ORDER
Mukul Shrawat, J.M.
1. The Revenue is in appeal against the order of CIT(A)-I, Mumbai dt. 27th Nov., 1992, and raised the following ground;
“On the facts and circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs. 31,45,526 being unclaimed outstanding balances in respect of previous years written back by the assessee in the P&L a/c without appreciating the fact that the amount written back is clearly income of the assessee.”
2. In accordance with the order passed under Section 143(3) dt. 19th March, 1990, the AO has observed that the assessee has written back an amount of Rs. 31,45,526 on account of un-claimed outstanding balance pertaining to previous year. The assessee has not included in its income the said sum being unclaimed balance written-back. The assessee has claimed that the written back was a unilateral act on the part of the assessee and therefore did not amount to the income. However, rejecting the contention of the assessee the AO has treated the said sum as income and consequently the declared loss was reduced. Being aggrieved, the assessee went in appeal.
3. In first appeal learned CIT(A) has relied upon the judgment of Bombay High Court in the case of CIT v. Chougule & Co. (P) Ltd. (1991) 189 ITR 473 (Bom) and J.K. Chemicals Ltd. v. CIT (1966) 62 ITR 34 (Bom), therefore, held that the ratio of these decisions directly apply on the case hence disallowance could not be sustained, accordingly directed to delete the same. Now the Revenue is before us against the order of learned CIT(A).
4. On behalf of the Revenue learned Departmental Representative Shri P. Peerya appeared and strongly contended that learned CIT(A) has relied upon certain old decisions of various High Courts, however, the position has now been clarified by the decision of Hon’ble Supreme Court in the case of CIT v. T.V. Sundaram fyengar & Sons Ltd. (1996) 222 ITR 344 (SC). Learned Departmental Representative has submitted that this order of Hon’ble Supreme Court was passed by the Bench of three Hon’ble Judges, therefore, has more strength and ought to be followed by the authorities. He has also pointed out that in the case of CIT v. Batliboi & Co. (P) Ltd. (1984) 149 ITR 604 (Bom) and CIT v. Bennett Coleman & Co. Ltd. (1993) 201 ITR 1021 (Bom) Hon’ble Bombay High Court has decided this issue in favour of Revenue,
5. On behalf of the assessee learned authorised representative Shri M, Chandrasekhar appeared and strongly relied upon the decision of Hon’ble Supreme Court in the case of CIT v. Sugauli Sugar Works (P) Ltd. (1999) 236 ITR 518 (SC). Further he has also strongly relied upon the order of learned CIT(A) wherein the case of Chougule & Co. (P) Ltd. (supra) of Bombay High Court was referred. He has also mentioned the decision of Jammu & Kashmir High Court in the case of CIT v. Abdul Ahad (2001) 247 ITR 710 (J&K) wherein it was held that a unilateral entry of transfer by the assessee in its books of account would not entitle the Department to invoke Section 41(1) of the Act for inclusion in the total income of the assessee.
6. We have carefully considered the rival submissions in the light of the orders of authorities below and the case laws cited by both the parties. It was contested from the side of the assessee that the amount of Rs. 31,45,526 was unclaimed outstanding balance pertaining to past years had been written back during the year under consideration should not be liable to tax under Section 41 (1) of IT Act on the ground that (i) the amount written back were not in the nature of revenue receipt, therefore, should not be considered as business income, (ii) the liability to pay had not ceased as the parties were in existence and if claimed by the creditors then those amounts should be payable, (iii) it was only an accountancy entry to write back the amounts which could not be considered as business income, and (iv) the assessee had unilaterally written back this amount though the liability had not ceased. It was also submitted that there was neither an agreement between the assessee and the parties not to pay the amount due nor there was unequivocal declaration by the assessee not to honour its commitment in case any of the party approaches for payment,
7. On the other hand, where the assessee treats a given amount as his own money in his P&L a/c and had also mentioned that the said amount became his own money as a result of forfeiting the same itself, then prima facie the assessing authority would be entitled to treat the amount as his income and if the assessee asserted that though he credited the amount to his P&L a/c, he was not entitled to do so or. he was not entitled to forfeit, then the onus was upon him to establish that in law he was not entitled to treat the said amount as part of his income or that he was not entitled to forfeit the same and, therefore, his liability did not cease. Section 41 enacts certain adjustment
provisions whereby the Revenue takes back what it has already allowed if certain conditions come to pass and the assessee recoup something for which an allowance had already been made and deducted from his business income. It was found by the makers of legislature that a number of assessees were escaping tax liability in regard to the credit of trading liabilities to P&L a/c, even when the recovery of the debt have become barred by limitation or when there was no likelyhood of the liability being enforced against them. As per the provisions of Section 41 where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred, by the assessee, and subsequently the assessee has obtained any amount in respect of such expenditure or obtained some benefit in respect of such trading liability by way of remission or cessation, the amount so obtained or the value of such benefit shall be deemed to be profit and gains of business and accordingly chargeable to tax as the income of that previous year. With this proposition in mind the AO has made the addition. After considering the arguments of both the sides and proposition of law as laid down in the impugned section let us also peruse the precedents cited by both the parties. On behalf of the assessee the main stress was on the decision of Sugauli Sugar Works (P) Ltd.’s case (supra), the judgment of the Hon’ble Supreme Court passed by the Bench constituted by two Hon’ble Judges wherein it was held that obtaining by the assessee of a benefit by virtue of remission or cessation is the 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. In this order of the Hon’ble Supreme Court dt. 4th Feb., 1999; the order of Bombay High Court in the case of Bennett & Coleman & Co. Ltd. (supra) was disapproved, however, there is no reference of the decision of another order of Hon’ble Supreme Court decided by a Bench of three Hon’ble Judges in the case of T.V. Sundaram lyengar & Sons Ltd. (supra), order dt. 11th Sept., 1996. The assessee has also mentioned a decision of Jammu & Kashmir High Court in the case of Abdul Anad (supra) wherein the decision of Sugauli Sugar Works (P) Ltd.’s case (supra) was followed and the decision of T.V. Sundaram Iyengar & Sons Ltd.’s case (supra) was distinguished and finally held in favour of the assessee as referred in above paras.
8. However, the Revenue has strongly relied upon the decision of T.V. Sundaram lyengar & Sons Ltd.’s case (supra) passed by three Hon’ble Judges of Supreme Court wherein it was held that if a commonsense view of the matter were taken, the assessee, because of the trading operation, had become richer by the amount which it transferred to its P&L a/c. The moneys had arisen out of ordinary trading transactions. Although the amounts received originally were not of income nature, the amount remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time-barred and the amount attained a totally different quality. It became a definite trade surplus. The assessee itself has treated the money as its own money and taken the amount to its P&L a/c. The amounts were assessable in the hands of the assessee. In this case an earlier decision of jurisdictional High Court in favour of Revenue namely Batliboi & Co. (P) Ltd.’s case (supra) was also referred. Another decision of jurisdictional High Court in
the case of Bennett Coleman & Co. Ltd. (supra) was also heavily relied upon by the Revenue. In clear terms the Hon’ble, Court has observed that in extraordinary cases where the assessee wants to contend that despite his own action of the nature indicated above the liability still survives, the onus will be on him to bring sufficient materials on record to satisfy the authorities concerned in that regard. It may not be out of place to mention here that the Hon’ble High Court has referred its own decision i.e. decided by Bombay High Court, in the case of CIT v. Chase Bright Steel Ltd (1989) 177ITR 128 (Bom), J.K. Chemicals Ltd. & Kohinoor Mills Co. Ltd. v. CIT (1963) 49 ITR 578 (Bom). It is also pertinent to note that at that point of time the decision of Sugauli Sugar Works (P) Ltd. ‘s case (supra) as passed by Calcutta High Court, was also referred before the Hon’ble Court.
9. This issue has become complicated, in view of the divergent view expressed by the Hon’ble Supreme Court which has now been dealt with elaborately by the Hon’ble Madras High Court in its latest decision in the case of CIT v. Sundaram Industries Ltd. (2002) 253 ITR 396 (Mad), First of all, it was clearly mentioned that where there are two rulings of the Supreme Court which are apparently contradictory, the decision rendered by the larger Bench is to be followed by the High Court, (underlined, italicised in print, by us)
While discussing the two decisions of Supreme Court, the Hon’ble Madras High Court has quoted as follows :
“Learned counsel for the respondent-assessee, however, contended that a later judgment of the Supreme Court, though rendered by a two-Judge Bench, should govern this case. The decision relied on is in the case of CIT v. Sugauli Sugar Works (P) Ltd. (1999) 236 ITR 518 (SC). It may be noticed at the outset that that judgment, unfortunately does not refer to the decision rendered by the larger Bench in the case of CIT v. T.V. Sundaram Iyengar & Sons Ltd. (1996) 222 ITR 344 (SC)….
We are now confronted with two rulings of the apex Court which are
apparently contradictory. In this situation, we must prefer the one rendered by
a larger Bench. It has been held by the Supreme Court that decisions of larger
Benches bind even Benches of smaller strength within the Supreme Court.
Moreover, the decision rendered in the earlier case by the three-Judge Bench
was with reference to a question which is almost identical to the one we are
required to consider. The Court held therein that when the assessee itself had
treated the money as its own money, and taken the amounts to its P&L a/c,
and there is no explanation from the assessee as to why it did so, if it was
somebody else’s money, commonsense demands that the amount should be
treated as income of the assessee, The facts of this case being practically
identical to the facts of the case of T.V. Sundaram lyengar & Sons Ltd. (supra)
and that decision having been rendered by a larger Bench, we are bound by
that judgment. We answer the question referred to us in favour of the Revenue,
and against the assessee.”
Therefore, on perusal of the above decision it is clear that at the time of passing the judgment of Sugauli Sugar Works (P) Ltd.’s case (supra) the earlier decision of larger Bench of Supreme Court in the case of T.V. Sundaram lyengar & Sons Ltd. (supra) was not mentioned. We have also noted that the decision of larger
Bench of the Supreme Court has to be followed being binding in nature. As far as certain contentions raised by the assessee are concerned, we are not convinced with the same in view of the decisions as cited above as well as on account of following reasons. The first reason is that it is an admitted fact that the assessee on its own has written back the said amount and treated as its own money by crediting in the account. Since the assessee had already claimed necessary benefits in the past, therefore, in the year in which it was claimed as not outstanding balance, hence the nature of receipt was nothing but “revenue receipt”. The next reason for disagreement is that the onus was on the assessee to prove that the said liability had not ceased by producing such parties before the Revenue authorities. The assessee has not discharged this onus by producing those parties who were claimed to be in existence and to whom the amount was payable. No answer is on record that why the said liability though long outstanding have not been demanded by those parties or acquired by the assessee. Though it can be said to be an entry for accountancy purpose but if apply a commonsense then a logical conclusion can be drawn that by passing an entry the same was treated as receipt of the assessee which has gained its character as revenue receipt. Other reasons for not accepting the claim of the assessee is that the assessee has not produced any cogent evidence to establish that the liability has not factually ceased and it was only a unilateral act on the part of the assessee.
In our opinion the action of the assessee should be bilateral i.e. on one hand if the assessee is writing back the liabilities on the other hand the other party should also confirm that the same has not ceased so far. In other words the unilateral action should be confirmed by bilateral action of the other party as well. The Revenue authorities were kept in dark whether there was some agreement or not and it was an unequivocal declaration and whether the assessee has to honour its commitment in future and whether the parties if any existing would approach and demand for the payment. Since all these queries remained unanswered and the assessee has not taken care to discharge its duty to support its contention, therefore, we are not convinced with the explanation of the assessee. Under the totality of the circumstances and in the light of the discussions made above and respectfully following the latest decision of Madras High Court in the case of Sundaram Industries Ltd. (supra), wherein all the previous decisions of Supreme Court have been dealt with, we hereby reverse the order of learned CIT(A) and accept the ground of the Revenue.
10. In the result, the appeal of the Revenue is allowed.