TaxTMI 
TaxTMI 
2015 (11) TMI 179
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....he Assessee to furnish confirmation from M/S.Durga Traders. The assessee gave confirmations from the creditor dated 14.3.2012. The address of M/s.Durga Traders as given in the confirmation was Shop No.1/2, Gurukrupa Housing Complex, Cutinho Road, Karwar-581 301. The AO on 7.8.2012 issued a commission u/s.131(1)(d)of the Act to the ITO, Ward-1, Karwar, to examine the creditor. The ITO, Ward-1, Karwar reported that on enquiry no concern/enterprise by name M/S.Durga Traders existed at the address given and hence no enquiry could be carried out. 4. The AO informed the assessee about the non-availability of M/s. Durga Traders at the given address. The AO also informed the assessee that in the given circumstances, it could be presumed that liability of the assessee to pay M/s. Durga Traders ceased to exist and therefore the said outstanding amount should not be brought to tax, treating it as a benefit received by the assessee on cessation of liability u/s. 41(1) of the Act. 5. The assessee submitted before the AO that in the year 2010, there was a ban on iron ore transaction because of which iron ore industry had come to a standstill. It was therefore possible that M/s. Durga Traders h....
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....ld be sustained. 8. Aggrieved by the order of CIT(A), The Revenue has preferred the present appeal before the Tribunal. 9. We have heard the submissions of the ld. counsel for the assessee and the ld. DR. The submission of the ld. counsel for the assessee was that addition u/s. 68 of the Act could not be made because, admittedly, the credits in question did not relate to the previous year relevant to AY 2009-10. In this regard, the fact that the creditors did not have any transactions during the relevant previous year is admitted by the AO in para 2 of the assessment order. According to him, therefore the provisions of section 68 will not be attracted. The ld. counsel thereafter drew our attention to the decision of the Hon'ble Delhi High Court in CIT v. Sri Vardhaman Overseas Ltd., ITA No.774/2009 dated 23.12.2011 343 ITR 408 (Del), wherein on identical facts, the Hon'ble High Court held that neither section 68 nor section 41(1) of the Act would be attracted. In this regard, we have already observed that neither the order of the AO nor the order of CIT(A) is clear as to whether the impugned addition is being made u/s. 68 or 41(1) of the Act. U/s. 41(1) of the Act, if there is a ....
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....it in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or xx xx xx xx xxxx xx xx xxxx xx xx [Explanation 1 - For the purposes of this sub-section, the expression _loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts." (underlining ours) 13. Explanation 1 which was inserted w.e.f. 1.4.1997 is not attracted to the present case since there was no writing off of the liability to pay the sundry creditors in the assessee's accounts. The question has to be considered de hors Explanation 1 to Section 41(1). In ....
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.... & Mfg. Co. Ltd. vs. State of Bombay AIR 1958 SC 328 the legal position was summarized by T.L. Venkatarama Aiyar, J., in the following manner : "It has been already mentioned that when a debt becomes time-barred, it does not become extinguished but only unenforceable in a Court of law. Indeed, it is on that footing that there can be statutory transfer of the debts due to the employees, and that is how the board gets title to them. If then a debt subsists even after it is barred by limitation, the employer does not get, in law, a discharge therefrom. The modes in which an obligation under a contract becomes discharged are well-defined, and the bar of limitation is not one of them. The following passages in Anson's Law of Contract, 19th Edition, p. 383, are directly in point : "At Common Law lapse of time does not affect contractual rights. Such a right is of a permanent and indestructible character, unless either from the nature of the contract, or from its terms, it be limited in point of duration." But though the right possesses this permanent character, the remedies arising from its violation are withdrawn after a certain lapse of time; interest reipublicaeut si finis litiu....
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....d not taken any steps to recover the amount, there was a cessation of the debts which brought the matter under s. 41(1). Turning back to the judgment of the Supreme Court, we find that the judgment of the Calcutta High Court under appeal was affirmed for two reasons. The first reason was based on a judgment of the Full Bench of the Gujarat High Court in CIT vs. Bharat Iron & Steel Industries (1992) 105 CTR (Guj)(FB) 331 : (1993) 199 ITR 67 (Guj)(FB). It was held by the Supreme Court that the Gujarat High Court was right in saying that in order to attract taxability under s. 41(1) the assessee should have obtained, whether in cash or in any other manner whatsoever, any amount in respect of the loss or expenditure earlier allowed as a deduction. This part of the reasoning, in the light of the amended cl. (a) of sub-s. (1) of s. 41 may not be relevant after substitution of the said clause by the Finance Act, 1992 w.e.f. 1st April, 1993, by which the words "some benefit in respect of such trading liability by way of remission or cessation thereof" were inserted. After the amendment, therefore, it is not necessary that in respect of a trading liability earlier allowed as a deduction, th....
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....also are attracted and for the recovery of the dues from the employer, under s. 33C(2) of the Industrial Disputes Act, no bar of limitation comes in the way of the employees." 15. The Supreme Court noticed that the above observations of the Bombay High Court were quoted by the Calcutta High Court in the judgment under appeal before them, and observed as under while upholding the judgment of the Calcutta High Court : "This judgment has been quoted by the High Court in the present case and followed. We have no hesitation to say that the reasoning is correct and we agree with the same. To reinforce the conclusion, the Supreme Court also noticed its earlier judgment in Bombay Dyeing & Mfg. Co. Ltd. vs. State of Bombay AIR 1958 SC 328 wherein it was held that the expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt. 16. In our opinion, the judgment of the Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra) is a complete answer to the contention of the learned standing counsel. In the case before the Supreme Court for a period of almost 20 years the liability rema....