2011 (12) TMI 77 - DELHI HIGH COURT

Addition on account of non-genuine creditors u/s 41(1) - scope of section 41(1) - remission or cessation of a trading liability. - outstanding amount for more than 4 years - held that:- In CIT v. Sugauli Sugar Works (P) Ltd. (1999 -TMI - 5715 - SUPREME Court), honorable apex court ruled that a unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only by the creditor and a cessation of the liability can only occur either by reason of operation of law or the debtor unequivocally declaring his intention not to honour his liability when payment is demanded by the creditor, or by a contract between the parties, or by discharge of the debt. - Decided in favor of assessee.

Difference between scope of section 28(iv) and 41(1) - benefit enjoyed by the assessee by utilizing the amounts payable to the sundry creditors in its own business - held that:- It is a well settled rule of interpretation of statutes that a construction that reduces one of the two provisions in a statute to a useless lumber or a dead letter would not amount to a harmonious construction and that a familiar approach in such cases is to find out which one of the two provisions is a special provision made to govern a certain situation and to exclude that situation from the applicability of the general provision. If we apply this rule of interpretation to the case before us, we must necessarily hold that while Section 28(iv) would apply generally to all benefits or perquisites which arise to the assessee from the business carried on by him, the benefit which he obtains by way of remission or cessation of a trading liability in a later year, in respect of which he has obtained a deduction in an earlier year in computing the business income, should be governed by Section 41(1) which is the specific provision governing the factual situation and not by Section 28(iv). - Decided in favor of assessee.