Remission or cessation of liability

There has to be a positive act on the part of the creditor in the current year which would provide the benefit to the assessee by way of a remission. In absence of such act, it cannot be held that a liability has been remitted in favour of the assessee, as held by AhdTrib in ITO v Bhavesh Prints (P) Ltd — In favour of: The assessee; ITA No 1302 (Ahd) of 2010: (AY 2007–2008).

Merely because certain creditors are not traceable or have denied any liability against the assessee would not show that the liability ceased to exist only in the current year, by virtue of the operation of the law, or that it was remitted by the creditor only during the current year.

Merely because a certain amount is outstanding for number of years cannot be a case for holding that there is a cessation or remission.

The onus is on the revenue to show that the amount in question, which is deemed as profit during the current year under s 41(1), was in fact taken into account in any earlier year, either in the trading account or in the profit and loss account.

Decided on: 17 July 2011.