TMI Blog2018 (4) TMI 741X X X X Extracts X X X X X X X X Extracts X X X X ..... he sole addition disputed before me in this case is the addition u/s 41(1) of the Income Tax Act, 1961 (Act). The AO noticed that the assessee has disclosed a sum of ₹ 29,75,823/- as amount due from M/s. C.D.Steel Pvt. Ltd, in its list of sundry creditors. M/s. C.D.Steel Pvt. Ltd in response to notice issued u/s 133(6) of the Act on 11.11.2010 stated that the balance in its books was only ₹ 9,23,416/-. The AO directed the assessee to explain the discrepancy in the balance which amounts to ₹ 20,52,407/-. The assessee submitted that M/s C.D.Steel P.Ltd. has debited M/s. Alishan Steel Pvt. Ltd for the sum of ₹ 20,52,406/-, instead of the assessee company and it does not know the reason for the same. The AO made an addition u/s 41(1) of the Act. On appeal the First Appellate Authority upheld the same. 3. After hearing the rival contentions I held as follows : Before me the assessee relies on a number of decisions and submits that section 41(1) of the Act cannot be attracted in the facts and circumstances of the case. I find that no addition can be made of any sundry creditor or loan brought forwarded from the earlier year, just because the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as purchase price in computing the business income of the assessee. The second question is whether by not paying them for a period of four years and above the assessee had obtained some benefit in respect of the trading liability allowed in the earlier years. The words remission and cessation are legal terms and have to be interpreted accordingly. In the present case, there is nothing on record to show that there was either remission or cessation of liability of the assessee. In fact, there is no reference either in the order of the AO or CIT(A) to the expression remission or cessation of liability . In such circumstances, we are of the view that the provisions of section 41 (1) of the Act could not be invoked by the Revenue. In fact the decision of the Hon'ble Delhi High Court in the case of Vardhaman overseas Ltd. (supra) clearly supports the plea of the Assessee in this regard. On identical facts, the Hon'ble Delhi High Court on the applicabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, though the right is not extinguished.' And if the law requires that a debtor should get a discharge before he can be compelled to pay, that requirement is not satisfied if he is merely told that requirement is the normal course he is not likely to be exposed to action by the creditor. ( underlining, italicised in print, ours) This was also the view taken by the Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra). 14. Since the Tribunal has relied on the judgment of the Supreme Court in the case of CIT vs. Sugauli Sugar Works (P) Ltd. (supra) we may usefully refer to the decision in order to appreciate the controversy therein and the ratio laid down. That was a case of a private limited company. In respect of the asst. yr. 1965-66, it transferred a sum of 3,45,000 from the suspense account running from 1946-47 to 1948-49 to the capital reserve account. The ITO found that a sum of 1,29,000 out of the above amount repaymented deposits and advances which were paid back by the assessee. He, therefore, deducted this amount from the amount of 3,45,000 and the balance of 2,56,529 was brought to assessment under s. 41 (1) of the Act. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction, the assessee should have received any amount, in cash or otherwise, but it is necessary that the assessee should have received some benefit in respect of such trading liability. However, we have already seen that this benefit in respect of trading liability should be by way of remission or cessation of the liability , after the amendment made to the clause w.e.f. 1st April, 1993. The second part of the reasoning of the Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra) is based on the interpretation of the words cessation or remission of the trading liability. The Supreme Court noticed a judgment of the Bombay High Court in J.K. Chemicals Ltd. vs. CIT (1996) 62 ITR 34 (Born) in which it was explained as to what could bring out a cessation or remission of the assessee's liability. The observations of the Bombay High Court in the judgment cited above are as under: The question to be considered is whether the transfer of these entries brings about a remission or cessation of its liability. The transfer of an entry is a unilateral act of the assessee, who is a debtor to its employees. We fail to see how a debtor, by his ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... almost 20 years the liability remained unpaid and this fact formed the basis of the contention of the Revenue before the Supreme Court to the effect that having regard to the long lapse of time and in the absence of any steps taken by the creditors to recover the amount, it must be held that there was a cessation of the debts bringing the case within the scope of s. 41(1). In the case before us, the identical contention has been taken on behalf of the Revenue, though the period for which the amount remained unpaid to the creditors is much less. It was held by the Supreme Court that 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. 16. From the ratio laid down in the aforesaid decision, we are of the view that there is nothing on record to show any cessation or remission of liability by the creditor or even an unilatera ..... X X X X Extracts X X X X X X X X Extracts X X X X
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