TaxTMI 
TaxTMI 
2013 (11) TMI 906
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....the order of the CIT (A), the assessee is now in appeal before us and has raised following grounds. "1.1 The order passed u/s. 250 on 18-9-12 for A.Y. 2008-09 by CIT (A)-VIII, Ahmedabad on 18-9-12 upholding the addition of Rs.8,22,726/- made u/s. 41(1) as cessation of liability is wholly illegal, unlawful and against the principles of natural justice. 1.2. The Ld. CIT (A) has grievously erred in not considering fully and properly the evidence produced and explanation furnished with regard to the impugned addition. 2.1. The Ld. CIT (A) has erred in law and on facts in upholding that there was cessation of liability in view of dissolution of the partnership firm and getting time barred so that it was liable to tax u/s. 41(1) of the I. T. Act. 2.2. That in the facts and circumstances of the case as well as in law, the Ld. CIT (A) ought not to have upheld that there was cessation of the liability of Rs.8,22,726/- to M/s. Om Traders so that it was chargeable to tax u/s. 41(1)." Since all the grounds raised relates to addition u/s. 41(1) and are interconnected, all are considered together for disposal. 4. During the co....
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.... different from what the appellant is putting up. If an amount is received in course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the appellant's own money because of limitation or by any other statutory or contractual right. When such a thing happens, commonsense demands the amount should be treated as income of the appellant. In the instant case, the amounts were taken as loan from M/s. Om Traders (firm.). The loans were not repaid and kept with the appellant and it is to be noted that the firm M/s.Om Traders (Firm) is already dissolved in 2006.The loans were taken in course of the trade. Although the amounts received originally were not of income nature, the amounts remained with the appellant for a long period unclaimed by the trade parties. By lapse of time, the claim of the loan became time barred and the amount attained a totally different quality. It became a definite trade surplus. In the instant case, the loans were received by the appellant in course of carrying on his business. Although it was treated as loans and was of capital nature ....
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....ointed out that what the assessee did was the commonsense way of dealing with the amounts." On the basis of above discussion and the facts of the case that the aforesaid liability of loan of Rs.8,22,726/- is barred by limitation would mean that the appellant was not required to pay the liability to M/s. Om Traders (Firm). In view of the above, I hold the liability of Rs.8,22,726/- as cessation of liability u/s. 41(1) of the I. T. Act and therefore, the addition made by the A.O. is confirmed. The ground of the appeal is dismissed." 6. Aggrieved by the aforesaid order of CIT (A), the assessee is now in appeal before us. 7. Before us, the Ld. A.R. submitted that though the firm was dissolved the accounts were not squared up and even the Bank account continued. He further submitted that the outstanding debtors and creditors of the firm were to be settled and the bank account was to be continued till then. He further submitted that assessee has not transferred the impugned account to Profit and loss account nor treated it as cessation of liability. He therefore submitted that provisions of Sec.41(1) and the ratio of decision of Hon'ble Supreme Court in the case of ....
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....ecision of Gujarat High Court are distinguishable and cannot be applied to the facts of the present case for the reason that in that case, it was not a case where the firm to whom the amount was payable was no more in existence and had ceased to exist. Similarly the decision of Miraa Processors (supra) are also distinguishable and therefore have no application to the facts of the assessee. 10. In the case of CIT vs. Agarpara Co. Ltd. (1986) 27 Taxman186 (Cal.) the Hon'ble High Court has held as under. "Assuming that there can be a cessation only on bilateral act by both the creditor and debtor such acts may be inferred from the conduct of the debtor and creditors." 11. In the case of CIT vs. Chipsoft Technology (P) Ltd. (2012) 26 Taxman.com. 109 (Del ) , Hon'ble High Court has held as under:- "9. Two aspects are to be noticed in this context. The first is that the view that liability does not cease as long as it is reflected in the books, and that mere lapse of the time given to the creditor or the workman, to recover the amounts due, does not efface the liability, though it bars the remedy. This view, with respect is an abstract and theoretical one, and does not ground it....