Glen Williams, Bangalore V. Asst. CIT, Bangalore

ITA 1078/BANG/2014

• Counselvise Citation: 107821114 RSA 2014
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 21-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DHIVAHAR JT
• Assessee Lawyers: T V SUBRAMANYA BHAT
• Keywords: Recovery proceedings; Business income; Period of limitation
• Section: 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER ITA NO.1078/BANG/2014 ASSESSMENT YEAR : 2009-10 GLEN WILLIAMS, NO.8, SONA PALACE, RICHMOND TOWN, BANGALORE 560 032. PAN: AABPW 4733B VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI T.V. SUBRAMANYA BHAT, CA RESPONDENT BY : SHRI P. DHIVAHAR, JT. CIT(DR) DATE OF HEARING : 10.07.2015 DATE OF PRONOUNCEMENT : 07.08.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER DATED 12.3.2013 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO ASSESS MENT YEAR 2009-10. 2. IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE ORDER OF CIT(APPEALS), WHEREBY HE CONFIRMED THE ORDER OF THE ASSESSING OFFICER MAKING AN ADDITION OF RS.65,66,925. THE SUM OF RS. 65,66,925/- ITA NO.1078/BANG/2014 PAGE 2 OF 15 REPRESENTS A LIST OF SUNDRY CREDITORS OF RS.68,59,4 77, OUT OF WHICH THE AO TREATED THE SUNDRY CREDITORS TO THE TUNE OF RS.65,6 6,925 AS NON-EXISTENT AND THEREFORE ADDED TO THE SAME TOTAL INCOME OF THE ASSESSEE. NEITHER THE ORDERS OF AO NOR THE CIT(A), IS CLEAR AS TO WHETHER THE ADDITION IS BEING MADE U/S. 68 OR 41(1) OF THE ACT. 3. BEFORE WE GO TO THE MERITS OF THE APPEAL, THERE IS A DELAY OF ABOUT 456 DAYS IN FILING THE APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE HAS FILED AN AFFIDAVIT EXPLAINING THE REASONS FOR THE DELAY. IN HIS AFFIDAVIT, THE ASSESSEE HAS STATED THAT THE ORDER OF CIT(APPEALS) WAS PASSED ON 12.3.2013 AND WAS RECEIVED BY THE CA OF THE ASSESSE E ON 22.3.2013. THE SAME WAS GIVEN BY THE CA TO HIS ASSISTANT TO BE GIV EN TO THE ASSESSEE. THE ASSISTANT OF THE CA HOWEVER NOT DELIVER THE ORD ER OF CIT(A) TO THE ASSESSEE. IT APPEARS THAT THE REVENUE PROCEEDED TO RECOVER THE ARREARS OF TAX DUE CONSEQUENT TO THE ORDER OF CIT(A) AND THERE UPON THE ASSESSEE COULD GET THE ORDER OF CIT(A) FROM HIS CA, AFTER MA KING ENQUIRIES FROM THE CA. THE FACTS AS STATED IN THE APPLICATION FOR CON DONATION OF DELAY ARE AFFIRMED BY THE ASSESSEE IN AN AFFIDAVIT OF THE CA, SHRI T.V. SUBRAMANYA BHAT, WHICH CONFIRMS THE FACT OF NON-DELIVERY OF TH E ORDER OF CIT(A) TO THE ASSESSEE. 4. THE LD. DR, HOWEVER, POINTED OUT BEFORE US THAT THE ASSESSEE CLAIMS TO HAVE GOT THE KNOWLEDGE OF THE ORDER OF CIT(A) WH EN RECOVERY PROCEEDINGS WERE INITIATED. HE BROUGHT TO OUR NOTI CE THAT THE APPEAL WAS ITA NO.1078/BANG/2014 PAGE 3 OF 15 FILED BEFORE THE TRIBUNAL ON 25.8.2014. ACCORDING TO HIM, EVEN AS EARLY AS 21.7.2014, A NOTICE U/S. 271(1)(C) OF THE ACT WAS I SSUED TO THE ASSESSEE FOR AY 2009-10 AND ATLEAST WHEN SUCH NOTICE WAS RECEIVE D BY THE ASSESSEE, HE OUGHT TO HAVE ENQUIRED ABOUT THE FATE OF THE APP EAL FILED BEFORE THE CIT(APPEALS) WITH HIS CA. ACCORDING TO HIM, THEREF ORE, THE DELAY IN FILING THE APPEAL HAS NOT BEEN PROPERLY EXPLAINED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS WE HAVE ALREADY SEEN, THE FACT THAT THE CA RECEIVED THE IMPUGNED OR DER OF CIT(A) ON 22.3.13 AND INSTRUCTED HIS ASSISTANT TO DELIVER THE SAME TO THE ASSESSEE IS BORNE OUT FROM THE AFFIFDAVIT OF THE CA. IT IS AL SO BORNE OUT FROM THE AFFIDAVIT OF THE ASSESSEE AND CA THAT THE ASSISTANT OF THE CA DID NOT DELIVER THE ORDER TO THE ASSESSEE. THE ASSESSEE CAME TO KN OW ABOUT THE IMPUGNED ORDER WHEN RECOVERY PROCEEDINGS WERE INITI ATED AGAINST THE ASSESSEE. THE LD. DR HAS PRODUCED A LETTER DATED 21 .7.2014 SENT TO THE ASSESSEE BY THE AO AND THE SAME IS WITH REFERENCE T O THE PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. THERE IS NO DOUBT, THERE IS A REFERENCE IN THIS LETTER ABOUT FACTUM OF DISMISSAL OF THE ASSESSEES APPEAL BY THE CIT(A) BY ORDER DATED 12.3.2013. IT IS THE PLEA OF ASSESSEE THAT SINCE THIS LETTER WAS WITH REFERENCE TO PENALTY PRO CEEDINGS, HE DID NOT NOTICE THE CONTENTS OF THIS LETTER. WE ARE OF THE VIEW THAT THIS EXPLANATION OFFERED BY THE ASSESSEE IS ACCEPTABLE. LAW IS WELL SETTLED THAT IN INCOME- TAX PROCEEDINGS, THE ASSESSEE DOES NOT GAIN BY DELA YING THE PROCEEDINGS, NOR IS THERE ANY PREJUDICE TO THE REVENUE BY CORREC T AND PROPER ITA NO.1078/BANG/2014 PAGE 4 OF 15 DETERMINATION OF TAX LIABILITY. IN FACT, THE HONB LE HIGH COURT OF KARNATAKA IN ISRO SATELLITE CENTRE, ITA NO.532/2008, EXPRESSED THE VIEW THAT IN INCOME-TAX MATTERS, DELAY IN FILING THE APPEAL ON T HE PART OF THE ASSESSEE SHOULD BE CONDONED, IRRESPECTIVE OF THE LENGTH OF D ELAY. THE HONBLE SUPREME COURT IN THE CASE OF COLLECTOR, LAND ACQUISITION V. MST. KATIJI & ORS, 167 ITR 471 (SC) HAS ALSO TAKEN THE VIEW THAT THERE SHOULD BE A LIBERAL AND PRACTICAL APPROACH IN EXERCISING DISCRE TIONARY POWERS IN CONDONATION OF DELAY. KEEPING IN MIND THE JUDICIAL PRONOUNCEMENTS REFERRED TO ABOVE AND CONSIDERING THE FACTS AND CIR CUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE DELAY IN FILING THE APPEAL HAS OCCASIONED DUE TO A REASONABLE AND SUFFICIENT CAUSE . ACCORDINGLY, THE DELAY IN FILING THE APPEAL IS CONDONED. 6. AS FAR AS MERITS OF THE APPEAL IS CONCERNED, THE FACTS ARE THAT THE ASSESSEE WHO IS A DEALER IN SALE OF BAKERY AND CONF ECTIONARY PRODUCTS, FILED HIS RETURN OF INCOME FOR AY 2009-10 ON 30.9.0 9 DECLARING AN INCOME OF RS.29,07,340. IN THE COURSE OF ASSESSMENT PROCEEDI NGS, THE AO CALLED FOR CONFIRMATIONS AND COMPLETE NAMES AND ADDRESSES OF S UNDRY CREDITORS TOTALING TO RS.68,59,477. THESE CREDITORS WERE 22 IN NUMBER AND THEIR NAMES HAVE BEEN LISTED IN PARA 2 OF ASSESSING OFFIC ERS ORDER. IT IS NOT DISPUTE THAT NONE OF THE TRANSACTIONS WITH THE CRED ITORS LISTED IN PARA 2 OF THE AOS TOOK PLACE DURING THE PREVIOUS YEAR. IN O THER WORDS, THE BALANCES WERE OPENING BALANCES OF THE EARLIER FINANCIAL YEAR S AND NO BALANCE AROSE OUT OF THE TRANSACTIONS DURING THE PREVIOUS YEAR. ITA NO.1078/BANG/2014 PAGE 5 OF 15 7. THE ASSESSEE GAVE CONFIRMATIONS FROM THE CREDITO RS WHICH DID NOT HAVE COMPLETE DETAILS. THE AO THEREFORE CALLED FOR THE NAMES AND ADDRESS OF THE CREDITORS. THE ASSESSEE FURNISHED THE NAMES & ADDRESSES OF 12 CREDITORS OUT OF 22 CREDITORS. THE AO SENT A LETTE R U/S. 133(6) TO THESE CREDITORS, BUT THOSE LETTERS WERE RETURNED WITH THE ENDORSEMENT NO SUCH PERSON, EXCEPT IN THE CASE OF ONE CREDITOR. WHEN THIS FACT WAS CONFRONTED TO THE ASSESSEE, THE ASSESSEE SUBMITTED THAT THE CR EDITORS WERE OLD CREDITORS AND THE ADDRESSES GIVEN WAS THE ADDRESS A VAILABLE IN THE RECORDS OF THE ASSESSEE AND THEREFORE THE ASSESSEE IS NOT I N A POSITION TO CONFIRM WHETHER THOSE CREDITORS WERE RESIDING IN THAT ADDRE SS. 8. THE AO WAS NOT SATISFIED WITH THIS REPLY AND MAD E AN ADDITION OF RS.65,66,925 OBSERVING AS FOLLOWS:- IN VIEW OF THE ABOVE POINTS, IT IS TO BE CONCLUDED THAT THE CREDIT CLAIMS MADE IN THE BOOKS OF THE ASSESSEE AS ON 1.4. 2008 BY THE ABOVE 21 PARTIES ARE NON-EXISTENT AND THEREFORE ADD ED TO THE INCOME OF THE ASSESSEE. THE TOTAL CREDIT BALANCE C LAIMS IN RESPECT OF 21 CASES REFERRED IN PARA 2 (EXCEPT M/S. PERFECT INDUSTRIES) WORKS OUT TO RS.65,55,925. 9. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ORDER OF THE AO OBSERVING AS FOLLOWS:- 3.3 I HAVE CAREFULLY CONSIDERED THE APPELLANTS S UBMISSIONS AND ALSO THE REASONS GIVEN BY THE AO IN THE ASSESSM ENT ORDER. THE AO MADE ENQUIRIES AS PER THE INFORMATION SUBMIT TED BY THE APPELLANT AND GAVE HIM SUFFICIENT OPPORTUNITIES. B U THE APPELLANT WAS UNABLE TO EXPLAIN THE AMOUNTS STANDING IN THE N AMES OF ITA NO.1078/BANG/2014 PAGE 6 OF 15 VARIOUS SUNDRY CREDITORS. THE A.O FOLLOWED THE DUE PROCESS. AT THE TIME OF APPEAL HEARING, THE APPELLANTS AUTHORI SED REPRESENTATIVE PLEADED THAT THE APPELLANT WAS UNABL E TO OBTAIN CONFIRMATION FROM THE 21 CREDITORS REGARDING THE BA LANCES SHOWN AGAINST THEM INSPITE OF SEVERAL OPPORTUNITIES. IN THE CIRCUMSTANCES, I HAVE NO OPTION BUT TO CONFIRM THE ADDITION OF RS.65,66,925/- MADE BY THE AO IN THIS REGARD. 10. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 11. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSE L FOR THE ASSESSEE AND THE LD. DR. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT ADDITION U/S. 68 OF THE ACT COULD NOT BE MADE BECAUSE, ADMITTEDLY, THE CREDITS IN QUESTION DID NOT RELATE TO THE PREVIOUS YEAR RELEVANT TO AY 2009- 10. IN THIS REGARD, THE FACT THAT THE CREDITORS DI D NOT HAVE ANY TRANSACTIONS DURING THE RELEVANT PREVIOUS YEAR IS ADMITTED BY TH E AO IN PARA 2 OF THE ASSESSMENT ORDER. ACCORDING TO HIM, THEREFORE THE PROVISIONS OF SECTION 68 WILL NOT BE ATTRACTED. THE LD. COUNSEL THEREAFTER DREW OUR ATTENTION TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN CIT V. SRI VARDHAMAN OVERSEAS LTD., ITA NO.774/2009 DATED 23.12.2011 343 ITR 408 (DEL) , WHEREIN ON IDENTICAL FACTS, THE HONBLE HIGH COURT HELD THAT N EITHER SECTION 68 NOR SECTION 41(1) OF THE ACT WOULD BE ATTRACTED. IN TH IS REGARD, WE HAVE ALREADY OBSERVED THAT NEITHER THE ORDER OF THE AO NOR THE O RDER OF CIT(A) IS CLEAR AS TO WHETHER THE IMPUGNED ADDITION IS BEING MADE U/S. 68 OR 41(1) OF THE ACT. U/S. 41(1) OF THE ACT, IF THERE IS A CESSATION OF L IABILITY OF THE ASSESSEE, THEN THE SAME SHOULD BE BROUGHT TO TAX, SUBJECT TO OTHER REQUIREMENTS TO BE ITA NO.1078/BANG/2014 PAGE 7 OF 15 SATISFIED U/S. 41(1). ON THE QUESTION OF CESSATION OF LIABILITY, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO EVIDENCE BR OUGHT ON RECORD TO SHOW THAT LIABILITY OF THE ASSESSEE VIS--VIS CREDI TORS HAS CEASED TO EXIST. IT WAS THEREFORE SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE IMPUGNED ADDITIONS CANNOT BE SUSTAINED IN LAW AND T HE SAME WILL HAVE TO BE DELETED. 12. THE LD. DR, ON THE ORDER, PLACED RELIANCE ON TH E ORDERS OF THE REVENUE AUTHORITIES. 13. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. ON ALMOST IDENTICAL FACTS, THE HONBLE DELHI HIGH COUR T IN THE CASE OF SHRI VARDHAMAN OVERSEAS LTD. (SUPRA) , HAS CLEARLY LAID DOWN THAT NEITHER SECTION 41(1) NOR SECTION 68 OF THE ACT CAN BE APPL IED. ON THE APPLICABILITY OF SECTION 68, WE ARE OF THE VIEW THAT THOSE PROVIS IONS WILL NOT APPLY AS THE BALANCES SHOWN IN THE CREDITORS ACCOUNT DO NOT ARIS E OUT OF ANY TRANSACTION DURING THE PREVIOUS YEAR RELEVANT TO AY 2009-10. T HE PROVISIONS OF SEC. 68 ARE CLEAR INASMUCH AS THEY REFER TO SUM FOUND CRED ITED IN THE BOOKS OF ACCOUNT OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR. SINCE THE CREDIT ENTRIES IN QUESTION DO NOT RELATE TO PREVIOUS YEAR RELEVANT TO AY 2009-10, THE SAME CANNOT BE BROUGHT TO TAX U/S. 68 OF THE AC T. THE PROPER COURSE IN SUCH CASES FOR THE REVENUE WOULD BE TO FIND OUT THE YEAR IN WHICH THE CREDITS IN QUESTION WERE CREDITED IN THE BOOKS OF A CCOUNT AND THEREAFTER ITA NO.1078/BANG/2014 PAGE 8 OF 15 MAKE AN ENQUIRY IN THAT YEAR AND MAKE AN ADDITION I N THAT YEAR, IF OTHER CONDITIONS FOR APPLICABILITY OF SECTION 68 ARE SATI SFIED. 14. AS FAR AS APPLICABILITY OF SECTION 41(1) OF THE ACT IS CONCERNED, THE QUESTION BEFORE US IS LIMITED TO THE APPLICABILITY OF SECTION 41(1) OF THE ACT. THE SECTION IN SO FAR AS IT IS RELEVANT FOR OUR PUR POSE IS AS BELOW: PROFITS CHARGEABLE TO TAX. 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN M ADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE ( HEREINAFTER RE FERRED TO AS THE FIRST-MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, - (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHE R IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH T RADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF , THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFE SSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION I N RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS I N EXISTENCE IN THAT YEAR OR NOT; OR XX XX XX XX XXXX XX XX XXXX XX XX [EXPLANATION 1 FOR THE PURPOSES OF THIS SUB-SECT ION, THE EXPRESSION LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIABILITY BY WAY OF REMISSION OR C ESSATION THEREOF SHALL INCLUDE THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILATERAL ACT BY THE FIRST MENTIONED PERSON UNDE R CLAUSE (A) OR THE SUCCESSOR IN BUSINESS UNDER CLAUSE (B) OF THAT SUB-SECTION BY WAY OF WRITING OFF SUCH LIABILITY IN HIS ACCOUNTS.] (UNDERLINING OURS) ITA NO.1078/BANG/2014 PAGE 9 OF 15 15. EXPLANATION 1 WHICH WAS INSERTED W.E.F. 1.4.199 7 IS NOT ATTRACTED TO THE PRESENT CASE SINCE THERE WAS NO WRITING OFF OF THE LIABILITY TO PAY THE SUNDRY CREDITORS IN THE ASSESSEES ACCOUNTS. THE QU ESTION 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 FIRS T ESTABLISHED THAT THE ASSESSEE HAD OBTAINED SOME BENEFIT IN RESPECT OF TH E TRADING LIABILITY WHICH WAS EARLIER ALLOWED AS A DEDUCTION. THERE IS NO DIS PUTE IN THE PRESENT CASE THAT THE AMOUNTS DUE TO THE SUNDRY CREDITORS HAD BE EN ALLOWED IN THE EARLIER ASSESSMENT YEARS AS PURCHASE PRICE IN COMPU TING THE BUSINESS INCOME OF THE ASSESSEE. THE SECOND QUESTION IS WHET HER BY NOT PAYING THEM FOR A PERIOD OF FOUR YEARS AND ABOVE THE ASSES SEE HAD OBTAINED SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY ALLOWED IN THE EARLIER YEARS. THE WORDS REMISSION AND CESSATION ARE LEGAL TERMS A ND HAVE TO BE INTERPRETED ACCORDINGLY. IN THE PRESENT CASE, THER E IS NOTHING ON RECORD TO SHOW THAT THERE WAS EITHER REMISSION OR CESSATION O F 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 PROVISIO NS OF SECTION 41(1) OF THE ACT COULD NOT BE INVOKED BY THE REVENUE. IN FACT T HE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF VARDHAMAN OVERSEAS LTD. (SUPRA) CLEARLY SUPPORTS THE PLEA OF THE ASSESSEE IN THIS R EGARD. ON IDENTICAL FACTS, THE HONBLE DELHI HIGH COURT ON THE APPLICABILITY O F SEC.41(1) OF THE ACT, HELD: ITA NO.1078/BANG/2014 PAGE 10 OF 15 12. THAT TAKES US TO THE NEXT QUESTION AS TO WHAT CONSTITUTES REMISSION OR CESSATION OF THE LIABILITY. IT CANNOT BE DISPUTED THAT THE WORDS 'REMISSION' AND 'CESSATION' ARE LEGAL TER MS AND HAVE TO BE INTERPRETED ACCORDINGLY. IN STATE OF MADRAS VS. GANNON DUNKERLEY & CO. AIR 1958 SC 560 VENKATARAMA AIYYAR J. EXPLAINED THE GENERAL RULE OF CONSTRUCTION THAT WOR DS USED IN STATUTES MUST BE TAKEN IN THEIR LEGAL SENSE AND OBS ERVED : 'THE RATIO OF THE RULE OF INTERPRETATION THAT WORD S OF LEGAL IMPORT OCCURRING IN A STATUTE SHOULD BE CONST RUED IN THEIR LEGAL SENSE IS THAT THOSE WORDS HAVE, IN L AW, ACQUIRED A DEFINITE AND PRECISE SENSE AND THAT, ACCORDINGLY, THE LEGISLATION MUST BE TAKEN TO HAVE INTENDED THAT THEY SHOULD BE UNDERSTOOD IN THAT SEN SE. IN INTERPRETING AN EXPRESSION USED IN A LEGAL SENSE, THEREFORE, WE HAVE ONLY TO ASCERTAIN THE PRECISE CONNOTATION WHICH IT POSSESSES IN LAW'. IN OUR OPINION, THIS RULE SHOULD BE APPLIED TO THE INTERPRETATION AND UNDERSTANDING OF THE WORDS 'REMISSION' AND 'CES SATION' USED IN THE SECTION. 13. IN BOMBAY DYEING & MFG. CO. LTD. VS. STATE OF BOMBAY AIR 1958 SC 328 THE LEGAL POSITION WAS SUMMARIZED B Y T.L. VENKATARAMA AIYAR, J., IN THE FOLLOWING MANNER : 'IT HAS BEEN ALREADY MENTIONED THAT WHEN A DEBT BECOMES TIME-BARRED, IT DOES NOT BECOME EXTINGUISHE D BUT ONLY UNENFORCEABLE IN A COURT OF LAW. INDEED, I T IS ON THAT FOOTING THAT THERE CAN BE STATUTORY TRANSFER O F THE DEBTS DUE TO THE EMPLOYEES, AND THAT IS HOW THE BOA RD GETS TITLE TO THEM. IF THEN A DEBT SUBSISTS EVEN AF TER IT IS BARRED BY LIMITATION, THE EMPLOYER DOES NOT GET, IN LAW, A DISCHARGE THEREFROM. THE MODES IN WHICH AN OBLIGATI ON UNDER A CONTRACT BECOMES DISCHARGED ARE WELL-DEFINE D, AND THE BAR OF LIMITATION IS NOT ONE OF THEM. THE FOLLOWING PASSAGES IN ANSONS LAW OF CONTRACT, 19TH EDITION, P. 383, ARE DIRECTLY IN POINT : 'AT COMMON LAW LAPSE OF TIME DOES NOT AFFECT CONTRACTUAL RIGHTS. SUCH A RIGHT IS OF A PERMANENT AND INDESTRUCTIBLE CHARACTER, UNLESS EITHER FROM THE NATURE OF THE CONTRACT, OR FROM ITS TERMS, IT BE LIMITED IN POINT OF DURATION. ITA NO.1078/BANG/2014 PAGE 11 OF 15 BUT THOUGH THE RIGHT POSSESSES THIS PERMANENT CHARA CTER, THE REMEDIES ARISING FROM ITS VIOLATION ARE WITHDRA WN AFTER A CERTAIN LAPSE OF TIME; INTEREST REIPUBLICAE UT SI FINIS LITIUM. THE REMEDIES ARE BARRED, THOUGH THE R IGHT 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 T HAT REQUIREMENT IS THE NORMAL COURSE HE IS NOT LIKELY T O BE EXPOSED TO ACTION BY THE CREDITOR.' (UNDERLINING, ITALICISED IN PRINT, OURS) THIS WAS ALSO THE VIEW TAKEN BY THE SUPREME COURT I N 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 LA ID 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 CAPI TAL RESERVE ACCOUNT. THE ITO FOUND THAT A SUM OF 1,29,000 OUT O F THE ABOVE AMOUNT REPAYMENTED DEPOSITS AND ADVANCES WHICH WERE PAID BACK BY THE ASSESSEE. HE, THEREFORE, DEDUCTED THIS AMOUNT FROM THE AMOUNT OF 3,45,000 AND THE BALANCE OF 2,56,529 WAS BROUGHT TO ASSESSMENT UNDER S. 41(1) OF THE ACT. THE ASSESS EE APPEALED UNSUCCESSFULLY TO THE AAC AND THEREAFTER CARRIED TH E MATTER IN FURTHER APPEAL TO THE TRIBUNAL. ITS CONTENTION BEFO RE THE TRIBUNAL WAS THAT THE UNILATERAL ENTRY OF TRANSFERRING THE A MOUNT FROM THE SUSPENSE ACCOUNT TO THE CAPITAL RESERVE ACCOUNT WOU LD NOT BRING THE SAID AMOUNT WITHIN S. 41(1). THE CONTENTION WAS ACCEPTED BY THE TRIBUNAL WHOSE DECISION WAS AFFIRMED BY THE CAL CUTTA HIGH COURT CIT VS. SUGAULI SUGAR WORKS (P) LTD. (1981) 2 3 CTR (CAL) 226 : (1983) 140 ITR 286 (CAL). THE REVENUE CARRIED THE MATTER IN THE APPEAL TO THE SUPREME COURT. THE CONTENTION OF THE REVENUE (AS NOTED AT P. 520 OF 236 ITR) WAS THAT ON THE FACTS OF THE CASE, THE LIABILITY CAME TO AN END AS A PERIOD OF MORE THAN 20 YEARS HAD ELAPSED AND THE CREDITORS HAD NOT TAKEN A NY STEPS TO RECOVER THE AMOUNT AND CONSEQUENTLY THERE WAS A CES SATION OF THE DEBT WHICH WOULD BRING THE MATTER WITHIN THE SCOPE OF S. 41(1). IT MAY BE NOTED THAT THE CONTENTION OF THE REVENUE IN THE CASE ITA NO.1078/BANG/2014 PAGE 12 OF 15 BEFORE US IS PRECISELY THE SAME. TO RECAPITULATE, T HE LEARNED STANDING COUNSEL CONTENDED BEFORE US THAT SINCE A P ERIOD OF MORE THAN 4 YEARS HAS ADMITTEDLY ELAPSED FROM THE DEBT O N WHICH THE DEBTS WERE INCURRED AND SINCE THE CREDITORS HAD NOT TAKEN ANY STEPS TO RECOVER THE AMOUNT, THERE WAS A CESSATION OF THE DEBTS WHICH BROUGHT THE MATTER UNDER S. 41(1). TURNING BA CK TO THE JUDGMENT OF THE SUPREME COURT, WE FIND THAT THE JUD GMENT OF THE CALCUTTA HIGH COURT UNDER APPEAL WAS AFFIRMED FOR T WO REASONS. THE FIRST REASON WAS BASED ON A JUDGMENT OF THE FUL L BENCH OF THE GUJARAT HIGH COURT IN CIT VS. BHARAT IRON & STEEL I NDUSTRIES (1992) 105 CTR (GUJ)(FB) 331 : (1993) 199 ITR 67 (G UJ)(FB). IT WAS HELD BY THE SUPREME COURT THAT THE GUJARAT HIGH COURT WAS RIGHT IN SAYING THAT IN ORDER TO ATTRACT TAXABILITY UNDER S. 41(1) THE ASSESSEE SHOULD HAVE OBTAINED, WHETHER IN CASH OR I N ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF THE LOS S OR EXPENDITURE EARLIER ALLOWED AS A DEDUCTION. THIS PA RT OF THE REASONING, IN THE LIGHT OF THE AMENDED CL. (A) OF S UB-S. (1) OF S. 41 MAY NOT BE RELEVANT AFTER SUBSTITUTION OF THE SAID CLAUSE BY THE FINANCE ACT, 1992 W.E.F. 1ST APRIL, 1993, BY WHICH THE WORDS 'SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF' WERE INSERTED. AFTE R THE AMENDMENT, THEREFORE, IT IS NOT NECESSARY THAT IN R ESPECT OF A TRADING LIABILITY EARLIER ALLOWED AS A DEDUCTION, T HE ASSESSEE SHOULD HAVE RECEIVED ANY AMOUNT, IN CASH OR OTHERWI SE, BUT IT IS NECESSARY THAT THE ASSESSEE SHOULD HAVE RECEIVED 'S OME BENEFIT' IN RESPECT OF SUCH TRADING LIABILITY. HOWEVER, WE H AVE ALREADY SEEN THAT THIS BENEFIT IN RESPECT OF TRADING LIABIL ITY SHOULD BE 'BY WAY OF REMISSION OR CESSATION OF THE LIABILITY', AF TER THE AMENDMENT MADE TO THE CLAUSE W.E.F. 1ST APRIL, 1993 . THE SECOND PART OF THE REASONING OF THE SUPREME COURT IN CIT V S. SUGAULI SUGAR WORKS (P) LTD. (SUPRA) IS BASED ON THE INTERP RETATION OF THE WORDS 'CESSATION OR REMISSION' OF THE TRADING LIABI LITY. THE SUPREME COURT NOTICED A JUDGMENT OF THE BOMBAY HIGH COURT IN J.K. CHEMICALS LTD. VS. CIT (1996) 62 ITR 34 (BOM) IN WHICH IT WAS EXPLAINED AS TO WHAT COULD BRING OUT A CESSATIO N OR REMISSION OF THE ASSESSEES LIABILITY. THE OBSERVATIONS OF TH E BOMBAY HIGH COURT IN THE JUDGMENT CITED ABOVE ARE AS UNDER : 'THE QUESTION TO BE CONSIDERED IS WHETHER THE TRANS FER OF THESE ENTRIES BRINGS ABOUT A REMISSION OR CESSATION OF IT S LIABILITY. THE TRANSFER OF AN ENTRY IS A UNILATERAL ACT OF THE ASS ESSEE, WHO IS A DEBTOR TO ITS EMPLOYEES. WE FAIL TO SEE HOW A DEBTO R, BY HIS OWN UNILATERAL ACT, CAN BRING ABOUT THE CESSATION OR RE MISSION OF HIS ITA NO.1078/BANG/2014 PAGE 13 OF 15 LIABILITY. REMISSION HAS TO BE GRANTED BY THE CREDI TOR. IT IS NOT IN DISPUTE, AND IT INDEED CANNOT BE DISPUTED, THAT IT IS NOT A CASE OF REMISSION OF LIABILITY. SIMILARLY, A UNILATERAL ACT ON THE PART OF THE DEBTOR CANNOT BRING ABOUT A CESSATION OF HIS LIABIL ITY. THE CESSATION OF THE LIABILITY MAY OCCUR EITHER BY REAS ON OF THE OPERATION OF LAW, I.E., ON THE LIABILITY BECOMING U NENFORCEABLE AT LAW BY THE CREDITOR AND THE DEBTOR DECLARING UNEQUI VOCALLY HIS INTENTION NOT TO HONOUR HIS LIABILITY WHEN PAYMENT IS DEMANDED BY THE CREDITOR, OR A CONTRACT BETWEEN THE PARTIES, OR BY DISCHARGE OF THE DEBT THE DEBTOR MAKING PAYMENT THEREOF TO HI S CREDITOR. TRANSFER OF AN ENTRY IS NEITHER AN AGREEMENT BETWEE N THE PARTIES NOR PAYMENT OF THE LIABILITY. WE HAVE ALREADY HELD IN KOHINOOR MILLS CO. LTD. VS. CIT (1963) 49 ITR 578 (BOM) THAT THE MERE FACT OF THE EXPIRY OF THE PERIOD OF LIMITATION TO E NFORCE IT, DOES NOT BY ITSELF CONSTITUTE CESSATION OF THE LIABILITY. IN THE INSTANT CASE, THE LIABILITY BEING ONE RELATING TO WAGES, SALARIES AND BONUS DUE BY AN EMPLOYER TO HIS EMPLOYEES IN AN INDUSTRY, THE PROVISIONS OF THE INDUSTRIAL DISPUTES ACT ALSO ARE ATTRACTED AND FOR THE RECOVERY OF THE DUES FROM THE EMPLOYER, UNDER S. 33C(2) OF T HE INDUSTRIAL DISPUTES ACT, NO BAR OF LIMITATION COMES IN THE WAY OF THE EMPLOYEES.' 15. THE SUPREME COURT NOTICED THAT THE ABOVE OBSERV ATIONS OF THE BOMBAY HIGH COURT WERE QUOTED BY THE CALCUTTA HIGH COURT IN THE JUDGMENT UNDER APPEAL BEFORE THEM, AND OBSERVED AS UNDER WHILE UPHOLDING THE JUDGMENT OF THE CALCUTTA HIGH C OURT : 'THIS JUDGMENT HAS BEEN QUOTED BY THE HIGH COURT IN THE PRESENT CASE AND FOLLOWED. WE HAVE NO HESITATION TO SAY THA T THE REASONING IS CORRECT AND WE AGREE WITH THE SAME. TO REINFORCE THE CONCLUSION, THE SUPREME COURT ALSO NOTICED ITS EARLIER JUDGMENT IN BOMBAY DYEING & MFG. CO. LTD. V S. STATE OF BOMBAY AIR 1958 SC 328 WHEREIN IT WAS HELD THAT THE EXPIRY OF THE PERIOD OF LIMITATION PRESCRIBED UNDER THE LIMIT ATION ACT COULD NOT EXTINGUISH THE DEBT BUT IT WOULD ONLY PREVENT T HE CREDITOR FROM ENFORCING THE DEBT. 16. IN OUR OPINION, THE JUDGMENT OF THE SUPREME COU RT 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 L IABILITY REMAINED UNPAID AND THIS FACT FORMED THE BASIS OF T HE CONTENTION ITA NO.1078/BANG/2014 PAGE 14 OF 15 OF THE REVENUE BEFORE THE SUPREME COURT TO THE EFFE CT 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 MU ST BE HELD THAT THERE WAS A CESSATION OF THE DEBTS BRINGING THE CAS E WITHIN THE SCOPE OF S. 41(1). IN THE CASE BEFORE US, THE IDENT ICAL CONTENTION HAS BEEN TAKEN ON BEHALF OF THE REVENUE, THOUGH THE PERIOD FOR WHICH THE AMOUNT REMAINED UNPAID TO THE CREDITORS I S MUCH LESS. IT WAS HELD BY THE SUPREME COURT THAT A UNILATERAL ACTION CANNOT BRING ABOUT A CESSATION OR REMISSION OF THE LIABILI TY BECAUSE A REMISSION CAN BE GRANTED ONLY BY THE CREDITOR AND A CESSATION OF THE LIABILITY CAN ONLY OCCUR EITHER BY REASON OF OP ERATION OF LAW OR THE DEBTOR UNEQUIVOCALLY DECLARING HIS INTENTION NO T TO HONOUR HIS LIABILITY WHEN PAYMENT IS DEMANDED BY THE CREDITOR, OR BY A CONTRACT BETWEEN THE PARTIES, OR BY DISCHARGE OF TH E DEBT. 16. FROM THE RATIO LAID DOWN IN THE AFORESAID DECIS ION, WE ARE OF THE VIEW THAT THERE IS NOTHING ON RECORD TO SHOW ANY CESSATI ON OR REMISSION OF LIABILITY BY THE CREDITOR OR EVEN AN UNILATERAL ACT BY THE ASSESSEE IN THIS REGARD. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW T HAT THE IMPUGNED ADDITION CANNOT BE SUSTAINED AND THE SAME IS DIRECTED TO BE DELETED. 17. THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOW ED. PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF AUGUST , 2015 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 7 TH AUGUST , 2015 . /D S/ ITA NO.1078/BANG/2014 PAGE 15 OF 15 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR/ SENIOR PRIVATE SECRETARY ITAT, BANGALORE.