2002 (2) TMI 1313 - AT - Income Tax

Summary

Issues Involved:
1. Whether the unclaimed outstanding balances written back by the assessee should be treated as income under Section 41(1) of the Income Tax Act.
2. The applicability of precedents set by various High Courts and the Supreme Court in determining the treatment of such unclaimed balances.

Detailed Analysis:

Issue 1: Treatment of Unclaimed Outstanding Balances as Income
The primary issue is whether the unclaimed outstanding balances amounting to Rs. 31,45,526, written back by the assessee, should be included in the assessee's income under Section 41(1) of the Income Tax Act. The Assessing Officer treated the said amount as income, reducing the declared loss of the assessee. The assessee contended that this was a unilateral act and did not amount to income, arguing that the liability had not ceased and the amounts were merely accounting entries.

Issue 2: Applicability of Judicial Precedents
The CIT(A) relied on the judgments of the Bombay High Court in CIT v. Chougule & Co. (P.) Ltd. and J.K. Chemicals Ltd. v. CIT, which supported the assessee's position. However, the Revenue argued that the Supreme Court's decision in CIT v. T.V. Sundaram Iyengar & Sons Ltd., which held that such amounts should be treated as income, should prevail. The assessee countered with the Supreme Court's decision in CIT v. Sugauli Sugar Works (P.) Ltd., which held that a unilateral entry does not invoke Section 41(1).

Analysis and Conclusion:
The Tribunal considered arguments from both sides and reviewed the relevant case laws. The Tribunal noted that Section 41(1) of the Income Tax Act deals with adjustments where an allowance or deduction has been made in respect of a trading liability, and subsequently, the assessee obtains any benefit regarding such liability. The Tribunal observed that the assessee had treated the amount as its own by crediting it to the profit and loss account, thus prima facie making it income.

The Tribunal emphasized the Supreme Court's ruling in T.V. Sundaram Iyengar & Sons Ltd., where it was held that amounts which became the assessee's own money due to being unclaimed for a long period should be treated as income. The Tribunal also acknowledged the Madras High Court's decision in CIT v. Sundaram Industries Ltd., which stated that in cases of conflicting Supreme Court judgments, the decision by the larger bench (T.V. Sundaram Iyengar & Sons Ltd.) should be followed.

The Tribunal concluded that the assessee's unilateral act of writing back the liabilities without producing evidence that the liabilities had not ceased, and without bilateral confirmation from the creditors, did not support the assessee's contention. Therefore, the Tribunal reversed the order of the CIT(A) and upheld the addition of Rs. 31,45,526 to the assessee's income.

Final Judgment:
The appeal of the revenue was allowed, and the unclaimed outstanding balances written back by the assessee were treated as income under Section 41(1) of the Income Tax Act.