Ajit K. Sengupta, J.:— In this reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the Revenue, the following question of law has been referred by the Tribunal for the opinion of this court for the assessment year 1974–75:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the liability cannot be assessed under section 41(1) of the Income-tax Act, 1961, simply because the assessment of the Commercial Tax Officer has been set aside by the appellate authorities and in that view holding that the assessee is entitled to the deduction of Rs. 17,78,887?”

2. The facts as found by the Tribunal are that in the course of the assessment proceedings for the assessment year 1968–69, the assessee-company had claimed and was allowed a deduction of the sales tax liability amounting to Rs. 17,78,867 in respect of four quarters ending on August 31, 1963. This liability was fastened upon the assessee on the basis of the ex parte order dated August 16, 1967, passed by the Commercial Tax Officer, Central Section, Calcutta. The assessee did not make any provi-sion for this sales tax liability in its books of account, but the claim was made by the assessee-company based upon the said ex parte order passed by the Commercial Tax Officer on August 16, 1967. Subsequently, on appeal filed by the assessee, the Assistant Commissioner of Commercial Taxes, by his appellate order dated April 4, 1973, set aside the ex parte order passed by the Commercial Tax Officer and directed him to make a fresh assessment after giving a proper opportunity to the assessee to produce its books of accounts which were lying seized with the Income-tax Department. Since the sales tax liability of Rs. 17,78,887 which was raised in pursuance of the ex parte assessment made by the Commercial Tax Officer ceased to exist as a result of the appellate order passed on April 4, 1973, the Income-tax Officer sought to assess the said sum of Rs. 17,78,887 as the assessee's income under section 41(1) of the Income-tax Act, 1961, in the assessment for the previous year ending March 31, 1974, which is now in reference before this court. On appeal by the assessee, the Appellate Assistant Commissioner, agreeing with the Income-tax Officer, observed that the sales tax liability in question arose as a result of the ex parte order passed by the Commercial Tax Officer. This liability related to the assessment year 1964–65 and the assessee-company, even though it followed the mercantile system of accounting, did not provide this liability in its books of account in any of the years and the deduction was claimed by it in the assessment year 1968–69 only on the basis of the ex parte order dated August 16, 1967, which fell within the accounting year relevant to the assessment year 1968–69. Since the said ex parte order was now set aside by the appellate authority, the said liability of Rs. 17,78,887 did not exist any longer and it ceased to exist. In that view of the matter, the Appellate Assistant Commissioner upheld the action of the Income-tax Officer having regard to the clear language of section 41(1) of the Income-tax Act, 1961. On further appeal by the assessee before the Tribunal, it was con-tended on behalf of the assessee that section 41(1) had no application in the instant case inasmuch as there was a distinct possibility of revival of the demand on further appeal by the Department against the setting aside order passed by the Assistant Commissioner of Commercial Taxes. Reliance was placed on behalf of the assessee on several decisions of High Courts which have again been cited before us. We shall consider these cases later in our judgment.

3. At the outset, we are a little surprised over the approach adopted by the Tribunal in this case. It is an admitted position that the sales tax liability of Rs. 17,78,887 arose as a result of the ex parte assessment order passed by the Commercial Tax Officer, Central Section, Calcutta, on August 16, 1967. The assessee claimed deduction of this liability based upon this ex parte order. The said ex parte order was later set aside by the Assistant Commissioner of Commercial Taxes by his appellate order dated April 4, 1973, with a direction to make a fresh assessment after giving a proper opportunity to the assessee to produce the books of account which were lying seized with the income-tax authorities. No material was placed before the Tribunal on behalf of the assessee to show that the Sales Tax Department had filed any appeal against the appellate order dated August 4, 1973, passed by the Assistant Commissioner of Commercial Taxes. In its order, the Tribunal has also not recorded any such fact. In paragraph 4 of its order, the Tribunal only records the submissions made on behalf of the assessee as under:

“…. In the instant case also, the Sales Tax Department has challenged the setting aside of the order and there is a distinct possibility of revival of the demand.”

4. This recording was later modified by the Tribunal through its subsequent order dated January 21, 1980, on a miscellaneous application filed on behalf of the assessee. The last sentence appearing in paragraph 4 of the Tribunal's original order dated August 8, 1979, as extracted above was substituted by the following sentence:

“In the instant case, with the Assistant Commissioner of Sales Tax setting aside the order, there is a distinct possibility of revival of the demand.”

5. In paragraph 6 of its original order dated August 8, 1979, the Tribunal had recorded, inter alia, as under:

“6. If the assessee's case is viewed in the light of the judicial principles as enunciated by various High Courts, the liability in question has not ceased to exist meaning thereby that, on further appeal by the Department, there is a distinct possibility of the revival of the demand or the liability….”

6. Later, by the order dated January 21, 1980, passed by the Tribunal on the assessee's miscellaneous application, the words “on further appeal by the Department” as appearing in paragraph 6 of its earlier order were directed to be deleted.

7. From the aforesaid facts, it is clear that there is no material before the Tribunal to show that the Sales Tax Department had filed any further appeal against the setting aside of the ex parte assessment order. Even the assessee did not make any submission before the Tribunal to the effect that the appellate order passed by the Assistant Commissioner of Commercial Taxes on April 4, 1973, setting aside the ex parte order was not accepted by the Sales Tax Department. In other words, there was no dispute and it was an admitted position that the appellate order dated April 4, 1973, passed by the Assistant Commissioner of Commercial Taxes had become final and the sales tax demand of Rs. 17,78,887 which was originally raised by the Commercial Tax Officer by his ex parte order dated August 16, 1967, was no longer in existence and had ceased to exist. If that be the position which appears to be so in the instant case, we do not understand as to how it can at all be argued on behalf, of the assessee that section 41(1) had no application in this case. In our view, the sales tax demand of Rs. 17,78,887 raised ex parte on August 16, 1967, having been finally set aside by the appellate order dated April 4, 1973, the Income-tax Officer was fully justified in bringing to tax the said sum of Rs. 17,78,867 in the assessment for the assessment year 1974–75, by applying the provisions of section 41(1), having regard to the admitted position that the said sum of Rs. 17,78,867 was duly allowed as a deduction in the case of the assessee-company in the assessment year 1968–69 based on the said ex parte order dated August 16, 1967, which had now ceased to exist as a result of the appellate order dated April 4, 1973.

8. Learned counsel appearing for the assessee drew our attention to a large number of decisions. In our view, all these decisions are distin-guishable on facts and have no application in the instant case.

9. In J.K Synthetics Ltd. v. O.S Bajpai, ITO, [1976] 105 ITR 864, the Allahabad High Court found that although the excise duty liability for which deduction was duly claimed and allowed by the Income-tax Officer had been set aside by the learned single judge of the Delhi High Court on a writ petition filed by the assessee, a Letters Patent Appeal against the judgment of the learned single judge of the Delhi High Court had been preferred and was pending. The Court, therefore, held that once an appeal had been filed, the appeal destroyed the finality of the decision appealed against. The court further found that the Excise Department had been still raising demands against the assessee-company for the excise duty in spite of the decision of the Delhi High Court. In these circum-stances, the Allahabad High Court, in our view, very rightly held that section 41(1) was not attracted. This decision is clearly distinguishable inasmuch as, in the present case before us, the appellate order passed by the Assistant Commissioner of Commercial Taxes setting aside the ex parte assessment order had become final and no appeal was pending against the said appellate order.

10. In Commissioner Of Income-Tax, Patiala I v. Punjab Oil Mills (Dissolved)., [1976] 102 ITR 332, the Punjab and Haryana High Court found that the purchase tax in respect of which the assessee was allowed deduction in making the income-tax assessment earlier, was ordered to be refunded on a writ petition filed by the assessee. Although such purchase tax was duly refunded to the assessee on August 5, 1967, the State of Punjab promulgated two Ordinances on September 28, 1967, by virtue of which the assessments made in the case of groundnuts under the provisions of the Punjab General Sales Tax Act, 1948, before the commencement of the aforesaid Ordinances, became valid, notwith-standing anything contained in any judgment, decree or order, etc. The Ordinances were duly followed by corresponding Acts. In view of the Amendment and Validation Act, the Punjab and Haryana High Court held that there was no cessation of the liability of the assessee-firm to pay the purchase tax to the Government. In this view of the matter, the provi-sions of section 41(1) were rightly held to be not applicable. The facts of this case are clearly distinguishable from the instant case before us.

11. In CIT v. Sugauli Sugar Works P. Lid., [1983] 140 ITR 286, this court was dealing with the case of an assessee who had transferred a certain sum of money from the suspense account to its capital reserve account. This court held that there can be a cessation of a liability of a debt by the bilateral acts of both the creditor and the debtor. In no case, can a debtor bring a liability to an end of his own volition. This court, therefore, held that section 41(1) had no application. This case again is distinguishable on facts and has no application.

12. In Commissioner Of Income-Tax v. B.N Elias & Co. (P.) Ltd., [1986] 160 ITR 45, this court found that the assessee owed certain amounts to its creditors by way of sundry trade liabilities. The dues remained unclaimed for more than three years and, in the relevant assessment year, the assessee unilaterally wrote off the debts in his accounts, by making corresponding credit entries in the profit and loss account. This court held that there was neither a remission nor a cessation of the trading liability of the assessee though the same had become barred by limitation, inasmuch as, when a debt becomes time-barred, it does not become extinguished, but only becomes unenforceable in a court of law. This case again is clearly distinguishable on facts.

13. In Commissioner Of Income-Tax v. Combined Transport Co. Pvt. Ltd., [1988] 174 ITR 528, the Madhya Pradesh High Court held that a unilateral act by a debtor cannot, by itself, bring about the cessation of a liability. This case again has no application and is clearly distinguishable on facts.

14. In Rameshwar Prasad Kishan Gopal v. V.K Arora, ITO, [1983] 141 ITR 763, the Allahabad High Court found that the levy of excise duty was held to be ultra vires by the High Court and the amount deposited by the assessee in pursuance of the court's order earlier was directed to be refunded. The date of refund fell in the previous year relevant to the assessment year 1974–75 and was sought to be taxed in that year under section 41(1). The court found that the State of U.P and the Central Government had filed appeals by special leave before the Supreme Court against the order of the High Court. The court observed that, in view of the fact that the decision of the court had not become final and was subject to appeals before the Supreme Court, there was no remission or cessation of the liability so as to attract section 41(1) of the Act. This case again is clearly distinguishable on facts as in the instant case, the appellate order has become final.

15. For the foregoing reasons, we answer the question referred in this reference in the negative and in favour of the Revenue. There will be no order as to costs.

Bhagabati Prasad Banerjee, J.:— I agree.