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2018 (4) TMI 741

lisha Steel P. Ltd., is not known. The AO should have examined this issue. Just because the accounts have not been reconciled, the AO cannot make an addition u/s 41(1) of the Act. - Thus following the propositon of law laid down by the Honíble Delhi High Court in the case of CIT vs Shri Vardman Overseas Ltd (2011 (12) TMI 77 - DELHI HIGH COURT) and the Bangalore Bench of the ITAT in the case of M/s Glen Williams (2015 (8) TMI 974 - ITAT BANGALORE) delete this addition and allow this ground of the assessee. - ITA No.1341/Kol/2016 - Dated:- 13-4-2018 - Shri J. Sudhakar Reddy, AM For The Appellant : Shri Siddharth Agarwal, Advocate For The Respondent : Shri D. C. Mondal, Addl. CIT ORDER PER J.SUDHAKAR REDDY, AM: This is an appeal by the assessee directed against the order of the Commissioner of Income Tax-(A)-21, Kolkata relating to A.Y. 2008-09. 2. The 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 Ac .....

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ction, the expression -loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof-shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.] 15. Explanation 1 which was inserted w.e.f. 1.4.1997 is not attracted to the present case since there was no writing off of the liability to pay the sundry creditors in the assessee's accounts. The question has to be considered de hors Explanation 1 to Section 41 (1). In order to invoke clause (a) of Sec.41 (1) of the Act, it must be first established that the assessee had obtained some benefit in respect of 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 re .....

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ge therefrom. The modes in which an obligation under a contract becomes discharged are welldefined, and the bar of limitation is not one of them. The following passages in Anson's Law of Contract, 19th Edition, p. 383, are directly in point,' At Common Law lapse of time does not affect contractual rights. Such a right is of a permanent and indestructible character, unless either from the nature of the contract, or from its terms, it be limited in point of duration. But though the right possesses this permanent character, the remedies arising from its violation are withdrawn after a certain lapse of time; interest reipublicaeut si finis litium. The remedies are barred, 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 .....

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t in order to attract taxability under s. 41(1) the assessee should have obtained, whether in cash or in any other manner whatsoever, any amount in respect of the loss or expenditure earlier allowed as a deduction. This part of the reasoning, in the light of the amended cl. (a) of sub-so (1) of S. 41 may not be relevant after substitution of the said clause by the Finance Act, 1992 w.e.f, 1st April, 1993, by which the words some benefit in respect of such trading liability by way of remission or cessation thereof' were inserted. After the amendment, therefore, it is not necessary that in respect of a trading liability earlier allowed as a deduction, 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 .....

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th the same. To reinforce the conclusion, the Supreme Court also noticed its earlier judgment in Bombay Dyeing & Mfg. Co. Ltd. vs. State of Bombay AIR 1958 SC 328 wherein it was held that the expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt. 16. In our opinion, the judgment of the Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra) is a complete answer to the contention of the learned standing counsel. In the case before the Supreme Court for a period of 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 can .....

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