TMI Blog2002 (6) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... taken over by Begum Saleema herself. A memorandum of understanding was executed between the assessee-company and Begum Saleema on 16th June, 1981. As per the terms of the memorandum of understanding, Begum Saleema agreed to bear the expenditure on an express condition that the expenditure incurred earlier would be verified by her representative. In respect of this condition, the assessee debited the account of Begum Saleema with an amount of Rs. 12,12,438 representing excess of expenditure over income. The assessee-company passed necessary entries in the books of accounts. The AO took the view that the amount of Rs. 12,12,438 was clearly an income of the company since a debit to this extent had already been raised in the hands of Begum Saleema, who had also agreed to compensate the company by the said amount. In other words, an enforceable right has been accrued to the assessee-company over Begum Saleema. However, the assessee took the stand that although entry had been made in the books of accounts but no credit was taken in the IT return as suit for recovery of the said amount was still pending before the Hon'ble Jammu Kashmir High Court. It was further stated that profit unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Taking into consideration the legal position indicated in the earlier paragraphs the mere fact that the appellant-company had made an entry in its books of accounts by debiting the account of Begum Salima could not be considered to be a bilateral act for holding that the amount of Rs. 12,12,438 had been received by the appellant company and the provisions of s. 41(1) could be invoked for bringing that amount to tax. It is an admitted fact that even as per original memorandum of understanding, Begum Salima has accepted the liability subject to verification by her representative. It appears that after the verification was made by her representative, she refused to pay back the expenses incurred by the appellant-company. It was for recovering the said expenses, a case was filed before the Hon'ble J K High Court by the appellant-company and till the decision comes from the Hon'ble J K High Court and subsequently if the Hon'ble J K High Court delivered the judgment in favour of the appellant-company the question of appellant getting any benefit from Begum Salima could not arise. As the matter was still pending before the Hon'ble J K High Court, the action of the ITO in invoking the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r submitted that s. 41(1) contemplates profit chargeable to tax where an allowance of deduction has been made in the assessment for any year in respect of loss, expenditure of trading liability incurred by the assessee and subsequently during any previous year the assessee has obtained, whether cash or in any 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 cessation there of. Reliance was also placed on the following decisions: (1) CIT vs. Rashmi Trading Co.; (2) CIT vs. Bharat Iron Steel Industries (1992) 105 CTR (Guj)(FB) 331 : (1993) 199 ITR 67 (Guj)(FB); (3) CIT vs. Sugali Sugar Works (P) Ltd. (1999) 152 CTR (SC) 46 : (1999) 236 ITR 518 (SC); (4) CIT vs. Moon Mills Ltd. (1966) 59 ITR 574 (SC); (5) Visnagar Taluka Audyogik Sehkari Mandali Ltd. vs. CIT (2000) 163 CTR (Guj) 80 : (2000) 242 ITR 627 (Guj); and (6) Travancore Chemical Manufacturing Co. Ltd. vs. CIT (1998) 150 CTR (Ker) 256 : (1999) 237 ITR 821 (Ker). 8.1. Shri M.M. Gupta, C.A., the learned counsel for the assessee also submitted that the recovery of suit is still pending before the Hon'ble J K H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 12,12,438 representing excess of expenditure over income. The necessary entries were passed in the books of accounts. The assessee-company filed the return of income on 29th June, 1982, declaring a loss of Rs. 5,28,444. In the return of income, the assessee appended the following note: "As per memorandum of agreement dt. 16th May, 1981 with Begum Saleema Nedou an amount of Rs. 12,12,438 out of losses incurred upto 19th April, 1981, was to be charged to her. Although entry to this effect has been passed in the books of accounts, no credit has been taken in the IT return as the suit for recovery of this amount is still pending before the Hon'ble J K High Court. Profit under s. 41(1) shall be returned as and when the suit is decided in favour of the company. " In the instant case, Shri S.K. Maingi, the learned Departmental Representative emphasised that the assessee was following mercantile system of accounting and the assessee-company had debited the account of Begum Saleema, with an amount of Rs. 12,12,438 and, therefore, the amount, in question, was liable to tax in the year under consideration. In our view, there is no merit in the above contention of the learned Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in cash or in any other manner whatsoever or a benefit by way of remission or cessation is the sine qua non for the application of this section. The mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not enable the Department to say that s. 41(1) would apply and the amount should be included in the total income of the assessee." In the above case, the Hon'ble Supreme Court has clearly stated that the obtaining by the assessee of benefit by virtue of remission or cessation is the sine qua non for the application of this section. In the aforementioned case, it has been ruled by the Hon'ble Supreme Court that mere entry in the books of account of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Applying the ration laid down by the Hon'ble Supreme Court in the case of Sagauli Sugar Works (P) Ltd. to the facts of the present case, it would be clear that the CIT(A) has taken a correct view that the AO was not justified in invoking the provisions of s. 41(1) of the Act. 9.3. Shri M.M. Gupta, C.A., the learned counsel for the assessee, also clai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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