R.K.AGRAWAL,J. - (1.) THE Income Tax Appellate Tribunal, New Delhi, has referred the following questions of law under Section 256(1) of the Income Tax Act, 1961 Income Tax Act for opinion to this Court: R.A. No. 980/Delhi/96 (A.Y. 1984 -85) 1. Whether, on the facts and in the circumstances of the case, learned ITAT was legally correct in deleting the addition of Rs. 2,99,287 towards cessation of liability which is clearly chargeable to tax under Section 41(1) of Income Tax Act ?
(2.) WHETHER , on the facts and in the circumstances of the case, learned ITAT was legally correct in deleting the addition of Rs. 1,77,953 made by the assessing officer under Section 40A(5) of Income Tax Act and holding that disallowance should be worked out in view of rule 3(c)(ii) of Income -tax Rules, 1962 ? R.A. No. 982/Delhi/96 (AY. 1986 -87) 1. Whether, on the facts and in the circumstances of the case. learned ITAT was legally correct in deleting the addition of Rs. 1,80,075 made by the assessing officer under Section 40A(5) of Income Tax Act and holding that disallowance should be worked out in view of rule 3(c)(ii) of Income -tax Rules ? R.A. No. 981 /Delhi/96 (A.Y. 1985 -86) Whether, on the facts and in the circumstances of the case, learned ITAT was legally correct in deleting the addition of Rs. 1,39,658 made by the assessing officer under Section 40A(5) of Income Tax Act and holding that disallowance should be: worked out in view of rule 3(c)(ri) of Income -tax Rules ? Whether, on the facts and in the circumstances of the case, learned ITAT was legally correct in deleting the addition of Rs. 3,67,872 made by the assessing officer towards claim of bonus pertaining to previous accounting year as a result of change in method of accounting year as a result of change in method of accounting in respect of bonus from cash system in assessment year 1984 -85 to mercantile system in assessment year 1985 -86 in view of the decision of Hon'ble Supreme Court in the case of CIT v. British Paints India Ltd. 188 ITR 44. R.A. No. 983/Delhi/96 (A.Y. 1987 -88) 1. Whether, on the facts and in the circumstances of the case, learned ITAT was legally correct in deleting the addition of Rs. 1,24,574 made by the assessing officer under Section 40A(5) of Income Tax Act and holding that disallowance should be worked out in view of rule 3(c)(ii) of Income -tax Rules ? 2. The reference relates to the assessment years 1984 -85 to 1987 -88. The first question of R.A. No. 980 relates to the assessment year 1984 -85 whereas the second question of R.A. No. 980 and the first question of R.A. Nos. 981, 982 and 983 relate to the assessment years 1984 -85 to 1987 -88 respectively. The second question in R.A. No. 981 relates to the assessment year 1985 -86. Brietly stated, the facts giving rise to the present reference are as follow: A sum of Rs. 2,99,287 was written back by the respondent -assessee during the previous year relevant to the assessment year in question as the amount was lying since last three years being unclaimed. It related to unclaimed sundry creditors. The assessing officer had added the aforesaid amount by invoking the provisions of Section 41(1) of the Act by treating it to be a case of cessation of liability. The Commissioner (Appeals) had upheld the action. However, in further appeal, the Tribunal had held that the addition was not justified. The Tribunal has held as follows:The liability of the assessee to pay those amounts to the creditors does not depend upon the admission of those amounts by the assessee. Therefore, writing back of those amounts need not have any effect of the question of liability. The liability on the part of the assessee would continue to be there so long as the limitation period is available to the creditors to recover those amounts. Therefore, in our opinion, disallowance of the amounts cannot have any lega 1 consequence. It is not the case of the assessing officer that the debts due to the creditors were not true or genuine since all along they have been claimed in the accounts and they have been allowed in earlier years. In the absence of any evidence that the debts were not genuine and the creditors were bogus, the amounts should not be disallowed but should always be allowed as deduction while arriving at the real profit derived by the assessee in his business.
(3.) IN respect of working out the amount of addition under Section 40A(5) of the Act, the facts are that the assessing authority had made an addition of Rs. 1,77,953, Rs. 1,39,658, Rs. 1,80,075 and Rs. 1,24,574 in respect of the assessment years 1984 -85, 1985 -86, 1986 -87 and 1987 -88, respectively, under Section 40A(5) of the Act. In appeal, the Tribunal has directed the assessing officer to work out the disallowance in term of rule 3(c)(ii) of the Income -tax Rules, 1962.;