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TMI Blog1990 (3) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... report dated 28-1-1987 pointed out that the assessee wrote off the following amounts : Head of account Amount written off : Rs. 1 . Shriram Associates Ltd. (HO) a/c (Now Shri Girdhari Associates Ltd.) (Partner) 87,533.09 2. Shriram Associates Ltd. (Taxes) A/c. (Partner) 10,355.62 3. Lala Bharat Rain (Outsider) 27,249.77 4. Bharat Ram Charat Ram P.L.(Outsider) 17,266.33 ----------------------- 1,42,404.81 ----------------------- 3. The ITO mentioned in his report that the amounts written off also included expenditure allowed to the assessee in the earlier years and, therefore, to the extent of the amount allowed as deduction, the same has to be treated as income u/s. 41(1). He further reported that the account of Shriram Associates Ltd. was that of partners. Out of the account of Shriram Associates Ltd. (HO) Account, no details were furnished in respect of an amount of Rs. 30,849 and Rs. 25,430 (the correct amount should be as Rs. 20,650) was interest paid to the said partners, which was also allowed as a deduction. The ITO further reported that the remaining amount of Rs. 36,035 admittedly was not allowed as an expenditure in the earlier years. Similarly, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se amounts were added back u/s. 40(b) was not supported by any evidence and, therefore, it could not be said that they were not allowed as deduction in computing the assessee's income. The CIT(A) then pointed out that the firm received interest from the partners as well as paid interest to the partners and that the ITO in the assessment of the firm for the earlier years included interest only in excess of what was paid by the partners to the firm. This was evident from the assessment orders for the asst. years 1975-76 and 1976-77. The CIT(A) was of the opinion that if the difference has been added as income, it was apparent that no disallowance u/s. 40(b) has been made. Thus, the CIT(A) concluded that the interest paid by the assessee to its partners has been allowed as deduction in the earlier years. The CIT(A) thus, concluded that so far as the amounts of interest to the said partners are concerned, it fell within the ambit of section 41(1) and that in respect of these amounts, there has been a cessation of liability. The CIT(A) further held that barring the amount of Rs. 59,349 remaining amounts written off by the creditors would have been treated u/s. 41(1). The CIT(A) therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by the CBDT. 8. Shri D.C. Aggarwal, learned Sr. DR, on the other hand, fully supported the impugned order of the CIT(A) on the point under consideration. It was submitted that since the assessee itself treated the amount in question as its income, it was for the assessee to show that it was not its income and, therefore, the entire amount of Rs. 1,42,404 was rightly included by the ITO in the income of the assessee. In this connection, reliance has been placed on the decision of the Allahabad High Court in Pioneer Consolidated Co. of India Ltd. v. CIT [1976] 104 ITR 686. 9. We have considered the rival submissions as also the facts on record. It was stated before us on behalf of the assessee by Shri Sharma that the assessee was a defunct firm and it did not carry on any business for the last two years and that its business had been taken over by Bengal Potteries Ltd. 10. Section 41(1) of the I.T. Act, 1961 provides that where an allowance or deduction has been made in the assessment for any year in respect of any loss, expenditure or trading liability and subsequently during any previous year, the assessee has received whether in cash or in any manner, whatsoever, any a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellate Tribunal also agreed with this view. On a reference made to the High Court at the instance of the revenue, it was held by the High Court that the amount over-paid to the managing agents was not an allowable deduction u/s. 10(2)(xv) of the Income-tax Act, 1922. It was further held by their Lordships of the Madras High Court that section 10(2A) of the I.T. Act, 1922 (which corresponds to section 41(1) of the Income-tax Act, 1961) does not cover a mistaken payment or a mistaken calculation. Here it may be pointed out that before the High Court, one of the contentions raised on behalf of the assessee was that on the analogy of section 10(2A) any amount paid in excess of the amount due to the managing agent would in law be deemed to be held by them as trustees and liable to be paid to the company and that as and when the amount was paid back by the managing agents to the company or the company was able to recover the same, it could be assessed in their hands as income of the year in which the sum was received. Refuting this contention, it was held by their Lordships that section 10(2A) does not cover a mistaken payment or mistaken calculation. It was further held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther hand submitted that since the amount in question was treated by the assessee itself as part of its income, it necessarily followed that in respect of the amount of Rs. 20,650 allowance had been granted in the past. In this connection, reliance has been placed on the decision of the Delhi High Court in CIT v. Phool Chand Jiwan Ram [1981] 131 ITR 37 and the decision of the Punjab and Haryana High Court in CIT v. Haryana Co-operative Sugar Mills Ltd. [1985] 154 ITR 751. It was submitted that since the amount has been written off the burden was on the assessee to show that it was not its income. 13. In the case of Steel General Mills Co. Ltd., it has been held by their Lordships of the Delhi High Court that u/s. 10(2A) of the Income-tax Act, 1922 the burden of proving that an allowance or deduction had been given for the sum of Rs. 21,107 in the earlier year lay upon the department. 14. The Kerala High Court in the case of Ancherry Paboo Kakku has held that the AAC was not justified in issuing a direction to the assessee to produce the books of accounts of the relevant years in order that the ITO may be able to examine whether the receipt said to be assessed represented allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and loss account. So, in this case, the amount in question was not only credited to the profit and loss account but the amount was forfeited by the assessee. In view of these facts, the High Court held that the second condition, namely, that there was a remission or cessation of liability stood satisfied. This authority does not lay down a proposition that if an amount is shown as income in the profit and loss account, it would in all cases, be a prima facie evidence of the fact that in respect of that amount, a deduction had been allowed in an earlier year. In our opinion, this authority, therefore, does not support the view canvassed before us on behalf of the Department. So, the amount of Rs. 30,849 also cannot be subjected to tax u/s. 41(1). 17. The next item relates to the amount of Rs. 10,356 which is comprised of two amounts of Rs. 5,818 in respect of which no details were furnished and a sum of Rs. 4,537 paid as interest to the partner and which was allowed as a deduction in the assessment of the assessee in earlier years. The facts relating to these two items are the same as in respect of the amounts of Rs. 30,849 and Rs. 20,650. In view of the reasons given above, we h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan advanced by Shri Bharat Ram. If any authority is required on the point, reference may be made to the decision of the Calcutta High Court in CIT v. B.N. Elias. Co. (P.) Ltd. [1986] 160 ITR 45. In this case, the assessee owned certain amounts to its creditors by way of sundry trading liabilities. The dues remained unclaimed for more than three years and that in the relevant assessment year, the assessee wrote off the debts in the profit and loss account making corresponding entries. The assessee claimed that the amounts written off were not income assessable to tax. There was neither remission nor cessation of the liability of the assessee. The ITO did not accept this contention and assessed the amounts as income of the assessee u/s. 41(1). It was held by the High Court that there was neither a remission nor a cessation of trading liability of the assessee, even, though the same had become barred by limitation and, therefore, the amounts written off could not be included in the total income of the assessee. We, thus, hold that the amount of Rs. 13,659 cannot also be included in the income of the assessee u/s. 41(1). 21. The next ground relates to the deposit of Rs. 9,935 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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