9911796707
TMI Blog1974 (4) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessment year 1963-64 ?" The assessee, Messrs. Bhagwat Prasad and Co., is a registered firm carrying on business of dealing in cloth on wholesale basis at Kanpur. The Income-tax Officer found the following two amounts in the balance-sheet of the assessee for the relevant accounting year ending on Asarh Badi 2, Sambat 2019, i.e., sometime in June/July, 1962 : Rs. Reserve khata 5,408 Reserve byajkhata 1,071 -------------- Total 6,479 -------------- Investigation into the account books of the assessee revealed that a sum of Rs. 5,400 was received by it in the year 1951-52 from two of its customers as advance for supplying goods to them. The assessee neither supplied the goods nor returned the advance received by it to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the above named party appeared in different accounting years, viz., 2014, 2015, 2016, 2016-2017 and 2017-2018. In the beginning of the accounting year there was already a debit balance of Rs. 4,215.48 in the account of Bhagwan Prasad Kashi Prasad. Before the end of the accounting year, which was relevant to the assessment year 1962-63, the account of the debtor had been debited with a sum of Rs. 1,071 on account of interest. This amount of interest had not been taken by the assessee to its profit and loss account, but, instead, in the balance-sheet the assessee showed it under the head "reserve interest account". The Appellate Assistant Commissioner therefore, opined that at the most what the Income-tax Officer could have done was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to be taxed. In the result, the Tribunal reversed the decision of the Appellate Assistant Commissioner and restored the assessment order made by the Income-tax Officer. We will first deal with the question whether the Tribunal was justified, in treating the sum of Rs. 5,408 as the assessee's income. As stated earlier, this sum represented the amount of advance received by the assessee for supplying goods to its customers. The assessee neither supplied these goods nor returned the advance received by him to its customers and by passage of time the right of the customers to claim it back from the assessee became barred by time. According to the revenue, when the assessee received this amount as advance, it became its trading liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting its income for some assessment year an allowance or deduction in respect of the trading liability is made and subsequently the assessee acquires in respect of that trading liability some benefit whether in cash or any other manner accrues to the assessee because of its ceasing to exist. In other words, the revenue merely takes as income what it had earlier allowed as deduction. In this case the Appellate Assistant Commissioner clearly pointed out that a sum of Rs. 5,408 had not been claimed by the assessee as an allowance or deduction in any earlier assessment year, nor had the same been so allowed. The Appellate Tribunal did not disagree with this finding of the Appellate Assistant Commissioner. It applied the fiction created by secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion created by section 41 of the Act. Moreover, in this case even the second condition for the applicability of section 41(1),viz,. that the assessee should in the assessment year in question receive some benefit by way of cessation of its trading liability, also is not made out. According to the department the liability has ceased to exist because the claim of the customer to get the money back from the assessee has became barred by time. In the case of Kohinoor Mills Co. Ltd. v. Commissioner of Income-tax, it has been held that when a liability becomes barred by the law of limitation, there is neither remission nor cessation of liability; the liability is not extinguished, only the creditor's remedy becomes barred. Therefore, even if i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... byajkhata account. This income accrued to the assessee when it debited its debtor's account, i.e., in the previous year relevant to the assessment year 1962-63. Merely because the assessee transferred the amount to its reserve byajkhata in the relevant accounting year, it cannot be said that it was an income which accrued in that year. As the assessee neither received this income nor did it accrue to it in the previous year relevant to the assessment year 1963-64, it could not be treated as income earned by it in that year. We find that the Tribunal has interfered with the order passed by the Appellate Assistant Commissioner in this regard without, in any way, pointing out any circumstance from which it could be inferred that this was the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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