15. We have considered the rival submissions and also perused the relevant material on record. It is observed that the amount of liability in question in respect of TISCO written back by the assessee company in its accounts was treated by the authorities below as its income by applying the provisions of section 41(1). There is no dispute that the such liability represented the trading liability of the assessee and as declared by the assessee itself in the return of income, there was remission or recession of the said liability during the year under consideration. The said liability accordingly was written off by the assessee in the books of account and the amount thereof was also offered by it as income u/s. 41(1), Thereafter, the issue was raised by the assessee by way of additional ground during the course of appellate proceedings before the Id. CIT(A) disputing the chargeability of the said amount to tax u/s 41(1) on the ground that the suit for recovery against it was filed by the concerned party in the court. According to the assessee, the said event taken place subsequently was sufficient to show the liability in question had not ceased to exist during the year under consideration despite the same having been written off in the books of account. The contention raised on behalf of the assessee in this regard before the Id. CIT(A) as well as before us is that there being no cession of the liability in question as was evident from the suit for recovery subsequently filed by the concerned creditor, there was no benefit in respect of such liability which could be said to be obtained by the assessee warranting the application of provisions of section 41(1). In support of this contention, he has relied on the decision of Hon’ble Supreme Court in the case of Sugauli Sugar Works (P.) Ltd. (Supra)
16. It is no doubt true that it was held by the Hon’ble Supreme Court in the aforesaid case that obtaining benefit by the assessee by virtue of remission or cession of liability is a condition precedent for the application of section 41(1) and the mere fact that assessee has made an entry of transferring its accounts unilaterally will not enable the department to say that section 41(1) would apply. It is, however, observed that the assessment is involved in the said case before the Hon’ble Supreme Court was 1965-66 and Explanation 1 to section 41(1) inserted by the Finance Act No. 2. 1996 w.e.f. 1.4.97 on which reliance has been strongly placed by the learned D.R., was not applicable. The said Explanation reads as under:-
Explanation 1 —For the purposes of this sub-section, the expression “loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.
17. A perusal of the aforesaid Explanation clearly shows that the obtaining of benefit as envisaged by the expression “loss or. expenditure or some benefit in respect of any such trading liability by way of remission or cession thereof is defined to include remission or cession of liability by unilateral act of the assessee by way of written off its liability in its accounts. It, therefore, follows that remission or cession of any liability by unilateral act of the assessee by way of writing off its liability in its accounts will amount to obtaining of the benefit for the purpose of Section 41(1) and the act of the assessee to write off such liability unilaterally in its accounts by itself would be sufficient to attract the said provisions as per Explanation 1. In the present case, the assessee company has not only written off the liability in question in its books of account but also offered the amount of such liability as its income in the return on the ground that the same has ceased to exist. In the circumstances, even :f it is assumed that the subsequent event in the form of suit filed by the concerned creditor against the assessee to recover the said liability was sufficient to show that the writing off of the liability in its books of account by the assessee treating the same as ceased to exist was a unilateral act, the provisions of section 41(1) were clearly attracted as per Explanation 1 below section 41(1). This being so, we are of the view that the said liability written off by the assessee was liable to be added to the total income u/s 41(1) and the Id. CIT(A) was fully justified in confirming the addition made by the A.O. on this issue to the total income of the assessee. The impugned order of the Id. CIT(A) on this issue is therefore upheld dismissing ground No. 4 of assessee’s appeal.