TaxTMI 
TaxTMI 
2009 (5) TMI 562
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....y the assessee company, the Tribunal, 'B' Bench, Chennai, vide its order dt. 26th April, 2007 set aside the issue of the interest waiver brought to tax and confirmed by the CIT(A) to the file of the AO with a direction to decide the issue afresh after verification of allowance made in earlier years of the relatable interest cost. Accordingly, the AO passed assessment order again bringing to tax the same amount. 2.2 The learned CIT(A) in his appellate order noted that out of such addition, an amount of Rs. 55,58,381 related to waiver of interest which had earlier been claimed as deduction during the period relevant to asst. yrs. 1988-89 to 1993-94, wherein assessments had been completed and such interest cost had been allowed in those assessments. No appeal has been filed on that portion of the addition made. The balance disallowance was in respect of asst. yrs. 1994-95 to 1998-99 amounting to Rs. 1,88,04,422. The returns of income for these asst. yrs. 1994-95 to 1998-99 had been found to be defective by the AO in those years and notices under s. 139(9) had been issued requiring the assessee company to rectify such defects. The assessee company failed to rectify the defects and o....
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....-95 to 1998-99 would constitute an allowance or deduction even though the returns of income were treated as non est by the Department. Further, the CIT(A) erred in holding that, while treating the returns as non est, no specific disallowance of assessee's claim of deduction of interest cost shown in the P&L ale enclosed with such return of income having been made in any assessment, such deductions continued to subsist by default. 2.7 Further, the learned counsel of the assessee relied upon Hon'ble Madras High Court decision in the case of Narayanan Chettiar Industries vs. ITO cited above and Hon'ble apex Court decision in the case of Saraswati Industrial Syndicate Ltd. vs. CIT (1990) 88 CTR (SC) 61 : (1990) 186 ITR 278 (SC). The learned counsel further contended that this matter has already travelled to the Tribunal and the Tribunal had given specific directions to the authorities below. The authorities below instead of adjudicating on the basis of directions by the Tribunal exceeded their jurisdiction and acted as appellate authorities over the Tribunal. The learned counsel of the assessee contended that the impugned order is completely in disregard of the directions of the Tri....
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....o the assessee in the previous year. From the records it is not clear whether any allowance or deduction was allowed to the assessee in the previous year. Both the parties agreed that this issue may be examined afresh by the AO. We therefore in the interest of justice set aside the impugned order and restore it to the file of the AO with direction to decide it afresh in accordance with law after providing adequate opportunity to the assessee of being heard." 2.11 Hon'ble Madras High Court in the Narayanan Chettiar Industries case cited above has held that s. 41(1) creates a legal fiction and hence has to be directly complied with if any addition to the income is sought to be made by the Revenue. Unless an allowance or deduction has been made in an earlier year in respect of loss, expenditure or trading liability, there can be no addition under s. 41(1). 2.12 Hon'ble Kerala High Court in the case of CIT vs. Ancherry Pavoo Kakku (1987) 59 CTR (Ker) 240 : (1986) 160 ITR 88 (Ker) has held that, "Sec. 41 (1) of the IT Act, 1961, does not warrant a detailed enquiry whereby an assessee can be called upon to produce his books of account and other documents to establish his case, a....
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.... found to be defective by the AO and had been treated non est. Opinion of the lower authorities under such circumstances is that, when the assessee had been asked to rectify the defective return, the deduction claimed will be deemed to have been allowed. 2.16 We can gainfully refer here the provisions of s. 139(9) as under: "Where the AO considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the AO may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return: Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the ....
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....case of CIT vs. Ancherry Pavoo Kakku and Hon'ble apex Court decision in Saraswati Industrial Syndicate Ltd. vs. CIT cited above clearly accentuates that unless an allowance or deduction has been made as per IT Act and records, the same will not come under the sweep of s. 41(1). A return treated as non est and 'invalid' can by no stretch of imagination be treated as allowance or deduction as per IT Act and records. 2.21 In the background of aforesaid discussion and precedent, in our considered opinion, the addition of Rs. 1,88,04,422 under s. 41(1) is unjustified and has to be deleted. 3. The next issue raised is that the CIT(A) erred in not considering the ground relating to disallowance of claim of carry forward of loss as the return was treated as non est. 3.1 Before us, the learned counsel submitted that he shall not be pressing for this ground. Hence, this ground is treated as not pressed. 4. The next ground raised reads as under: - The appellant craves leave to raise the following additional grounds of appeal which were inadvertently omitted to be raised before the first appellate authority: (i) The Asstt. CIT erred in levying interest under s. 234D of the Ac....