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2015 (8) TMI 974

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..... in question were credited in the books of account and thereafter make an enquiry in that year and make an addition in that year, if other conditions for applicability of section 68 are satisfied. It must be held that there was a cessation of the debts bringing the case within the scope of s. 41(1). A unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only by the creditor and a cessation of the liability can only occur either by reason of operation of law or the debtor unequivocally declaring his intention not to honour his liability when payment is demanded by the creditor, or by a contract between the parties, or by discharge of the debt There is nothing on record to show any cessation or remission of liability by the creditor or even an unilateral act by the Assessee in this regard. In view of the above, we are of the view that the impugned addition cannot be sustained and the same is directed to be deleted. - Decided in favour of assessee. - ITA No.1078/Bang/2014 - - - Dated:- 7-8-2015 - SHRI N.V. VASUDEVAN AND SHRI JASON P. BOAZ, JJ. For The Appellant : Shri T.V. Subramanya Bhat, CA For The Respo .....

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..... ave already seen, the fact that the CA received the impugned order of CIT(A) on 22.3.13 and instructed his Assistant to deliver the same to the assessee is borne out from the affifdavit of the CA. It is also borne out from the affidavit of the assessee and CA that the Assistant of the CA did not deliver the order to the assessee. The assessee came to know about the impugned order when recovery proceedings were initiated against the assessee. The ld. DR has produced a letter dated 21.7.2014 sent to the assessee by the AO and the same is with reference to the penalty proceedings u/s. 271(1) of the Act. There is no doubt, there is a reference in this letter about factum of dismissal of the assessee s appeal by the CIT(A) by order dated 12.3.2013. It is the plea of assessee that since this letter was with reference to penalty proceedings, he did not notice the contents of this letter. We are of the view that this explanation offered by the assessee is acceptable. Law is well settled that in incometax proceedings, the assessee does not gain by delaying the proceedings, nor is there any prejudice to the revenue by correct and proper determination of tax liability. In fact, the Hon ble H .....

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..... points, it is to be concluded that the credit claims made in the books of the assessee as on 1.4.2008 by the above 21 parties are non-existent and therefore added to the income of the assessee. The total credit balance claims in respect of 21 cases referred in para 2 (except M/s. Perfect Industries) works out to ₹ 65,55,925. 9. On appeal by the assessee, the CIT(A) confirmed the order of the AO observing as follows:- 3.3 I have carefully considered the appellant s submissions and also the reasons given by the AO in the assessment order. The AO made enquiries as per the information submitted by the appellant and gave him sufficient opportunities. Bu the appellant was unable to explain the amounts standing in the names of various sundry creditors. The A.O followed the due process. At the time of appeal hearing, the appellant s authorised representative pleaded that the appellant was unable to obtain confirmation from the 21 creditors regarding the balances shown against them inspite of several opportunities. In the circumstances, I have no option but to confirm the addition of ₹ 65,66,925/- made by the AO in this regard. 10. Aggrieved by the order of the CIT( .....

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..... Since the credit entries in question do not relate to previous year relevant to AY 2009-10, the same cannot be brought to tax u/s. 68 of the Act. The proper course in such cases for the Revenue would be to find out the year in which the credits in question were credited in the books of account and thereafter make an enquiry in that year and make an addition in that year, if other conditions for applicability of section 68 are satisfied. 14. As far as applicability of section 41(1) of the Act is concerned, the question before us is limited to the applicability of Section 41(1) of the Act. The section in so far as it is relevant for our purpose is as below: Profits chargeable to tax. 41. (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 cessa .....

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..... on ble Delhi High Court on the applicability of Sec.41(1) of the Act, held: 12. That takes us to the next question as to what constitutes remission or cessation of the liability. It cannot be disputed that the words remission and cessation are legal terms and have to be interpreted accordingly. In State of Madras vs. Gannon Dunkerley Co. AIR 1958 SC 560 Venkatarama Aiyyar J. explained the general rule of construction that words used in statutes must be taken in their legal sense and observed : The ratio of the rule of interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have, in law, acquired a definite and precise sense and that, accordingly, the legislation must be taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law . In our opinion, this rule should be applied to the interpretation and understanding of the words remission and cessation used in the section. 13. In Bombay Dyeing Mfg. Co. Ltd. vs. State of Bombay AIR 1958 SC 328 t .....

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..... eafter carried the matter in further appeal to the Tribunal. Its contention before the Tribunal was that the unilateral entry of transferring the amount from the suspense account to the capital reserve account would not bring the said amount within s. 41(1). The contention was accepted by the Tribunal whose decision was affirmed by the Calcutta High Court CIT vs. Sugauli Sugar Works (P) Ltd. (1981) 23 CTR (Cal) 226 : (1983) 140 ITR 286 (Cal). The Revenue carried the matter in the appeal to the Supreme Court. The contention of the Revenue (as noted at p. 520 of 236 ITR) was that on the facts of the case, the liability came to an end as a period of more than 20 years had elapsed and the creditors had not taken any steps to recover the amount and consequently there was a cessation of the debt which would bring the matter within the scope of s. 41(1). It may be noted that the contention of the Revenue in the case before us is precisely the same. To recapitulate, the learned standing counsel contended before us that since a period of more than 4 years has admittedly elapsed from the debt on which the debts were incurred and since the creditors had not taken any steps to recover the amou .....

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..... n has to be granted by the creditor. It is not in dispute, and it indeed cannot be disputed, that it is not a case of remission of liability. Similarly, a unilateral act on the part of the debtor cannot bring about a cessation of his liability. The cessation of the liability may occur either by reason of the 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 neither an agreement between the parties nor payment of the liability. We have already held in Kohinoor Mills Co. Ltd. vs. CIT (1963) 49 ITR 578 (Bom) that the mere fact of the expiry of the period of limitation to enforce it, does not by itself constitute cessation of the liability. In the instant case, the liability being one relating to wages, salaries and bonus due by an employer to his employees in an industry, the provisions of the Industrial Disputes Act also are attracted and for the recovery of the dues from the employer, under .....

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