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TMI Blog2009 (3) TMI 646X X X X Extracts X X X X X X X X Extracts X X X X ..... s - it is noticed that there is no such limitation provided in section 41(1) or its Explanation 1. Most probably, the revenue has considered the period of three years as reasonable duration for deciding the cessation of liabilities on ad hoc basis. Otherwise the revenue orders do not contain any rationale in support of such period. Delhi Bench decision in the case of Dy. CIT v. Himalaya Refrigeration Air Conditioning Co. (P.) Ltd.[ 2003 (6) TMI 195 - ITAT DELHI-F] is found relevant in this regard and the said order concluded by stating that in the absence of any evidence of cessation of liabilities, mere fact that the liabilities were outstanding for more than three years and were time barred, was not sufficient ground for addition u/s 41(1). Thus, the revenue s proposal is favoured by us, it will effectively amounts to supporting a proposition that all the unclaimed liabilities, which are reflected in the books for the period longer than three years case, shall be the deemed profits of the assessee u/s 41(1) and this view does not have the support of the Income-tax Act. As such the limitation of time is not a determining factor in the matters relating to remission or cessation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside in this regard. In the result, appeal of the assessee is partly allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT v. Chaise Bright Steel Ltd. [1989] 177 ITR 128 (Bom.) for the proposition that the liabilities shall not cease merely on the ground that the claim is barred by limitation. Further, assessee also reiterated the alternative request for claim of netting of the said liabilities against the sundry debtors. As evident from pages 1 to 3 of the impugned order, the CIT(A) considered the assessee's submission and did not agree with the same. Detailed discussion is given in this regard in Para 2.3 of his order. Essentially, the CIT(A) gave a couple of reasons for rejecting the assessee's submissions and they are: (i) The existence of the outstanding balances in the books for a period of longer than 3 years; and (ii) The absence of any litigation involving these outstanding balances as well as any correspondence from the creditors demanding the payments. Insofar as the alternative claim for netting, the CIT(A) relied on the Apex Court judgment in the case of Goetze India Ltd. v. CIT [2006] 284 ITR 323 for the proposition that Assessing Officer cannot entertain a claim for deduction not made in the original return of income except in a case of filing of revised return. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. To sum up the above arguments, the case of the assessee is that the provisions of section 41(1) do not apply to the assessee's case as the alleged liabilities are still payable to the creditors and the same is evident from the fact that they are still reflected in the books of the assessee. Further the assessee has intention to make the payments, which is evident from the fact that the assessee has not written them off in the books. Even in a case where a person writes them off unilaterally in the books, such write off does not necessarily mean that the liability has ceased in the eye of law in view of the Supreme Court judgment in the case of Kesaria Tea Co. Ltd. ( supra). Per contra, the case of the revenue is that the unclaimed liabilities for a period longer than 3 years together with the fact of no demand or no litigation from the said creditors, the Assessing Officer is under statutory obligation to tax such liabilities as deemed profits in this year and unilaterally write off of the said liabilities in the books is not relevant. 7. To resolve the above rival positions, the examination of the provisions of section 41(1) and application of the same to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has not unilaterally written them off; (c) the issue of unilateral write off for the assessments of the post amendment period, i.e., 1-4-1997. We shall proceed to analyse one by one in the succeeding paragraphs. (a)Regarding the issue of limitation of three years, it is noticed that there is no such limitation provided in section 41(1) or its Explanation 1. Most probably, the revenue has considered the period of three years as reasonable duration for deciding the cessation of liabilities on ad hoc basis. Otherwise the revenue orders do not contain any rationale in support of such period. Delhi Bench decision in the case of Dy. CIT v. Himalaya Refrigeration & Air Conditioning Co. (P.) Ltd. [2003] 91 TTJ (Delhi) 296 is found relevant in this regard and the said order concluded by stating that in the absence of any evidence of cessation of liabilities, mere fact that the liabilities were outstanding for more than three years and were time barred, was not sufficient ground for addition under section 41(1) of the Act. Further, the Ahmedabad Bench of the Tribunal held in the case of New Commercial Mills Co. Ltd. v. Dy. CIT [2001] 73 TTJ (Ahd.) 893 that in the absence of cogent reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tt. CIT [2008] 24 SOT 393 (Delhi) and Uttam Air Products (P.) Ltd. v. Dy. CIT [2006] 99 TTJ (Delhi) 718 relied on by the assessee and said decisions contain are relevant for the proposition that the onus is on the revenue to prove that the liabilities have ceased finally and there is no possibility of their revival. (c)Regarding the issue of unilateral write off for the assessments of the post amendment period, i.e., 1-4-1997, it is noticed that the Explanation 1 was brought into statute by the Finance (No 2) Act, 1996 with effect from 1-4-1997. The judgments of Apex Court's judgment in the case of Kesaria Tea Co. Ltd. (supra) and Sugauli Sugar Works (P.) Ltd. ( supra) or Jurisdictional High Court's judgment in the case of CIT v. Chougule & Co. (P.) Ltd. [1991] 189 ITR 473 (Bom.) and other cases cited by the assessee, were delivered involving the assessment years prior to pre-amendment period. All the judgments uniformly conclude that the mere unilateral transfer entry in the accounts does not confer any benefit to the assessee and therefore, revenue cannot invoke section 41(1) of the Act. Further, the instant year, being the assessment year 2003-04, relates to the post amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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