Decided on March 23,1982



S.K. Chander, Accountant Member - (1.) THESE cross appeals, by the assessee and the revenue, are directed against the order of the Commissioner (Appeals), dated 9-2-1981, relating to the assessment year 1977-78. In order to have proper appreciation of the issues raised by the parties in their respective appeals, we first record the factual background of the case.
(2.) The facts which are uncontroverted and on the basis of which we have to determine the issues arising from and projected in the cross-appeals are in the following conspectus. The assessee is having a factory for cotton ginning and pressing. During the accounting period, relevant to the assessment year 1976-77 under appeal, it owed Rs. 11,61,768.06 to 52 creditors. These amounts represented the price of goods purchased by the assessee in the accounting period relevant to the assessment year 1976-77. The purchase price of the goods had entered into the determination of net commercial results as per profit and loss account and as such was claimed and was allowed by the ITO in computing the total income/loss of the assessee for the assessment year 1976-77 as per order dated 23-1-1979 made by the ITO, which determined the figure of loss of Rs. 5,29,332 before allowance of depreciation for that year.
(3.) DURING the course of the assessment proceedings for the assessment year 1977-78, which is 'under appeal before us, the ITO found that the said 52 creditors to whom the assessee owed Rs. 11,61,768.06 as on 1-8-1975 were paid off by the assessee only to the extent of 50 per cent of the amount due to each one of them. This 50 per cent came to Rs. 5,80,884. The balance 50 per cent of the amount was remitted by each creditor in favour of the assessee during the accounting period relevant to this assessment year, i.e., the assessment year 1977-78. The details of the opening balance, the amount paid in cash by the assessee and the amount remitted by the parties with their respective names appears in Annexure A to the assessment order dated 26-9-1980 for the year under appeal. After giving an opportunity to the assessee of being heard, the ITO treated the balance 50 per cent amounting to Rs. 5,80,884 as the sum representing remission or cessation of liability within the meaning of Section 41(1) of the Income-tax Act, 1961 ('the Act').;

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