TMI Blog2011 (6) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Technology Upgradation Fund Scheme. Both the lower authorities failed to observe that the appellant is in the business of twisting the yarn which is eligible in the criteria under which the benefit is granted by the Government of India. (3) Both the lower authorities have failed to properly appreciating the facts, various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. 2. The first issue relates to disallowance of Rs.Rs.6,72,339/- u/s 41(1). The facts of the case are that the assessee is a registered firm and engaged in the business of manufacturing of twisted yarn. During the course of assessment proceedings the AO found that following creditors are standing in the balance sheet :- 1. Sarvottam Trade (P) Ltd. ₹ 3,66,889/- 2. Ramesh Chandra Agrawal ₹ 1,96,356/- 3. Haryana Petrol Chemicals ₹ 53,462/- 4. Nitin Silk Mills ₹ 55,632/- Total ₹ 6,72,339/- 3. On enquiry it was found by the AO that they were standing for more than 3 years. No confirmations from these parties were filed. These creditors were outstanding as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, the ld. DR submitted that the creditors did not respond when notices were issued to them. Their correct addresses are not known. They have not confirmed the balances. If goods are defective assessee is not required to pay anything and, therefore, it becomes his income. He strongly relied on the orders of authorities below. 7. The undisputed facts are that these liabilities are outstanding in the books of assessee for last three years or more. In the current year the AO thought to enquire as to why these liabilities are outstanding for so long and found that notices issued by him either remained un-served or no confirmation was filed in respect of others. Before the ld. CIT(A) the assessee sought to produce evidence about disputes with these parties pending in the courts but the ld. CIT(A) did not admit them. In any case apparently nothing had happened this year in respect of the sum outstanding in the books of the assessee and in respect of which addition was originally proposed by the AO or in respect of which addition was sustained by the ld. CIT (A). Neither the creditor has taken any action nor has the debtor done anything. Thus in fact no event has taken place d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or profession, the other person; (iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm; (iv) where there has been a demerger, the resulting company. The first condition required to be satisfied for treating a sum taxable u/s 41(1) is that an allowance or deduction has been made in respect of that sum in the current Asst. Year or in earlier Asst. Year as a loss, expenditure or trading liability. In other words, liability should relate either to trading account or to profit and loss account which must have been debited in the current year or in an earlier Asst. Year while computing the income of the assessee. Merely because certain amounts were outstanding in the books of the assessee does not lead to the inference that there is a cessation or remission. The second condition required to be satisfied is that assessee must have obtained either in cash or in other manner some benefit in respect of such trading liability either by way of remission or cessation thereof. The concept of cessation in section 41(1) implies that liability of the assessee has ceased to exist in the year under consideration, either by operation of law, or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remission or cessation thereof, during the current year then it cannot be said that any benefit accrued to the assessee. Hon ble Punjab Haryana High Court in CIT vs. GP International Ltd. in (2010) 325 ITR 25 (P H) held that provisions of section 41(1) and explanation thereto are not applicable where assessee is still showing same amount as liability in its books and has not written off the same. In Chief CIT Vs. Kesaria Tea Co. Ltd. 254 ITR 434 (SC) it was held that for applying provisions of section 41(1) following conditions are required to be satisfied:- (1) In the course of assessment for 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 the 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 the benefit is made chargeable to income-tax as the income of the previous year wherein such benefit was obtained. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that year or not. The fiction is an indivisible one. It cannot be enlarged by importing another fiction, namely, that if the amount was obtained or was receivable during the previous year, it must be deemed to have been obtained or received during that year. The amount may be actually received or it may be adjusted by way of an adjustment entry or a credit note or in any other form when the cash or the equivalent of cash can be said to have been received by the assessee. But it must be the obtaining of the actual amount which is contemplated by the legislature when it used the words has obtained, whether in cash or in any other manner whatsoever any amount in respect of such loss or expenditure in the past. In the context in which these words occur, no other meaning is possible 8. The finding given by the AO is that certain parties are not traceable or that such amount is not outstanding in the books of these parties against the assessee. It would mean according to ld. DR that liability has ceased to exist. But this is not the event which has taken place during this year nor is visualized in section 41(1). The section clearly stipulates obtaining a benefit by cash or in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation @ 50% and restricted the application of the provision of Rule 5 in Appendix-I, Sr. No.III(6) of IT Rules to machinery and plants used in weaving, processing and garment sector of textile industries. The ld. CIT(A) also confirmed the order of the AO. 11. Before us, the ld. AR relied on the decision of the Tribunal in the case of Bipinchandra Mohanlal Gajjar vs. ITO in ITA No.3128/Ahd/2008 Asst. Year 2005-06 pronounced on 18th February, 2009 wherein the Tribunal had observed as under :- 7. We have considered rival submissions, gone through the facts and circumstances and also orders of the tax authorities. It is apparent from the record that the AO has restricted the depreciation at the rate of 25% by observing that as per Rule 5 of the IT Act, depreciation was allowable @ 50% only on those machinery and plant, which are actually used in weaving process and not machinery used for twisting process. On perusal of the appendic-1 of the Income-tax Rules, it is evident that this particular machinery should be used in weaving sector and does not restrict that it should be used in weaving process of the textile industry. Since admittedly the twister machine was used by weavin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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