2014 (1) TMI 655 - AT - Income Tax

Tribunal reduces tax liability for assessee, directs deduction under Section 41(1)

The Tribunal partially allowed the assessee's appeal, directing the Assessing Officer to reduce Rs. 140,46,06,586/- from the addition made under Section ... Recall of order – Rectification of mistake apparent from record u/s 254 of the Act - Rebate treated as cessation of liability - Disallowance u/s 72(1) of the Act - Loss on account of excess cost of electricity incurred – Held that:- In sec. 41(1), the Legislature has used the words 'loss' also - If the assessee claims expenditure but ultimately if there is a 'loss' and such 'loss' cannot be set off u/s 72 of the Act – Thus, section 41(1) of the Act cannot be invoked - the assessee could get the benefit of the brought forward business losses from the A.Y. 1993-94 as well as depreciation allowance and the tax liability of the assessee is reduced - Relying upon Tirunelveli Motor Bus Service Co. (P) Ltd. Vs. CIT [1970 (8) TMI 2 - SUPREME Court] - even if the rebate relates to the tariff which is debited to the P & L a/c in the respective assessment years but the fact remains that the losses which were worked out after debiting the said tariff had lapsed - Both the parties have not brought any direct decision on this crucial issue but to our conscious, considering the intention of the Parliament to enact sec. 41(1) creating fiction is not to put any extra burden of tax on the assessee but to take away the benefit which is enjoyed by the assessee by reducing the tax liability under the charging provisions of the Act – the AO directed to verify the record and reduce amount from addition made u/s 41(1) in the year – Decided partly in favour of Assessee. Issues Involved:1. Non-consideration of an alternate submission by the assessee regarding Ground No. 4.2. The applicability of Section 41(1) of the Income-tax Act, 1961 concerning the cession of liability amounting to Rs. 541.80 crores.3. The impact of business losses incurred by the assessee from A.Y. 1978-79 to 1992-93 on the applicability of Section 41(1).Detailed Analysis:1. Non-consideration of an Alternate Submission by the Assessee Regarding Ground No. 4:The Tribunal accepted the plea of the assessee that there was a non-consideration of an alternate submission made by the assessee while adjudicating Ground No. 4. The Tribunal recalled the order for the limited purpose of considering and deciding the alternative plea raised in Ground No. 4, which was left unadjudicated in the earlier order dated 6-3-2012.2. The Applicability of Section 41(1) of the Income-tax Act, 1961 Concerning the Cession of Liability Amounting to Rs. 541.80 Crores:The assessee contended that the Ld. CIT(A) erred in holding that there is a cession of liability to the extent of Rs. 541.80 crores in the A.Y. 2002-03 within the meaning of sec. 41(1) of the Act. The rebate allowed by MSEB was treated as a cession of liability by the Assessing Officer and added to the income of the assessee. The Tribunal needed to consider whether the rebate amount could be brought to tax under Section 41(1).3. Impact of Business Losses Incurred by the Assessee from A.Y. 1978-79 to 1992-93 on the Applicability of Section 41(1):The assessee argued that the loss incurred due to excess cost of electricity totaling Rs. 140,46,06,586/- could not be said to have been actually allowed as the said loss could never be claimed by the assessee in any of the assessment years under Section 72(1) of the Act. The Tribunal found force in the argument that if the assessee has not received any tax benefit due to the losses, Section 41(1) cannot be invoked to the extent of the losses which have lapsed.Tribunal's Findings:- The Tribunal noted that Section 41(1) enacts a legal fiction and is to be strictly construed. The provision applies if the assessee has obtained a benefit in respect of a trading liability by way of remission or cession thereof.- The Tribunal observed that the assessee had incurred continuous business losses from A.Y. 1978-79 to 1992-93 amounting to Rs. 140,46,06,586/-, which had lapsed and could not be set off under Section 72 due to the period of limitation or other statutory provisions.- The Tribunal held that to the extent of Rs. 140,46,06,586/-, Section 41(1) cannot be applied as the assessee had not received any tax benefit in respect of any allowance or deduction. The said amount was directed to be reduced from the total rebate of Rs. 541.80 crores brought to tax in A.Y. 2002-03.Conclusion:The Tribunal directed the Assessing Officer to verify the records and reduce the amount of Rs. 140,46,06,586/- from the addition made under Section 41(1) for the A.Y. 2002-03. Consequently, Ground No. 4 taken by the assessee was partly allowed on this alternate contention, and the appeal of the assessee was partly allowed. The reasoning and findings on other grounds given in the original order dated 6-3-2012 remained unchanged.