2014 (5) TMI 439

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....T was justified in upholding the order of the CIT (A) in deleting the addition u/s. 41 (1) to the extent of Rs. 24,15,74,441/- being write back provision for A.Y 2007-08, without appreciating that the entire entity was exempt from tax upto A.Y 2002-03, therefore, claiming such deduction by way of excess provision written back of earlier years amounts to double deduction ?" (B) "Whether on the facts and circumstances of the case and in law, the ITAT was justified in upholding the order of the CIT (A) in deleting the addition u/s. 41 (1) to the extent of Rs. 5,22,681/- being excess provision of sales tax for A.Y 2007-08, without appreciating that the entire entity was exempt from tax upto A.Y 2002-03, therefore, the provisions made were ne....

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.... that the Courts have held that Section 41 (1) of the Act would not apply even in cases where the income is assessed on percentage of turnover/sales basis and the expenditure in question was therefore not actually allowed as deduction. Revenue carried the matter in appeal before the Tribunal. Tribunal, in the impugned judgment, upheld the view of the CIT [A], making following observations :- "34. We have considered rival submissions. We find that the addition made by the A.O is not sustainable for two reasons. The first reason is that when the provision was made, the assessee was not liable to tax, hence, if the provision is reversed in the year of making the provision, it is not resulting into any tax liability, because the assessee ....

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....de during the period when NDDB was enjoying the tax exemption. It is also not the case of the Revenue that the assessee made any allowances against any expenditure or trading liability. In background of such facts, we need to examine the view of the Tribunal. Section 41 of the Act pertains to profits chargeable to tax. Subsection (1) of Section 41 provides that where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year, situation referred to in clauses (a) or (b) of sub-section (1) arises resulting in the remission of the liability, the same would be deemed to be a profit or gain of the business or pro....