TMI Blog2012 (4) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the Revenue while dismissing the cross appeal preferred by the assessee. 2. The facts giving rise to present appeal can be summed up thus: 2.1. The assessee respondent is a company engaged in the business of processing of cloth. The assessee stopped its business and production activity since 30/11/1999. The assessee filed return of income declaring total income as nil on 30/04/2004 for Assessment Year 2003-04. The said return was initially processed under Section-143(1) of the Act and thereafter was selected for scrutiny assessment for which a notice under Section-143(2) of the Act was issued and thereafter notice under Section-142(1) of the Act was issued upon the assessee. 2.2. The Assessing Officer after taking into consideration the evidence and material on record vide assessment order dated 30/12/2005 determined total income of the assessee at ₹ 32,72,429/-. While passing the assessment order, the Assessing Officer added ₹ 18,72,697/- on account of sundry creditors under Section-41(1)(a) of the Act. 2.3. The assessee being dissatisfied by the said order dated 30/12/2005 passed by the Assessing Officer, preferred appeal against the same befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to give details of only two parties and when notices were issued by the Assessing Officer under Section-133(6) of the Act to the said two parties, the said notices were returned as unserved. The assessee failed to give any confirmation letter from any of the parties and therefore, the Assessing Officer was justified in making addition of ₹ 18,72,697/- under Section-41(1)(a) of the Act. Learned Senior Standing Counsel Ms. Bhatt submitted that the Appellate Tribunal and the CIT (Appeals) have wrongly relied upon the judgments of this High Court in the case of CIT vs. Silver Cotton Mills Company Ltd., reported in 254 ITR 728 (Guj.) and CIT vs. Bharat Iron and Steel Industries, reported in 1999 ITR 67 and the judgment of the Apex Court as well in case of CIT vs. Sugauli Sugar Works Pvt. Ltd., reported in 236 ITR 518. Learned Senior Standing Counsel Ms. Bhatt contended that the Tribunal below has committed a substantial error of law in holding that Section-41(1) of the Act was not applicable from the materials on record. 9. In order to appreciate the aforesaid questions, it will be profitable to refer to the provisions contained in Section-41(1) of the Act which is quoted bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in that case, are relevant and quoted below: As pointed out already, the crucial words in the Section require that the assessee has to obtain in cash or in any other manner some benefit. That part of the Section has been omitted to be considered by the Division Bench of the Bombay High Court. The said words have been considered by a Full Bench of Gujarat High Court in detail in The Commissioner of Income-tax, Gujarat-II, Ahmedabad v. M/s. Bharat Iron and Steel Industries, Bhavnagar, 1993 Tax LR 188. The following passages in the judgment brings out of the reasoning of the Full Bench succinctly (At Pp. 195 and 196 of Tax LR): 11. In our opinion, for considering the taxability of amount coming within the mischief of S. 41(1) of the Act, the system of accounting followed by the assessee is of no relevance or consequence. We have to go by the language used in S. 41(1) to find out whether or not the amount was obtained by the assessee or whether or not some benefit in respect of trading liability by way of remission or cessation thereof was obtained by the assessee and it is in the previous year in which the amount or benefit, as the case may be, has been obtained that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an earlier year, allowance or deduction has been made in respect of trading liability incurred by the assessee; (2) Subsequently, a benefit is obtained in respect of such trading liability by way of remission or cessation thereof during the year in which such event occurred; (3) in that situation the value of benefit accruing to the assessee is deemed to be the profit and gains of business which otherwise would not be his income; and (4) such value of benefit is made chargeable to income tax as the income of the previous year wherein such benefit was obtained. The High Court, agreeing with the Tribunal, rightly held that the resort to Section 41(1) could arise only if the liability of the assessee can be said to have ceased finally without the possibility of reviving it. On the facts found by the Tribunal, the Tribunal as well as the High Court were well justified in coming to the conclusion that the purchase tax liability of the assessee had not ceased finally during the year in question. Despite the finality attained by the judgment in Neroth Oil Mills' case, the other issues having bearing on the exigibility of purchase tax still remained and the dispute between the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , since there is nothing to suggest that the assessee has obtained any benefit either by way of remission or cessation of any liability while the ld. CIT (A) concluded that the liability is continually admitted by the assessee in their balance sheet and the Revenue have not referred us to any material controverting these findings of facts recorded by the ld. CIT (A), we are not inclined to have a different view in the matter. Therefore, ground Nos.1 and 2 in the appeal of the Revenue are dismissed. 14. As pointed out in the case of Sugauli Sugar Works (P) Ltd. (supra), vide the last five lines of the paragraph-6 of the judgment, the question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but has to be decided only if the creditor is before the concerned authority. In the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt is barred and has become unenforceable. There may be circumstances which may enable the creditor to come with a proceeding for enforcement of the debt even after expiry of the normal period of limitation as provided in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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