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TMI Blog2015 (11) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... estion is whether by not paying them 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 fact, there is no reference either in the order of the AO or CIT(A) to the expression “remission or cessation of liability”. There is nothing on record to show any cessation or remission of liability by the creditor or even an unilateral act by the Assessee in this regard. In view of the above, we are of the view that the impugned addition cannot be sustained and the same was rightly directed to be deleted by the CIT(A). The order of the CIT(A) is therefore confirmed. - Decided in favour of assessee. - ITA No. 1676/Bang/2013 - - - Dated:- 14-8-2015 - SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER For The Appellant : Shri Sunil Kumar Agarwala, Jt. CIT(DR) For The Respondent : Shri S. Venkatesan, CA ORDER Per N.V. Vasudevan, J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the form of sundry creditors to the extent of ₹ 81,40,232/- is appearing in the books of the assessee for the last 7 to 8 years. The assessee has not produced any proof to show that M/s Durga Traders has insisted on the payment at any point of time during assessment proceedings or initiated any legal action against the assessee. Though the amount is outstanding for quite a long time, there is no interest charged on the amount by M/s Durga Traders. It was also ascertained that M/s Durga Traders was a proprietorship and it is, therefore, inexplicable as to how an individual ran his business despite having such a huge amount payable to him over such a long period of time. 5.5 In view of the above factual position, it is abundantly clear that the liability claim of the assessee towards M/s Durga Traders amounting to ₹ 81,40,232/- does not exist and the liability is treated as cessassion of liability u/s 41(1) of the Income Tax Act and accordingly, the same is brought to tax. 7. On appeal by the assessee, the CIT(Appeals) held that if the original transaction was doubted by the AO, then the addition ought to have been made for the relevant assessment year. He was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed additions cannot be sustained in law and the same will have to be deleted. 10. The ld. DR, on the order, placed reliance on the orders of the Revenue authorities. 11. We have given a careful consideration to the rival submissions. On almost identical facts, the Hon ble Delhi High Court in the case of Shri Vardhaman Overseas Ltd. (supra), has clearly laid down that neither section 41(1) nor section 68 of the Act can be applied. On the applicability of section 68, we are of the view that those provisions will not apply as the balances shown in the creditors account do not arise out of any transaction during the previous year relevant to AY 2009-10. The provisions of sec. 68 are clear inasmuch as they refer to sum found credited in the books of account of an assessee maintained for any previous year . Since the credit ITA No.1676/Bang/2013 Page 6 of 14 entries in question do not relate to previous year relevant to AY 2009-10, the same cannot be brought to tax u/s. 68 of the Act. The proper course in such cases for the Revenue would be to find out the year in which the credits in question were credited in the books of account and thereafter make an enquiry in that year and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second question is whether by not paying them 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 fact, there is no reference either in the order of the AO or CIT(A) to the expression remission or cessation of liability . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra). 14. Since the Tribunal has relied on the judgment of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd part of the reasoning of the Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra) is based on the interpretation of the ITA No.1676/Bang/2013 Page 11 of 14 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 opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion has been taken on behalf of the Revenue, though the period for which the amount remained unpaid to the creditors is much less. It was held by the Supreme Court that a unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only by the creditor and a cessation of the liability can only occur either by reason of operation of law or the debtor unequivocally declaring his intention not to honour his liability when payment is demanded by the creditor, or by a contract between the parties, or by discharge of the debt. 14. From the ratio laid down in the aforesaid decision, we are of the view that there is nothing on record to show any cessation or remission of liability by the creditor or even an unilateral act by the Assessee in this regard. In view of the above, we are of the view that the impugned addition cannot be sustained and the same was rightly directed to be deleted by the CIT(A). The order of the CIT(A) is therefore confirmed. 15. The learned DR placed reliance on a decision of the ITAT Mumbai in the case of ITO Vs. Shri Shailesh D.Shah ITA No.7012/Mum/2010 order dated 11.12.2013. We have perused the said d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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