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TMI Blog2018 (4) TMI 799X X X X Extracts X X X X X X X X Extracts X X X X ..... hri J. Sudhakar Reddy, AM For the Appellant: Shri Manish Kumar Mundra, FCA For the Respondent: Shri Piyush Mukherjee, Addl. CIT ORDER Per J. Sudhakar Reddy, AM This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax-(A)-2, Kolkata relating to A.Y. 2008-09. 2. The assessee filed an application for admission of additional grounds. It is related to the disallowance made u/s 14A of the Income Tax Act, 1961 (Act). The assessee had already taken ground no.2, 3 and 4 in connection from the same disallowance. Hence in my view these are not additional grounds but only arguments on the issue u/s 14A of the Act. 3. After hearing the rival contentions I hold as follows:- Ground No.1 is against the addition of ₹ 2,42,530/- u/s 41(1) of the Act. The AO had at page 4 of his order held that the assessee had enjoyed the benefit of the said unclaimed loan during the regular business activity and he held that the assessee had taken the loan for the purpose of business. He further observed that the loan was taken more than twenty years back and interest was charged at the preliminary stage only. The ld. CIT(A) upheld thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce there was no writing off of the liability to pay the sundry creditors in the assessee's accounts. The question has to be considered de hors Explanation 1 to Section 41 (1). In order to invoke clause (a) of Sec.41 (1) of the Act, it must be first established that the assessee had obtained some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as purchase price in computing the business income of the assessee. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms, it be limited in point of duration. But though the right possesses this permanent character, the remedies arising from its violation are withdrawn after a certain lapse of time; interest reipublicaeut si finis litium. The remedies are barred, though the right is not extinguished.' And if the law requires that a debtor should get a discharge before he can be compelled to pay, that requirement is not satisfied if he is merely told that requirement is the normal course he is not likely to be exposed to action by the creditor. (underlining, italicised in print, ours) This was also the view taken by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , by which the words some benefit in respect of such trading liability by way of remission or cessation thereof' were inserted. After the amendment, therefore, it is not necessary that in respect of a trading liability earlier allowed as a deduction, the assessee should have received any amount, in cash or otherwise, but it is necessary that the assessee should have received some benefit in respect of such trading liability. However, we have already seen that this benefit in respect of trading liability should be by way of remission or cessation of the liability , after the amendment made to the clause w.e.f. 1st April, 1993. The second part of the reasoning of the Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra) is based on the interpretation 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 (Born) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r opinion, the judgment of the Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra) is a complete answer to the contention of the learned standing counsel. In the case before the Supreme Court for a period of almost 20 years the liability remained unpaid and this fact formed the basis of the contention of the Revenue before the Supreme Court to the effect that having regard to the long lapse of time and in the absence of any steps taken by the creditors to recover the amount, it must be held that there was a cessation of the debts bringing the case within the scope of s. 41(1). In the case before us, the identical contention 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 disch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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