ACIT, V. M/s Alvares & Thomas,

ITA 1676/BANG/2013

• Counselvise Citation: 167621114 RSA 2013
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 03-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWALA JT
• Assessee Lawyers: S VENKATESAN
• Keywords: Business income; Period of limitation
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO. 1676/BANG/2013 ASSESSMENT YEAR : 2010-11 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), BANGALORE. VS. M/S. ALVARES & THOMAS, 3-9-742, ALVARES CENTRE, VIVEKANANDA ROAD, NANTHOOR, MANGALORE. PAN : AAFFA 0107K APPELLANT RESPONDENT APPELLANT BY : SHRI SUNIL KUMAR AGARWALA, JT. CIT(DR) RESPONDENT BY : SHRI S. VENKATESAN, CA DATE OF HEARING : 05.08.2015 DATE OF PRONOUNCEMENT : 14.08.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 14.8.2013 OF THE CIT(APPEALS), MYSORE RELATING TO ASSESSMENT YEAR 2010-11. 2. IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE O RDER OF CIT(APPEALS), WHEREBY HE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER RS.81,40,232. THE SUM OF RS.81,40,232/- R EPRESENTS LIABILITY OF THE ITA NO.1676/BANG/2013 PAGE 2 OF 14 ASSESSEE TO M/S.DURGA TRADERS TO THE ASSESSEE. THIS WAS SHOWN AS SUNDRY CREDITORS IN THE BALANCE SHEET. IT IS NOT D ISPUTE THAT NONE OF THE TRANSACTIONS WITH THE CREDITOR TOOK PLACE DURING TH E PREVIOUS YEAR. IN OTHER WORDS, THE BALANCES WERE OPENING BALANCES OF THE EA RLIER FINANCIAL YEARS AND NO BALANCE AROSE OUT OF THE TRANSACTIONS DURING THE PREVIOUS YEAR. 3. THE AO CALLED UPON THE ASSESSEE TO FURNISH CONFI RMATION FROM M/S.DURGA TRADERS. THE ASSESSEE GAVE CONFIRMATIONS FROM THE CREDITOR DATED 14.3.2012. THE ADDRESS OF M/S.DURGA TRADERS A S GIVEN IN THE CONFIRMATION WAS SHOP NO.1/2, GURUKRUPA HOUSING COM PLEX, CUTINHO ROAD, KARWAR-581 301. THE AO ON 7.8.2012 ISSUED A COMMISSION U/S.131(1)(D)OF THE ACT TO THE ITO, WARD-1, KARWAR, TO EXAMINE THE CREDITOR. THE ITO, WARD-1, KARWAR REPORTED THAT ON ENQUIRY NO CONCERN/ENTERPRISE BY NAME M/S.DURGA TRADERS EXISTED AT THE ADDRESS GIVEN AND HENCE NO ENQUIRY COULD BE CARRIED OUT. 4. THE AO INFORMED THE ASSESSEE ABOUT THE NON-AVAI LABILITY OF M/S. DURGA TRADERS AT THE GIVEN ADDRESS. THE AO ALSO IN FORMED THE ASSESSEE THAT IN THE GIVEN CIRCUMSTANCES, IT COULD BE PRESUM ED THAT LIABILITY OF THE ASSESSEE TO PAY M/S. DURGA TRADERS CEASED TO EXIST AND THEREFORE THE SAID OUTSTANDING AMOUNT SHOULD NOT BE BROUGHT TO TAX, TR EATING IT AS A BENEFIT RECEIVED BY THE ASSESSEE ON CESSATION OF LIABILITY U/S. 41(1) OF THE ACT. 5. THE ASSESSEE SUBMITTED BEFORE THE AO THAT IN THE YEAR 2010, THERE WAS A BAN ON IRON ORE TRANSACTION BECAUSE OF WHICH IRON ORE INDUSTRY HAD ITA NO.1676/BANG/2013 PAGE 3 OF 14 COME TO A STANDSTILL. IT WAS THEREFORE POSSIBLE TH AT M/S. DURGA TRADERS HAD SHIFTED THEIR OFFICE FROM THE GIVEN ADDRESS AND MOV ED TO SOME OTHER ADDRESS. THE ASSESSEE PLEADED ITS INABILITY TO GIV E THE CORRECT ADDRESS. 6. THE AO, HOWEVER, WAS OF THE VIEW THAT THERE WAS A CESSATION OF LIABILITY AND HE BROUGHT THE AMOUNT IN QUESTION TO TAX U/S. 41(1) OF THE ACT. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE AO:- 5.4 IT IS SEEN FROM THE RECORDS THAT THE LIABILIT Y AGAINST THE NAME OF M/S DURGA TRADERS IN THE FORM OF SUNDRY CRE DITORS TO THE EXTENT OF RS. 81,40,232/- IS APPEARING IN THE BOOKS OF THE ASSESSEE FOR THE LAST 7 TO 8 YEARS. THE ASSESSEE HAS NOT PRO DUCED ANY PROOF TO SHOW THAT M/S DURGA TRADERS HAS INSISTED ON THE PAYMENT AT ANY POINT OF TIME DURING ASSESSMENT PROCEEDINGS OR INITIATED ANY LEGAL ACTION AGAINST THE ASSESSEE. THOUGH THE AMOUN T IS OUTSTANDING FOR QUITE A LONG TIME, THERE IS NO INTE REST CHARGED ON THE AMOUNT BY M/S DURGA TRADERS. IT WAS ALSO ASCERT AINED THAT M/S DURGA TRADERS WAS A PROPRIETORSHIP AND IT IS, T HEREFORE, INEXPLICABLE AS TO HOW AN INDIVIDUAL RAN HIS BUSINE SS DESPITE HAVING SUCH A HUGE AMOUNT PAYABLE TO HIM OVER SUCH A LONG PERIOD OF TIME. 5.5 IN VIEW OF THE ABOVE FACTUAL POSITION, IT IS A BUNDANTLY CLEAR THAT THE LIABILITY CLAIM OF THE ASSESSEE TOWARDS M/ S DURGA TRADERS AMOUNTING TO RS. 81,40,232/- DOES NOT EXIST AND THE LIABILITY IS TREATED AS CESSASSION OF LIABILITY U/S 41(1) OF THE INCOME TAX ACT AND ACCORDINGLY, THE SAME IS BROUGHT TO TAX. 7. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) HELD THAT IF THE ORIGINAL TRANSACTION WAS DOUBTED BY THE AO, THEN THE ADDITIO N OUGHT TO HAVE BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR. HE WAS OF TH E VIEW THAT SINCE THERE WAS NO TRANSACTION DURING THE PREVIOUS YEAR, NO ADD ITION COULD BE MADE IN A.Y. 2010-11 ON THE GROUND THAT THE TRANSACTION GIV ING RISE TO LIABILITY OF THE ITA NO.1676/BANG/2013 PAGE 4 OF 14 ASSESSEE WAS ITSELF NOT GENUINE. THE CIT(A) ON THE QUESTION OF APPLICABILITY OF SECTION 41(1) OF THE ACT, WAS OF T HE VIEW THAT JUST BECAUSE LIABILITY WAS MORE THAN 7 YEARS OLD, THAT CANNOT BE THE BASIS TO CONCLUDE THAT LIABILITY OF THE ASSESSEE CEASED TO EXIST. IN COMING TO THE AFORESAID CONCLUSION, THE CIT(A) PLACED RELIANCE ON THE DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. SUGAULI SUGAR WORKS PVT. LTD., 236 ITR 518 (SC) . THE CIT(A) FINALLY CONCLUDED THAT THERE WAS NO E VIDENCE ON RECORD TO SHOW THAT THERE WAS CESSATION OF LIABILIT Y AND THEREFORE ADDITION U/S. 41(1) COULD BE SUSTAINED. 8. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE HA S PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSEL 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 ITA NO.1676/BANG/2013 PAGE 5 OF 14 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 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. 10. THE LD. DR, ON THE ORDER, PLACED RELIANCE ON TH E ORDERS OF THE REVENUE AUTHORITIES. 11. 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 ITA NO.1676/BANG/2013 PAGE 6 OF 14 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 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. 12. 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 ITA NO.1676/BANG/2013 PAGE 7 OF 14 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) 13. 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 ITA NO.1676/BANG/2013 PAGE 8 OF 14 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:- 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 ITA NO.1676/BANG/2013 PAGE 9 OF 14 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. 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 ITA NO.1676/BANG/2013 PAGE 10 OF 14 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 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 ITA NO.1676/BANG/2013 PAGE 11 OF 14 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 ITS LIABILITY. THE TRANSFER OF AN ENTRY IS A UNILATERAL ACT OF THE ASSESSEE, WHO IS A DEBTOR TO ITS EMPLOYEES. WE FAIL TO SEE HOW A DEBTOR, BY HIS OWN UNILATERAL ACT, CAN BRING ABOUT THE CESSATION OR REMISSION OF HIS LIABILITY. REMISS ION HAS TO BE GRANTED BY THE CREDITOR. IT IS NOT IN DISPUTE, A ND 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 LIABILITY. THE CESSATION OF THE LIABILITY MAY OCCUR EITHER BY REASON OF THE OPERATION OF LAW, I.E., ON THE LIABIL ITY BECOMING UNENFORCEABLE AT LAW BY THE CREDITOR AND T HE DEBTOR DECLARING UNEQUIVOCALLY HIS INTENTION NOT TO HONOUR HIS LIABILITY WHEN PAYMENT IS DEMANDED BY TH E 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 AGREEM ENT BETWEEN THE PARTIES NOR PAYMENT OF THE LIABILITY. W E HAVE ALREADY HELD IN KOHINOOR MILLS CO. LTD. VS. CIT (19 63) 49 ITR 578 (BOM) THAT THE MERE FACT OF THE EXPIRY OF T HE PERIOD OF LIMITATION TO ENFORCE IT, DOES NOT BY ITS ELF CONSTITUTE CESSATION OF THE LIABILITY. IN THE INSTA NT 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 THE INDUSTRIAL DISPUTES ACT, NO BAR OF LIMITATION COMES IN THE WAY OF THE EMPLOYEES.' 15. THE SUPREME COURT NOTICED THAT THE ABOVE OBSER VATIONS OF THE BOMBAY HIGH COURT WERE QUOTED BY THE CALCUTTA H IGH COURT IN THE JUDGMENT UNDER APPEAL BEFORE THEM, AND OBSER VED 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 THAT THE REASONING IS CORRECT AND WE AGREE WITH THE SAME. ITA NO.1676/BANG/2013 PAGE 12 OF 14 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 CO URT IN CIT VS. SUGAULI SUGAR WORKS (P) LTD. (SUPRA) IS A COMPL ETE ANSWER TO THE CONTENTION OF THE LEARNED STANDING COUNSEL. IN THE CASE BEFORE THE SUPREME COURT FOR A PERIOD OF ALMOST 20 YEARS T HE LIABILITY REMAINED UNPAID AND THIS FACT FORMED THE BASIS OF T HE CONTENTION 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. 14. 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 WAS RIGHTLY DIRECT ED TO BE DELETED BY THE CIT(A). THE ORDER OF THE CIT(A) IS THEREFORE CONFI RMED. ITA NO.1676/BANG/2013 PAGE 13 OF 14 15. THE LEARNED DR PLACED RELIANCE ON A DECISION OF THE ITAT MUMBAI IN THE CASE OF ITO VS. SHRI SHAILESH D.SHAH ITA NO.7012/MUM/2010 O RDER DATED 11.12.2013 . WE HAVE PERUSED THE SAID DECISION AND WE FIND TH AT WAS A CASE WHERE THE LIABILITY IN QUESTION WAS OUTS TANDING LABOUR CHARGES IN THE CASE OF AN ASSESSEE ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. THE TRIBUNAL FOLLOWED THE DECISION OF THE HONBLE D ELHI HIGH COURT IN THE CASE OF CIT VS. CHIPSOFT TECHNOLOGY PVT.LTD. 210 TAXMAN 173 (DELHI) WHEREIN THE HONBLE DELHI HIGH COURT ON THE FACTS O F THAT CASE WHERE THE OUTSTANDING LIABILITY WAS WAGES OF WORKMAN, EXPRESS ED THE VIEW THAT IT WAS ILLOGICAL THAT WAGES OF WORKMAN WOULD REMAIN UNPAID FOR A LONG DURATION OF TIME AND THEREFORE HELD THAT THE LIABILITY SHOULD B E CONSIDERED AS HAVING CEASED. THE PRESENT CASE IS A CASE OF TRADING LIAB ILITY, WHICH CANNOT STAND ON THE SAME FOOTING AS DUE TO WORKMAN. WE ARE THER EFORE OF THE VIEW THAT THE DECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE REVENUE WOULD NOT BE OF ANY ASSISTANCE TO THE PLEA OF THE REVENUE. 16. THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMI SSED. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF AUGUST, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 14 TH AUGUST, 2015. /D S/ ITA NO.1676/BANG/2013 PAGE 14 OF 14 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.