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TMI Blog2013 (1) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... 84,077/- was paid in cash. The Assessing Officer asked the assessee to explain the genuineness and necessity for making payment of such large sums in cash for the purpose of purchase of diesel. After taking into consideration the reply submitted by the assessee, the Assessing Officer was of the view that the assessee had procured accommodative bills from M/s. BPCL, Sanchor and made payment in cash to curtail any investigation and treated the sum of Rs. 35,84,077/- as bogus purchase and added the same back to the income of the assessee. The assessee went in appeal to the Commissioner (Appeals), who called for a remand report from the Assessing Officer and also obtained the assessee's comments thereon. After taking into consideration all these materials, the Commissioner (Appeals) deleted the addition. Revenue carried the matter in appeal before the Tribunal but did not succeed. 3. Ms. Paurami Sheth, learned senior standing counsel for the appellant, assailed the impugned order by submitting that the assessee had failed to explain as to why such huge amounts of payments were made in cash and the Assessing Officer after considering the material on record had given detailed reasons fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 96,50,432/- was outstanding for several years. In many cases, there was no evidence to show that there was any movement for payment of the dues since more than three years. In some other cases credits were pending for more than five years. Since the assessee could not furnish any evidence except that the amounts were still payable by the assessee, the Assessing Officer added the same as income under the provisions of section 41(1) of the Act. The assessee carried the matter in appeal before the Commissioner (Appeals) who restricted the addition to Rs. 18,27,608/- and thereby gave relief of Rs. 78,22,824/-. The revenue went in appeal to the Tribunal to the extent of the relief granted to the assessee whereas the assessee filed cross objection to the extent of the addition which was sustained by the Commissioner (Appeals). The Tribunal after appreciating the evidence on record placed reliance upon its earlier decision in the case of Supriya Textiles Industries v. ITO [IT Appeal No. 3228 (Ahd.) of 2010, dated 30-6-2011] wherein it was held that the concept of cessation in section 41(1) of the Act implies that liability of the assessee has ceased to exist in the year under consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by law. Since nothing had happened in the year under consideration, it could not be said that such liabilities were chargeable to tax under section 41(1) of the Act in the year under consideration. 8. Section 41 of the Act, insofar as the same is relevant for the present purpose, reads thus: 41. Profits chargeable to tax.-(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure 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) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operation of law, viz. the law of limitation. In this regard reference may be made to the decision of the Supreme Court in CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518. The assessment year was 1965-66, that is prior to insertion of Explanation 1 which includes a unilateral act of the assessee of writing off such liability in his accounts within the ambit of the expression "remission or cessation thereof". In the facts of the said case the assessee had transferred Rs. 3,45,000/- out of the suspense account running from 1946-47 to 1948-49 to the capital reserve account. The Income-tax Officer found that out of the said amount Rs. 2,56,529/- represented liabilities for expenses which had been allowed in earlier years. He, accordingly, included the said amount under section 41 of the Act in the total income of the assessee. The Tribunal as well as a Full Bench of this High Court held that the said amount did not fall within the scope of section 41. The contention of the revenue was that since the liability of the assessee in respect of the amount in question had come to an end as a period of more than 20 years had elapsed and the creditor had not taken any step to recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent the said decision holds that a unilateral act on the part of the debtor cannot bring about a cessation of his liability, the same would not be applicable to the facts of the present case, in view of the insertion of Explanation 1. However, at the cost of repetition it may be stated that in this case there is no unilateral act on the part of the debtor so as to bring about a cessation of its liability. Therefore, the other part of the decision would still apply to the facts of the present case, namely that the cessation of liability has to be either by reason of operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor, or a contract between the parties, or by discharge of the debt - the debtor making payment thereof to his creditor. In the present case, admittedly there in no declaration by the assessee that it does not intend to honour its liabilities nor is there any discharge of the debt. In the aforesaid premises, as no event had taken place in the year under consideration to indicate remission or cessation of the liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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