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- Interpretation of section 41(1) of the Income-tax Act, 1961 regarding cessation of liabilities for assessment years 1982-83 and 1983-84. Detailed Analysis: The case involved a reference under section 256(1) of the Income-tax Act, 1961, where the Tribunal referred a common question of law for the assessment years 1982-83 and 1983-84. The question was whether the Tribunal was justified in holding that the cessation of liabilities of certain amounts were not income assessable under section 41(1) of the Income-tax Act, 1961. The liabilities in question were written back by the assessee as they were no longer considered necessary to be carried as liabilities. The Assessing Officer brought the amounts to tax, arguing that the assessee disowned any obligation with regard to the said liabilities. However, the Commissioner of Income-tax (Appeals) excluded the liabilities written back for both years, stating that the liabilities, though barred by limitation, do not become extinguished by the unilateral act of the assessee. The Tribunal upheld the order of the Commissioner of Income-tax (Appeals), stating that the mere act of writing back unclaimed liabilities does not attract section 41(1) as the assessee's unilateral act does not result in the cessation of the liabilities. The Tribunal relied on its earlier order in the assessee's own case for the assessment year 1979-80. The Commissioner of Income-tax (Appeals) noted that the assessee had a practice of writing back similar liabilities as a regular measure to prevent fraud, shifting them to a special register and keeping a watch on actual payments. The court considered the arguments presented by the assessee, citing previous decisions, but was not persuaded that the facts in those cases were similar to the present case. The court highlighted that in the present case, the write-back of liabilities was a regular occurrence without any claim that the liabilities were time-barred. The court distinguished the present case from previous decisions where time-barred liabilities were written back. The court also discussed the Supreme Court decision in Bombay Dyeing and Mfg. Co. Ltd.'s case, emphasizing the different context of that case compared to the present situation. Referring to the decision in CIT v. Agarpara Co. Ltd., the court emphasized that cessation or remission of liabilities can be inferred from the conduct of the debtor and creditor, and it need not be a positive act. Based on the analysis, the court answered the question in the negative and in favor of the Revenue, indicating that the liabilities written back were assessable as income.
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