TaxTMI 
TaxTMI 
2001 (10) TMI 246
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....ring the course of assessment proceedings, the AO noticed from balance sheet as on 31st March, 1991, that sundry creditors of Rs. 1,32,60,255 as compared to creditors of Rs. 1,31,95,364 in the last year. The AO required certain details through his letter dt. 15th Oct., 1993, which was supplied by the assessee through its letter dt. 21st Oct., 1993. The AO produced the relevant facts related to questions and answers in his order at pp. 4 and 5 and at pp. 8 and 9 out of which some important facts are reproduced below: Gist of notice (For the details of sundry creditors, 15 days time to submit the details was requested on the ground that old records have to be verified in respect of these creditors. However, the undersigned had verified the old records of the assessee and found the position of sundry creditors as under: Year Amount (Rs.) as on 31-3-1985&nb....
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....t of repetition because we and, therefore, we say that the condition precedent is not fulfilled. Please note that even if time-barred debt is written back, it is not income because only the remedy of going to the Court for recovering is time-barred and not that the liability to pay comes to an end and therefore, such written back liabilities are not income. There is ample authority in case law in favour of the assessee even in such extreme cases of the liabilities being written back because they become time-barred and credited as income. Such case law is as follows: (i) Bombay Dyeing & Mfg. Co. Ltd. vs. State of Bombay (1958) SCR 1122 and 1135 AIR 1958 (SC) 328 wherein it is held that the debit or liability subsists notwithstanding that its recovery is barred by limitation. (ii) CIT vs. Kutappu & Sons (1974) 96 ITR 327 at 330 (Ker). Wherein it is held that obligation continues though the recovery is barred; (iii) Baroda Traders (P) Ltd. vs. CIT (1965) 57 ITR 490 (Guj); (iv) Gannon Dunkerley & Co. vs. CIT 1975 CTR (Bom) 14 ; (1976) 102 ITR 428 (Bom); (v) CIT vs. Chase Bright Steel Ltd. No. 2 (1989) 75 CTR (Bom) 67 : (1989) 77 ITR 128 (Bom); (vi) Kohinoor Flour M....
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....r to bring a case under s. 41(1), it has to be shown by the Department that there has been remission or cessation of the liability (Liquidator, Mysore Agencies (P) Ltd.) in view of the above-mentioned decisions which are in favour of the assessee, since onus to prove that there is a cessation of liability, the assessee was required vide notice under s. 142(1) dt. 25th Oct., 1993, to submit the current/postal addresses of the creditors". The assessee submitted its reply in receipt section vide letter dt. 2nd Dec, 1993, as under: "You were in the midst of the assessment for the above assessment year when you asked us to supply the addresses of some parties and the confirmations of some of these parties regarding the credit balances in their accounts. Now, let us humbly submit that we can immediately understand that on record of these addresses you will address letters to them and this will create lot of difficulties in our business. The same is true for our giving and getting confirmations from some of these parties. In all humility, we want to bring to your notice that in respect of these parties nothing has happened either on the credit side or the debit side of their account....
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....ducting these amounts, balance of Rs. 68,56,871 added as deemed income under s. 41(1) of the Act. The relevant details narrated by the AO in his order are as under: Rs. Liabilities paid in subsequent years 18,17,953 Sub judice liabilities 45,85,429 Balance added under s. 41(1) 68,56,871 ----------- &n....
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....ar in which the different liabilities ceased to exist, cannot be worked out. The only alternative is to make the addition in this year under s. 41(1) of the Act. The provisions have been reproduced in the assessment order. The AO has also discussed the case law directly applicable and the assessee has not been able to prove that these liabilities still exist in this relevant year. The addition is, therefore, upheld." 8. The learned authorised representative of the assessee reiterated the arguments and submissions before us which were made before the Revenue authorities. He drew our attention on the list of which amount has been taken as deemed income under s. 41(1) in which his name has also appeared. He vehemently argued that the AO has committed a gross mistake in invoking s. 41(1), it is his contention that in the circumstances, s. 41(1) is not applicable at all, therefore, the addition made be quashed. In support of his contention, he referred number of decisions out of which certain decisions are as follows: (i) CIT vs. Sugauh Sugar Works (P) Ltd. (1999) 152 CTR (SC) 46 : (1999) 236 ITR 518 (SC); and (ii) Ambica Mills Ltd. vs. CIT (1964) 54 ITR 167 (Guj). 9. The le....
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....as the income of that previous year. Thus, wherever there is remission of an amount or cessation of a trading liability, the amount received in the previous year can become assessable to tax. Hence, the important words are 'remission' and cessation. Remission has to be granted by the creditors and the cessation of the liability may occur either by reason of the operation of law, that is, on the liability becoming uneforceable at law by the creditor and the debtor declaring unequivocably his intention not to honour his liability when payment is demanded by the creditor or contract between the parties or by discharge of the debt the debtor making payment thereof to his creditor. The relevant provisions have been considered by a Full Bench of Gujarat High Court in details in the case of CIT vs. Bharat Iron & Steel Industries (1992) 105 CTR (Guj)(FB) 331 : (1993) 199 ITR 67 (Guj)(FB). The relevant headnote of the judgment is reproduced as under: "The key words in s. 41(1) of the IT Act, 1961 are 'the assessee has obtained, whether m cash or in any other manner whatsoever, any amount m respect of such loss or expenditure or some benefit in respect of such trading liability by way of ....