2007 (7) TMI 210

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....ribunal in the appeal of the Department upheld the view of the Commissioner of Income-tax (Appeals). This is how this income-tax appeal has been preferred under section 260A of the Income-tax Act, 1961. Though counsel for the Revenue sought to rely upon section 28(iv) of the Income-tax Act, 1961, in support of her contention that the Assessing Officer was justified in treating the aforesaid amount written back by the assessee as the income, we are afraid that neither the said section was relied upon by the Assessing Officer nor was pressed into service by the Revenue in appeal before the Income-tax Appellate Tribunal. That section even otherwise has no application. Section 41(1) of the Income-tax Act as was existing in the year of ass....

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....be included in the total income of the assessee. The Supreme Court concurred with the reasoning of the Calcutta High Court reported in the case of CIT v. Sugauli Sugar Works P. Ltd. [1983] 140 ITR 286 where the Division Bench held thus: "The transfer of an entry is a unilateral act of the assessee, 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 ei....

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....owance 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 thereof during the year in which such event occurred; (3) in that situation the value of the benefit accruing to the assessee is deemed to be the profit and gains of business which otherwise would not be his income; and (4) such value of the benefit is made chargeable to income-tax as the income of the previous year wherein such benefit was obtained. The High Court, agreeing with the Tribunal, rightly held that the resort to section 41(1) could arise only if the liability of the assessee can be said to have ceased finally without the possibil....