Bhora Rs.77,302 2 Meena D Pahalajani Rs.21,937 3 Metal craft Rs.71,400 4 Om transport co. Rs.1,166 5 Pranav const. equipment p ltd Rs.1,98,485 6 Prima ply and laminatesc[ Rs.3,88,529 7 R S stone supply com. Rs.1,869 8 Rajashree cement Rs.500 9 Rupal Transport Rs.1,193 10 Shree ram enterprises Rs.4,....
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....he assessee by book entries for issue of cheques to the extent of Rs.1,60,55,035/- and the creditors outstanding for more than 8 to 10 years of Rs.18,19,329/- (after excluding Rs.92.84 lakhs being interest on loan to HDFC) is taxable under 41(1)/28(iv) on account of discharge of liability or alternatively constituting benefit accrued on account of conducting of the business 10. On appeal, the CIT(A) confirmed the addition made by the AO vide impugned order 11. Before us, the learned AR submitted that all expenses incurred till date are debited to WIP and accountant no deduction has been claimed, thus, no addition can be made u/s 41(1. The learned AR submitted that the AO has observed that the method of accounting followed in the project completion method is only for reorganization of revenue at the end of the project. He submitted that the WIP is prepaid for each year and filed with the return and such work in progress indicates all the expenses born in that year. The learned AR submitted that the income is not recognizable as on the date of the end of the relevant financial years and the expenses have not been given effect to determining profit. The learned AR ....
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....al consumed in the construction of the project. The assessee has not straight way written off the liability but has indirectly wiped out by way of entries in the books of account by issuing the cheques which were not encashed. Thus, the real effect of exercise carried out by the aseseee for making the entries in the books of account of discharging of the liability without actual payment would be the remission of the liability. Undispsutedly, the liability was for the construction of the project which has shown as stockin- trade/WIP, therefore, the remission of the same has become the income of the assessee being part of the trading activity. The Hon'ble Jurisdictional High Court in the case of Solid Containers ltd V/s Dy CIT (supra) relied upon by the DR has observed as under: "3. It is worthwhile to refer to the observation of the apex court in T V Sundaram Iyangar and Sons ltd (1996) 222 ITR 344: 22. The principle laid down by Atkinson J applies in full force to the facts of this case, if a common sense view of the matter is taken the assessee, because of the trading operation, had become richer by the amount which it transferred to its profit and loss account....
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....ent, in is entirely, was not obliterated by such waiver. Secondly, the purchase consideration related to capital assets. The tooling were in the nature of dies and the assessee was a manufacturer of heavy vehicles. The import was that of plant and machinery and the waiver could not constitute business. The fact of the present case are entirely different inasmuch as it was a loan taken for trading activity and ultimately, upon waiver the amount was retained in business by the assessee. Thus, the principle stated by the Supreme Court in the case of T V Sundaram Iyengar and Sons ltd (1996) 222 ITR 344 would be squarely applicable to the facts of the present case. The amount which initially did not fall within the scope of the provisions rendering it liable to tax subsequently had become the assessee's income being part of the trading of the assessee. Similar view was also taken by a Bench of the Madras High Court in the case of CIT V. Aries advertising P Ltd (2002) 255 ITR 510. The court took the view that the assessee because of trading operation became richer by the amount which had been transferred and/or retained in the profit and loss account of the assessee. 5. In view....