9911796707
TMI Blog2015 (8) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of granite processing and polishing. After a search under Section 132 of the Income Tax Act, 1961 (in short 'the Act') was conducted in the case of Sri Hassan Sayeed Abdul Hafeez Sayeed, Prop. Oriental Granites, Hassan on 26.8.2009, the assessee's case was notified to be taken up for scrutiny. In response to notice under Section 142(1) of the Act dt.2.3.2011, the assessee filed his return of income for Assessment Year 2010- 11 on 4.3.2011 declaring income of ₹ 1,79,110. The assessment was completed under Section 143(3) of the Act vide order dt.28.12.2011 wherein the income of the assessee was determined at ₹ 12,08,883 in view of an addition of ₹ 10,29,773 to the returned income as cessation of liability under Section 41(1) of the Act. 2.2 Aggrieved by the order of assessment for Assessment Year 2010-11, dt.28.12.2011, the assessee preferred an appeal before the CIT (Appeals) VI, Bangalore who dismissed assessee's appeal vide order dt.7.10.2013. 3. Aggrieved by the order of the CIT (Appeals) VI, Bangalore dt.7.10.2013, the assessee has preferred this appeal raising the following grounds:- 1. The order of the learned au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfructuous. 5. Grounds S.No.3 to 6 Cessation of Liability. 5.1 In the course of assessment proceedings, the Assessing Officer noticed that there was an amount of ₹ 10,29,773 shown as payable to M/s. Tool Masters, 94/5, RMV 2nd Stage, Kodiginahalli, Bangalore-560 094 under the head Current Liabilities . On verification of the above liability, the Assessing Officer found that this party had closed its business w. E. F. 1.4.2008 and therefore proposed to treat the outstanding amount of ₹ 10,29,773 as income of the assessee on account of cessation of liability under Section 41(1) of the Act. In response thereto, the assessee objected to the same contending that the said amount was still due and payable by the assessee to M/s. Tool Masters. The explanation put forth by the assessee did not find favour with the Assessing Officer. Observing that the said amount was outstanding for the last 4 years even though the M/s. Tool Masters, the creditor had closed its business, the Assessing Officer treated the sum of ₹ 10,29,773 as income of the assessee under Section 41(1) of the Act as cessation of liability which no longer existed. 5.2 On appeal, the learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT V Vardhman Overseas Ltd. reported in 343 ITR 408 (Del) wherein on almost identical facts held that neither section 68 nor section 41(1) of the Act would be attracted. The learned Authorised Representative contended that there is no evidence brought on record by the authorities below to show that the liability of the assessee vis- -vis the creditor M/s. Tool Masters has ceased to exist, as the said creditor has confirmed that the liability of the assessee to pay ₹ 10,29,773 still existed. Finally it was submitted that the said credit has been written back and offered to tax in the subsequent year i. E. Assessment Year 2011-12 wherein it has been offered to tax under the head Miscellaneous income of ₹ 10,23,773. A copy of the computation of income for Assessment Year 2011-12 and the profit and loss account are placed at pages 14 to 16 of the A. R s Paper Book. It is submitted that the impugned addition of ₹ 10,29,773 made under Section 41(1) of the Act is unsustainable both in law and on facts. 5.3.2 Per contra, the learned Departmental Representative placed reliance on the orders of the authorities below. 5.4.1 We have heard the rival contentions and perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Tool Masters, the creditor for a period of four years and above the assessee had obtained some benefit in respect of the trading liability allowed in the earlier years. The words remission and cessation are legal terms and have to be interpreted accordingly. In the present case, there is nothing on record to show that there was either remission or cessation of liability of the assessee. In such circumstances, we are of the view that the provisions of section 41(1) of the Act could not be invoked by the Revenue. In fact the decision of the Hon ble Delhi High Court in the case of Vardhaman overseas Ltd. (supra) clearly supports the plea of the Assessee in this regard. On identical facts, the Hon ble Delhi High Court on the applicability of Sec.41(1) of the Act, held: 12. That takes us to the next question as to what constitutes remission or cessation of the liability. It cannot be disputed that the words remission and cessation are legal terms and have to be interpreted accordingly. In State of Madras vs. Gannon Dunkerley Co. AIR 1958 SC 560 Venkatarama Aiyyar J. explained the general rule of construction that words used in statutes must be taken in their legal s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Supreme Court in the case of CIT vs. Sugauli Sugar Works (P) Ltd. (supra) we may usefully refer to the decision in order to appreciate the controversy therein and the ratio laid down. That was a case of a private limited company. In respect of the asst. yr. 1965-66, it transferred a sum of 3,45,000 from the suspense account running from 1946-47 to 1948-49 to the capital reserve account. The ITO found that a sum of 1,29,000 out of the above amount repaymented deposits and advances which were paid back by the assessee. He, therefore, deducted this amount from the amount of 3,45,000 and the balance of 2,56,529 was brought to assessment under s. 41(1) of the Act. The assessee appealed unsuccessfully to the AAC and thereafter carried the matter in further appeal to the Tribunal. Its contention before the Tribunal was that the unilateral entry of transferring the amount from the suspense account to the capital reserve account would not bring the said amount within s. 41(1). The contention was accepted by the Tribunal whose decision was affirmed by the Calcutta High Court CIT vs. Sugauli Sugar Works (P) Ltd. (1981) 23 CTR (Cal) 226 : (1983) 140 ITR 286 (Cal). The Revenue carried the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pretation of the words cessation or remission of the trading liability. The Supreme Court noticed a judgment of the Bombay High Court in J.K. Chemicals Ltd. vs. CIT (1996) 62 ITR 34 (Bom) in which it was explained as to what could bring out a cessation or remission of the assessee s liability. The observations of the Bombay High Court in the judgment cited above are as under : The question to be considered is whether the transfer of these entries brings about a remission or cessation of its liability. The transfer of an entry is a unilateral act of the assessee, who is a debtor to its employees. We fail to see how a debtor, by his own unilateral act, can bring about the cessation or remission of his liability. Remission has to be granted by the creditor. It is not in dispute, and it indeed cannot be disputed, that it is not a case of remission of liability. Similarly, a unilateral act on the part of the debtor cannot bring about a cessation of his liability. The cessation of the liability may occur either by reason of the operation of law, i. E., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to Honour h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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