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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 ..... ome-tax Act, 1961 treating the outstanding liabilities as having ceased to exist. 2.The Commissioner of Income-tax (A) failed to appreciate that: ( a)The appellant had not written back the liabilities aggregating to Rs. 8,95,414 to the profit and loss account. ( b)There is no evidence on record indicating that the said liabilities has ceased to exist. ( c)The appellant had intention to pay the said liabilities and there was no cessation of liability." 2. Briefly stated, the relevant facts of the case are that the assessee is a fire fighting contractor and filed the return of income for assessment year 2003-04 and declaring the total income at 'Nil'. At the end of the proceedings under section 143(3), the total income was determined by the Assessing Officer at Rs. 9,77,738 by making certain additions. An addition of Rs. 8,95,414 on account of sundry creditors under section 41(1) had been the bone of contention right through the assessment as well as the CIT(A). 3. During the assessment proceedings, Assessing Officer noticed the aforesaid outstanding balances under the sundry creditor accounts and they are old balances and for period of more than 3 years. Assessing Officer made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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, he confirmed the disallowance of the Assessing Officer. The CIT(A) did not distinguish the judgments relied on by the assessee. 5. Aggrieved with the same, the assessee has filed the present appeal. Shri Dinesh R. Shah, the Counsel for the assessee has argued stating that this is the case where the assessee is yet to make payments to eleven parties as mentioned in the impugned order and they amount to Rs. 8,95,414. Assessee has not written them off in the books of account. Further, he mentioned that there is neither any evidence to indicate that the said liabilities have ceased to exist nor assessee has any intention not to pay them to the creditors. Further, Learned Counsel relied on the Apex Court judgment in the case of Chief CIT v. Kesaria Tea Co. Ltd. [2002] 254 ITR 4341 for the proposition that the unilateral act on part of the assessee by way of write off of the liabilities in its accounts did not necessarily mean that the liability has ceased in the eye of law for the purpose of the provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 of the case needed. The relevant extracts of section 41(1) reads as under:- "41(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as 'the first mentioned person') and subsequently during any previous year, - ( a)the first mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or ( b)****** Explanation 1.-For the purposes of this sub-section, the expression 'l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reason and material to come to conclusion that the liabilities outstanding for ten to fifteen years have ceased in the year under consideration and the same cannot be charged to tax under section 41(1). Further, the Mumbai Bench Tribunal held in the case of Thomas Cook (India) Ltd. v. Dy./Jt. CIT [2006] 103 ITD 119 that the amounts in the unclaimed balances accounts and suspense accounts, which had become time barred and unilaterally written back by the assessee are not chargeable to tax as there was no cessation of liabilities. Thus, in the light of the above, if 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 under section 41(1) of the Act 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit 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 period and the said Explanation provides for including the case of obtaining of the benefit by way of remission or cessation of any liability by a unilateral act by way of writing off such liability in the accounts of the assessee, as the case of the deemed profits. In other words, the assessee's case, being the one where the alleged liabilities are not unilaterally writing off, the requirements of the Explanation is not met and therefore, it cannot be considered as the case of obtaining of the benefit during the year under consideration. Although the following is inapplicable to assessee's case, the act of "unilateral write off of the liabilities assumes great significance for the post amendment assessments for deciding the finality of obtaining of the benefit specified in the section 41(1) of the Act. It is even more significant when the Assessing Officer has not established that the liabilities have ceased and finally ceased and ceased with no chance of revival of the claim by the creditors in future. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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