TaxTMI 
TaxTMI 
TaxTMI 
2005 (8) TMI 96
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....contained a condition that in case of rejection of the material supplied, the replacement would be at the cost of the assessee/contractor. In this case, there was rejection not once but twice, namely, after the first rejection, the goods were returned to the supplier at a foreign country from whom the goods were imported and the goods were replaced. The replacement was also rejected and the goods were returned to the foreign supplier. These facts are not in dispute. Subsequently, the Railway authorities on May 3, 1986, demanded a sum of Rs. 46,82,142 on account of the expenditure incurred in the transaction pursuant to the terms and conditions of the purchase order dated July 29, 1982, being a warranty obligation on the part of the assessee. The Railway had also on April 15, 1988 asked the assessee to refund the commission received by the assessee from the Railways in respect of the supplies so made. Admittedly, the assessee, till today, neither has paid the demand made by the Railways nor has refunded the commission received by it from the Railways. The period of limitation as available to the Railways is 30 years under article 112 of the Schedule to the Limitation Act, 1963. Adm....
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....flected in the accounts on the date when the admission is made by the person against whom the assessee admits the liability. According to him, this admission is required to be interpreted in this case as he proposes to submit. Submission on behalf of the respondent/Department: Mr. Dipak Shome, learned senior counsel for the Department, on the other hand, contended that the liability was alleged to have accrued in 1982 and was demanded after the expiry of four years in 1986 and under the Arbitration Act there being no special period of limitation in respect of claims by the Government, the residuary clause in article 137 of the schedule to the Limitation Act would be applicable for filing the arbitration application under section 20 of the Arbitration Act, 1940, which was then operating in the field. Therefore, the claim having been barred by limitation, and admittedly the assessee having not paid the amount, and no arbitration having been initiated by the Railways nor by the assessee, and no suit having been filed by the Railways, the liability reflected in the accounts has no foundation; and as such the entry in the accounts can be treated to be an entry without substance. Accor....
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.... court was concerned with the question as to whether the assessee was liable to reflect anticipated loss in his account maintained under the mercantile system. Dealing with such question, this court had held that if the argument of the Department is to be accepted, the result would be that an assessee would have to write up his books of account not according to his views of the transaction he has entered into but according to the claims made on him by others irrespective of the questions as to whether he admitted the same or not. It had held that when the assessee admits loss or when the loss is ascertained, it certainly is his duty to bring the same into debit as soon as the admission is made or the ascertainment takes place. The mercantile system of bookkeeping does not seem to cast on the assessee any obligation to take note of whatever claims, good or bad, may be raised against him. This decision relied on the decision in Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC); [1960] 1 SCR 185 and held that according to the judgment of the Supreme Court in Calcutta Co. Ltd. [1959] 37 ITR 1, the liability must accrue or arise in order that a sum of money may be deductible in respect the....
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....from the debtor. Even then section 18 of the Limitation Act refers to an acknowledgment in writing signed by the parties against whom the liability is enforceable. It does not specify anything that such liability is to be made in a particular manner and to be communicated to the creditor. Mr. Khaitan refers to a decision in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, AIR 1962 Cal 115 and submits that a liability reflected in the accounts and shown in the balance-sheet signed by the party or by his authorized agent is also construed to be an admission. But that is neither here nor there. We need not go into such question. Section 18 of the Limitation Act contemplates an acknowledgment of liability, whereas we are concerned with admission of liability. That acknowledgment has a different connotation for the purpose of recoverability of the amount and enforcement of the liability against the person acknowledging. In case the ingredients of section 18 of the Limitation Act are not satisfied, then the liability ceases and there is no scope of recoverability of the liability or enforcement of the liability from or against the debtor-assessee. Whereas an admission entitling the ....