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TMI Blog2011 (6) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer initiated enquiries and found that notice under section 133(6) issued to first nine parties (from Sl. Nos. 1-9) were returned unserved. Similarly in respect of other parties no confirmation was filed or no fresh interest was provided by the assessee; or it was only that no balance is outstanding or a different amount is outstanding. On this basis, the Assessing Officer held that there is a remission of liability taxable under section 41(1). He accordingly made an addition of Rs. 56,42,593. 3. The matter came up before ld. CIT(A). He examined the issue afresh and found that amount in respect of some parties can be held subsisting, therefore, he had deleted the addition made in respect to them. In respect to the sum relating to some other parties, he held that if assessee has not filed any confirmation or there is no movement for last six years then it can be said that the amount was subsisting. He accordingly confirmed the addition. Thus in all the ld. CIT(A) deleted an addition of Rs. 18,09,757 out of Rs. 56,42,593 made by the Assessing Officer against which the Revenue is in appeal. 4. The ld. DR submitted that in respect of many parties to whom the notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P.) Ltd. v. CIT [1978] 114 ITR 853 and that Hon'ble Bombay High Court in the case of CIT v. Chase Bright Steel Ltd. [1989] 177 ITR 128/42 Taxman 146 and that Hon'ble Bombay High Court in the case of J.K. Chemicals Ltd. v. CIT [1966] 62 ITR 34 wherein it is held that remission has to be granted by the creditor. A unilateral on the part of the debtor i.e., the assessee cannot bring about a cessation on his liability. A cessation of the liability may occur either by reason of the operation of law i.e., when liability becomes unenforceable through law and also debtor clearly declare his intention not to honour his liability when payment is demanded by the creditor. The cessation may also occur through a contract between the parties or by discharge of the debt i.e., debtor making part payment thereof to his creditor. 6. We have heard the parties and carefully perused the material on record. The undisputed facts are that these liabilities standing in the books of the assessee are very old and as found by the ld. CIT(A), as old as 15 years and outstanding since 1994-95. In the current year the Assessing Officer thought to enquire as to why these liabilities are outstanding for so long a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits and gains of the business or profession and accordingly chargeable to Income-tax as the income of that previous year; Explanation 1-For the purposes of this sub-section, the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in the business under clause (b) of that sub-section by way of writing off such liability in his accounts. Explanation 2-For the purposes of this sub-section "successor in business" means- (i) where there has been an amalgamation of a company with another company, the amalgamated company; (ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person; (iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm; (iv) where there has been a demerger, the resulting company. The first condition required to be satisfied for treating a sum taxable under section 41(1) is that an allowance or deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxable under section 41(1) subject to the basic condition that such liability remitted has been taken into account in the trading account or in the profit and loss account in the current year or in an earlier year. Thus there has to be a positive act on the part of the creditor in the current year which would provide the benefit to the assessee by way of remission. If no such act on the part of creditor takes place then there is no case for holding that a liability has been remitted in favour of the assessee. 7. Merely because certain amount is outstanding for number of years will not be case for holding that there is a cessation or remission. Hon'ble Punjab & Haryana High Court in the case of CIT v. Sita Devi Juneja [2010] 325 ITR 593/187 Taxman 96 held that if Assessing Officer failed to show that in any earlier year allowance of deduction has been made in respect of any trading liability incurred by the assessee or if he fails to show that any benefit was obtained by the assessee in respect of such trading liability by way of remission or cessation thereof, during the current year then it cannot be said that any benefit accrued to the assessee. Hon'ble Punjab & Haryana High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is not the event which has taken place during this year nor is visualized in section 41(1). The section clearly stipulates obtaining a benefit by cash or in any other manner. Therefore, the Assessing Officer has to show that assessee has obtained such benefit in cash or otherwise only during the current year. Therefore, merely because certain creditors are not traceable or they have denied any liability against the assessee would not show that liability ceased to exist only in the current year by virtue of operation of law, or it was remitted by the creditor only during the current year. The enquiries had to be further carried out to show what event has taken place. They should clearly show a cessation or remission and when it happened. If these two aspects are not clearly proved by the Revenue provisions of section 41(1) could not be invoked. In addition to this, the onus is on the revenue to show that the amount in question which is deemed as profit during the current year under section 41(1) was in fact taken into account in any earlier year either in the trading account or in the profit and loss account. Since Revenue has failed to discharge the onus, as to - (i)&nb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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