TMI Blog2009 (7) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... t ₹ 11,60,000 as income of the assessee is against the provisions of the Act - Decided against the revenue. - ITA NO. 3871 (AHD.) OF 2003 AND 425 (AHD.) OF 2006 - - - Dated:- 3-7-2009 - MAHAVIR SINGH, AND A.N. PAHUJA, JJ. Tushar Hemani for the Appellant. Jayant Jhaveri for the Respondent. ORDER Mahavir Singh, Judicial Member. This appeal by the assessee is arising out of the order of the learned Commissioner of Income-tax (Appeals)-XI, Ahmedabad, dated August 27, 2003 in Appeal No. CIT(A)-XI/21.2000-01. The assessment was framed by the Deputy Commissioner of Income-tax, Circle 7(5), Ahmedabad under section 143(3) of the Income-tax Act, 1961 ('the Act') for the assessment years 1997-98 vide his order dated February 25, 2000. 2. The only issue in this appeal of the assessee is against the order of the Commissioner of Income-tax (Appeals) in confirming the action of the Assessing Officer in making addition of deposits received in respect of deep freezer deposits amounting to Rs. 11,60,000 under section 41(1) of the Act. For this, the assessee has raised the following grounds : "1. (a) The Commissioner of Income-tax (Appeals)-XI, Ahmedabad erred in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the above six parties. Accordingly, the Assessing Officer made addition of these unclaimed balances under section 41 of the Act. Aggrieved, the assessee preferred appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) also confirmed the action of the Assessing Officer by giving the following findings in paragraph 4.1 of his appellate order : "4.1 I have considered the facts and submissions of the authorised representative of the appellant carefully. I have also gone through the decisions relied upon by the authorised representative of the appellant carefully and the observations of the Assessing Officer in the assessment order. It appears that the Assessing Officer is justified in his action as during the course of assessment proceedings the appellant had admitted that these distributors had never come up to claim their amount due from the appellant in spite of several years having been passed. The appellant is no longer supplying the goods or services to the said parties. Now there are no business transactions of the appellant with these parties. The amount outstanding is purely unclaimed balances and transferring of the unclaimed bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee also stated from paper book of the assessee that these deposits are against assets received by the assessee. Learned counsel for the assessee also admitted that these deposits are outstanding for more than 5 to 10 years but he stated that this is not an issue that these deposits have become income of the assessee either under section 41(1) or under section 28(iv) of the Act. We find that the Assessing Officer has heavily relied on the decision of the Apex Court in the case of CIT v. T.V. Sundaram Iyengar Sons Ltd. [1996] 222 ITR 344/88 Taxman 429 and the Assessing Officer has reproduced the observation of the hon'ble Apex Court and the relevant observation reads as under : "if a commonsense view of the matter is taken, the assessee, because of the trading operation, had become richer by the amount which it transferred to its profit and loss account. The moneys had arisen out of ordinary trading transactions. Although the amounts received originally were not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time-barred and the amount attained a totally different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. v. State of Bombay [1958] AIR 1958 SC 328 ; [1958] SCR 1122, also supports the assessee. A similar view was taken in the cases of J.K. Chemicals Ltd. v. CIT [1966] 62 ITR 34 (Bom) and CIT v. Agarpara Co. Ltd. [1986] 158 ITR 78 (Cal). A similar view has been taken by the Supreme Court in the case of CIT v. Sugauli Sugar Works P. Ltd. [1999] 236 ITR 518. It has been observed by the Supreme Court that unless there is a cessation of liability, income cannot be added as per the provisions of section 41(1) of the Act. The case on hand can be very well compared with the case decided by the Supreme Court in CIT v. Sugauli Sugar Works P. Ltd. [1999] 236 ITR 518. Looking to the law laid down by the Supreme Court and other High Courts, it is very clear that unless there is a cessation of liability or there is a remission of liability by the creditor, the liability subsists and, therefore, even if the entries are made to write back the expenditure, the amount so written back cannot be added in the income of the assessee as per the provisions of section 41(1) of the Act." (p. 732) 9. Similarly, the hon'ble Gujarat High Court in the case of CIT v. Chetan Chemicals (P.) Ltd. [2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts must have been allowed as deduction or allowance in respect of these expenditure or trading liability incurred by the assessee and that is not a case in the present fact. Accordingly, we are of the view that the action of the Assessing Officer in treating the deep freezer deposits account at Rs. 11,60,000 as income of the assessee is against the provisions of the Act and the Commissioner of Income-tax (Appeals) has also confirmed the same on the basis of surmises and conjectures. As, the findings of the lower authorities are on wrong premise and perverse, we reverse the same and delete the addition. Accordingly, this issue of the assessee's appeal is allowed. 12. In the result, the assessee's appeal is allowed. 13. Now coming to the appeal of the Revenue in I. T. A. No. 425/Ahd./2006, this appeal is arising out of order of the Commissioner of Income-tax (Appeals) dated December 21, 2005 in Appeal No. CIT(A)-XI/55/2005-06 for the assessment year 1997-98 and penalty order dated March 18, 2005 passed by the Income-tax Officer-5(2) under section 271(1)(c) of the Act. 14. At the outset, it is to be mentioned that we have already allowed the quantum addition in the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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