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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 ..... a matter of policy, payment of goods in advance (refer Ground # 2 before the ld. CIT(A), reproduced at pg. 1 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 answers to all of which only would it be possible to say if there has occurred, or not so, a cessation of liability qua the said balance amount of ₹ 7.63 lacs, i.e., as on 31.3.2008. The matter is, in view of the foregoing, restored to the file of the AO for proper determination, to be decided after allowing a reasonable opportunity to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, as KRL, supplying a licensed item, would not extend credit, and that too for so long. The said amount was accordingly added by him in assessment as deemed income u/s. 41 (1) of the Act. In appeal, whereat the matter was remanded to the AO for consideration of the assessee s case, including the materials furnished in the assessment proceedings, the assessee reiterated its stand. The assessee bought toluene, a licenced item, from KRL, as it was listed therewith. As, however, it did not have a consignee user certificate, the sales (to third parties) were routed through its sister concern, M/s. Jay Pee Trading Company, which held a consignee user certificate, enabling it to issue excise gate passes to the customers, who (or some of whom) paid directly to KRL. This led to the accumulation of credit (in the account of KRL). Before the ld. CIT(A), it was further explained that as assessee had defaulted on its payments to KRL (now Bharat Petroleum Corporation Ltd. BPCL), it had been charged ₹ 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 ₹ 53.33 lacs), so th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [(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 instant case, the credit of KRL in the assessee s accounts is a trade liability qua which it has, by way of purchase cost of goods (toluene), secured deduction in the computation of its business income. The actual liability thereto as at 31.3.2008 is ₹ 7,63,332/- (i.e., ₹ 11,65,203 as per the accounts of KRL ( ) ₹ 4,01,871, not accounted for by the assessee). There is, thus, an admitted cessation of trading liability to the extent of ₹ 84,72,505/- (Rs. 92,35,837 - ₹ 7,63,332). The first limb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its enquiries, any undisclosed assets with the assessee; its purview being the assessment of total income. Coming to the facts of the case, ₹ 31.42 lacs has been explained as paid directly by a trade debtor, M/s. Ash Chemicals, to whom goods were sold. The debit balance of the said firm in the assessee s books of account, arising out of the sales thereto, would therefore stand to be reduced to that extent. What are those sale bills/invoices? Do they stand accounted for in the assessee s accounts? If so, is the amount sufficient to absorb the said reduction, and does the reduced balance agree with that as per the books of the said party? Where so, the source of payment, ascribed to the said party, gets fully explained with reference to the assessee s accounts, so that all that was required is a passing of a journal entry adjusting the 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 av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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 answers to all of which only would it be possible to say if there has occurred, or not so, a cessation of liability qua the said balance amount of ₹ 7.63 lacs, i.e., as on 31.3.2008. 6. The matter is, in view of the foregoing, restored to the file of the AO for proper determination, to be decided after allowing a reasonable opportunity to the assessee to present its case before him, issuing definite findings of fact, in accordance with law. We may clarify that we may not be construed as having issued any finding in the matter, but as having only analyzed the facts and circumstances with reference to the assessment of the (whole or any part of the) said credit balance appearing in the assessee s books of account as income under the Act. Further, lest one considers us as having travelled outside the scope of the appeal, we may advert to the decisions in the case of Kapurchand Shrimal v. CIT [1981] 131 ITR 451 (SC ..... X X X X Extracts X X X X X X X X Extracts X X X X
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