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TMI Blog1984 (11) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... ng through the record, noticed, that the adjustments made in this behalf in the P L a/c by the assessee, represented remission or cessation of trading liabilities by means of which the assessee had obtained benefit and, therefore, they should have been properly treated as income chargeable to tax under s. 41(1). As the ITO had wrongly accepted the version of the assessee in this behalf, that they represented capital receipts, he concluded, that the order made by the ITO in this behalf was erroneous and, therefore, prejudicial to the interests of Revenue. Accordingly, he required of the assessee under s. 263(1) to explain why the assessment order should not be revised so as to enhance the same to the extent of the prejudice caused to the revenue in this behalf. The assessee in its reply dt. 25th Jan., 1983 made the following submissions: After referred to the different accounts indicated by the CIT in his notice, the assessee submitted, that the sum of Rs. 1,29,049 referred to by the CIT in his notice did not represent the assessee s income chargeable to tax and in this connection, his attention was invited to the letter dt. 1st Feb., 1980 addressed to the ITO while filing the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1976-77 and 1977-78) there were no adjustments in this account. During the year under appeal (account year 1976-77), the sum of Rs. 10,326 transferred to the P L a/c by adjustment entry made by the assessee, included the interest credit of the Rs. 5,224 made up of credits over a number of years and deducted from the total income of the assessee during the respective assessment years. Since the assessee himself had closed this account and transferred the balance to the credit of the P L a/c, the CIT was of the opinion, that, the assessee had obtained a benefit in respect of the trading liability by remission or cessation thereof and, therefore, the sum of Rs. 5,224 was chargeable under s. 41(1). 4. As regards the account of Attar Hussain, the CIT noticed, that the opening balance in this account at the beginning of the Samvat Year 2023 (asst. yr. 1968-69) was Rs. 10,054 and during all the subsequent years, this account recorded only credits on account of interest except for some nominal amounts shown as withdrawal in cash in one year. The interest credited to this account, year after year, was found to be Rs. 10,967 and the CIT noticed, that this amount was included in the cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the same inasmuch as, the unilateral action the part of the assessee in writing back these amount to the P L a/c would not amount a remission or cessation of the liabilities in question. According to him, the write back into the P L a/c was not a bilateral transaction as a result of any agreement between the creditors and the assessee and the mere closure of the account by means of adjustment entries, does not bring about a cessation of the liabilities in question. He brought to our notice the following High Court s decision in support of his argument : Kohinoor Mills Co. Ltd. vs. CIT (1963) 49 ITR 578 (Bom), Gannon Dunkerley Co. Ltd. vs. CIT 1975 CTR (Bom) 14 : (1976) 102 ITR 428 (Bom), CIT vs. Sadabhakti Prakashan Printing Press (P) Ltd. (1980) 125 ITR 326 (Bom), Liquidator, Mysore Agencies (P) Ltd. vs. CIT 1978 CTR (Ker) 284 : (1978) 114 ITR 853 (Kar). In the first decision, it has been held by the Bombay High Court that unclaimed wages payable to labourers, though their recovery is barred by limitation are enforceable debts in law and, therefore, there is no cessation of trading liability under s. 10(2A) of the 1922 Act corresponding to 41(1) of the 1961 Act. In the seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of liability are satisfied and the conduct of the assessee was such that the amounts in question were treated as its income, the provisions of s. 41(1) would be properly applicable. 9. We have carefully considered the rival submissions and also the authorities cited before us. We are entirely in agreement with the CIT that, the assessment order in question was erroneous and, therefore, prejudicial to the interests of Revenue insofar as the ITO wrongly failed to treat the sum of Rs.1,20,705 as chargeable to tax under s. 41(1) As far as the first two accounts are concerned, a perusal of the accounts over a period of years clearly establishes that the creditors had hardly operated these accounts either by exercising their right to refund of the balances in question, or by way of sundry withdrawals effected at least once in a while. The accounts, apart from initial the credits referred to earlier, reveal only credits on account of interest made therein periodically. During the year under consideration, the assessee had categorically closed these accounts by transferring the balances therein to the credit of the P L a/c. Though it may appear to be a unilateral act on the part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also a very significant fact in this case. We are, therefore, satisfied, that the CIT was justified in invoking the provisions of s. 41(1) to the extent of treating the interest amounts credited in these accounts as income chargeable under s. 41(1). 10. As regards the third account, even the above-mentioned explanation relating to the other two accounts is not available in this behalf. Admittedly this account recorded trading transactions that took place between the assessee and Ganges Printing Ink. The balance in this account was reduced by Rs. 1,04,514 by means of a debit entry during the previous year under consideration on the ground that, the same was the result of a settlement. In consequence, a corresponding amount was transferred to the P L a/c. All the indicia required for the application of 41(1) are fully present in this case. The claim of the assessee that the entry in question was wrong, is not borne out by facts, inasmuch as, no contra entry has been made subsequently to bring about the original position of the account in this regard. As a matter of fact, after the above-mentioned debit, the balance in the account namely, Rs. 17,998 has been carried forward to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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