9911796707
TMI Blog2013 (5) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, however, subsequently, the return was selected for scrutiny. The Assessing Officer examined the balance sheet of the assessee company for the relevant period and noted that the balance sheet disclosed a sum of Rs. 1,57,54,011/- as sundry creditors. The said amount comprised the following outstanding credit balances:- S.No. Name Amount 1 M/s Elephanta Oil &Vanaspati Ltd. Rs. 1,53,48,850/- 2 M/s Geo-chem Laboratories (P) Ltd Rs. 41,231/- 3 M/s Jain House, Calcutta Rs. 30,210/- 4 M/s Ramji Lal Investments (P) Ltd Rs. 38,874/- 5 Sh. Sohan Lal Ghai Rs. 2,94,846/- 3. The credit balances against the aforementioned creditors have been outstanding since several years. In the case of M/s Elephanta Oil & Vanaspati Ltd., the amount of Rs. 1,53,48,850/- was outstanding in the books since 1984- 1985. The Assessing Officer called upon the assessee to provide confirmations from the creditors regarding the balance outstanding to their credit. The assessee filed a balance confirmation from M/s Ramji Lal Investments (P) Ltd. but could not provide confirmations from any of the other aforementioned creditors. The Assessing Officer also issued notices under section 133(6) of the Act to the credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subsequent period also, there could be no cessation of its liability to pay the creditors. 6. It was also submitted on behalf of the assessee that the amounts payable to M/s Elephanta Oil & Vanaspati Ltd. were on account of certain bank guarantees which had been furnished by M/s Elephanta Oil & Vanaspati Ltd., on behalf of the assessee company, to the custom authorities. The assessee also gave details of the bank guarantees that had been issued by the bank against certain imports that had been made by the assessee company in the year 1984-85. M/s Elephanta Oil & Vanaspati Ltd. had become a sick company and had filed a reference before the Board of Industrial and Financial Reconstruction (BIFR). The BIFR was of the opinion that M/s Elephanta Oil & Vanaspati Ltd. be wound up and accordingly, winding up proceedings have been initiated in this Court and the official liquidator has been appointed as the provisional liquidator to take over possession of the books and accounts and other records of the M/s Elephanta Oil & Vanaspati Ltd. 7. The CIT (Appeals) deleted the addition made by the Assessing Officer with regard to the balance outstanding to the credit of M/s Geo-chem Laborato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lephanta Oil & Vanaspati Ltd. 9. Aggrieved by the order passed by the Tribunal, the revenue has preferred the present appeal. It is contended before us on behalf of the revenue that there has been a cessation of liability of Rs. 1,53,48,849/- and the Tribunal has erred in setting aside the addition made on that account. It is further urged that the Tribunal was in error in taking note of the amount receivable from M/s Elephanta Oil & Vanaspati Ltd. while, considering the provisions of Section 41(1) of the Act. Whilst, it was conceded before us that the genuineness of the initial transaction was not in challenge, it was contended that the fact that the amount payable to M/s Elephanta Oil & Vanaspati Ltd. has been outstanding for 25 years indicated that the liability has ceased. It has been pleaded on behalf of the revenue that the following questions arise for our consideration: 1. "Whether ITAT erred in setting aside an amount of Rs. 1,53,48,850.00 holding that there was no cession of liability?" 2. "Whether while considering provisions of section 41(1) the net liability that after providing for receivables is to be considered or is relevant?" 10. We are unable to appreciate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd rejecting another part of the account. Whereas, the part of the account relating to dealings with M/s Elephanta Oil & Vanaspati Ltd. which resulted in the amount being receivable from M/s Elephanta Oil & Vanaspati Ltd. was accepted by the CIT (Appeals), the amount payable to the same entity was rejected. Accordingly, the Tribunal deleted the addition of Rs. 1,53,48,850/- confirmed by the CIT (Appeals). 13. The genuineness of the transaction entered into by the assessee in 1984-85 with M/s Elephanta Oils & Vanaspati Ltd. is not being assailed before us and the only controversy sought to be raised before us is whether there has been cessation of liability owed by the assessee to M/s Elephanta Oil & Vanaspati Ltd. In our view, that question doesn't arise in the present case since the decision of the CIT (Appeals) that there is no cession of liability in cases where the debt has been acknowledged by the assessee company has already been accepted by the revenue. However, as the question whether there is any cessation of liability in the relevant previous year warranting an addition in terms of Section 41(1) of the Act has been urged on behalf of the revenue, we consider it appropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount either in cash or any other manner or any benefit by way of cessation or remission of liability. In order to come within the sweep of section 41(1) it is necessary that the benefit derived by an assessee results from cessation or remission of a trading liability. The relevant extract from the decision of the Supreme Court in the case of CIT v. Sugauli Sugar Works (P.) Ltd. (supra) is quoted below: "3. It will be seen that the following words in the section are important: 'the assessee 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 him'. Thus, the section contemplates obtaining by the assessee of an amount either in cash or in any other manner whatsoever or a benefit by way of remission or cessation and it should be of a particular amount obtained by him. Thus, the obtaining by the assessee of a benefit by virtue of remission or cessation is sine qua non for application of this section." 17. The only issue that needs to be considered is whether the liability towards M/s Elephanta Oil & Vanas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f constitute cessation of the liability. In the instant case, the liability being one relating to wages, salaries and bonus due by an employer to his employees in an industry, the provisions of the Industrial Disputes Act also are attracted and for the recovery of the dues from the employer, under section 33C(2) of the Industrial Disputes Act, no bar of limitation comes in the way of the employees." After quoting the above passage, the Supreme Court held as under:- "This judgment has been quoted by the High Court in the present case and followed. We have no hesitation to say that the reasoning is correct and we agree with the same." 20. In order to attract the provisions of Section 41(1) of the Act, it is necessary that there should have been a cessation or remission of liability. As held by the Bombay High Court, in the case of J. K. Chemicals Ltd. (supra), cessation of liability may occur either by the reason of the liability becoming unenforceable in law by the creditor coupled with debtor declaring his intention not to honour his liability, or by a contract between parties or by discharge of the debt. In the present case, the assessee is acknowledging the debt payable to M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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