1996 (4) TMI 158 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 1,66,62,866 under section 41(1) of the Income-tax Act.
2. Determination of cessation or remission of liability.
3. Impact of unilateral write-back in books of account.
4. Timing of cessation of liability.
5. Legal interpretation of section 41(1) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,66,62,866 under section 41(1) of the Income-tax Act:

The appellant challenged the addition of Rs. 1,66,62,866 made by the Assessing Officer under section 41(1) of the Income-tax Act, which was confirmed by the CIT(A). The core grievance was whether the write-back of this liability in the books of account amounted to income under section 41(1).

2. Determination of cessation or remission of liability:

The Tribunal noted that for an amount to be deemed income under section 41(1), there must be a remission or cessation of liability. The appellant argued that the write-back was a unilateral act and did not constitute cessation of liability. The Tribunal agreed, stating that cessation or remission of liability requires bilateral acts or a legal determination, not a unilateral write-back.

3. Impact of unilateral write-back in books of account:

The Tribunal examined whether the unilateral write-back in the books of account could be considered as cessation of liability. It referred to various legal precedents, including the Bombay High Court's decision in Bennett Coleman & Co. Ltd., which held that unilateral actions do not bring about cessation of liability unless the liability is time-barred. The Tribunal concluded that the appellant's liability had not become time-barred and thus, the unilateral write-back did not result in cessation of liability.

4. Timing of cessation of liability:

The Tribunal scrutinized the timeline of events, noting that the final determination of liability by the Central Excise authorities occurred on 18/19-5-1993, after the close of the relevant financial year. It emphasized that the cessation of liability, if any, could only be recognized when the final order was passed. The Tribunal disagreed with the lower authorities' view that the Collector of Central Excise (Appeals)'s order dated 16-7-1991 settled the liability, as it merely remanded the matter for further proceedings.

5. Legal interpretation of section 41(1) of the Income-tax Act:

The Tribunal analyzed the legal provisions of section 41(1) and relevant case laws, concluding that mere entries in the books of account do not determine the cessation of liability. It cited the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd., which held that the existence or absence of entries in books of account is not decisive. The Tribunal also referred to the Gujarat High Court's decision in Bharat Iron & Steel Industries, which emphasized that the actual obtaining of an amount or benefit is necessary for section 41(1) to apply.

Conclusion:

The Tribunal concluded that there was no cessation or remission of the appellant's liability during the relevant financial year. The unilateral write-back in the books of account did not constitute cessation of liability, and the final determination of liability by the Central Excise authorities occurred after the relevant financial year. Therefore, the addition of Rs. 1,66,62,866 under section 41(1) was not justified. The Tribunal allowed the appellant's appeal and deleted the addition.