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TMI Blog2009 (9) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... ts on sale of land as against the total long-term capital loss of Rs. 3,77,049 declared by the assessee on these assets in the return of income. 4. The assessee in the present case is a partnership firm which is engaged in the business of manufacturing tin plates and food and sweet items. A return of income for the year under consideration was filed by it on 1st Nov., 2004 declaring the total loss of Rs. 84,73,683. During the course of assessment proceedings, it was noticed by the AO that the assessee-company has disposed of its entire plant and machinery along with land and building during the year under consideration. On all these assets sold by the assessee except land, depreciation was claimed by the assessee in the earlier years. Accordingly, the profit arising from sale of depreciable assets worked out at Rs. 22,76,856 was brought to tax by the AO in the hands of the assessee as short-term capital gain under s. 50. On the other hand, the loss arising from sale of land was assessed by him under the head 'Long-term capital gain'. During the course of appellate proceedings before the learned CIT(A), it was submitted on behalf of the assessee that the profit and loss so determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ister etc., to establish that the motor car expenses and telephone expenses were entirely incurred for the purpose of business. In the absence of such record and considering that the use of car and telephone of the assessee-firm by its partners could not be ruled out, we are of the view that some disallowance out of motor car and telephone expenses for such personal use is very much called for and since such disallowance made by the AO to the extent of 10 per cent of the total expenses, in our opinion, was quite fair and reasonable in the facts and circumstances of the case, we find no infirmity in the impugned order of the learned CIT(A) confirming the same. Ground No. 2 of assessee's appeal is accordingly dismissed. 8. Ground No. 3 raised by the assessee challenging the initiation of penalty proceedings by the AO under s. 271(1)(c) has not been pressed by the learned counsel for the assessee at the time of hearing before us stating that it is premature to raise the same at this stage. Accordingly the same is dismissed as not pressed. Ground No. 3 of assessee's appeal is dismissed. 9. Ground No. 4 relates to the addition of Rs. 1,02,80,450 made by the AO and confirmed by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC) has categorically held that a relief if omitted to be sought has to be claimed only by filing a revised return and that this requirement cannot be circumvented by claiming the relief in any other form. In these circumstances, the submission on this point as late as the appellate stage appears to me to be an afterthought. In this backdrop, I am unable to entertain the appellant's claim. This apart, I also do not find any merit in the appellant's claim. The appellant has itself recognized the credit balance written off as its income. This the appellant has done after considering the facts and circumstances surrounding the credit balance as existing on 31st March, 2004 and in terms of s. 41(1) of the IT Act, 1961. By writing off the credit balance of Tata Iron Steel Co., the appellant has recognised that its liability to the company has ceased based on the events leading upto 31st March, 2004, the end of the relevant accounting year. In face of this, based on a subsequent event taking place on 17th May, 2005, when Tata Iron Steel Co. Ltd. filed a suit against the appellant, the cessation of liability cannot be withdrawn. There is no sco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition of law and judicial support I fail to find any merit in the appellant's claim. Accordingly, the appellant's ground of appeal on this claim is dismissed." 12. The learned counsel for the assessee submitted before us that even though the amount of Rs. 1,02,80,450 payable to M/s TISCO was written back by the assessee in its books of account and was shown as income, the subsequent event which has taken place in the form of filing of suit by the said party for recovery of the amount in question from the assessee clearly shows that there was no remission or cession of the liability. He contended that no benefit therefore can be said to be obtained by the assessee as a result of write back of the liability in question payable to TISCO and the amount thereof thus could not be added to the total income of the assessee by invoking the provisions of s. 41(1). In support of this contention, he relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Sugauli Sugar Works (P) Ltd. (1999) 152 CTR (SC) 46 : (1999) 236 ITR 518 (SC). 13. The learned Departmental Representative, on the other hand, submitted that the assessee-firm itself had written back the liability amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit in respect of such liability which could be said to be obtained by the assessee warranting the application of provisions of s. 41(1). In support of this contention, he has relied on the decision of Hon'ble Supreme Court in the case of Sugauli Sugar Works (P) Ltd. 16. It is no doubt true that it was held by the Hon'ble Supreme Court in the aforesaid case that obtaining benefit by the assessee by virtue of remission or cession of liability is a condition precedent for the application of s. 41(1) and the mere fact that assessee has made an entry of transferring its accounts unilaterally will not enable the Department to say that s. 41(1) would apply, It is, however, observed that the assessment year involved in the said ease before the Hon'ble Supreme Court was 1965-66 and Expln. 1 to s. 41 (1) inserted by the Finance Act No.2, 1996 w.e.f. 1st April, 1997 on which reliance has been strongly placed by the learned Departmental Representative, was not applicable. The said Explanation reads as under: "Explanation 1-For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the year under consideration, the assessee had written off bad debts amounting to Rs. 1,38,01,908 relating to its trade debtors and deduction for the same was claimed. During the course of assessment proceedings, the said claim of the assessee was examined by the AO and on such examination, he was of the opinion that sufficient efforts were not made by the assessee to recover the concerned debts before writing off the same in the books of account. He also held that there was a failure on the part of the assessee to establish that the said debts had actually become bad during the year under consideration. He therefore disallowed the claim of the assessee for deduction on account of bad debts. The learned CIT(A), however, deleted the addition made by the AO on this issue and allowed the claim of the assessee for deduction on account of bad debts holding that as a result of amendment made in s. 36(1)(vii) w.e.f. 1st April, 1989, it was no more required for the assessee to establish that the concerned debts claimed to be bad have actually become bad during the relevant period. He held that the only requirement to claim the deduction on account of bad debts was that the assessee shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s action of ignoring the non-submission of the supporting bills by the assessee merely because payments of foreign travel expenses had been made by account payee cheques, in our opinion, was totally unjustified. However, keeping in view all the facts of the case, we are of the view that one more opportunity needs to be given to the assessee to support and substantiate its claim for deduction on account of foreign travel expenses. We, therefore, set aside the impugned order of learned CIT(A) on this issue and restore the matter to the file of the AO for deciding the same afresh after affording one more opportunity to the assessee to support and substantiate its claim on this issue. Ground No. 7 of Revenue's appeal is accordingly treated as allowed for statistical purposes. 24. Now, we shall take up the appeal of the Revenue being ITA No. 4550/Mum/2008 which is emanating from the order of rectification passed by the AO under s. 154. 25. While giving effect to the appellate order of the learned CIT(A) dt. 3rd Sept., 2007, the AO added a sum of Rs. 1,37,53,368 to the total income of the assessee under s. 41(1) being cessation of liability on the ground that the additional ground ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t profit as per P L a/ c 20,57,936 --------- (B) When debit and credit balances are written off separately: Gross loss as per P L a/c (-) 20,77,771 Add: Income (revenue) 74,94,660 Credit balances written back 1,38,01,908 ----------- 2,12,96,568 ----------- 1,92,18,797 Less: Expenses 33,58,953 Debit balances written off: 1,38,01,908 ----------- 1,71,60,861 ----------- Net profit as per P L a/c 20,57,936 ----------- 3. Complete details of debits/credit balances written off/back were given during the course of the assessment for asst. yr. 2004-05. The copy of the assessment order for asst. yr. 2004-05 is enclosed herewith and marked E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order with nothing in the appellate order to indicate this. In his letter rejecting the appellant's rectification petition, the AO has mentioned that the addition is being made since the addition on account of bad debts claimed is deleted. This is totally off the mark and tantamounts to a review of the original assessment order without any statutory backing, as I find, the claim of the bad debts and the income under s. 41 (1) are two independent issues and the allowing of the bad debts claimed has nothing to do with taxing of income under s. 41(1) of the Act. These are issues governed by the independent provisions of the IT Act, 1961. Most importantly, the income under s. 41(1) already stands offered and taxed in the original assessment, decision on the issue of bad debts was based on the facts and law relevant to the issue of bad debts. This decision cannot be made to have an uncalled for bearing on a totally different issue viz. income under s. 41(1) of the IT Act, more so when this income stood offered in the return and acknowledged in the assessment. While on this, I find that if instead of netting off the credit and debit balances, they are written off separately, the net pr ..... 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