PERMASEAL AUTO PRODUCTS P. LTD, MUMBAI V. ITO 10(3)(3), MUMBAI

ITA 2360/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48859 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 10-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 25-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Assessee Lawyers: DR K SHIVRAM; RENU CHOUDHARI

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. K.AGARWAL (JM) AND SHRI RAJENDRA SI NGH(AM) ITA NO.2360/M/2010 ASSESSMENT YEAR 2006-07 M/S. PERMASEAL AUTO PRODUCTS PVT. LTD. THE ITO 10( 3)(3), MUMBAI GOLDSEAL COMPOUND, VILLAGE ROAD BHANDUP, MUMBAI 400 078. PAN : AAACP 3109 L APPELLANT RESPONDENT ASSESSEE BY : DR. K. SHIVRAM & MS. RENU CHOUDHARI REVENUE BY : SHRI L.K.AGRAWAL ORDER PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST OR DER DATED 1.1.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07. THE ASSESSE E IN THIS APPEAL HAS RAISED DISPUTES ON THREE DIFFERENT GROUNDS. 2. THE FIRST DISPUTE IS REGARDING ADDITION OF RS.10 ,26,943/- BEING THE OUTSTANDING ROYALTY ON ACCOUNT OF M/S. PERMOLCA, A FOREIGN COMPANY WHICH HAVE BEEN TREATED BY THE AO AS INCOME UNDER SECTION 41(1) ON THE GROUND THAT THE LIABILITY HAD CEASED TO EXIST. THE LIABILITY WA S OUTSTANDING ADMITTEDLY SINCE 1.9.92. THE AO ASKED THE ASSESSEE TO EXPLAIN THE JU STIFICATION FOR KEEPING THE LIABILITY OUTSTANDING. THE ASSESSEE VIDE LETTER DAT ED 18.10.2008 SUBMITTED THAT THE AMOUNT HAD REMAINED UNPAID SINCE 1.9.92 AND IT UNDERTOOK TO WRITE BACK THE SAME AND OFFERED IT AS INCOME DURING THE CURREN T FINANCIAL YEAR I.E. 2 A.Y.2009-10. IT WAS ACCORDINGLY REQUESTED THAT NO A DDITION SHOULD BE MADE IN THE CONCERNED YEAR. THE AO HOWEVER OBSERVED THAT TH E ASSESSEE ITSELF HAD ACCEPTED THAT THE AMOUNT WAS TAXABLE AS INCOME. THE PARTY HAD NOT COME FORWARD TO CLAIM THE AMOUNT SINCE 1992. THE TRANSAC TION WAS REVENUE IN NATURE. HE THEREFORE TREATED THE AMOUNT AS INCOME U NDER SECTION 41(1). IN APPEAL THE ASSESSEE SUBMITTED THAT THE AMOUNT CONTI NUED TO BE PAYABLE AS THE CREDITOR HAD NOT FOREGONE THE SAME. THE ASSESSEE HA D ALREADY SUBMITTED BEFORE AO THAT AMOUNT WILL BE VOLUNTARILY WRITTEN B ACK IN A.Y.2009-10. THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF CIT VS SAGAULI SUGAR WORKS PVT. LTD. (236 ITR 518) IN WHICH IT WAS HELD THAT THE LIABILITY COULD NOT TREATED AS CEASED TO EXIST ONLY ON THE GROUND THAT THE CLAIM WAS BARRED BY LIMITATION. CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTION RAISED. IT WAS OBSERVED BY HIM THAT THE ASSESSEE IT SELF BEFORE THE AO HAD SUBMITTED THAT THE AMOUNT WILL BE OFFERED AS INCOME IN A.Y.2009-10 WHICH SHOWED THAT THE PARTY WAS NOT CLAIMING THE AMOUNT. THE ASSESSEE HAD HOWEVER NOT OFFERED THE AMOUNT OF INCOME IN A.Y.2009-10. TH E CLAIM OF THE ASSESSEE THAT THE AMOUNT CONTINUED TO BE PAYABLE WAS NOT COR RECT. THE ASSESSEE WOULD NOT HAVE STATED THAT IT WILL OFFER THE INCOME IN A. Y.2009-10 UNLESS IT WAS SURE THAT LIABILITY NO LONGER EXISTED. CIT(A) THEREFORE CONFIRMED THE ORDER OF AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.1 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT THE AMOUNT WAS SHOWN IN THE BALANCE SHEET AS OUTSTANDING AND T HERE WAS NO MATERIAL PLACED BY THE AO TO SHOW THAT THE PARTY HAD FOREGON E THE CLAIM AND THEREFORE IT COULD NOT BE TAXED UNDER SECTION 41(1). IT WAS A LSO SUBMITTED THAT THE AMOUNT COULD BE TAXED UNDER SECTION 41(1) ONLY WHEN THE ASSESSEE WRITES IT BACK VOLUNTARILY AS PER THE AMENDED PROVISIONS OF S ECTION 41(1). MERELY 3 BECAUSE THE LIABILITY HAS BEEN OUTSTANDING FOR A LO NG TIME COULD NOT BE THE GROUND TO TREAT THE LIABILITY AS INCOME. THE ASSESS EE PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF SAGAUL I SUGAR WORKS (236 ITR 518) AND ON THE JUDGMENT OF HONBLE HIGH COURT OF P UNJAB & HARYANA IN CASE OF CIT VS SMT. SITADEVI JUNEJA (325 ITR 593) IN SUPPOR T OF THE CASE. IT WAS ACCORDINGLY URGED THAT THE ADDITIONS SHOULD BE DELE TED. THE LEARNED DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDERS OF AUTHORI TIES BELOW. 2.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ADDITION OF RS.10,26,943/- BEI NG THE OUTSTANDING ROYALTY INCOME ON ACCOUNT OF M/S.PERMOLCA, A FOREIGN COMPAN Y WHICH HAS BEEN TREATED BY THE AO AS CEASED TO EXIST AND ADDED UNDER SECTIO N 41(1). THE AO HAD TREATED THE LIABILITY AS CEASED TO EXIST ON THE GRO UND THAT THE SAME WAS OUTSTANDING FOR SEVERAL YEARS SINCE 1992. CIT(A) H AS CONFIRMED THE ORDER OF THE AO. WE HAVE CAREFULLY CONSIDERED THE VARIOUS AS PECTS OF THE ISSUE. AN OUTSTANDING LIABILITY CAN BE TREATED AS INCOME UNDE R SECTION 41(1) ONLY IN THE YEAR IN WHICH THE LIABILITY HAS CEASED TO EXIST. TH E REVENUE HAS TO PRODUCE THE MATERIAL ON RECORD TO SUBSTANTIATE THE CLAIM THAT L IABILITY DURING THE YEAR HAD CEASED TO EXIST. MERELY BECAUSE THE LIABILITY HAS B EEN OUTSTANDING FOR SEVERAL YEARS AND SAME WAS BARRED BY LIMITATION FOR RECOVER Y COULD NOT BE THE GROUND TO HOLD THAT THE LIABILITY HAS CEASED TO EXIST. THI S VIEW IS SUPPORTED BY THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF CIT VS SAGAULI SUGAR WORKS PVT. LTD. (SUPRA). THE ASSESSEE HAS ALSO RELIED ON THE J UDGMENT OF HONBLE HIGH COURT OF PUNJAB & HARYANA IN CASE OF CIT VS SMT. SI TADEVI JUNEJA (SUPRA) IN WHICH THE HIGH COURT OBSERVED THAT THE FACT THAT LI ABILITY WAS SHOWN IN THE BALANCE SHEET INDICATED THAT THE ASSESSEE HAD ACKNO WLEDGED THE DEBT. MERELY BECAUSE IT WAS PENDING FOR SEVERAL YEARS COULD NOT BE THE GROUND TO PRESUME 4 THAT THE LIABILITY HAD CEASED TO EXIST. IN THE PRES ENT CASE THE REVENUE HAS NOT MADE ANY ENQUIRY AND HAS PLACED NO MATERIAL ON RECO RD TO SHOW THAT THE CREDITOR HAD FORGONE THE CLAIM AND THE LIABILITY WA S NO LONGER EXISTING. FURTHER UNDER THE AMENDED PROVISIONS THE LIABILITY COULD BE TREATED AS INCOME IN CASE THE ASSESSEE UNILATERALLY WRITES IT BACK WHICH IS A LSO NOT THE CASE HERE. THEREFORE IN OUR VIEW ON THE FACTS OF THE CASE LIAB ILITY CANNOT BE TREATED AS CEASED TO EXIST IN THE YEAR UNDER CONSIDERATION. WE THEREFORE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION MADE. 3. THE SECOND DISPUTE IS REGARDING ADDITION OF RS.3 ,58,845/- ON ACCOUNT OF ADVANCES TAKEN BY THE ASSESSEE FROM THE TRADE PARTI ES WHICH REMAINED OUTSTANDING. THE AO NOTED THAT THE AMOUNT WAS OUTST ANDING FOR SEVERAL YEARS. ON BEING QUESTIONED, THE ASSESSEE EXPLAINED THAT TH E BALANCE IN THE ACCOUNTS HAD BEEN REDUCED TO RS.2,17,536/- IN A.Y.2008-09 DU E TO PAYMENTS/ ADJUSTMENTS. THE ASSESSEE FURTHER STATED THAT THE A MOUNTS WERE OUTSTANDING FOR A NUMBER OF YEARS AND POSITION WAS NOT LIKELY T O CHANGE AND THEREFORE THE ASSESSEE WILL WRITE BACK THE SAME IN THE CURRENT AS SESSMENT YEAR I.E. A.Y.2009- 10. AO HOWEVER OBSERVED THAT THE ASSESSEE DID NOT F URNISH ANY DETAILS OF PAYMENTS/ ADJUSTMENTS TO SHOW THAT THE AMOUNT WAS R EDUCED TO RS.2,17,536/- IN A.Y.2008-09. IT WAS ALSO OBSERVED BY HIM THAT AM OUNT WAS NO LONGER PAYABLE AS THE ASSESSEE ITSELF ADMITTED THAT IT WIL L OFFER THE SAME AS INCOME IN A.Y.2009-10. AO THEREFORE TREATED THE INCOME UNDER SECTION 41(1). IN APPEAL CIT(A) FOLLOWING THE REASONING GIVEN IN RELATION TO ADDITION ON ACCOUNT OF OUTSTANDING ROYALTY DISCUSSED IN GROUND NO.1, CONFI RMED THE ADDITION MADE BY THE AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5 3.1 BEFORE US THE LEARNED AR FOR THE ASSESSEE REITE RATED THE SAME ARGUMENTS AS ADVANCED IN CASE OF ROYALTY IN THE GRO UND NO.1 AND SUBMITTED THAT AMOUNTS COULD NOT BE ADDED AS INCOME. THE LEAR NED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ADDITION OF RS.3,58,845/- ON A CCOUNT OF ADVANCES TAKEN BY THE ASSESSEE FROM VARIOUS THIRD PARTIES WHICH WERE OUTSTANDING FOR SEVERAL YEARS AND WHICH HAD BEEN TREATED BY THE AO AS INCOM E UNDER SECTION 41(1). AS WE HAVE HELD WHILE DEALING WITH GROUND NO.1 THAT FO R TREATING THE LIABILITY AS INCOME UNDER SECTION 41(1) THE REVENUE AUTHORITIES HAVE TO PLACE MATERIAL ON RECORD TO SHOW THAT LIABILITY HAS CEASED TO EXIST. THERE IS NO SUCH MATERIAL PLACED BY THE REVENUE. MERELY BECAUSE THE LIABILITY HAS BEEN OUTSTANDING FROM SEVERAL YEARS CANNOT BE THE GROUND TO HOLD THE LIAB ILITY HAS CEASED TO EXIST. IN THIS CASE THE ASSESSEE ALSO SUBMITTED THAT IN THE S UBSEQUENT YEARS SOME RECOVERIES HAVE BEEN MADE AND THE LIABILITY HAD BEE N REDUCED TO RS.2,17,536/- IN ASSESSMENT YEAR 2009-10. EVEN OTHERWISE IN THE A BSENCE OF ANY MATERIAL PLACED ON RECORD TO SHOW THAT THE PARTIES HAD FORGO NE THE CLAIM AND LIABILITY WERE NO LONGER IN EXISTENCE AND THERE BEING NO UNIL ATERAL WRITE BACK BY THE ASSESSEE, THE LIABILITY IN OUR VIEW COULD NOT BE TA XED AS INCOME IN THE YEAR UNDER CONSIDERATION. WE THEREFORE SET ASIDE THE ORD ER OF CIT(A) AND DELETE THE ADDITION MADE. 4. THE THIRD DISPUTE IS REGARDING ADDITION OF RS.10 ,16,054/- ON ACCOUNT OF SECURITY DEPOSITS SHOWN UNDER THE HEAD CURRENT LIA BILITIES. THE ASSESSEE EXPLAINED THAT THE SAID DEPOSITS WERE FROM DEALERS AT VARIOUS LOCATIONS WHICH HAD BEEN TAKEN TO PROTECT THE TRADING INTEREST OF T HE ASSESSEE. THE DEPOSITS 6 HAD BEEN TAKEN SEVERAL YEARS AGO AND THE SAME REMAI NED UNCHANGED. IT WAS ALSO SUBMITTED THAT TRADING ACTIVITIES OF THE ASSES SEE HAD BEEN REVIVED IN A.Y.2007-08 AND THE ASSESSEE WAS LIKELY TO EFFECT S ALES THROUGH THE AFORESAID DEALER AND THEREFORE IT WAS IMPERATIVE THAT SECURIT Y DEPOSITS SHOULD CONTINUE. IT WAS ALSO SUBMITTED THAT THE AMOUNTS WERE DEPOSITS A ND THEREFORE THERE WAS NO INCOME ELEMENT INVOLVED. ACCORDINGLY IT WAS URGED T HAT NO ADDITION SHOULD BE MADE. THE AO HOWEVER OBSERVED THAT THE ASSESSEE HAD NOT GIVE REASONS FOR THE AMOUNT BEING OUTSTANDING AND WHETHER ANY TRADIN G ACTIVITIES WERE DONE WITH THE PARTIES AND ALSO DID NOT FURNISH ANY CONFI RMATION FROM THE PARTIES. THE AMOUNTS WERE OUTSTANDING FOR A LONG TIME AND NO ONE HAD COME FORWARD TO CLAIM IT. IT WAS FURTHER OBSERVED BY HIM THAT THE D EPOSITS WERE TAKEN IN THE COURSE OF TRADE AND THEREFORE UNCLAIMED SURPLUS REM AINED BY THE ASSESSEE HAS TO BE TREATED AS TRADING RECEIPTS AS HELD BY THE HO NBLE SUPREME COURT IN CASE OF PUNJAB DISTILLERY INDUSTRIES LTD. VS CIT (35 ITR 516). AO ACCORDINGLY TREATED THE SUM OF RS.10,16,054/- AS INCOME OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07. IN APPEAL THE ASSESSEE SUBMITTED THAT THE AO HAD NO BASIS FOR MAKING THE ADDITION AS ASSESSEE HAD NOT CLAIMED ANY DEDUCTION ON THIS ACCOUNT IN EARLIER YEARS. IT WAS ACCORDINGLY URGED THAT THE ADDITION SHOULD BE DELETED. CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTION RAISED . IT WAS OBSERVED BY HIM THAT THE DEPOSITS HAD BEEN RECEIVED FROM THE DEALER S WITH WHOM THE ASSESSEE HAD TRADING RELATIONSHIP AND THERE WERE NO CONFIRMA TIONS FILED TO SHOW THAT THE DEPOSITORS WERE CLAIMING THE AMOUNT. THE OUTSTANDIN G AMOUNT THEREFORE HAD BEEN RIGHTLY TREATED AS INCOME FOLLOWING THE JUDGME NT OF HONBLE SUPREME COURT IN CASE OF PUNJAB DISTILLERY INDUSTRIES LTD. (SUPRA). CIT(A) ACCORDINGLY CONFIRMED THE ADDITION MADE BY THE AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7 4.1 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT SECURITY DEPOSIT COULD NOT BE CONSIDERED AS INCOME AS THERE WAS NO INCOME ELEMENT INVOLVED. IT WAS ALSO SUBMITTED THAT THE ASSESSEE I TSELF HAD PAID A SUM OF RS.4,32,068/- IN A.Y.2007-08 AND THEREFORE THE LIAB ILITY COULD NOT BE SAID TO HAVE CEASED. IT WAS ALSO SUBMITTED THAT THE JUDGMEN T OF HONBLE SUPREME COURT IN CASE OF PUNJAB DISTILLERIES INDUSTRIES LTD . (SUPRA) RELIED UPON BY THE AUTHORITIES BELOW WAS DISTINGUISHABLE. HE PLACED RE LIANCE ON THE JUDGMENT OF HONBLE HIGH COURT OF MADRAS IN CASE OF CIT VS AVM LTD. (146 ITR 355). 4.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITION OF RS. 10,16,054/- ON ACCOUNT OF SECURITIES TAKEN BY THE ASSESSEE WHICH WERE SHOWN O UTSTANDING IN THE BALANCE. DEPOSITS HAD BEEN TAKEN BY THE ASSESSEE FROM DEALER S IN CONNECTION WITH BUSINESS. THE ASSESSEE EXPLAINED THAT THE TRADING A CTIVITY OF THE ASSESSEE HAD BEEN REVIVED IN A SUBSEQUENT YEAR I.E. A.Y.2007-08 AND THE ASSESSEE WAS LIKELY TO EFFECT SALES THROUGH THE SAID DEALERS AND THEREF ORE IT WAS IMPERATIVE THAT SECURITY DEPOSITS SHOULD CONTINUE. THE ASSESSEE ALS O ARGUED THAT THERE WAS NO INCOME ELEMENT INVOLVED IN THE DEPOSITS AND THEREFO RE THE SAME COULD NOT BE TREATED AS INCOME. THE AO HOWEVER DID NOT ACCEPT TH E CONTENTION ON THE GROUND THAT THE LIABILITY WAS OUTSTANDING FOR SEVER AL YEARS AND NO ONE HAD COME FORWARD TO CLAIM IT. AO THEREFORE TREATED THE AMOUNT AS TRADING RECEIPTS AND ADDED TO THE TOTAL INCOME FOLLOWING THE JUDGMEN T OF HONBLE SUPREME COURT IN CASE OF PUNJAB DISTILLERIES INDUSTRIES LTD . VS CIT (SUPRA). IN APPEAL CIT(A) HAS CONFIRMED THE ORDER OF AO. 4.3 WE HAVE CAREFULLY CONSIDERED THE VARIOUS ASPECT S OF THE ISSUE. THERE IS NO DISPUTE THAT NO DEDUCTION HAD BEEN CLAIMED BY TH E ASSESSEE ON ACCOUNT OF 8 THESE LIABILITIES IN THE EARLIER YEAR AND THEREFORE EVEN IF THE LIABILITY HAD CEASED THE SAME COULD NOT BE TAXED UNDER SECTION 41(1). TH E AUTHORITIES BELOW HAVE RELIED ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF PUNJAB DISTILLERIES INDUSTRIES (SUPRA) WHICH IN OUR VIEW IS DISTINGUISH ABLE. IN THAT CASE THE ASSESSEE WHO WAS IN THE BUSINESS OF DISTILLER, HAD TAKEN DEPOSITS FOR BOTTLES WHICH WERE REFUNDABLE ON THE RETURN OF BOTTLES. HON BLE SUPREME COURT OBSERVED THAT THE BUYERS WERE UNDER NO OBLIGATION T O RETURN THE BOTTLES AND THEREFORE THE ADDITIONAL AMOUNTS TAKEN WERE NOT SEC URITY DEPOSITS. THESE AMOUNTS THEREFORE COULD NOT BE TREATED AS SECURITY DEPOSITS EVEN IF THE SAME WERE SO ENTERED IN THE BOOKS. IT WAS ALSO HELD THAT THE EXTRA AMOUNT CHARGED FOR THE BOTTLES WERE PART OF SALE CONSIDERATIONS. I T WAS ACCORDINGLY HELD THAT THE SURPLUS AMOUNT LEFT WITH THE ASSESSEE ON ACCOUNT OF CHARGES FOR BOTTLES HAS TO BE ASSESSED AS INCOME. IN THE PRESENT CASE THE ASSE SSEE HAS TAKEN SECURITY DEPOSITS FROM THE PARTIES AND AMOUNTS TAKEN WERE NO T PART OF SALE CONSIDERATION AND THEREFORE THE SAID JUDGMENT WILL NOT APPLY IN CASE OF THE ASSESSEE. ON THE OTHER HAND, THE LEARNED AR FOR THE ASSESSEE HAS RELIED THE JUDGMENT OF HONBLE HIGH COURT OF MADRAS IN CASE OF AVM LTD. (146 ITR 355) AS PER WHICH THE AMOUNT COULD NOT BE TAXED UNDER SECTI ON 41(1). IN THAT CASE THE ASSESSEE WHO WAS DISTRIBUTOR OF CINEMATOGRAPHIC FIL MS HAD TAKEN DEPOSITS FROM DISTRIBUTORS FOR FULFILLMENT OF TERMS AND CONDITION S OF THE AGREEMENT AND ON DUE FULFILLMENT OF CONDITIONS, THE DEPOSITS WERE TO BE REFUNDED. THE DEPOSITS WERE ALSO SOME TIMES ADJUSTED AGAINST THE AMOUNT DUE TO THE ASSESSEE. IN ASSESSMENT YEAR 1972-73, MANY DEALERS HAD NOT TAKEN BACK THE DEPOSITS AND THERE WAS SURPLUS IN THE ACCOUNTS. THE ASSESSEE CR EDITED THE SURPLUS TO THE P & L ACCOUNT WHICH WAS TREATED BY THE AO AS INCOME. THE TRIBUNAL HOWEVER HELD THAT THE AMOUNTS COULD NOT BE TAXED AS INCOME. HON BLE HIGH COURT OF MADRAS OBSERVED THAT THE DEPOSITS WERE DIFFERENT FROM RECE IPTS FROM EXHIBITION OF FILMS 9 AND THEREFORE COULD NOT BE CONSIDERED AS PART OF TR ADING RECEIPTS. THESE DEPOSITS HAD ALSO NOT BEEN TAKEN INTO ACCOUNT IN TH E COMPUTATION OF INCOME IN THE EARLIER YEAR AND THEREFORE COULD NOT BE TAXED U NDER SECTION 41(1). THE HIGH COURT ACCORDINGLY HELD THAT THE DEPOSITS COULD NOT BE TAXED AS INCOME. THUS IN THAT CASE EVEN WHEN THE ASSESSEE HAD CREDITED THE S URPLUS TO THE P & L ACCOUNT THE AMOUNT WAS NOT FOUND TAXABLE BY THE HIGH COURT. IN THE PRESENT CASE THE ASSESSEE HAD NOT CREDITED THE AMOUNT. THERE IS ALSO NO MATERIAL PLACED ON RECORD TO SHOW THAT THE PARTIES HAD FORGONE THE CLA IM AND THAT THE LIABILITY WAS NO LONGER IN EXISTENCE. THEREFORE FOLLOWING THE JUD GMENT OF HONBLE HIGH COURT OF MADRAS (SUPRA) THE AMOUNT COULD NOT BE TAXED IN CASE OF THE ASSESSEE. NO CONTRARY JUDGMENT OF JURISDICTIONAL HIGH COURT OR T HE APEX COURT HAS BEEN BROUGHT TO OUR NOTICE. WE THEREFORE RESPECTFULLY FO LLOWING THE JUDGMENT OF HONBLE HIGH COURT OF MADRAS (SUPRA) SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION MADE. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 25 .05.2011. SD/- SD/- ( D. K. AGARWAL ) (RAJENDRA SIN GH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 25.05.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR C BENCH, ITAT, MUMBAI // TRUE COPY// 10 BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ALK