AI Drafter 
TaxTMI 
TaxTMI 
2015 (8) TMI 975
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....ear 2010- 11 on 4.3.2011 declaring income of Rs. 1,79,110. The assessment was completed under Section 143(3) of the Act vide order dt.28.12.2011 wherein the income of the assessee was determined at Rs. 12,08,883 in view of an addition of Rs. 10,29,773 to the returned income as cessation of liability under Section 41(1) of the Act. 2.2 Aggrieved by the order of assessment for Assessment Year 2010-11, dt.28.12.2011, the assessee preferred an appeal before the CIT (Appeals) - VI, Bangalore who dismissed assessee's appeal vide order dt.7.10.2013. 3. Aggrieved by the order of the CIT (Appeals) - VI, Bangalore dt.7.10.2013, the assessee has preferred this appeal raising the following grounds:- " 1. The order of the learned authorities below in so far as it is against the appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the appellant's case. 2. The appellant denies himself liable to be assessed on a total income of Rs. 12,08,883 as determined by the ld. Assessing Officer as against the income reported by the appellant of Rs. 1,79,110 under the facts and circumstances of the case. 3. The learned CIT (Appeals) is not justified in ....
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....29,773 as income of the assessee on account of cessation of liability under Section 41(1) of the Act. In response thereto, the assessee objected to the same contending that the said amount was still due and payable by the assessee to M/s. Tool Masters. The explanation put forth by the assessee did not find favour with the Assessing Officer. Observing that the said amount was outstanding for the last 4 years even though the M/s. Tool Masters, the creditor had closed its business, the Assessing Officer treated the sum of Rs. 10,29,773 as income of the assessee under Section 41(1) of the Act as cessation of liability which no longer existed. 5.2 On appeal, the learned CIT (Appeals) upheld the order of the Assessing Officer in bringing this amount of Rs. 10,29,773 to tax in the assessee's hands on the ground that the Assessing Officer has brought on record that M/s. Tool Masters, the creditor had closed down its business and also for the reason that the assessee has not been able to show that the said liability has been made good. 5.3.1 In the Grounds raised (supra), the assessee contends that the Assessing Officer / learned CIT (Appeals) were not justified in making/confirmi....
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....e said credit has been written back and offered to tax in the subsequent year i. E. Assessment Year 2011-12 wherein it has been offered to tax under the head Miscellaneous income of Rs. 10,23,773. A copy of the computation of income for Assessment Year 2011-12 and the profit and loss account are placed at pages 14 to 16 of the A. R's Paper Book. It is submitted that the impugned addition of Rs. 10,29,773 made under Section 41(1) of the Act is unsustainable both in law and on facts. 5.3.2 Per contra, the learned Departmental Representative placed reliance on the orders of the authorities below. 5.4.1 We have heard the rival contentions and perused and carefully considered the material on record. On almost identical facts, the Hon'ble Delhi High Court in the case of Shri Vardhaman Overseas Ltd. (supra), has clearly laid down that neither section 41(1) nor section 68 of the Act can be applied. As far as applicability of section 41(1) of the Act is concerned, the question before us is limited to the applicability of Section 41(1) of the Act. The section in so far as it is relevant for our purpose is as below: "Profits chargeable to tax. 41. (1) Where an allowance or deducti....
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....on of the Hon'ble Delhi High Court in the case of Vardhaman overseas Ltd. (supra) clearly supports the plea of the Assessee in this regard. On identical facts, the Hon'ble Delhi High Court on the applicability of Sec.41(1) of the Act, held: "12. That takes us to the next question as to what constitutes remission or cessation of the liability. It cannot be disputed that the words "remission" and "cessation" are legal terms and have to be interpreted accordingly. In State of Madras vs. Gannon Dunkerley & Co. AIR 1958 SC 560 Venkatarama Aiyyar J. explained the general rule of construction that words used in statutes must be taken in their legal sense and observed : "The ratio of the rule of interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have, in law, acquired a definite and precise sense and that, accordingly, the legislation must be taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law". In our opinion, this rule should be applied to the interpr....
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.... the amount of 3,45,000 and the balance of 2,56,529 was brought to assessment under s. 41(1) of the Act. The assessee appealed unsuccessfully to the AAC and thereafter carried the matter in further appeal to the Tribunal. Its contention before the Tribunal was that the unilateral entry of transferring the amount from the suspense account to the capital reserve account would not bring the said amount within s. 41(1). The contention was accepted by the Tribunal whose decision was affirmed by the Calcutta High Court CIT vs. Sugauli Sugar Works (P) Ltd. (1981) 23 CTR (Cal) 226 : (1983) 140 ITR 286 (Cal). The Revenue carried the matter in the appeal to the Supreme Court. The contention of the Revenue (as noted at p. 520 of 236 ITR) was that on the facts of the case, the liability came to an end as a period of more than 20 years had elapsed and the creditors had not taken any steps to recover the amount and consequently there was a cessation of the debt which would bring the matter within the scope of s. 41(1). It may be noted that the contention of the Revenue in the case before us is precisely the same. To recapitulate, the learned standing counsel contended before us that since a peri....
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....ssee, who is a debtor to its employees. We fail to see how a debtor, by his own unilateral act, can bring about the cessation or remission of his liability. Remission has to be granted by the creditor. It is not in dispute, and it indeed cannot be disputed, that it is not a case of remission of liability. Similarly, a unilateral act on the part of the debtor cannot bring about a cessation of his liability. The cessation of the liability may occur either by reason of the operation of law, i. E., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to Honour his liability when payment is demanded by the creditor, or a contract between the parties, or by discharge of the debt the debtor making payment thereof to his creditor. Transfer of an entry is neither an agreement between the parties nor payment of the liability. We have already held in Kohinoor Mills Co. Ltd. vs. CIT (1963) 49 ITR 578 (Bom) that the mere fact of the expiry of the period of limitation to enforce it, does not by itself constitute cessation of the liability. In the instant case, the liability being one relating to wages, salaries and bonus due by a....