Cessation of liabilities under Section 41(1) of the Income-tax Act, 1961 requires a bilateral act of the parties and cannot be inferred solely from the unilateral act of the assessee.

AJIT K. SENGUPTA, J.

( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, the Tribunal has referred the following common question of law for the assessment years 1982-83 and 1983-84 :"whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the cessation of liabilities of Rs. 61,041 and Rs. 47,260 were not income assessable under Section 41 (1) of the Income-tax Act, 1961, respectively in the assessment for the assessment years 1982-83 and 1983-84"

( 2 ) SHORTLY stated, the facts are that the assessee, a resident company, during the accounting year ending on June 30, 1981, being the relevant assessment year 1982-83, wrote back to its profit and loss account an aggregate sum of Rs. 88,010 representing unpaid and unclaimed bonus, A similar amount for the accounting year ending June 30, 1982, relevant to the assessment year 1983-84 is Rs. 2,25,600. The liabilities were written back as they were no longer considered necessary to be carried as liabilities. The Assessing Officer brought the amounts to tax on the ground that, by conduct, the assessee has disowned having any obligation with regard to the said liabilities. The Commissioner of Income-tax (Appeals), however, excluded the liabilities written back for both the years on the ground that the liabilities, though barred by limitation of time under the Limitation Act, does not become extinguished by the unilateral act of the assessee. The Department carried the matter before the Tribunal in second appeal. The Tribunal upheld the order of the Commissioner of Income-tax (Appeals) holding that the mere act of writing back unclaimed liabilities cannot attract Section 41 (1) as the assessee's unilateral act does not result in the cessation of the liabilities. In coming to this conclusion, the Tribunal followed its earlier order in Income-tax Appeal No. 395/ (Cal) of 1985 in the assessee's own case relating to the assessment year 1979-80.

( 3 ) FROM the assessment order, it appears that the assessee had not filed before the Assessing Officer any particulars or details of the liabilities so written back. From the following observation of the Commissioner of Income-tax (Appeals) appearing in paragraph 5, it appears that it is the practice of the assessee as a regular measure to write back similar liabilities and getting away with not paying any tax : "it has further been stated by the representative of the appellant that the unpaid liabilities are written back in the books of the appellant after 2/3 years as a regular measure for the purpose of keeping effective checks against frauds which may be committed by the employees of the appellant by claiming fictitious payments of the said liabilities".

( 4 ) THE Commissioner of Income-tax (Appeals) has, however, gone by the mere averments of the appellant that the liabilities written back are shifted to a special register and a specific watch is kept on actual payments of the said liabilities.

( 5 ) THE statement of the appellant that such write-back of liabilities is a regular feature in the assessee's accounts is a cause for alarm. Such write-back, as a recurring event, could be a means whereby the assessee could, on the one hand, get its profit kept down by way of provision for expenditure which the assessee does not mean to or has no need to discharge and can go scot free by recycling such provisions into the profit and loss account appropriated as reserve. It is also not comprehensible why no evidence regarding the liabilities written back were furnished to the Assessing Officer.

( 6 ) LEARNED counsel for the assessee relied upon the decisions of this court in CIT v. Sugauli Sugar Works P. Ltd. [1983] 140 ITR 286 and CIT v. B. N. Elias and Co. (P.) Ltd. [1986] 160 ITR 45. It was pointed out that these decisions are founded on the ratio of the Supreme Court in Bombay Dyeing and Mfg. Co. Ltd. v. State of Bombay.

( 7 ) WE are not, however, persuaded to say that

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