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TMI Blog2000 (3) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer under section 41(1) of the Act was not required to be excluded. ITA No. 805/Ahd./1992 for Assessment year 1987-88 : 3. ITA No. 805/Ahd./1992 is the appeal by the assessee wherein the substantive grounds taken are as under : (i) The ld. CIT(A) has erred in confirming the addition of Rs. 18,03,132 to the income of the assessee made by the Assessing Officer by invoking the provisions of section 41(1) of the Act. (ii) The ld. CIT(A) has erred in confirming the disallowance of Rs. 8,28,069 under section 43B of the Act. (iii) The ld. CIT(A) has erred in confirming the disallowance of Rs.. 78,664 made by the Assessing Officer under section 40A(5) of the Act. (iv) The ld. CIT(A) has erred in holding furniture allowance of Rs. 12,000 paid to Shri. S.G. Gandhi, an employee was a perquisite and includible as such while considering the disallowance under section 40A(5). (v) The ld. CIT(A) has erred in confirming the disallowance of Rs. 21,868 being club expenses incurred by the Chief Executive of the company in connection with the business. (vi) The ld. CIT(A) has erred in holding that the assessee is liable to pay interest under section 215 and while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the returns of income filed for both the years, these amounts were claimed as exempt. The Assessing Officer did not accept the contention of the assessee with regard to the non-taxability of those amounts on the grounds that--- (i) since the amounts due from the company were for material and components, it was a trading liability of the assessee in the normal course of business. (ii) since the waiver intimation of those amounts by the foreign collaborator was received by the assessee-company during the assessment years under consideration, the cessation of liability took place in these years only; and (iii) since it is a cessation of liability, the same was taxable under section 41(1) of the Act. 9. Aggrieved with the orders of the Assessing Officer, the assessee filed the appeals to the CIT(A) and submitted that the Assessing Officer was not justified in taxing the disputed amounts under section 41(1) and for that the assessee filed a copy of the legal opinion given by Shri B.J. Diwan, Retired Chief Justice of Gujarat High Court on the basis of which in the Published Accounts of the assessee-company it was claimed that the amounts waived by the foreign collaborator are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere bought by the querist company from the German Collaborator and its subsidiary company and for which the payment was not made between 1983 and 1985". He therefore opined that provisions of section 41(1) are not applicable.' Accordingly it was submitted that in view of the opinion of Shri B.J. Diwan, Retired Chief Justice of the Gujarat High Court, the disputed amounts of Rs. 60,65,033 for assessment year 1986-87 and Rs. 18,03,132 for assessment year 1987-88 are not taxable under section 41(1). Reliance was also placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Canara Bank Ltd. [1967] 63 ITR 328. 11. The learned DR strongly relied on the order of the CIT(A) and further submitted that admittedly the components and raw materials were purchased by the assessee-company from the foreign collaborator during the Course of its business operations and the same were claimed as an expenditure in the relevant assessment years when the purchases took place. The assessee did not make the payment for the purchases and the amounts were shown under the head "Current Liabilities" in the balance sheet, It was pleaded that the "Current Liabilities" were in fact "trading l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure incurred for the purchase has been considered as a revenue expenditure by the Assessing Officer and has been allowed deduction of such expenditure from the profit of the assessee-company for those years and therefore as and when the profit increased on account of remission of an amount which originally contributed to decrease of the earlier profit, it will amount to a benefit. It is undisputed that the recipient of the benefit is the assessee in the assessment years 1986-87 and 1987-88 and as such the provisions of section 41(1) are clearly applicable. In order to bring an amount to tax under section 41(1) two conditions are required to be satisfied, viz., that the amount has been allowed as a deduction in some earlier years and that during the assessment year in dispute the assessee has received the benefit representing the amount in question by way of cessation or remission of the liability in regard to the said amount. The amount may be actually received or it may be adjusted by way of adjustment entry or a credit note or in any other form when the cash or the equivalent of cash can be said to have been received by the assessee. In the case before us it is not the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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