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TMI Blog2016 (10) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... eal was called out for hearing. There being similarly no representation by the assessee on the earlier dates (of hearing) as well, the Bench had directed service of notice of hearing through the ld. Departmental Representative (DR). Even this has not, however, yielded any positive result in-as-much as there is no proof of service on record, with the ld. DR also being unable to state if the said service could be effected, which the non service being, as it appears, on account of change of address. Under the circumstances, we only consider it proper to dispose the Revenue's appeal ex parte the assessee, i.e., on merits, on the basis of the material on record and after hearing the party before us. 3. The facts of the case are as follows. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had defaulted on its' payments to KRL (now Bharat Petroleum Corporation Ltd. - BPCL), it had been charged Rs. 4,01,871/- as 'delayed payment charges' during f.y. 2006-2007 - which though remained to be accounted for by the assessee, besides invoking bank guarantee (at Rs. 53.33 lacs), so that the balance payable to the said company (as on 31/3/2008), as per accounts thereof, since confirmed by it (in January, 2011) was Rs. 11,65,203/-. As per the ld. CIT(A), the recovery through bank guarantee stood evidenced by bank advices, and payment of Rs. 31,42,505/- had been made by M/s. Ash Chemicals, a customer and ultimate user. Though the assessee ought to have recorded entries to this effect in its accounts, its' failure to do so would not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Kochi Refineries Ltd. to the account of the assessee, however, no corresponding entry was passed by the assessee (evidenced by copy of ledger accounts) 31,42,505 [(1) + (2)] 84,72,505 Debit Balance as per Kochi Refineries Ltd. confirmation (96,37,708 - 84,72,505) 11,65,203 The issue, however, is not of any unexplained difference in account, which the ld. CIT(A) has confused it as. Section 41(1) gets attracted on the cumulative satisfaction of two events, i.e.: (a) cessation of trading liability (in respect of which the assessee had at any time in the past claimed and been allowed deduction); and (b) any benefit (in cash or in kind) stands obtained by the assessee on account of the said cessation. In the instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their being a cessation of liability (for Rs. 84.73 lacs), one of the ingredients for the invocation of section 41(1), so that the same ought to have been followed by an enquiry qua the second aspect thereof. This is more so as the non-passing of the entries by the assessee is itself quizzical, with the ld. CIT(A) himself recording (at para 3.4.4 of his order) of it being inexplicable as to why the assessee, supplying goods through M/s. Jay Pee Trading Co., with which it shared common business premises, had not passed the necessary entries in its books of account. What would be, or could be, those entries, we need not speculate at this stage, depend as it would on the facts and circumstances of the case - the sources where-from the liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of the debtor and the creditor to that extent (Rs.31,42,505), non-passing of which can by no means be regarded as fatal. As regards the payment by bank on the invocation of bank guarantee issued by the assessee in its' favour by KRL, surely the bank would not pay without securing itself, paying presumably only out of funds made available by the assessee thereto, or the like. Bank-guarantee is an off-balance sheet item, with the assessee's accounts not reflecting its' invocation, or payment thus, only whereupon could the source thereof be known. Is it that the bank has released a line of credit in the assessee's favour? Or is it that the assessee has placed funds at the disposal of the bank, to be so applied in case of such a conting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the impugned order), i.e., does not extend any credit to its' customers. It is for these reasons that we regard the establishment of intent by the assessee as relevant; the creditor having already, as it appears, exhausted the bank guarantee issued in its' favour. How would the assessee establish its intent to pay the said amount, as implied by its' holding out the same as a subsisting liability, we cannot predicate, being in fact a matter of evidence. Does the company have any means to recover except, of course, by initiating a legal process? Has it done so at any time? When does the same get barred by time? Has any part of liability been discharged subsequent to 31.3.2008? These and other related questions arise, on the basis of answer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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