Bhaskar Bhattacharya, J. - (1.) THIS appeal under Section 260A of the Income-tax Act, 1961 is at the instance of an assessee and is directed against an order dated April 16, 2004 passed by the Income-tax Appellate Tribunal, "B" Bench, Kolkata, in Income-tax Appeal bearing ITA No.892(Kol)/2003 for the Assessment Year 1995-96.
(2.) THE facts giving rise to filing of this present appeal may be summed up thus: a) THE assessee is a public limited liability company within the meaning of the Companies Act, 1956 which carries on business of growing and manufacturing tea. THE assessee has 17 tea gardens and its employees from time to time come from the gardens to the assessee"s headquarters at Calcutta for the purpose of the assessee"s business. THE assessee maintains a transit flat at Calcutta for the garden employees who come to the Headquarters for official work which is used exclusively for the employees coming for official work and the assessee does not pay any allowance to such employees and no recovery is also made from them for their stay at the transit flat. b) According to the assessee, the Assessing Officer for the Assessment Years 1988-89 to 1992-93 illegally treated the transit flat as guest house within the meaning of sub-section (4) and sub-section (5) of Section 37 and disallowed the expenditure relating to maintenance of such transit flat. On appeal, the assessee succeeded before the Commissioner (Appeals) for the Assessment Year 1988-89 but in the subsequent years, the disallowance was upheld. On further appeal, the Tribunal upheld the treatment of the transit flat as guest house within the meaning of sub-section (4) and sub-section (5) of Section 37. THE Tribunal, however, limited the nature of expenses which could be subjected to disallowance. According to the Tribunal, disallowance could be made only in respect of depreciation and rent. Any other expenditure covered by the provisions of Sections 30 to 36 could not be disallowed under Section 37(4). c) During the previous year ending on March 31, 1995, the assessee credited to its profit and loss account, inter alia, a sum of Rs.5,02,646/- as liabilities no longer required to be written back since the cheques for the said amount issued to the creditors were not presented within the validity periods. THE assessee claimed that the said sum of Rs.5,02,646/- was liable to be excluded from the profit as per profit and loss account and could not be subject to tax under Section 41(1) of the Act since the action of the assessee in writing off the said amount was an unilateral act and there was no remission or cessation of the trading liability nor had the assessee obtained any cash or any amount in respect of such expenditure or any benefit within the meaning of the said section. d) By assessment order dated March 30, 1998, the Assessing Officer treated the expenditure of the transit flat as falling under the purview of sub-sections (4) and (5) of Section 37 and disallowed such expenditure. THE Assessing Officer further treated the aforesaid amount of Rs.5,02,646/- as the assessee"s income under Section 41(1) of the Act. e) Being dissatisfied, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) but the said authority dismissed the appeal and upheld the view of the Assessing Officer on both the grounds. f) Being dissatisfied, the assessee preferred an appeal before the Incometax Appellate Tribunal and by the order impugned in this appeal, the said Tribunal has dismissed the appeal and upheld the view of the Commissioner of Income-tax (Appeals). g) On the issue relating to transit expenditure, the Tribunal followed its orders for the Assessment Years 1993-94 and 1994-95 and with regard to the sum of Rs.5,02,646/-, the Tribunal held that writing off the said amount in the books of account was not an unilateral act of the assessee but had resulted out of the creditors" conduct in not presenting the cheques to the Bank for encashment within the validity period and not claiming the amount from the assessee within the limitation period and the assessee had also not shown any desire to pay the amount to the creditors. THE Tribunal held that liability in respect of the said amount was extinguished or remitted within the meaning of Section 41(1) of the Act. Being dissatisfied, the present appeal has been filed. A Division Bench at the time of admission of the appeal formulated the following substantial questions of law: "a) Whether on a proper interpretation of the provisions of subsections (4) and (5) of Section 37 of the Income Tax Act, 1961 the Tribunal was justified in law in holding that the transit flat for employees was a guest house and the expenditure in respect thereof was to be disallowed as expenditure on the maintenance of guest house within the meaning of the said provisions. "b) Whether the Tribunal was justified in law in holding that the liability in respect of the sum of Rs.5,02,646/- representing cheques not encashed by the appellant"s suppliers within the validity period thereof stood extinguished or remitted and the said amount was liable for tax under Section 41(1) lof the Income Tax Act, 1961." Mr. Khaitan, the learned Senior Advocate appearing on behalf of the appellant, at the very outset, fairly conceded that so far as the question No. (a) formulated above is concerned, his client is bound by the Division Bench decision of this Court in the case of Keshoram Industries and Cotton Mills Limited Vs. C. I. T reported in (1991) 191 ITR 518 and as such, he did not press the aforesaid question and consequently, restricted his submission to question No. (b), referred to above.
(3.) IN support of the aforesaid point, Mr. Khaitan contended that his client maintains mercantile system of accounting and there is no dispute that the cheques for the aforesaid amount were duly given to the creditors who, however, did not encash those cheques. According to Mr. Khaitan, merely because those creditors did not encash the cheques, does not imply that those debts have been either extinguished or become barred under the law of limitation. According to Mr. Khaitan even if it is assumed for the sake of argument that the period of limitation for filing a suit for recovery of that amount has become barred, the debt of his client to the aforesaid extent has not been extinguished as pointed out by the Supreme Court in various decisions. IN support of such contention, Mr. Khaitan relies upon the following decisions: 1. Commissioner of INcome-tax Vs. Agarpara Co. Ltd., reported in (1936) Vol. 151 page 78; 2. Commissioner of INcome-tax Vs. General INdustrial Society Ltd., reported in (1994) Vol. 207 page 169; 3. Commissioner of INcome-tax Vs. Sugauli Sugar Works (P) Ltd., reported in AIR 1999 SC 518; 4. Chief Commissioner of INcome-tax Vs. Kesaria Tea Co. Ltd., reported in AIR 2002 SC 434. Mr. Khaitan contends that the learned Tribunal below committed substantial error of law in holding that the provisions contained in Section 41(1) of the Act are attracted in the facts of the present case. Mr. Bhowmick, the learned counsel appearing on behalf of the Revenue has, on the other hand, opposed the aforesaid contention of Mr. Khaitan and has contended that the Tribunal below has rightly held that Section 41(1) of the Act was applicable from the materials on record. In support of such contention, Mr. Bhowmick has relied upon the decision of the Supreme Court in the case of Commissioner of Income-tax Vs. T. V. Sundaram Iyengar and Sons Ltd. reported in (1996) 222 ITR 344.;