TMI Blog2011 (6) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... ant. Digant S. Naik for the Respondent. ORDER D.C. Agrawal, Accountant Member. This is an appeal filed by the revenue raising following ground : (1) On the facts and in the circumstances of the case and in law, the ld. CIT(A)-I, Surat has erred in deleting addition of Rs. 18,09,757 out of the total addition made by the Assessing Officer of Rs. 56,42,593 on account of cessation of liabilities under section 41(1) of the Act. 2. The facts of the case are that assessee has stopped functioning for last 3 to 10 years and only shown opening stock of raw material with it during the year under consideration. Total opening stock shown was of Rs. 7,74,283 and it was sold for a consideration of Rs. 7,97,772. The Assessing Officer found that assessee had outstanding sundry creditors, total amounting to Rs. 56,42,593 from 52 parties as per list given by him from pages 3 to 5 of his order. The Assessing Officer initiated enquiries and found that notice under section 133(6) issued to first nine parties (from Sl. Nos. 1-9) were returned unserved. Similarly in respect of other parties no confirmation was filed or no fresh interest was provided by the assessee; or it was onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce it has ceased to exist and therefore, taxable under section 41(1). 5. Against this, the ld. AR for the assessee submitted that conditions laid down under section 41(1) are not satisfied. There is neither cessation nor any remission of liability. Balances are old and outstanding in the books and creditors can demand the same at any time. Even in a case of time barred debt which, the creditor would not be able to recover, by enforcing his right in the court, his right as such will not come to an end therefore liability will not cease to exist. A liability against the assessee does not cease merely because liability has become barred by limitation. Cessation would take place if not only liability is barred by limitation but also assessee expresses an unequivocal intention not to own the liability even when demanded. He referred to the decision of Hon'ble Kerala High Court in Liquidator, Mysore Agencies (P.) Ltd. v. CIT [1978] 114 ITR 853 and that Hon'ble Bombay High Court in the case of CIT v. Chase Bright Steel Ltd. [1989] 177 ITR 128/42 Taxman 146 and that Hon'ble Bombay High Court in the case of J.K. Chemicals Ltd. v. CIT [1966] 62 ITR 34 wherein it is held that remission has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure, or some benefit in respect of such trading liability by way of remission or cessation thereof the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to Income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession and accordingly chargeable to Income-tax as the income of that previous year; Explanation 1 For the purposes of this sub-section, the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission or ces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is expired. It is that the debtor i.e., the assessee should unequivocally declare his intention not to honour his liability when payment is demanded by the creditor. Further, if there is a contract between the parties and the creditor discharges the debtor of the debt either fully or partly then to the extent the debt is discharged by the creditor without payment by the assessee, liability would cease to exist. Thus, there has to be an event for cessation of liability to take place. If nothing happens during the assessment year then it cannot be said that liability has ceased to exist. In case of remission there has to be a waiver by the creditor in favour of the assessee either unilaterally or through contractual agreement. To the extent such remission or waiver of the liability is granted assessee would get benefit and accordingly to that extent same would be taxable under section 41(1) subject to the basic condition that such liability remitted has been taken into account in the trading account or in the profit and loss account in the current year or in an earlier year. Thus there has to be a positive act on the part of the creditor in the current year which would provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rting another fiction namely that if the amount was obtainable or receivable during the previous year then it must have been obtained or received during that year. The words used are obtained whether in cash or any other manner which clearly refer to actually receiving cash or the benefit during that year. The amount may be actually received or it may be adjusted by way of an adjustment entry or a credit note or in any other form. In other words, there has to be a positive event signifying obtaining a benefit by way of remission or cessation during the current year. 8. In the present case the finding given by the Assessing Officer is that certain parties are not traceable or that such amount is not outstanding in the books of these parties against the assessee. It would mean according to ld. DR that liability has ceased to exist. But this is not the event which has taken place during this year nor is visualized in section 41(1). The section clearly stipulates obtaining a benefit by cash or in any other manner. Therefore, the Assessing Officer has to show that assessee has obtained such benefit in cash or otherwise only during the current year. Therefore, merely because certain cr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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