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Issues:
1. Interpretation of section 41(1) of the Income-tax Act, 1961 in relation to a sales tax liability deduction. 2. Application of judicial principles on liability cessation and revival in tax assessments. Analysis: The High Court of CALCUTTA addressed a reference under section 256(1) of the Income-tax Act, 1961, concerning the assessment year 1974-75. The core issue was whether the sales tax liability deduction of Rs. 17,78,887, claimed based on an ex parte order by the Commercial Tax Officer in 1967, could be assessed under section 41(1) of the Act, considering the subsequent setting aside of the order by the Appellate Authority. The Tribunal initially questioned the validity of the liability assessment under section 41(1) due to the setting aside of the ex parte order, leading to the reference to the High Court. The Tribunal's decision was based on the premise that there was a possibility of the Sales Tax Department reviving the demand through further appeals, which was later modified to clarify that no such appeal was pending. The High Court noted the finality of the Appellate Authority's order setting aside the ex parte assessment, with no pending appeals from the Sales Tax Department. Consequently, the Court found that section 41(1) was applicable as the liability ceased to exist post the appellate order, justifying the Income-tax Officer's inclusion of the sum in the assessment for 1974-75. In analyzing various precedents cited by the assessee, the Court distinguished each case based on the specific circumstances and finality of appellate orders. Cases like J. K. Synthetics Ltd. and CIT v. Punjab Oil Mills were found distinguishable due to pending appeals or legislative changes impacting the liability. The Court emphasized that in the present case, the appellate order had attained finality, aligning with decisions like CIT v. Sugauli Sugar Works P, Ltd. and CIT v. B. N. Elias and Co. (P.) Ltd., where unilateral actions did not lead to liability cessation. Ultimately, the High Court ruled in favor of the Revenue, negating the reference question and upholding the Income-tax Officer's assessment under section 41(1). The judgment highlighted the importance of finality in appellate orders and the distinct circumstances required to trigger the application of section 41(1) in tax assessments. The judgment was delivered by Judge AJIT K. SENGUPTA, with concurrence from Judge BHAGABATI PRASAD BANERJEE.
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