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Issues Involved:
1. Taxability of the sum of Rs. 12,12,438 under Section 41(1) of the IT Act, 1961. 2. Justification of framing an ex parte assessment by the ITO. Issue-wise Detailed Analysis: 1. Taxability of the sum of Rs. 12,12,438 under Section 41(1) of the IT Act, 1961: The primary dispute in the Departmental appeal (ITA No. 224/Asr/1989) revolves around whether the sum of Rs. 12,12,438 is taxable under Section 41(1) of the IT Act, 1961. The facts reveal that the assessee-company managed two hotels belonging to Begum Saleema until 19th April 1981. A memorandum of understanding dated 16th June 1981 stipulated that Begum Saleema would bear the expenditure, subject to verification by her representative. Consequently, the assessee debited Rs. 12,12,438 to Begum Saleema's account, representing excess expenditure over income. The AO deemed this amount as income for the assessee-company for the assessment year 1982-83, as per the mercantile system of accounting, and added it to the total income. The CIT(A), however, deleted this addition, stating that the mere entry in the books of accounts does not constitute a bilateral act to invoke Section 41(1). The CIT(A) noted that the liability was disputed by Begum Saleema and a suit for recovery was pending before the J&K High Court. The CIT(A) relied on the Supreme Court's decision in Kedar Nath Jute Manufacturing Co. Ltd. vs. CIT and other precedents, emphasizing that the liability or benefit must be legally due and not merely based on accounting entries. The Tribunal upheld the CIT(A)'s decision, agreeing that the substance of the transaction and the legal provisions determine the true nature and character of the transaction, not the accounting entries. The Tribunal cited the Supreme Court's ruling in Sutlej Cotton Mills Ltd. vs. CIT, which states that entries in books are not determinative of profit or loss. The Tribunal also referenced the Supreme Court's decision in CIT vs. Sugauli Sugar Works (P) Ltd., which clarified that obtaining a benefit by virtue of remission or cessation is essential for applying Section 41(1). The Tribunal concluded that the assessee had not obtained any benefit or remission, and the disputed claim would be taxed only when the dispute is resolved. Therefore, the addition of Rs. 12,12,438 under Section 41(1) was not justified. 2. Justification of framing an ex parte assessment by the ITO: In the assessee's appeal (ITA No. 359/Asr/1989), the issue was whether the CIT(A) erred in holding that the ITO was justified in framing an ex parte assessment. However, no arguments were advanced by either party on this issue, and the Tribunal dismissed the appeal. Conclusion: Both appeals were dismissed. The Tribunal upheld the CIT(A)'s decision that the sum of Rs. 12,12,438 was not taxable under Section 41(1) of the IT Act, 1961, as the liability was disputed and the suit for recovery was pending. The Tribunal also dismissed the assessee's appeal regarding the ex parte assessment due to the lack of arguments.
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