- (1.) THE liability of Rs. 11,80,973 written back by the assessee in P&L; a/c was treated as income in the asst. yr. 1996 -97 by the AO relying upon Expln. 1 introduced in Section 41(1) w.e.f. 1st April, 1997. The CIT(A), at the instance of the assessee set aside that finding of the AO. The Tribunal in the appeal of the Department upheld the view of the CIT(A). This is how this income -tax appeal has been preferred under Section 260A of the IT Act, 1961.
(2.) THOUGH the counsel for the Revenue sought to rely upon Section 28(iv) of the IT Act, 1961 in support of her contention that the AO was justified in treating the aforesaid amount written back by the assessee as the income, we are afraid that neither the said section was relied upon by the AO nor was pressed into service by the Revenue in appeal before the Tribunal. That section even otherwise has no application. Section 41(1) of the IT Act as was existing in the year of assessment (1996 -97) before introduction of Expln. 1 came up for consideration before the Supreme Court in the case of CIT v. Sugauli Sugar Works (P) Ltd. : [1999]236ITR518(SC) . The Supreme Court after referring to Section 41(1) of the IT Act, held thus: It will be seen that the following words in the section are important : 'the assessee had obtained, whether in cash or in any other manner whatsoever any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him'. Thus, the section contemplates the obtaining by the assessee of an amount either in cash or in any other manner whatsoever or a benefit by way of remission or cessation and it should be of a particular amount obtained by him. Thus, the obtaining by the assessee of a benefit by virtue of remission or cessation is sine qua non for the application of this section. The mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not enable the Department to say that Section 41(1) would apply and the amount should be included in the total income of the assessee. The reasoning of the High Court is correct and we are in agreement with the same.
(3.) IT has been, thus, held in unequivocal terms by the Supreme Court that mere entry of transfer in his account by the assessee unilaterally would not enable the Department to say that Section 41(1) would apply and the amount should be included in the total income of the assessee. The Supreme Court concurred with the reasoning of the Calcutta High Court reported in the case of CIT v. Sugauli Sugar Works (P) Ltd. (1981) 23 CTR (Cal) 226 : (1983) 140 LTR 286 (Cal) where the Division Bench held thus: 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. Remission has to be granted by the creditor. It is not in dispute and it indeed cannot be disputed, that it is not a case of remission of liability. Similarly, a unilateral act on the part of 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 liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor or a contract between the parties, or by discharge of the debt -the debtor making payment thereof to his creditor. Transfer of an entry is neither an agreement between the parties nor payment of the liability. ;