2021 (8) TMI 135 - HC - Income Tax

Court rules no benefit accrued to assessee under Section 41(1) of Income Tax Act.

The Commissioner of Income-Tax Bangalore, The Deputy Commissioner Of Income-Tax Bangalore Versus M/s. Karnataka Power Transmission Corpn. Ltd.,

The court analyzed the interpretation and applicability of Section 41(1) of the Income Tax Act, 1961 in a case concerning remission/cessation of trading ... Addition u/s 41(1) - whether the assessee has obtained a benefit by virtue of remission / cessation, in order to attract applicability of Section 41(1)? - HELD THAT:- In the instant case, from perusal of the Government Order, it is evident that the assessee had paid the loans on behalf of the Government of Karnataka. Therefore, the aforesaid amount was acknowledged as debt by the Government. The Government of Karnataka gave a direction to the assessee to square up the debt in full against payment of ₹ 120 Crores and adjustment of ₹ 240 Crores from Karnataka Power Transmission Corporation Limited. Thus, adjustment of dues and debts between the parties did not give any advantage to the assessee. On the other hand, the assessee on adjustment of the dues sustained a loss to the extent of ₹ 127.66 Crores. The tribunal therefore, held that provisions of Section 41(1) of the Act are not attracted in the case of the assessee. The aforesaid finding of fact is based on meticulous appreciation of material on record and cannot be termed as perverse. It is pertinent to mention here that the aforesaid finding has not been challenged on the ground that it is perverse It is pertinent to note that Supreme Court in MAHINDRA AND MAHINDRA LTD. [2018 (5) TMI 358 - SUPREME COURT] has held that there should be an allowance or deduction claimed by the assessee for any assessment year in respect of loss, expenditure or trading liability incurred by the assessee. Therefore, the aforesaid decision is of no assistance to the revenue. The contention of the revenue that in respect of an amount of ₹ 240 Crores, which was claimed by the assessee as an expenditure in the form of trading liability, provisions of Section 41 of the Act are applicable cannot be accepted. Decided in favour of the assessee. Issues:1. Interpretation of Section 41(1) of the Income Tax Act, 1961 regarding remission/cessation of trading liability.2. Applicability of Section 41(1) in the case of the assessee.3. Benefit obtained by the assessee from remission/cessation of trading liability.Analysis:Issue 1: Interpretation of Section 41(1) of the Income Tax ActThe primary issue in this case revolves around the interpretation of Section 41(1) of the Income Tax Act, 1961, which deals with the treatment of benefits obtained by an assessee in the form of remission or cessation of trading liability. The section outlines the conditions necessary for the invocation of its provisions, emphasizing the importance of the allowance or deduction made in respect of trading liability and subsequent benefit obtained by the assessee.Issue 2: Applicability of Section 41(1) in the case of the assesseeThe case involves determining whether the provisions of Section 41(1) of the Act are applicable to the assessee. The tribunal's decision hinges on whether the assessee received any real or notional benefit from the remission or cessation of trading liability. The tribunal held that no benefit accrued to the assessee from the adjustments made between the parties, leading to the conclusion that Section 41(1) was not attracted in this case.Issue 3: Benefit obtained by the assessee from remission/cessation of trading liabilityThe crux of the matter lies in analyzing whether the assessee derived any benefit from the remission or cessation of trading liability. The tribunal's meticulous examination of the material on record led to the finding that the adjustments made did not provide any advantage to the assessee. On the contrary, the assessee sustained a loss due to the adjustments. This finding was deemed non-perverse and was supported by the Assessing Officer's decision in a subsequent assessment year.In conclusion, the judgment delves into the nuanced interpretation of Section 41(1) of the Income Tax Act, focusing on the applicability of its provisions to the specific circumstances of the case. The analysis highlights the importance of assessing whether a tangible benefit accrued to the assessee from the remission or cessation of trading liability, ultimately leading to the dismissal of the appeal in favor of the assessee based on the factual findings and legal precedents cited.