2002 (3) TMI 1

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....At the instance of the Revenue, the following question was referred under section 256(1) of the Income-tax Act, 1961, for the opinion of the High Court: "Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that Rs.3,02,758 cannot be brought to tax and in deleting the addition of Rs.3,02,758 sustained by the Commissioner of Income-tax (Appeals)?" The High Court accepted the view of the Tribunal which partly allowed the appeal of the assessee and answered the question in favour of the assessee. The facts in brief are: The respondent-assessee is engaged in the business of tea, spices, etc. During the assessment year 1985-86 (previous year ending on March 31, 1985), the assessee ....

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....e rejection of the S.L.P. in Neroth Oil Mills' case [1982] 49 STC 249 (Ker), in November, 1984. Certain observations were also made as regards the includibility of the sums pertaining to the assessment years 1980-81 and 1981-82 in respect of which reassessments were made. However, in this appeal, we need not go into the details thereof. On further appeal by the assessee, the Tribunal set aside the addition of Rs.3,02,758 which was upheld by the Appellate Commissioner. The Tribunal did not agree with the view taken by the first appellate authority that there was cessation of liability within the meaning of section 41(1) of the Income-tax Act during the relevant year on account of dismissal of the S.L.P. in another case. The Tribunal obser....

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....ed by the assessee during the year ending on March 31, 1985, for whatever reason it be. The question is whether the circumstances contemplated by section 41(1) exist so as to enable the Revenue to take back what has been allowed earlier as business expenditure and to include such amount in the income of the relevant assessment year, i.e., 1985 86. In order to apply section 41(1) in the context of the facts obtaining in the present case, the following points are to be kept in view: (1) In the course of assessment for an earlier year, allowance or deduction has been made in respect of trading liability incurred by the assessee; (2) Subsequently, a benefit is obtained in respect of such trading liability by way of remission or cessation thereo....