TMI Blog2013 (1) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... n place in the year under consideration to indicate remission or cessation of the liabilities in question, the provisions of section 41(1) could not have been invoked. No question of law involved - Decides against revenue - Tax Appeal No. 1532 of 2011 - - - Dated:- 16-10-2012 - Akil Kureshi and Ms. Harsha Devani, JJ. Ms. Paurami B. Sheth for the Appellant. ORDER Ms. Harsha Devani, J. - The appellant revenue has challenged order dated 5th August, 2011 made by the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') in relation to assessment year 2006-07 by proposing the following two questions:- [A] "Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs.35,84,077/- made on account of diesel expenses paid in case to B.P.; Sanchor, a company pump of BPCL?" [B] "Whether the Appellate Tribunal is right in law and on facts in deleting the addition made u/s. 41(1) of Rs.96,50,432/-?" 2. Proposed question [A] pertains to deletion of addition of Rs. 35,84,077/- made on account of diesel expenses paid to Bharat Petroleum, Sanchor, a company pump of M/s. Bharat Petroleum Corporation Limited (BPCL). The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs of fact recorded by it. The learned counsel for the appellant is not in a position to point out any material to the contrary so as to dislodge the concurrent findings of fact recorded by the Tribunal. Nothing has been pointed out to show that the Tribunal has placed reliance upon any irrelevant material or that any relevant material has been ignored. On the evidence which has come on record, it cannot be stated that the view adopted by the Tribunal is, in any manner, unreasonable or perverse in the absence of any contrary evidence being brought to the notice of the court. Under the circumstances, this ground of appeal does not merit acceptance. 6. As regards proposed question [B], the same relates to addition of Rs. 96,50,432/- with respect to cessation of liability under section 41(1) of the Income Tax Act, 1961 (hereinafter to be referred to as 'the Act') which was restricted by the Commissioner (Appeals) to Rs. 18,27,608/-. 7. During the course of assessment proceedings, the Assessing Officer called upon the assessee to furnish ageing analysis of the creditors. Upon perusal of the statement furnished by the assessee, the Assessing Officer found that the assessee had not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be said that the 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 the assessee would get benefit and accordingly to that extent 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 the benefit to the assessee by way of remission. If no such act takes place then there is no case for holding that a liability has been remitted in favour of the assessee. Merely because certain amount is outstanding for a number of years it cannot be said that there is cessation or remission. Applying the said decision to the facts of the present case wherein also no event had taken place in the year under consideration, the Tribunal held that the provisions of section 41(1) could not have been invoked in the year under consideration as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction should have been made in the assessment for any year in respect of any trading liability incurred by the assessee and subsequently during any previous year, the assessee should have obtained some benefit in respect of such trading liability by way of remission or cessation thereof in which case, the value of the benefit accruing to the assessee shall be deemed to be the profits and gains of business or profession and shall be chargeable to income-tax as income of that previous year. Thus, for the purpose of invoking sub-section (1) of section 41 of the Act, there has to be remission or cessation of the trading liability in the previous year and in the light of Explanation 1 thereto, such remission or cessation shall include the remission or cessation of any liability by a unilateral act of the assessee by way of writing off such liability in his accounts. Undisputedly in the facts of the present case the assessee has not written off the liability in its accounts and as such there is no remission or cessation of liability by a unilateral act of the assessee as envisaged under Explanation 1. The case of the revenue appears to be that since many of the debts are outstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion. As noted by the Tribunal, there was no positive act on the part of either the assessee or the creditors which would amount to the assessee having gained the benefit of remission or cessation of the liabilities in question. The case of the revenue is that several years having passed the recovery of the debts in question have become time barred and hence by operation of law there is cessation of the liability, thereby attracting section 41(1) of the Act. As regards the debt becoming time barred by operation of law, the Supreme Court in the above decision, recorded with approval the following observations made by the Bombay High Court in J.K. Chemical Ltd. v. CIT [1966] 62 ITR 34 "a unilateral act on the part of the debtor cannot bring about a cessation of his liability. The cessation of liability may occur 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. Transfer of an entry is neith ..... 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